321 Gold

Giant Alaska Gold

September 16th, 2007

By Bob Moriarty

A year ago Bob Bishop and I were flying from Vancouver to Fairbanks to look at some projects for a new junior called International Tower Hill Mines. That's a bit of a mouthful. [note: aka ITH Mines]

Even though we both were investors in the company at lower prices, the stock had shot up to $3 a share and we couldn't figure out what made this 30 million share company carry a $90 million dollar market cap. I wrote up my thoughts a year ago.

I liked what I saw a year ago but I pointed out that there was a basket load of shares becoming free trading around the 1st of December. I predicted that would be the last time the shares would be cheap. I was right. ITH got up to about $3.40 last fall and dropped to $1.80 in anticipation of the shares dropping after they became free trading. Much to everyone's surprise and dismay, the shares didn't drop when they freed up, they actually went up. Too bad for the shorts.

While the shares were probably overpriced a year ago, they are absurdly under priced today. A year ago ITH was taking little baby steps, now they are taking giant strides.

The theory of the company was simple. AngloGold spun off their Alaska exploration targets into a junior in return for shares. A year ago AngloGold owned just less than 20% of the shares, that percentage has gone down to 15.68% due to a private placement in the meantime. But the stock is still remarkably tightly held. AngloGold, Cardero and management hold some 17.5% of the company shares, another massive 21% is in the hands of top institutions.

It's one of the most tightly held companies I know of and in a way, that's a negative. The company has a miserly 450 shareholders in total. So while the stock price is far more stable than most juniors, putting together a good sized position is difficult. It wouldn't take much buying to move the shares much higher. The daily price probably doesn't do a very good job of reflecting true value.

Jeff Pontius, President and CEO, put the deal together in a way that makes sense for ITH, AngloGold and perhaps most importantly, for all the people working with him. He's taken all the advantages of big mining company experience and melded it with the 'entrepreneurmanship' of Canadian juniors. I really like the combination. It's hard for investors to see it yet, when you are dealing with projects as large as AngloGold was dealing with, it takes lots of time. AngloGold vended nine properties into ITH and their minimum target level was 4 million ounces of gold so it's pretty obvious that the potential is giant in scope.

As of my visit three weeks ago, ITH has ten 100% owned gold and base metals projects in Alaska. These projects vary from early to advanced stages. And they are rapidly earning into a 60% position in two other advanced Alaskan gold properties. In addition, ITH is in the process of earning a 70% position in two Nevada gold properties.

While I was in Alaska I visited two advanced stage gold properties that are moving into the resource definition phase this year. I'm going to suck up to the company a lot because the food was so spectacular at both Livengood (Thanks Kathy Brown) and Terra. (Thanks Cathy Lieser and Lois Hunter).

We had eaten royally last year while out at Terra but the twin Cathy/Kathys outdid themselves this year and all the analysts were so busy stuffing themselves that I doubt anyone noticed the condition of the projects.

Of course that's not true. When we are at work, we are hard at work and hardly have time to appreciate a banquet fit for a king. Some of us anyway.

Livengood has matured into an advanced stage massive low-grade bulk-mineable gold/copper system with some high grade potential. Low-grade intercepts have run as high as 141 meters of 2.01 g/t Au and higher-grade intercepts run as high as 8.8 meters of 10 g/t Au. The project sits on a 44 square kilometer package with year-round paved road access just north of Fairbanks.

The Livengood target area covers about 4 square km and has 21 drill holes showing a deposit of an average thickness of about 70 meters with an average grade of .9 g/t Au, similar to the nearby Fort Knox mine operated and owned by Kinross.

We flew the next day in a Cessna Caravan to my favorite gold project in Alaska, the Terra property. Terra is a joint venture with AngloGold where ITH is in the process of earning a 60% interest. I won't go into all the details of the JV but they are well covered on the ITH website.

ITH has identified four high-grade gold vein systems that average 20-25 g/t Au over between 1 and 4 meters. I love this project because it would be so cheap to put into production. The gold is found in vertical quartz veins and is pinhead size.

The original prospector who found the deposit in the first place has the right to mine about 240 tons a year and he has the most incredibly primitive mining equipment imaginable. With an investment of maybe $20,000, he could probably double his production. He doesn't want to do it. After the tour we were sitting in the bar of the hotel in Fairbanks talking about his equipment. Someone joked that the plastic rain gutter that he uses instead of pipe was probably bought at a surplus store. One of the ITH geos snorted in his beer laughing. It WAS 2nd grade rain gutter sold cheap because of defects. But it was good enough and cheap enough to carry out 200 km west of Anchorage to do duty in a primitive mining system.

In any case, when I saw the deposit and type of gold a year ago, I suggested to Jeff that he consider going into production. It simply wouldn't cost much. The gold is high grade, easy to mine and easier to separate the gold with a simple gravity circuit. If the original prospector can run a $5,000 mill and make money, I'm certain ITH could. Jeff was pretty negative a year ago; he made it clear that he didn't want to get into the production business.

My suggestion this year was identical, Terra is a production story. There is a company in Australia making a trailer-carried system they call a portable mill. You can buy a mill capable of 500 TPD for about $5 million. And to my great surprise and pleasure, Jeff seemed more inclined to listen this year.

ITH is in an interesting position. It is cheaper to mine and mill the gold than it is to define the resource with a drill. They are conducting a 4000-meter, 20 hole program this year. All from the surface. The pads cost a fortune to construct because everything is straight up and straight down. It would be far cheaper to drill from underground. If you are going to all the trouble of driving a drift, you may as well drift on the high-grade vein. That's what Silvercorp did with their high-grade silver-lead-zinc project in China. They produced ore a year before they actually got their mining permit.

AngloGold is going to get caught in an interesting position. I doubt the 43-101 numbers will be high enough to interest them into exercising their back-in right. With 21 different mines across 8 countries, a million or so ounces won't be enough to ring their bell. If Anglo don't choose to back-in, they will eventually be diluted down to a simple NSR interest.

One of the most interesting Alaska projects we visited was the Chisna property. Wholly owned, it was staked by ITH only this last June. From the air, it appeared virtually identical to the property I visited in the Yukon for Yukon-Nevada Gold last year at about this time, a series of rusty colored gossans.

It's far too early to be definitive about the potential of Chisna but clearly we could see from the attitude of Jeff and his people, they are excited. It says something for both ITH and Alaska that it is still possible to stake high-potential projects there.

ITH plans on spending $8.5 million on exploration this year, drilling over 17,000 meters of core on seven different projects. ITH anticipates releasing 43-101 resources on Livengood, Terra and LMS by 1st quarter of 2008. They are in the process of defining drill targets at the Chisna project.

ITH happens to be one of my favorite North American gold companies. Jeff Pontius has done an excellent job of making a massive transition from being a small cog in a giant gold company wheel, to being the centerpiece of a Canadian gold junior. He brought with him his vision of giant projects and he has put together a great well-qualified team to make his visions come true.

A year ago at $2.90 the stock had a lot more risk potential than reward potential. Now, the downside to ITH is small and the upside is substantial. With a treasury of $25 million dollars, ITH is well cashed up, well managed and has a portfolio of giant potential gold properties well worth investing in. I'd like to see them take Terra into production and over the next year, I expect to see moves in that direction.

We have participated in private placements in ITH a year ago and the latest one four months ago. Those last shares become free trading on September 10th and once they free up, I expect the stock to go a lot higher. ITH are advertisers, we are shareholders and we are biased. Do your own due diligence. We don't share in your profits so you must be responsible for your own investments.

International Tower Hill Mines Ltd
ITH-V $2.35 Canadian (Sep 5, 2007)
THM Amex 38.2 million shares
Intl. Tower Hill Mines website

321 Gold
http://www.321gold.com/

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