Fiore Gold Ltd

Record Quarter Translates to Better Cash Flow

Impact: Positive

Fiore Gold has released positive FQ2/19 financial results on the heels of record quarterly production. We believe that the company’s strong cash position (US$8.3M) and improving operations should provide the fuel for future production growth. Fiore is an undervalued gold producer whose solid operations and growth potential has not yet been priced in by the market. 

  • Operational execution translates to strong financial results. Fiore delivered fiscal Q2 revenue of US$14.01M, a 17% increase QoQ and US$3.67M in operating cash flow, a 41% increase QoQ. This financial success was driven by a 10% increase in gold production QoQ to 10.76k oz Au despite a mild 4% increase in cash costs from FQ1 to US$847/oz. We highlight that AISC have remained below US$900 /oz sold for three consecutive quarters with this quarter’s AISC at US$899/oz Au sold.
  • Outlook positive for the balance of F2019 and F2020. The company recently updated its reserve estimate at Pan and plans to complete the installation of a primary crushing circuit by CQ2/19 (FQ3) which would positively impact gold production in F2020. Guidance for F2019 is outlined as 40,000-43,000 oz at cash costs of US$870-900/oz Au. Based on H1/19 production, the company is on track to meet F2019 guidance. We would expect that the new crusher should drive production higher (~15%) in F2020 and the expected increase in recoveries, should reduce costs.
  • Steady cash flow should fund targeted growth. Fiore has set a corporate goal of increasing production to 150,000 oz Au, which is likely to come from the Pan expansion, Gold Rock and via acquisition. Despite being a small producer, the company is generating positive cash flow, which allows it to fund Gold Rock development, while making it an attractive partner. At Gold Rock C2019 drilling, targeting an expansion of the current 419.6k oz resource is expected to lead to a PEA in 2020.
Strong operating performance should re-rate Fiore. Based on our preliminary estimates, Fiore trades 1x F2019E EBITDA; a discount to peer gold producers at 2.4x EBTIDA. We believe that as the company executes at Pan, while demonstrating its longer-term potential with Gold Rock it should re-rate towards peers. Upcoming catalysts include 1) Crusher installation CQ2/19, 2) Exploration updates (ongoing) and 3) FQ3 operating and financial results (CQ3 2019).

Mako Mining Corp

Adding Ounces at Las Conchitas

Impact: Mildly Positive

Mako released additional positive drill results from the Las Conchitas target which support our view that the company is positioned to substantially grow its mineable resources at San Albino. We continue to believe that Mako could be worth 3-4x where it is currently trading once there is clarity on project funding and updated economic study is released.

  • Drilling at Las Conchitas returns high grades similar to San Albino. Additional drill results from Mako’s Las Conchitas target returned highlight intercepts of 36.55 g/t Au and 47.8 g/t Ag over 1.7 m (LC19-72). Previously reported results including 376.49 g/t Au over 1m ( LC19-70) as well as our visit to site, have lead us to believe that Las Conchitas, located only 2.5km trucking distance from the permitted San Albino area could be the first near-mine target used to grow production.
  • Regional targets key to resource growth. Exploration supports our view that resource growth could be bolstered by the systematic exploration of regional targets such as Las Conchitas and beyond. At Las Conchitas alone, we believe the company could at a minimum double its open-pit mineable resource. Additionally, the 4km trend which extends from the San Albino deposit to the El Golfo area hosts multiple near-mine targets which remain largely under-explored. We expect a resource estimate for this area by H1/20.
  • San Albino keeps moving towards production. We expect that a full funding plan followed by an updated resource estimate and economic study in early 2020, should position the company to outperform. The company currently trades at less 1x annual estimated EBITDA. Additionally, we believe that once production has started, the mine’s small (500 tpd, +40k oz Au/year) but high-grade operation (+8 g/t Au) could provide the cash to fund further growth and push the mine over the 100k oz Au/year threshold.
Cash flow potential should drive project re-rating ahead of production. Our preliminary view is that Mako should trade 3-4x higher than where it is now, as we expect the company to generate US$20-30M in annual EBTIDA once in production and adjusting for the remaining project capital (US$5-10M, after the rights offering), and increasing the share count to reflect the rights offering, the company should trade 3-4x higher than where it is now. Upcoming catalysts include: 1) Additional drill results (Q2/19) 2) Pricing & completion of the proposed Rights Offering (Q2/19) 3) Updated economic study and resource (H1/20).



Rockcliff Metals Corp

Bur Shows Promise

Impact: Mildly Positive

Rockcliff released positive dill results from its 2,500m drilling program at Bur which suggest this deposit is positioned to grow. With cash in hand, Rockcliff is embarking on an extensive 100,000m program which could expand existing resources and potentially lead to a discovery in the Snow Lake South Emerging camp (SLSEMC).

  • Drill results suggest resource expansion nearly a lock at Bur. Results from 2,500m drilling program were reported with vast majority of holes (18 of 21) returning ore grade zinc equivalent grades. Banner intercepts included 20.09% ZnEq across 2.66 m (RBUR 021) and 17.95% ZnEq across 5.70 metres (RBUR 016). Drilling was focused up-plunge and along strike of existing historical resources, testing an 800m segment to the south of the main deposit. We continue to believe that expansion of historic resources (1.4Mt @ 12.8% ZnEq) is likely as the deposit remains open.
  • Drilling success at Bur validates our thesis – only in the first inning. We continue to believe that multiple deposits within Rocklciff’s portfolio are likely to grow with more drilling. This is because base metal deposits in the Snow Lake camp historically have grown beyond maiden resources, thanks to good depth and continuity. Today’s results from Bur appear to validate this thinking. Given that drilling has just commenced, we expect lots of future news to support the stock and drive it higher.
  • Hudbay likely to back-in at Bur. Rockcliff has an option to earn 100% of Bur from Hudbay by incurring an additional $2M in expenditures by March 2021. We note that Bur is situated 22km from Hudbay’s 3,200 tpd Stall base metal mill (both zinc and copper circuits). Given Hudbay’s recent shift of focus from Flin Flon to Snow Lake we believe there are reasonably good odds that Hudbay elects to exercise its back-in to earn 70% of Bur. Accordingly, our valuation for Rockcliff (see May 8th comment) ascribes $3.4M value to Bur, which reflects 30% ownership following the Hudbay back-in.
Rockcliff trades at a significant discount to our C$0.40/share valuation and offers tremendous base metal option value. Funding is in place to commence an aggressive 100,000m drilling program across its extensive asset base. Our valuation reflects potential to grow resources and make a significant discovery in the SLSEMC. Upcoming catalysts include 1) Infill/expansion drilling at Talbot/Tower (Q3/19) 2) Expansion drilling at Bur, Lon and Morgan (Q4/19) and (iii) Drilling in the SLSEMC (H2/20)



De Grey Mining Ltd

High Grades Persist at Toweranna

Impact: Mildly Positive

De Grey has announced additional positive drill results from Toweranna, which we believe supports management’s 2Moz target for 2019 (entire Pilbara project). We maintain a fair value estimate of A$0.35/sh (unchanged) and believe that the coming resource update could positively surprise the market.

  • Drilling continues to intersect high grade stacked veins – historic drilling supports depth extent. RC drill results from Toweranna confirm that the stacked gold mineralization style extends throughout the 250m diameter of the granite body into portions of the adjacent sediment. Banner intercepts include 15m at 5.11g/t Au from 205m (TRC141), 8m at 16.37g/t Au from 228m (TRC142) (Figure 2). We highlight that the current program has yet to test the mineralized system at depths beyond ~200m; however, historic drilling defines mineralization down to 425m. Assays are pending from scout drill holes which targeted up to 600m.
  • Resource update in Q3/19 on drilling that remains open. With a small resource at Toweranna (143,900oz at 2.2g/t Au) drilling is systematically adding ounces laterally and at depth at Toweranna. Results are expected to be consolidated into a resource update for Q3/19. We recently updated our modelled resource for Toweranna to 424koz (6M tonnes at 2.2 g/t) following previous positive results. These estimates could again prove to be conservative as the company closes in on the potential depth extensions of the deposit.
  • Removing the payment overhang followed by additional catalysts to propel the stock. We believe that De Grey’s upcoming A$9.7M July payment to property vendors is about to be addressed. If successful, this would help unlock the share price and be further supported by the upcoming resource estimate. We believe De Grey is well positioned to meet its 2Moz target as additional results are pending from all three deposits.
Pending payment could provide buying opportunity ahead of positive catalysts. We value De Grey at A$0.35/sh (unchanged) based on 0.70x our NAVPS8% estimate of A$0.50 (unchanged). The company trades at a substantial discount to peers (0.18x vs. peers 0.64x) as the market appears focused on the coming payment. We expect a substantial re-rating is due with continued exploration success. Upcoming catalysts: 1) Ongoing exploration results, 2) Project development updates and 3) Final project payment (July 2019).



SolGold Plc

Robust Economics Delivered for Alpala

Impact: Mildly Positive

The Alpala PEA has returned positive initial economics moving the project another step closer to production. Overall, the PEA had lower opex and higher capex than our prior estimates resulting in a slight increase to our NAVPS estimate. This de-risking step offers improving evidence that Alpala is a world class project and moves it a step closer to what we believe is an inevitable takeout.

  • PEA delivers multiple solid paths to production. The company announced multiple potential development scenarios and provided a base case (Case 2b) which sees throughput ramping up to 50Mtpa, to mine 2.4Bt at ~0.54% CuEq, over 55 years. We have used Case 2b as the basis for our model (Figure 1). We note that we use a long-term copper price of US$3/lb vs. C$3.30/lb in the PEA and this has the largest impact in the last 30 years of the mine-life, when grades are expected to be lower. We highlight that the first 25 years are very economic at both copper prices (Figure 2).
  • Big project comes with big capex but the sticker shock isn’t what it seems. The pre-production capital is US$2.7B which was in-line with our estimates; however, the larger throughput (50Mtpa, we modelled 35Mtpa) has resulted in higher sustaining capital. While +US$10B in project capital is large, for the most part, only the initial capex is going to require outside funding. We expect the high-grade core to generate US$9.7B of operating cash flow during the first 10 years of the mine life.
  • Exceptionally low OPEX at higher throughput rates. The PEA highlights exceptionally low mining and milling costs of ~US$4/t and ~US$6/t, respectively, which reflects the enhanced caveability of the Alpala rock mass and the low cost and easily accessible hydro-electric power supply (Figure 3). These results place Alpala among the lowest cost block caves globally (Figure 4 & 5).
PEA demonstrates world class potential. We have updated our estimates to reflect the PEA (Figure 1) resulting in a slight increase in our fair value estimate to C$1.40 (was C$1.35), based on 0.90x our C$1.56 NAPVS8% (was C$1.50). SolGold trades in line with peers (0.42x NAV, peers 0.42x); however, the world-class nature of Alpala and the likely takeout suggests it should trade at a premium. Upcoming catalysts: 1) Formal bid for Cornerstone, 2) Ongoing exploration results, 3) Updated resource (H2/19) and 4) Alpala Pre-feasibility study (Q4/19).


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