Coro announced a third batch of drilling results from its Atahualpa property and is expanding its drilling campaign by 4,000m on the back of continued drilling success. We continue to believe that Coro is a viable copper heap leach story that is going to expand materially through the drill bit and these results support this view.

• Marimaca keeps growing to the north. Today’s results extend mineralization 300m to the north within the Atahualpa property, increasing the overall strike length of the Marimaca oxides to 1450m with an average width of 450m. Drilling continues to intercept oxide copper on either side of the Main Dacitic Dyke (“MDD”), with ATR-41 returning 48m at 0.64 CuT across the MDD and Hole ATR-53 returning 42m at 0.72% CuT to the east (Figure 1).
• Results support our view for a potential doubling. Our initial estimates for Coro factored in a potential doubling of Marimaca resources from 58Mt at 0.62% CuT to 114.0Mt at 0.56% CuT. Our estimate was based on a 1200m x 600m mineralized footprint but also accounted for further growth to the north. Today’s results are in line with our expectations and continue to support our view that a near-term doubling of resources at Marimaca is likely.
• Can drilling more than double Marimaca? Given continued drilling success, Coro is adding another 4,000m to its drilling campaign at Atahualpa, for a total of 16,050m. If drilling succeeds in extending mineralization even further north or to the northeast we may require an upward revision to our Marimaca resource estimate. We note that the company still expects to release an updated resource in Q3 2019.

We believe Aquila Resources (TSX:AQA; OTCQB:AQARF) is worth C$0.36/sh based on applying a 0.60x multiple to our initial NAVPS10% estimate of C$0.60/sh. Aquila is developing the high-margin Back Forty Au-Zn-Cu project in Michigan and is poised for a re-rating as it transitions from developer to producer. Additionally, the FCF expected from this project once in production, is likely to attract mid-tier producers looking to bolster their balance sheets and production profiles. We believe investors stand to benefit from the ongoing transition from developer to producer, as manifested by project de-risking with the potential to be taken out at a substantial premium to the current share price in the medium-term.
Investment Thesis:

• High margin project to provide substantial FCF once built. We model this true polymetallic deposit as generating and average of US$52M in FCF (CFO+CFI) over its 7.25 year open-pit mine-life for an initial capex of US$294M which we model being funded by combination of remaining royalty payments, debt and equity.
• Underground potential provides upside beyond our estimates. We would expect the mine-life to extend beyond the open-pit and transition underground as was outlined in the 2014 PEA. We currently model an in-situ value of C$57M for the underground. As well, constrained capital markets have resulted in limited exploration on the project, and we expect the underground resource to grow, both near-mine and on the wider land package (Figure 20).
• Permitted project attractive to mid-tier producers. With few high-margin, permitted projects in quality jurisdictions, Aquila’s work to de-risk this project along with the exploration upside is likely to make it an attractive target for mid-tier producers. We model a pre-financing NAVPS of C$0.67 and with historic take-outs at 0.90x NAV (Figure 15), this points to 209% upside from the current share price.

With strong operating results already reported for January and February, Gran Colombia is likely to deliver record production in Q1 2019, allowing them to start the year well ahead of guidance. With this production increase being driven by better than expected grades, we also expect better than guided costs and strong financial results in the quarter. We believe the market has not priced in the company’s financial and operational turnaround and we expect Q1 operating results to provide a positive catalyst to re-rate it towards peers.

• Record Q1 likely. The company has already announced January and February production of 39,276 oz Au, primarily driven by higher grades from the Providencia mine at Segovia. If March production matches the pace defined by 2019 guidance, the company should produce 56.8k oz Au in Q1 (annual guidance implies quarterly production of 52.5-56.3k oz). However, it is our understanding that higher grades persisted into early March suggesting the number of above could be conservative and production should exceed the prior quarterly record of 57,163 oz Au (Q3/2018).
• Higher grades should drive costs down. The increased grade was delivered from a company operated zone implying that the higher than expected grades should drive down per ounce costs. The company has guided for costs below US$720/oz for 2018 but with better than average grades in Q1, it is likely that costs come-in well below this number, providing a solid start for the year.
• Drilling poised to ramp-up. With the convertible financing of C$20M at a rate of 8% for 5 years, convertible at C$4.75/share (4.21M shares) closed, the company is financed for a significant drill program over the next two years (~100,000m). In our view, the successful program should materially grow ounces, while at the same time adding a new, very high-grade zone(s). We expected exploration success to also be a positive catalyst for the stock.

We believe that recent share price underperformance (down 18%, GDXJ down 4%), driven by the disclosure of a Canada Revenue Agency (CRA) proposals recently regarding prior flow through expenditure has created a buying opportunity in Seabridge. The underperformance implies as impact of C$157M, while the maximum liability only appears to be C$14M. This news does not impact our view, that Seabridge is one of the few, large scale Au-Cu projects that majors are chasing and we expect Seabridge to deliver a JV to fund project construction in the near-term.

• CRA proposal implies a maximum liability of C$14M. With its year-end 2018 filings, Seabridge disclosed that the CRA had made a proposal (not a reassessment) that its C$19M of the C$60M in Canadian Exploration Expenditures (CEE) made between 2013 and 2016 were ineligible. In a worst-case scenario this could result in C$2.2M tax assessment against the company and a C$11.8M tax assessment to the original flow-through investors that Seabridge would have to also pay. The CRA has made a number of these proposal recently, and if the company can provide evidence that funds were used for CEE, the actual liability might end up being zero. Our understanding from management is that they have the evidence to refute the CRA’s proposal.
• Recent underperformance creates an opportunity. When considering that the recent underperformance (Figure 1) represents C$157M and the maximum liability that we believe has a low probability of holding up is C$14M, the sell-off is overdone, given that we estimate Seabridge’s current cash balance and short term investments at C$22.9M and it is likely to be 1-2 years before Seabridge would need to make a payment.
• JV is Coming. As outlined in our initiation report, we believe that increased M&A activity is likely to translate into a JV for KSM this year. We highlight that if we were to apply the same multiples that Newcrest (ASX:NCM) used to purchase an 70% interest in Red Chris, this would imply a value of C$47/sh for Seabridge.

Novo has announced an increased resource for its Beatons Creek project in Western Australia which we believe is of sufficient scale to stand alone. We now believe Beatons Creek is worth C$1.40-1.70/sh (was C$1.10-1.40/sh). With an increased resource at Beatons Creek, which underpins our current valuation, the market has yet to fully price in the upside of Karratha, Egina and wider Pilbara projects.

• Resources demonstrate a standalone potential. Novo’s updated resource estimate for Beatons Creek highlights a 35% improvement in total gold ounces and a 4% improvement in grade for a total of 903,000 oz Au at 2.6 g/t Au (M&I+1 - Figure 1). In our view, these results push the Beatons Creek project past the preliminary threshold necessary for its own stand-alone infrastructure and push our estimates for this asset higher.
• Conservative parameters provide confidence, suggest there could be upside once mining starts. With an improved geological framework provided from 2018 drilling data, the company’s new resource model includes more conservative parameters for processing costs, recoveries and mining costs when compared to the 2018 update. As result, the resource model is likely more robust and could be modestly understated. Additionally, further metallurgical work is ongoing. Should recoveries be better than what has been used in this update, the resource could expand.
• Newsflow expected to continue throughout 2019. We expect bulk sampling to commence shortly at Egina and at Karratha in H2 adding potential upside beyond our current estimates. For large scale bulk sampling to get underway at Karratha a Native title agreement and mineralization report are expected this quarter.