Precious Metal Stock-A New Found Golden Treasure Hidden

Our story starts 5.3 million years ago. That's when a section of the North American tectonic plate that is now Eastern Idaho moved over a stationary hotspot in the Earth's crust. A volcano spewed to the surface, and along with tons of rock, it brought a treasure trove of minerals from deep inside the Earth — including gold.

Precious Metal Stock FInd-A Golden Treasure Hidden by Time

As millions of years passed, that section of the Earth's crust grinded westward, the volcanic hotspot that deposited minerals in Eastern Idaho shifted, and it is now bubbling beneath the hot geysers of Yellowstone. But the gold is still there in Idaho — its hiding place hidden and fractured as the Earth's surface shifted and split.

Hidden … until a team of smart geologists came along and found it near the town of Kilgore, Idaho.

This gold wasn't easy to find. A company called Echo Bay Mines went broke while working on it in the 1990s. Echo Bay had many problems — flying its executives around in a gold-plated 737 jetliner may have distracted it from the tasks at hand — but it managed to map out a lower-grade (1.1 grams per metric tonne or 0.04 ounces per tonne) open pit deposit at Kilgore containing up to 700,000 ounces before calling it quits.

Here's where the plot thickens — two geologists working for Echo Bay figured they knew a little better than the gold-plated bean counters … and they vowed to return to find the potentially large deposits that eluded their employer.

See, when Echo Bay drilled for gold on the property, it often found rich samples surrounded by a halo of lower-grade rock. Between 1983 and 1996, a total of 190 exploratory holes were drilled by Echo Bay and others on the site, but many of those holes missed the elusive gold zones. It turned out that the vertical veins the company was looking for were actually two thick horizontal high-grade zones.

Precious Metal Stock Find-Two High-Grade Zones

The two geologists did not know exactly what they had when they helped form a company to re-open the project last year. But they managed to get the attention of some smart people with access to plenty of capital.

The newly formed company, Otis Gold Corp., (symbol OOO on the TSX-Venture exchange in Canada) embarked on a drilling program, putting in nine more holes that, placed correctly, found the elusive two high-grade zones at the company's Kilgore Project.

They think the upper zone is 1,300 feet long and between 100 and 150 feet thick. The lower zone is probably about 1,000 feet long with one historic drill hole running 90 feet of rock and one ounce of gold per tonne in it. The company is waiting for assays on new holes to come back to confirm what it suspects — that there is a big, high-grade deposit down there.

Otis Gold doesn't own the project outright. Through a joint venture agreement with Bayswater Uranium, Otis is earning up to a 75 percent interest in the Kilgore Property in exchange for $200,000 in cash, $3 million in exploration expenditures, issuing 2.5 million shares over five years and completing a pre-feasibility study. It should have most of the property expenditure requirement completed by the end of next year.

The company has a lot of work ahead of it. After spending $1.1 million this year, it's going to spend a couple million dollars next year and have a minimum of two drills running at the Kilgore project. It has cash in the bank now ($2.1 million as of July 31st) but will have to raise money next year.

Precious Metal Stock find-Lots of Rich Friends

And yet that shouldn't be a problem. This is an early stage explorer … but there's plenty of big, smart money lining up behind it, and with those kinds of rich friends, the company should be able to do a private placement.

I spoke to one banker who said: "Let's say Otis wants to raise $3 million next year. I'd easily be able to raise $1 million of that myself."

I expect the company will likely forcibly exercise 4.7 million existing warrants. A warrant is like an option — it gives the holder the right to buy a security at a fixed price, or "strike" price.

Since the stock is trading high above the warrant strike price, this is a bonanza for the warrant holder, but since they also have to pay the company the strike price of the warrant, this should net the company C$1.6 million (US$1.49 million).

In any case, Otis Gold finds itself in the enviable position of being able to raise cash AND be sitting on a hot project. The company has a lot of work to do, but has set a goal to prove a high-grade gold resource of between 1 million and 2 million ounces.

Would a bigger company want to buy such a gold deposit? Hell, yeah! And a deposit like that, set in a nice, geopolitically stable and mining-friendly state like Idaho? Double-yeah!

Otis is focusing on high-grade intercepts to develop an underground mining scenario — it's simpler to permit. So it will probably end up with a high-grade deposit sitting in the middle of a low-grade gold deposit. The low-grade deposit is open in several directions, leaving room for further expansion.

And as one of Otis Gold's geologists pointed out, the chance of finding a deposit of more than 1 million ounces has been shown to be only 8-out-of-100. That gives this new discovery some serious payoff potential if it's as good as they think it is.

And it could be better! I spent a beautiful afternoon in Idaho's big-sky country, tromping around the woods, looking at Otis Gold's Kilgore operation. The property sprawls more than 5 square miles.

There is definitely the potential for satellite deposits. Heck, the company has tested a pile of waste rock left over from workings in the 1930s and found it has an average ore grade of 1 ounce of gold per tonne. In a waste pile! They're so busy they haven't even bothered to track the source down.

Otis also has four other projects in Idaho and one in Nevada. But Kilgore is its crown jewel.

Precious Metal Stock Find-Some Things to Consider

Now I've told you a lot of positives. Here are some other things to consider …

* The assays have yet to come back. We won't know the results until they do. Until then, much of what the Otis Gold geologists are laying out is speculation.

* Speaking of that, a gold explorer that only recently started on a project pretty much defines a speculative stock. This is NOT for keep-safe money. NEVER risk more than you can comfortably afford to lose.

* And while Otis Gold seems to have no problems raising money now, if the financial industry implodes (again!), it could become very hard for companies like Otis to raise money, no matter how good their projects seem to be.

* Otis Gold is so new, it's not even listed on the pink sheets in the United States. Until it has a pink-sheet listing, the only way you can buy it is on the TSX-Venture exchange in Canada. Recently, Otis Gold had a market cap of C$8.6 million (US$7.99 million) with only 17.1 million shares outstanding.

I'm saving my recommendation on this stock — when to get in, at what price, and what targets to set — for my Red-Hot Global Small-Caps subscribers.

You can do as you like — do your own due diligence. If you buy it, I strongly recommend you consider this a long-term speculative buy; one you should tuck away and see what happens over time. It could be very volatile, with big swings up and down … or it could become frustratingly lethargic for months, waiting on good news. But I believe the long-term trend in this stock will be higher.

Canada, Ho! I'll Come Back With More Picks!

Otis Gold is a shining example of the kind of underappreciated precious metals explorers you can find listed on Canadian stock exchanges.

I'll be scrutinizing a lot more when I go speak at the Toronto Resource Investment Conference this weekend. If you attend, please track me down in the exhibitor's hall and say "hi." I'd enjoy talking to you.

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

See more investment strategy notes at Investment Strategy Notes

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