RCKS Talk

28-Nov-2018

SolgGold Plc

Another Exciting Year Ahead for SolGold

Impact: Positive

On November 28th, we hosted a live webinar with Nick Mather, CEO of SolGold. The full replay is available online (click here replay ), and our key takeaways were that Alpala could get bigger, operating costs could be better than expected and that there is expected to be lots of newsflow in 2019. The call confirmed our view that Alpala is a world-class copper-gold deposit and that its scale, grade (Figure 1) and continued growth potential puts it at the top of the shopping list for most major mining companies.

Highlights:
    • Alpala continues to have exploration upside (Figure 2). As previously highlighted , mineralization in hole 64 drilled deep towards Trivino and Alpala NW suggested potential for an adjacent porphyry system and management sees this as the area with the highest resource expansion potential. As well, the high-grade core remains open up dip to the west and down plunge to the north. Continued growth of the high-grade core is likely to have the largest positive impact on project economics. 
    • PEA in Q1 2019 may deliver better economics than we expect. On the call, management touched on a few common areas of concern for block cave operations. CEO, Nick Mather, highlighted the potential for favourable rock conditions at Alpala for caving, as the mineralized zones are highly fractured and altered, thus allowing for greater cavability. This suggests that the mining cost assumptions of US$7/t ore, based on similar scale block-caves, could be conservative. 
    • Plenty of news flow expected in 2019. Beside the PEA in-late Q1 2019, the company is continuing to aggressively drill at Alpala. As well, the drilling is expected to ramp-up at the company’s many regional targets, with a focus on the Blanca and La Hueca projects. 
    Valuation:
    Solgold should trade at a significant premium to peers. Solgold trades at 0.43x NAV, a slight premium to peers at 0.37x. Given the world class nature of the deposit, and the demonstrated interest of multiple majors, we believe we believe a 0.90x NAV multiple applied to our C$1.47 NAVPS estimate would be appropriate implying a value of C$1.32/share. Upcoming catalysts: 1) Ongoing exploration and 2) Maiden PEA (Q1/19).

27-Nov-2018

Nicola Mining Inc.

Balance Sheet Materially Improves

Impact: Positive

Nicola has significantly de-risked its balance sheet with the full repayment of Senior Secured Debt owed to Waterton allowing the company to focus on its ongoing exploration efforts. We continue to view Nicola as a high-potential copper exploration story and await results from diamond drilling of the mineralized halo surrounding the existing pit and previously identified porphyry targets.
Highlights:

  • Balance sheet materially improves. The company has extinguished a long-standing secured debt obligation to Waterton with a final payment totalling $663,062. With the Waterton debt repaid, the remaining secured debt on Nicola’s balance sheet is a convertible debenture, primarily held by insiders. As a result, the company’s financial risk has been reduced, providing investors better leverage to ongoing exploration efforts. 
  • Funding in place for current exploration efforts. As part of the ongoing financing, the company has closed on C$743k of the announced C$900k. This cash injection, along with resumption of toll milling operations (expected to generate C$100k/month) in January should provide the company the funds it needs to continue advancing exploration efforts at the New Craigmont Project. 
  • Assay’s pending from ongoing program. Assay results are pending from Nicola’s 2018 drilling campaign at Craigmont Central where the company has been drill testing the halo surrounding the historic Craigmont copper mine. As well, a maiden resource estimate is expected in H1 2019 on Nicola’s Waste Piles.
Valuation:
Improving balance sheet, should allow the stock to re-rate with exploration success. We continue to view Nicola as an undervalued copper explorer with highly prospective past producing assets in BC. Due to high cut-off grades applied by historic operators at New Craigmont, we see the potential for the company to define a bulk mineable copper resource. Upcoming Catalysts include: 1) Results from further exploration drilling at Craigmont Central, 2) Drill results from previously identified untested porphyry targets and 3) Waste Piles maiden resource (H1/19)

26-Nov-2018

NX Gold Ltd.

Drill Targets Coming into Focus

Impact: Mildly Positive

NxGold’s exploration update provides highlights the increasing importance of the more traditional hard rock targets at its Mt. Roe Project in Australia. This exploration update along with our recent site visit supports our view that NxGold has the potential to make both a traditional hard rock gold discovery and a conglomerate gold discovery at its Mt. Roe project. 

Highlights:
    • Mt. Roe hard rock drill targets coming into focus. A total of 47 Phase 2 stream silt samples along ~1.2km of the Sholl ridge were taken, following up on previous trenching and sampling. Results align well with UAV-magnetics survey and providing increased confidence for the next phase of exploration at the Eagle, Kangaroo and Bulldog target areas (Figure 1). Currently, Eagle’s hard rock potential has also been supported by in-situ surface samples and trenching.  
    • More results pending, to better refine targets. To further refine the developing drill targets there are assays pending from tighter soil sampling grids at Eagle (86 samples), Hawk (26 samples) and Swan (27 samples). We highlight that soil samples have proven to be good techniques for identifying both traditional hard rock and conglomerate gold targets. We expect ongoing surface sampling efforts to culminate in scout drilling early next year.
    • Recent share price performance does not reflect assets or progress to date. Like many junior mining companies, NxGold’s price has been under pressure lately; however, the company’s current enterprise value (EV) of C$2.3M does not reflect the potential of Mt. Roe or the option value Kuulu provides investors should surface access rights be returned.  
    Valuation:
    Current EV approaching shell value; does not reflect underlying assets. NxGold’s current EV is C$2.3M, provides minimal value for its Mt. Roe project which has the potential to yield both traditional hard rock and conglomerate gold deposits. Following our site visit last week, we plan to provide a detailed update, including valuation in the near-term. Upcoming catalysts include 1) Ongoing Surface sample results from Mt. Roe, 2) Initial Results from Prinsep project, 3) Scout drilling at Mt. Roe (H1 2019) and 4) Surface access update at Kuulu.

26-Nov-2018

Mawson Resources Ltd

Raja Prospect has the Potential to Double

Impact: Mildly Positive

Mawson has announced geophysical survey results at its Raja prospect, which have highlighted the potential doubling of its mineralized footprint. These results as well as exploration to date continue to support our thesis that the Rompas-Rajapalot project hosts a sizeable high-grade mineralized system in a tier one mining jurisdiction.

Highlights:  

  • Doubling the mineralized footprint. TEM surveying across the northern region of the Raja prospect suggests the mineralization extends 450m down plunge from the current drilled area to >1km down-plunge, which could double the known footprint. The survey results confirm recent finding from drillhole PAL0093, which returned 33.6m grading 9.4 g/t AuEq (Figure 1).The depth potential at the Raja prospect could represent significant exploration upside. 
  • Increasing confidence with drilling. The Au-Co mineralized zones on the property form excellent conductive targets, allowing the company to use geophysics to increase drilling hit rates (Figure 2). We expect ongoing geophysics along the 3.5km Rajapalot mineralized trend to further highlight the prospectivity of the property ahead of the 15,000m winter drill campaign scheduled to start in January 2019 (drilling subject to final permits).
  • Maiden resource expected by year-end.
    The current enterprise value implies a maiden resource of ~440k oz (using US$40/oz). Based on our recent site visit, we expect the high-grade resource to be roughly in line to slightly larger than the implied size. However, in our view the current drilling defined strike length implies a potential size of up to 1Moz, and the above geophysics suggests there is room to grow. With C$8.5M in cash, the company is well funded for ongoing resource expansion drilling.
Valuation:
Maiden resource appears to be partially priced in, upside excluded. With the current market cap only implying a small resource, there remains upside for investors as the company demonstrates the potential of the high-grade, Au-Co Rajapalot project. We believe Mawson is well positioned as a top explorer in Finland with the added benefit from Co content improving continuity and grade throughout the mineralization. Upcoming catalysts include 1) Results from ongoing drilling 2) Drill permits for winter Rajapalot program and 3) Maiden Resource estimate on Rompas-Rajapalot (Q4 2019).

 

26-Nov-2018

Tinka Resources Ltd.

Growing on to the Mid-Tier Radar

Impact: Positive

Tinka’s successful drilling program over 2018 has resulted in a positive resource update, ahead of the company’s plans to publish a maiden PEA by H1 2019. We believe that Ayawilca has reached the required critical mass to garner significant interest from base metal mid-tier producers looking to replenish production pipelines. With Ayawilca already on producers’ radar, we expect the upcoming maiden PEA to demonstrate to the market and producers that Tinka has a high-margin economic project with exploration upside.
Highlights:
  • Resource grows at similar grades. The company has defined a 56.7Mt resource grading 7.0% ZnEq, which represents a 33% increase on tonnes, 4% decrease on ZnEq grades and a 27% increase on contained ZnEq metal. Within the zinc zone of the resource, the company has successfully upgraded 11.7Mt at 8.1% ZnEq to the Indicated category from the high-grade zones.
  • Scale in line with mid-tier projects. To compare, mid-tier producers such as Nexa Resources’ (TSX:NEXA) 62%-owned Aripuana Zn Project (Brazil) contains a resource estimate of 55Mt grading 7.16% ZnEq. Second to that, is Trevali Mining’s (TSX:TV) Santander Mine (Peru), which commenced production in 2011 and contains resources of 17 Mt grading 5.06% ZnEq. With room to grow on an already substantial deposit, we expect Ayawilca is currently on the radar of mid-tier base metals producers. 
  • Typical takeout multiples imply significant upside. In recent transactions, development stage base metal assets have been acquired for ~US$0.025/lb ZnEq (Figure 4). This implies a value of C$0.88/share for Tinka, suggesting significant upside from current levels. We expect that as they continue to demonstrate the exploration upside with more step-out drilling in 2019 and move the project along the development path with a PEA in H1 2019, potential acquirers are likely to demonstrate increased interest.
Valuation:
Resource update points to Tinka’s discounted valuation. While Tinka currently trades at a slight discount to peers ($0.007/lb vs. peers at $0.011/lb ZnEq), we expect a premium valuation is warranted given the demonstrated size and grade potential of Ayawilca making increasingly attractive to producing peers. Upcoming catalysts include 1) Step out and infill drilling (in 2019) 2) Maiden PEA (H1 2019).

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