RCKS Talk

26-Nov-2018

SolGold Plc

Newcrest Tops Up!

Impact: Mildly Positive

SolGold has announced that Newcrest Mining has exercised its top-up rights, to maintain 13.7% ownership in the company (Figure 1), which follows a strategic investment by BHP and a significant increase in the resource at the company’s flagship Cascabel project. This update aligns with our view that Alpala, within the wider Cascabel project, is a world-class deposit with scale potential that separates it from the pack and is receiving ongoing interest from majors. We highlight that we will be hosting a live webinar with Nick Mather, CEO of SolGold, on Wednesday, November 28th

Highlights:
    • Largest predators still lurking. Newcrest Mining, Australia’s largest gold miner and block caving expert (Wafi-Golpu & Cadia East – Figure 2), has increased its stake in SolGold by purchasing an additional 6.71M shares pursuant to its top up rights under its original August 2016 share subscription agreement, which were priced at 37.14p (C$0.63/sh).  
    • Competitive tension, which should provide a takeout premium. With two majors on its share register and others likely lurking in the background, we believe the eventual takeout of SolGold is likely to occur at a premium to historic multiples of 0.75x NAV or US$0.08/lb CuEq (Figure 3). A potential transaction is likely to be similar to the recent acquisition of Nevsun by Zijin Mining, as Timok and Alpala are very similar. That transaction was done at 1.25x NAV, implying a value of C$1.85/sh based on our estimates suggesting 185% from the last close of C$0.65/sh.
    • An exciting 2019 expected for SolGold. Besides the maiden PEA (expected in Q1/19) for Alpala, we are looking forward to ongoing exploration results, particularly from the northwest portions of the deposit, where early results imply the potential for a 2nd porphyry center. 
    Valuation:
    Newcrest top-up highlights ongoing interest in Alpala. Solgold trades at 0.44x NAV, a slight premium to peers at 0.38x. 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).

20-Nov-2018

SolGold Plc.

Alpala Exceeds Expectations

Impact: Positive

SolGold has exceeded expectations with its recent resource update for its Alpala deposit in Ecuador. The expansion of the high-grade core has exceeded our previous estimates, resulting in an increase to our NAVPS estimate. This resource update paves the way for company to publish initial economics on this world class project in early 2019E. We continue to view Alpala and the wider Cascabel project as a world-class deposit with scale potential that separates it from the pack.

Highlights:
    • Expansion of the high-grade core exceeds expectation, benefits our estimates. Besides our expectation of a doubling of the Alpala resource, we expected a 50% increase in the high-grade core at Alpala Central (Figure 2). High-grade core results beat our estimates by 17% on tonnes, 17% on grade and 33% on contained metal. In our view, project economics are driven by the high-grade core, and this growth has boosted our estimates. 
    • A significant increase in contained CuEq. Using the 0.3% CuEq cut-off, contained copper increases by 77%, while grades remained relatively consistent. Importantly, there was a significant increase in Indicated tonnes both overall and for the high-grade core, improving our confidence in the potential of this deposit (Figure 1). It is likely that the most recent strategic investment in to Solgold by BHP anticipated this higher-grade core improvement. 
    • Better grades, better payback. To remain conservative, we have modelled the continuous portion of the high-grade core (mined years 1-7) to be 180Mt grading 1.85% CuEq (was 180Mt grading 1.67% CuEq), which has allowed for a better payback, reflected in an increase in the project IRR to 24% (was 20%). The increase in grade has allowed for a 19% increase in the projects after-tax NPV to US$2.82B (was US$2.38B). 
    Valuation:
    Resource update drives increase in our estimates. By accounting for the recent resource update at Alpala, we have increased our NAVPS for SolGold to C$1.47/sh (was C$1.30/sh). SolGold trades at a slight premium to peers (0.44x NAV vs peers 0.36x) and 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 and 2) Maiden PEA (Q1/19).
20-Nov-2018

Bonterra Resources Inc

JV Unleashes Gladiator's Full Potential

Impact: Positive

Bonterra has provided an exploration update on its Gladiator deposit following its Duke JV, where the company highlighted two new zones along strike from the current deposit. Results support our theory of a large high-grade system at Gladiator, which underpins the company’s ~190koz/year production potential by 2020E, with the addition of the nearby Moroy and Barry deposits.
Highlights:
  • A Titan next to Gladiator. The recent JV with Beaufield Resources (now Osisko Mining) has revealed exciting new potential for the company at its Gladiator deposit. Historic holes BRS-17-10 & 11 were drilled and logged by Beaufield and have now been re-sampled by Bonterra and with the addition of 3 additional drill holes, have defined the Titan zone, 2km NE of the main Gladiator deposit. The Coliseum zone, 1km SW of Gladiator, has also been defined by the company through one drill hole, which returned 5.5g/t Au over 3m (Figure 1).
  • JV unleashes Gladiator’s full potential. What is most important to highlight is that these two new mineralized zones are open in all directions and have identical characteristics to the main Gladiator deposit, which suggests the potential extension of Gladiator to a strike length of 4.5 km, a 2.5x increase from 1.3km. We have previously highlighted that we see ~2Moz of high-grade potential at Gladiator when the mineralized footprint was confined to 1.3km in strike and tested to a 1.1km depth. A mineralized 4.5km strike opens up a lot of additional potential for resource expansion.
  • Resource update is imminent. We expect follow-up drilling to confirm the presence of the high-grade mineralization between zones. Holes BA-18-102 & 103 have already been drilled between Gladiator and Coliseum and have revealed visible gold, which supports this theory. We expect the imminent resource update to highlight the scale of the mineralized system to the market.
Valuation:
Resource growth is expected to drive a re-rating. Based on currently reported resources for Gladiator, Barry and Bachelor, Bonterra trades at US$65/oz, a premium to peers but once we factor in our estimate of ~C$50M for the Bachelor mill, and what we expect may eventually be a ~2M oz Au deposit at Gladiator, Bonterra would trade at a substantial discount to peers at US$24/oz. Upcoming catalysts include, 1) Gladiator resource update and 2) Ongoing exploration results.

19-Nov-2018

Novo Resources Corp

Sorting Things Out

Impact: Mildly Positive

Successful ore sorting of bulk samples at Novo’s Karratha Project should benefit grade definition efforts and long-term project economics. Using a new supplier, the company has re-tested ore sorting technology, with initial results suggesting exceptional mass pull (~0.3%). This has positive implications for both ongoing grade definition efforts, as it could make assaying larger samples simpler and has the likely benefit of simplifying mining at Karratha, by eliminating the need for selective open-pit methods, on the narrow gold-bearing conglomerate zones.

Highlights: 
  • Third round of sorting work has much better results. It appears that mechanical sorting using X-Ray and Electromagnetic induction (EM) is sensitive to crush size. Previous testing, was completed on a sample that was crushed to fine (~2mm). This round, using between material crushed between 10-63mm (+63mm deemed to be too large) reduced material from the mineralized conglomerates to ~0.3% of the original mass (i.e. 5 tonnes to 15kg). Assays are pending for both the concentrate and the tail to determine final effectiveness.
  • Success expected to have significant impact on grade determination work and eventual mining. If this process effective, we expect it to speed up grade determination efforts (smaller samples to assay) and should allow the company to bulk mine the ~25m thick conglomerate package versus trying to mine two ~1m zones (with the surrounding rock). In the mining scenario, this should both reduce gold loss and costs.
  • Knock-on effect from Karratha to Egina. With Karratha transitioned in to permitting and exploration underway at Egina, which we visited last week, we would expect that if ore sorting technologies prove effective, it could be used on other conglomerate deposits in the Pilbara, including Egina. 
Valuation:
Simplified mining/processing for Karratha could improve our preliminary valuation of C$2.40-4.80/sh. With the Karratha shifting to permitting (6-12 months till trial mining can start), near-term catalysts are likely to be from the exploration program at Egina. Following our site visit last week, we intend to refine our overall estimates for the company. Upcoming catalysts include, 1) Final assays from ore sorting (Q1/19), 2) Additional 5-tonne bulk sample results 3) Larger scale bulk sampling (H2/19) and 4) Ramp-up of exploration work at Egina (Q4/19) 
19-Nov-2018

GT Gold Corp.

Saddle North Expands Along Strike at Depth

Impact: Positive

GT Gold has announced results from two step-out holes drilled to the southeast and northeast, which intersected wide zones of Au-Cu mineralization and has expanded the mineralized envelope in both directions and at depth. These results demonstrate the size and grade potential of Saddle North and support our view that the company has made a significant porphyry discovery.

Highlights: 
  • Intercepts highlight higher grades at depth. The company highlighted 0.81g/t AuEq over 685m (hole TTD098) and 0.77g/t AuEq over 357m (hole TTD102). Both holes support the theory that grade increases with depth. Hole TTD098 successfully demonstrated continuity in mineralization over 1km down-dip and extended the higher-grade mineralization by 200m to a depth of 1069m with 133m grading 1.92g/t AuEq (Figure 1 & 2). We expect pending holes 106 and 108 testing up-dip extensions to demonstrate that the mineralization extends closer to surface. 
  • Mineralized envelope grows once again. By testing the mineralized extensions along strike the company has expanded the Saddle North mineralized intrusive complex to ~600m along strike, ~900m vertical depth from surface (1,100m down-dip) and a true width ~700m (Figure 3).
  • Red Chris lookalike? The mineralized footprint and lithology of the intrusive complex at Saddle North continues to approach the nearby Red Chris mine, which was put into production with 13Blb CuEq (1.82Bt grading 0.84g/t AuEq) of mineral resources (2012 FS). We’re awaiting assays for four more holes from this season to have a better understand the potential at Saddle North.
Valuation:
Market starting to price in the porphyry discovery. Based on the drilling to date, our rough estimate for Saddle South is ~750k-1M oz AuEq, based on C$50-75/oz for peers, this implies a value of C$37.5-75M. This suggests a value of C$72-109.5M for the Saddle North porphyry target. We believe that if future results match what we have seen to date, this implied valuation materially undervalues this targets potential.

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