RCKS Talk

12-Nov-2018

De Grey Mining Ltd.

Conglomerate Results Additive to Hard Rock Story

Impact: Mildly Positive

Conglomerate gold potential at De Grey’s Loudens West target provides a potential sweetener in both grade and ounces to the company’s hard rock assets. The company has announced the results of three small tonnage (250kg) bulk samples at Loudens West, which supports our view for the company’s conglomerate gold optionality in the Pilbara of Western Australia, which we do not currently factor into our estimates. 

Highlights:
    • Grades in the high range of comparable Novo results and support overarching geological thesis. Trenching is expected to uncover up to 60m of exposure in the current trench. Samples from Loudens West over 6m of strike returned grades of 0.82g/t, 3.92g/t and 7.92g/t (average of 4.22g/t), which compares favourably to the weighted average grade of 2.4g/t Au for Novo’s conglomerate sampling (both small and large bulk samples).
    • Small bulk sample testing may accelerate assessment of conglomerate target potential. Conglomerate bulk samples are able to be quickly processed at the company’s recently commissioned crushing and gravity sampling circuit, which may be valuable in providing quick turnover between discovery and assessment of the target host. We expect the company is likely to require larger sample tonnages to establish accurate grade measurements.  
    • Results are additive to the hard rock story. While assessing the conglomerate units at Loudens in addition to both the Jarret Well and Steel Well areas, the company is simultaneously exploring its hard rock assets where promising drill results have found underground extensions of the mineralization. It appears that the conglomerate assets may provide a nice grade sweetener to the hard rock assets, where the average resource grade currently stands at 1.6g/t Au . 
    Valuation:
    Share price action driven by expiring warrants and not fundamental value of both hard rock and conglomerate assets. Our preliminary estimate for De Grey’s hard rock assets is A$0.30-0.45/share, which we plan to refine, following our site visit this week. Near-term head winds for the share price may include 60M in-the-money options (at A$0.10, expiring November 30) and the remaining A$10.4M cash payment for the Indee project. Upcoming catalysts: 1) Additional exploration results and 2) PFS in Q4/18.

09-Nov-2018

Anaconda Mining Inc.

Q3 Financials in Line, Strong Q4 Anticipated

Impact: Mildly Positive

Anaconda Mining’s financials reflect strong Q3 operating results. Anaconda released Q3 financials results that were roughly in-line with our estimates (strong operating results were pre- released last month). Financial and operating performance supports our view that production and costs are benefiting as higher grade Stog’er Tight ore is being processed. Improved operating cash flow should allow the company to partially fund the ongoing development work at Goldboro. Anaconda is steeply discounted relative to peers despite continued strong operating performance. We believe the advancement of Goldboro should help re-rate the stock.

Highlights:
    • Results are roughly in-line with our estimates. With operating results and the quarter-end cash balance previously announced, results were roughly in line with our estimates (Figure 1). We highlight that, ~785 ounces of gold were produced and not sold in the quarter, which should benefit Q4 financial results.
    • Record Q4 anticipated. As higher-grade Stog’er Tight ore is processed, we expect production to continue to improve in Q4. We model, 5.7k oz at US$801/oz or 19.6k oz at US$759/oz in Q4 and for the full year, respectively. This would be a significant beat of the company’s 2018 guidance of 18k oz at C$1,000/oz (US$780/oz).
    • Operational execution; provides the capital to advance Goldboro. The company continues to actively drill Goldboro, which should result in additional exploration results in the coming weeks. In our view, ongoing exploration, should fuel further growth in what we view is an already economic resource. The company has just started the bulk sampling program, the results of which (Q1/19) are expected to be a key de-risking step for the project.
    Valuation:
    Further operating success combined with de-risking Goldboro are key to share price performance. Anaconda continues to trade at a steep discount to peers (0.16x NAV, peers 0.58x) despite anticipated production growth and improved financial performance over the next 18-months. We believe this valuation gap should close with continued operational success and advancement of Goldboro. As a result of Q3 financials, our NAVPS estimate has increased to C$1.36 (was C$1.35). Upcoming catalysts: 1) 10kt bulk sample at Goldboro 2) ongoing exploration and 3) debt financing for Goldboro.

05-Nov-2018

De Grey Mining Ltd.

Underground Expected to Add Scale

Impact: Mildly Positive

De Grey’s most recent drill results indicate increased underground potential at Withnell and should add scale to the development plan. Drilling beneath the Withnell pit continues to deliver encouraging underground grades and widths and De Grey has now defined an underground exploration target of 330-720k oz. This success supports our view, that the resource is likely to grow materially and that De Grey may be able to develop a project of +100k oz per year at its Pilbara Gold Project.

Highlights:
    • Underground success points to a sufficient scale to add a high-grade sweetener. The company is targeting 2.6-3.5Mt @ 4.0-6.5 g/t Au (330-720koz). The last two rounds of underground drill results have returned a weighted average grade of ~5.1 g/t Au over an average width of ~2.3m, which we view as a potentially economic underground operation when added to the planned open-pit mines. We note that a resource around the midpoint of the range provided would push the project over 2Moz Au. 
    • Production would likely increase if an underground component were added. We highlight that even if a small percentage of these higher tonnes (current mineable resource grade is 2.1 g/t Au) were added, our current estimate for 56k oz/year at total cash costs of US$767/oz would be conservative. We note that the underground target is sulfide (majority of the existing resource is oxide), so additional metallurgical work would be required to determine how this resource fits in. 
    • Follow-up drilling being planned. The company is in the process of planning a follow-up program to convert this exploration target into a resource. We note that the upcoming PFS for the Pilbara Gold project is not expected to include this underground resource.
Valuation:
Current share price does not reflect hard rock value. Our preliminary estimate for De Grey’s hard rock assets is A$0.30-0.45/share, which we plan to refine, following our upcoming site visit. While this reflects a potential doubling of the current A$0.14 share price, near-term head winds for the share price may include 60M in-the-money options (at A$0.10, expiring November 30) and the remaining A$10.4M cash payment for the Indee project. Upcoming catalysts: 1) Additional exploration results and 2) PFS in Q4/18.

01-Nov-2018

SolGold Plc.

Growing Monster with Largest Predators Circling

Impact: Positive

We are publishing our initial estimates on SolGold Plc with a NAVPS 8% of C$1.30. SolGold’s Alpala deposit is a world-class copper project with significant exploration upside. We believe SolGold’s asset suit is coveted by multiple major miners that may lead to a competitive takeout scenario over the next two years. We view Alpala and the wider Cascabel project as a world-class deposit with scale potential that separates it from the pack. We believe the maiden resource is set to double in December with room to grow further. As a result, we believe that the significant interest that major copper miners already have in SolGold is about to heat up.

Investment Thesis: 
  • Already a World-Scale project with solid economics. The size and grade of this project places it among the largest undeveloped copper projects in the world (Figure 2) and our estimates suggest that Alpala would be one of the larger lower cost producers in the world once in production (Figure 3 & Figure 28).
  • This monster is about to have a high-grade growth spurt and may double again thereafter. We believe the resource is set to double with the Q4/18 update. More importantly, we believe the high-grade core is set to grow by 50% improving project economics (we estimate project post-tax NPV8% of C$2.38B and an IRR of 20%). As well, preliminary evidence suggests the company may have only found “half” the deposit and could double it again with 2019 drilling (see section on Geology). 
  • Largest mining predators circling. With few available undeveloped world-class copper assets, major mining companies have been on the hunt globally for projects such as Cascabel. With two majors already on the share register, our expectation is that a takeout is likely by the end of 2020.  
  • Valuation: 
    Market is not pricing in pending resource update, let alone the premium warranted for this world class deposit. We believe that the pending resource update and ongoing exploration success are likely to drive our base case NAVPS8% to C$1.30. While SolGold already trades at a premium to peers (0.49x NAV vs peers 0.37x), we believe a further premium is warranted given the scarcity and scale of Cascabel and that willing suitors are ready to pounce. Upcoming catalysts: 1) Ongoing exploration, 2) Resource update (Q4/18) and 3) Maiden PEA (Q1/19).
31-Oct-2018

Amarillo Gold Corp.

Drilling to Improve the Resource and Feasibility

Impact: Positive

Amarillo Gold has announced drill results from the ongoing infill drill program at its Mara Rosa open-pit project in Brazil. The company’s goal is to upgrade the current inferred resource ahead of a feasibility study (H1/19). We expect the current M&I of 1.27Moz Au grading 1.30g/t Au to grow. These results support our thesis that Amarillo’s Mara Rosa project is a highly undervalued development asset in the hands of a proven development team, where drilling and the upcoming feasibility study should gain market support. Highlights:   

  • Higher grades bode well for resource upgrade. Amarillo highlighted drill intercepts of 1.81 g/t Au over 13m and 3.54 g/t over 11m in the central and northern zones (Figure 1), which were successful in targeting the gaps within the existing inferred resource (330koz Au @ 0.92g/t Au). The weighted average grade of the eight holes in this update is 1.26g/t Au.
  • Reserves also set to grow. These eight drill holes are apart of the company’s ongoing 10 km drill program (7 km core & 3 km RC) where 5,179m have been completed to date (includes previously released results). We believe that the resource growth will translate to growth in reserves (currently 1.09Moz Au grading 1.42g/t Au).
  • Reserve growth expected to boost upcoming feasibility study; exploration provides a wild card for growth. Growth in the company’s reserves should improve the economics of company’s feasibility study through improved mine life. It is important to highlight Amarillo are now drilling both: 1) resource expansion holes, as well as, 2) new exploratory holes looking for neighboring deposits along trend. The addition of a second deposit would add new dimension to the project.
Valuation:
We believe Amarillo is a well-positioned gold developer in South America with an undervalued asset with near-term 100koz/year potential. The company currently trades at a significant discount to peers ($13/oz vs. peers at $37/oz) and believe that upcoming catalysts will help re-rate the stock. Upcoming catalysts include: 1) Resource update (Q1 2019) and 2) Feasibility Study (H1 2019) and 3) Installation license.

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