North American Palladium Ltd

Site Visit: Q1 FCF May Warrant Dividend Increase

Impact: Positive

Based on the recent analyst day and site visit, along with QTD palladium price, we believe North American Palladium is poised to generate significant FCF in Q1 which may justify a quarterly dividend increase. Additionally, we believe the company is carrying strong financial and operational momentum into Q2/19. We continue to believe that North American Palladium’s improved operations and deliverable expansion plans have it poised for a share price re-rating. In addition, its leverage to a strong palladium market provides additional torque.


  • Evidence points to the potential for a dividend increase. We highlighted in our initiation report, that the company should have the capacity to increase the dividend. In our view, the key factors for an increase are: 1) solid operations, 2) strong Palladium price and 3) on-time, on budget delivery of the underground expansion. Our site visit suggests 1 and 3 are on-track. As well, with the palladium price averaging US$1,399/oz in Q1, we expect C$34M in FCF, which should allow the company to repay its debt and return more capital to shareholders.
  • Site visit suggests there may be upside to our estimates. The potential exists for lower operating costs, improved recoveries and exploration success. We believe exploration could have the largest near-term impact as multiple new underground targets (Figure 2) and surface targets (Figure 3) have the potential to drive production beyond our estimates by replacing the lower grade stockpile as mill feed.
  • Not the North American Palladium you remember. Our second site visit reinforces our view that under Brookfield’s stewardship, North American Palladium’s team has significantly improved operations and we believe the company is poised to execute operationally going forward. As well, we continue to be impressed by the company’s exceptional employee engagement at all levels.
Re-rating coming, dividend increase would accelerate it. Using US$1,300/ oz Pd, our fair value of C$23.50 is based on 6.0x our one-year forward, NTM EBITDA estimate of C$224M (unchanged). We believe the company’s ability to deliver FCF should materially re-rate the stock. Additionally, a further return of capital to shareholders would be a significant catalyst. Upcoming catalysts include: 1) Q1 operating and financial results (Q1 2019) and 2) Exploration updates (ongoing).



SolGold Plc

Important Catalysts Coming Soon

Impact: Neutral

A recent update on SolGold’s activities concerning its upcoming PEA, Cornerstone bid and exploration activities, reinforce our view that the company is still inexpensive ahead of a number of major catalysts. We continue to view Alpala as a world-class copper-gold deposit and believe that ongoing de-risking and growth of the project should make it an attractive target for major mining companies.
  • PEA coming soon. We believe the upcoming PEA has the potential to better our current economic projections for the project. The company noted delays related to metallurgical and geotechnical complexities, but we highlight that in the mining industry most technical reports are late, and considering the world-class nature of the project, along with the current valuation, we believe there is limited downside risk, particularly since we now believe that our current estimates may be conservative.
  • Finalizing documentation for Cornerstone bid. SolGold offered an update on its planned offer to acquire all outstanding common shares of Cornerstone Capital Resources (TSXV:CGP) stating that the coming announcement aims to provide the most advantageous tax treatment for Cornerstone shareholders. We believe the consolidation of the project is going to be advantageous for both sets of shareholders.
  • 10,000m of drilling per month should demonstrate project and regional potential. The company has 11 drills turning at site and is continuing to pursue growth at Alpala, particularly on higher-grade mineralization to the Northwest and Southeast of the Alpala resource. As part of the development process at Cascabel, the company is completing sterilization and geotechnical drilling to develop the project plant site and decline route.
With our estimates still unchanged, SolGold remains inexpensive. SolGold trades at 0.48x NAV, relative to peers at 0.47x. Given the scale and potential of the Alpala deposit alongside the current interest from majors, 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) Maiden PEA for Alpala (Q2/19) 2) Ongoing exploration results.



Amex Exploration Inc

RCKS Nugget: Amex Exploration Inc

Recent drilling results from AMX caught our attention.

Step-out holes from the company’s Perron Project continue to intersect high-grades in the Eastern Gold Zone.
Amex Exploration Inc (TSXV:AMX) is completing a 10,000m drill program at its 100% owned Perron Project 110 km north of Rouyn-Noranda.


Mawson Resources Ltd

Mawson Gets Government Support

Impact: Positive

Mawson has announced an important endorsement from Finland’s BATCircle consortium which will aim focus on the development of Mawson’s strategic gold-cobalt resource via funding and technical support. We estimate a fair value of C$0.79/sh for Mawson’s shares and we believe the company is on track to deliver a sizeable gold-cobalt resource in a secure jurisdiction.
  • Mawson gains financial support at Rompas-Rajapalot. The announcement of the Finland-based Battery Metals (BATCircle) 50:50 funded consortium will focus on the research and development of Mawson’s gold-cobalt resource. The partnership will generate total funds of C$756k for the advancement of exploration and metallurgical testing of the company’s flagship Rompas-Rajapalot project. The news is highly encouraging as it demonstrates government support for the development of the project and will offer technical and financial resources needed to move the project ahead.
  • Cobalt in resource offers strategic sweetener. Currently, 28% of Mawson’s maiden resource is made up of cobalt which can be mined as a by-product and processed at the nearby Freeport cobalt refinery. The project stands as one of the top cobalt resources in the country making it an instrumental source for the battery metal as it undergoes a surge in demand for ethical sourced metal.
  • Mawson trades at discount to peers ahead of a resource update later this year. Mawson is trading at US$38/oz AuEq, a discount relative to peers at US$49/oz AuEq. Recent geophysics suggest that Raja, Palokas and South Palokas could as much as double given large conductive plates identified down dip from their current resource outlines. The company is actively drilling these targets with ~9,000m of drill results pending and we expect coming updates to shed more light on this growth potential.
Funding and exploration results on track to grow resource and reinforce our fair value estimate of C$0.79/sh. We believe that ongoing drill results and the coming resource update should provide momentum to re-rate the stock closer to our estimated value. Upcoming catalysts include 1) Results from WUSA drilling (Q1/19) 2) Ongoing results from 15km drill program


Wallbridge Mining Company Ltd

RCKS Nugget: Wallbridge Mining Company Ltd

Recent drilling results from Wallbridge Mining caught our attention.

We believe results from Area 51 offer a tantalizing glimpse at growth potential beyond the Main Zone. Wallbridge Mining Company Ltd (TSX:WM) is a gold exploration company advancing its 100% owned Fenelon Gold Property in Quebec.

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