Last week I held a series of phone calls with Marc Levy, CEO of junior gold explorer Avarone Metals, [AVM.V]. I first met Mr. Levy in Toronto at this year’s PDAC. Avarone has a market cap of about $6 million and no debt. It is exploring primarily for gold (with secondary targets of silver, copper, zinc and lead) in Saskatchewan, one of the best mining jurisdictions in the world. What makes this company especially interesting is that it plans to drill a property with historical drill holes that showed near-surface, high-grade gold. Therefore, the chances of finding more gold are considered by management to be fairly good and the chances of finding a lot more gold give Avarone tremendous blue-sky potential.

PLEASE NOTE: This is a highly speculative company. There can be no assurances that significant quantities of gold will be found, or that the deposit(s) will be economically viable.

Peter Epstein: Marc, you’re perhaps best known for taking micro-cap Norsemont and selling it to HudBay Minerals for $520 million. Do you see similarities between that opportunity and Avarone Metals?

Marc Levy: Norsemont was a fantastic success for our shareholders and now I’m back in the saddle again. Funny enough, HudBay is our neighbor and a major player in the same district we are working in. We have a great relationship with them. Like Norsemont, Avarone has very substantial blue-sky potential through organic growth, potential tuck-in acquisitions and the possible development of our other properties.

Front and center on Hudbay Minerals’ website it says, “We also partner with junior mining companies on projects where Hudbay can add value by providing technical expertise and funding exploration programs. These investments act as a farm system for future development-stage opportunities.” Is Hudbay the likely exit strategy for Avarone like it was for Norsemont?

ML: That’s a great question, I wish I knew! Hudbay is just one of many groups that could be interested in acquiring us if we prove up a larger, near-surface, high-grade deposit(s). Other companies in the area include Murgor Resources (MGR.V), La Ronge Gold (LAR.V), Claude Resources (CRJ.TO) and Golden Band Resources (GBN.V).

Although your deposit is, “shallow, high-grade and open at depth and along strike,” it’s still fairly small. Is the goal a small but profitable mine or do you hope to define a larger deposit?

ML: Our initial goal at Wildnest is to outline at least 1mm ounces of high-grade gold, as soon as within the next 12 months. By high-grade, I should point out that we have an historical database (non NI 43-101 compliant) gold resource with our best interval reading 17.5 grams/tonne over 6.4 meters. If we are successful in growing Wildnest, we would consider drilling our other properties. Make no mistake, it’s still early days, but we see the opportunities in front of us as highly attractive.

Please describe your upcoming drill campaign, what are the goals?

ML: Our initial diamond drilling program is planned for up to 15 holes in the heart of the deposit. We can’t say for sure what we’ll find, but we are confident we will learn a great deal. We’re very excited because of the historical drilling that was done in the 1980′s. This drill campaign will allow us to outline an initial high-grade deposit and better understand the structure and folds of the deposit to allow for a successful second round of drilling.

How will you fund this drill campaign?

ML: We are talking to several potential funders to raise $1.5mm for this round of drilling. Interest from prospective investors in our company is strong.

Assuming the drill campaign is a success, how soon before we might see a Preliminary Economic Assessment?

ML: I think it’s too early to predict the timing of a possible PEA. The district is very large and we are continually evaluating additional acquisitions. We want to own the district and build out a significant gold camp.

What type of infrastructure would this project require to develop? Is the location a challenge?

ML: Our proximity to infrastructure is good and there is a lot of activity. Our neighbor Hudbay is extremely active in the district. I don’t see any major infrastructure hurdles.

Is there any active mining being done near your project?

ML: Yes, there is active exploration and development being done by a few companies, most notably HudBay. Saskatchewan is one of the most mining friendly places on earth. For example, they provide a tax holiday on initial production which allows you to recoup costs.

How important is the poly-metalic mineralization? The silver, copper, zinc & lead, taken together could they be a major part of the economics? Or, are these metals more likely to be credits against your gold mining costs?

ML: The main commodity we are interested in is obviously the gold. However any credits, such as silver, add to the economic value of the total deposit. Usually in a production situation you would base costs on the key metals, the “bonus” metals would provide extra credits which can add up to significant profits.

What are some near-term catalysts to watch out for?

ML: Our upcoming drilling campaign could deliver significant results in just a few months. We have been negotiating several acquisitions in the area. We are also looking to add another person to our team with significant ideas in the district.

Thank you Marc for your time. Do you have any parting thoughts for readers?

ML: I can’t over emphasize the importance of our historical drill hole data. Dating back to the 1980′s, several million dollars has been spent. This puts us in an advantageous position compared to earlier-stage juniors and gives us the confidence to drill. Given the volatility in the gold price over the past 15 months, one thing is clear…high-grade, near-surface gold deposits in safe jurisdictions are increasingly sought after. We are a small company today, but we have a very real opportunity to grow. Unlike early-stage peers, we hope to see tangible evidence of an economic deposit within months, not years.

This interview was conducted late last week. The author of this article, Peter Epstein, has no existing or prior business relationship with Avarone Metals or its predecessor companies.