RCKS Talk

28-Nov-2018

SolGold 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 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).

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.
16-Nov-2018

Red Pine Exploration Inc.

A Step in the Right Direction

Impact: Positive

Red Pine has announced a maiden resource estimate of 100Koz gold grading 6.8 g/t at their Minto South project. The size of the resource is modest, however, the likelihood of resource expansion with more drilling at Minto South is good given that it is open in all directions. Moreover, we believe that Red Pine’s efforts to better understand structural controls on mineralization within the Wawa Gold Corridor are beginning to pay dividends. As a result, we expect future drilling may more effectively target high grade shoots both at Minto South and Surluga. The results support our view that the Wawa corridor hosts a large gold system which may encompass multiple gold deposits.

Highlights:
  • Maiden high-grade resource at Minto South. The maiden resource includes 25Koz Au (105Kt grading 7.5 g/t) in the Indicated category and 75Koz Au (354Kt at 6.6 g/t) in Inferred (Figure 1). Mineralization at Minto South occurs within narrow, high-grade veins and shears which occur outside of the Surluga resource envelope.
  • Minto South resource just the beginning. Exploration to date suggests that mineralization remains open along strike and down plunge. In addition, additional mineralized zones, both within the Minto South shear and in parallel footwall structures to the west have been identified which require follow up drilling. Potential exists to expand resources five-fold at Minto South - the company is guiding to a conceptual resource target of 250-750koz Au (1.5-2.4Mt) grading 5-10g/t.
  • Minto South, starter kit for larger mine? Red Pine hints that it may evaluate a bulk sampling or small-scale mining scenario at Minto South. Presumably, cash flows generated by mining high grade zones within the Minto South deposit could potentially assist in funding a larger mining operation at Surluga. 
Valuation:
We continue to believe ongoing uncertainty regarding Red Pine’s ownership structure is causing the company to trade at a steep discount to peers (US$13/oz vs. peers at US
$33/oz). We also believe that the market fails to recognize the exploration upside demonstrated by drill results to date
Upcoming catalysts are expected to include, 1) Ongoing exploration results and 2) Updated Surluga Resource (H1/19)

 

14-Nov-2018

Callinex Mines Inc.

In the Shadow of a World Class-Mine

Impact: Positive

Callinex has acquired a high-grade VMS deposit in the shadow of the world-class Brunswick #12 mine in Bathurst, NB. With the Headway deposit within trucking distance of the company’s proposed Nash Creek mill (2018 PEA), this acquisition supports our view that the company is successfully assembling a portfolio of deposits in a prolific VMS mining camp (Figure 1).

Highlights: 
    • In the shadow of a world-class mine. The Headway deposit is the closest deposit to the historic Brunswick #12 mine (Figure 2), where 137Mt grading ~14.2% ZnEq was produced between 1964 and 2013. Most importantly, the deposit is hosted by the same stratigraphy, the ‘Brunswick Horizon’ (Figure 3, in yellow), which can be considered one of the most prolific base metals VMS horizons in the world.
    • Largely underexplored. While the existing resource (Figure 4) is not NI 43-101 compliant, drilling to date (1965-66) confirms the same high-grade nature of the VMS mineralization as the adjacent Brunswick #12. Based on depth, thickness and grade, we expect the deposit to be amenable to underground bulk mining methods once size is demonstrated by Callinex. Besides two holes drilled by Nexa Resources (TSX:NEXA) in 2011, the property has received no modern exploration and remains largely unexplored. There has been very little exploration beyond the 160m depth of the current deposit, which is where we see the most potential, as the adjacent Brunswick #12 deposit was mined to a depth of over 1km.
  • The right deal at the right time. At a transaction value of C$25k (US$19k) for an estimated 75Mlb ZnEq of high-grade mineralization (317.1kt grading 10.75% ZnEq), Callinex has paid US$0.0002/lb ZnEq. This suggests a very accretive acquisition for the company and fits well in the Bathurst portfolio alongside the company’s nearby high-grade Superjack deposit. 
Valuation:
The company is again expanding its resource base in the prolific Bathurst Mining District of New Brunswick. Callinex currently trades at a significant discount to peers ($0.001/lb vs. peers at $0.003/lb ZnEq). Considering our expectation for further resource growth at Nash Creek beyond the recent update, we expect the upcoming drill results in addition to the IP survey could close the valuation gap to peers. Upcoming catalysts: 1) Results from drilling IP anomaly 2) District scale IP results 2)  
14-Nov-2018

Standard Lithium Ltd.

A Sizeable Maiden resource at Smackover

Impact: Very Positive

Standard Lithium’s recent announcement of a maiden resource brings in to light the significant valuation discount relative to brine developer/explorer peers. With access to over 150,000 acres of brine fields with existing permitted infrastructure, the company is quickly surpassing the normally lengthy milestones required to get in to production. 

Highlights: 
    • A sizeable maiden resource. With sufficient data from its recent agreement with LANXESS, the company has been able to output an inferred resource of 3.1Mt LCE within brines which are currently in production for bromine extraction by LANXESS and re-injected into the aquifer awaiting Standard Lithium’s extraction. This resource estimate was based on estimated lithium concentrations in the wellheads that ranged from 53-292 mg/L, where a conservative average in-situ concentration of 165 mg/L was used for resource calculation. Once the company’s lithium extraction plant is interconnected with LANXESS’ bromine plant, lithium is to be extracted as a by-product to bromine from the Smackover brines.
    • Success at pilot plant now a key catalyst.
      While an in-situ grade of 165mg/L is on the lower end of lithium brine grades, with in-place infrastructure, the hurdle rate is far lower. The next key catalyst, is expected to be the results of the company’s mini-pilot plant testing, which is expected in early 2019. The results of which are expected to inform a H1 2019 PEA, which will provide initial economics for the project.
    • Another step on the short path to production. Once proof of concept is achieved by 2020E, we expect with permits in-hand, significant infrastructure in-place and JV funding from LANXESS that Standard Lithium is likely to be quick to market.
Valuation:
Standard Lithium now trades at a discount to brine developers and explorers. With a fully permitted facility and now a sizeable resource, Standard Lithium is well-positioned to rapidly advance towards production. We believe the market is currently undervaluing the potential of this update as company currently trades at US$21/t LCE in contrast to brine exploration and development peers at US$54/t LCE. Upcoming Catalysts include 1) Positive results from prototype test-work (Q1/19) and 2) Completing the offtake agreement (Q4/18).

13-Nov-2018

Anaconda Mining Inc.

Additional Resource Growth Potential at Depth

Impact: Mildly Positive

Anaconda has delivered positive drill results from its Goldboro development project, driving further potential for resource growth, particularly at depth. Results continue to support our expectation for further resource growth and follow a recent 27% increase in resource grade and 21% increase in gold ounces. Overall, we believe Anaconda’s fundamental value is not reflected in the current market’s pricing and as a result, could see significant re-rating with continued exploration success at Goldboro.  
Highlights:  

  • Results highlight the potential for growth at depth. Anaconda highlighted 8.79 g/t over 8m at 483m (BR-18-44), suggesting that grades may improve at depth. This hole appears to extend the Boston Richardson mineralization to 525m below surface (Figure 1), which reflects high-grade resource expansion potential at depth and follows a recent 28% increase in underground resource grade to 6.0g/t Au.
  • Results continue to be roughly in line with expectations. The weighted average grade of the drill results returned 4.54 g/t over 2.2m which, although lying slightly below the range of the current resource grade of 5.6 g/t (was 4.4g/t), add value by filling in the company’s understanding of the structural controls and depth extensions of the mineralization. 
  • Drills still turning and bulk sample underway. To date, the company is only 75% through its 10km 2018 drilling program with final work to be completed by year end and includes testing depth extensions to 400m at West Goldbrook. Bulk sampling is being completed in conjunction with the remaining drilling and the company plans to use results to produce another updated mineral resource ahead of a Goldboro feasibility study.
Valuation:
Goldboro drilling and bulk sample along with debt financing to act as a potential catalyst. Anaconda continues to trade at a discount to peers despite the growth in production and improved financial performance over the next 18-months. Anaconda trades at 0.15x NAV based on our current NAVPS of C$1.36, a steep discount to peers (0.51x) which should close as the company demonstrates the potential of Goldboro. Upcoming catalysts: 1) 10kt bulk sample at Goldboro, 2) ongoing exploration mineral resource update and 3) debt financing for Goldboro.

 

13-Nov-2018

SolGold Plc.

Technical Success Reveals Potential Alpala 2.0

Impact: Positive

    Ongoing exploration by SolGold continues to support our thesis that Alpala is likely to double with the resource update expected in Q4 2018. The technical success from hole 64 also supports our theory of a potential second porphyry adjacent to Alpala, further reflecting the world-class scale of Cascabel.
    Highlights:
  • Results support our view for a potential 50% increase of the high-grade core. We previously stated that the high-grade core was set to grow by 50% as the company further defined controls of the high-grade mineralization at Alpala Central. This is supported by hole 68 returning 664 m grading 1.53% CuEq, including 348m grading 2.25% CuEq, which intersected wide intercepts of high-grade mineralization (>1.5% CuEq cut-off) and is open at depth.
  • Potential doubling of the overall resource. We continue to believe the resource is set to double with the pending Q4/18 update, which was reflected by hole 69 that was drilled in the Alpala West Limb and returned 852m grading 1.14% CuEq. A total of 82,400m has now been drilled since the last Mineral Resource Estimate in December 2018 and therefore further reflects the amount of successful exploration drilling has been completed for the pending update.
  • A second Alpala deposit? Our estimates assume a 100% increase in the Alpala deposit but we have not accounted for the potential of an adjacent porphyry system. Hole 64 was drilled deep into the northwest target and returned 402m grading 0.65% CuEq of primary bornite mineralization, which is indicative of an additional porphyry core. Although a technical success, more drilling in this northwest sector towards Trivino needs to be done to confirm potential scale and grade.
    Valuation:
    Technical success of hole supports meaningful upside in scope and scale of an already world class size project. In our view, this warrants premium valuation. We believe that the pending resource update and ongoing exploration success are likely to drive our base case NAVPS8% to C$1.30. SolGold trades at a premium to peers (0.51x NAV vs peers 0.35x) 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, 2) Resource update (Q4/18) and 3) Maiden PEA (Q1/19).



13-Nov-2018

Standard Lithium Ltd.

One Step Closer with LANXESS JV

Impact: Very Positive

New partnership, with valuable data, will be focused on quick lithium production timetable. A term sheet has been signed between Standard Lithium and LANXESS Corp., a subsidiary of LANXESS AG (XTRA:LXS), to form a joint venture (JV) in the commercial production of battery grade lithium as by-product to bromine production from the brine extracted at the Smackover Formation in South Arkansas. The partnership adds momentum to Standard Lithium’s already quick timeline to production and may give LANXESS, a top bromine producer, the opportunity to extract value from a by-product of its lithium carrying brines. 

Highlights: 
    • Going right to the source. Previously, Standard Lithium had acquire off-take rights to TETRA Technologies, off-take from LANXESS’ large scale brine extraction operation. With this agreement Standard Lithium now has full access to the network of pipelines from the wells to the processing plants and all the years of data that comes with it, currently owned by major bromine producer, LANXESS. Therefore, a JV would provide the data to fast track defining a lithium resource (Figure 1).
    • One step closer. A JV would provide extraction rights to Standard Lithium to produce lithium as by-product from LANXESS’ existing bromine operations. Where LANXESS would allow the use of existing infrastructure and Standard Lithium would contribute its
      proprietary extraction processes in addition to existing rights and leases held in the Smackover Formation, acquired from TETRA.
    • JV provides big brother for funding and tech support. Besides shortening the benefit of existing infrastructure and data, the strategic partnership is likely to bring in a partner with significant experience and deep pockets for development funding. Once proof of concept has been achieved, a JV announcement is expected by 2020.
Valuation:
Re-rating expected when Smackover resource released in Q4. Standard Lithium’s unique ability to quickly generate a resource and rapidly advance towards production make it one of the best junior mining companies in the lithium space. Upcoming Catalysts include 1) Positive results from prototype test-work (Q1/19) and 2) Completing the offtake agreement (Q4/18).

12-Nov-2018

De Grey Mining Ltd.

Conglomerate Results Additive to Hard Rock Story

Impact: Mildly Positive

Conglomerate gold potential at De Grey’s Loudens West target provides a potential sweetener in both grade and ounces to the company’s hard rock assets. The company has announced the results of three small tonnage (250kg) bulk samples at Loudens West, which supports our view for the company’s conglomerate gold optionality in the Pilbara of Western Australia, which we do not currently factor into our estimates. 

Highlights:
    • Grades in the high range of comparable Novo results and support overarching geological thesis. Trenching is expected to uncover up to 60m of exposure in the current trench. Samples from Loudens West over 6m of strike returned grades of 0.82g/t, 3.92g/t and 7.92g/t (average of 4.22g/t), which compares favourably to the weighted average grade of 2.4g/t Au for Novo’s conglomerate sampling (both small and large bulk samples).
    • Small bulk sample testing may accelerate assessment of conglomerate target potential. Conglomerate bulk samples are able to be quickly processed at the company’s recently commissioned crushing and gravity sampling circuit, which may be valuable in providing quick turnover between discovery and assessment of the target host. We expect the company is likely to require larger sample tonnages to establish accurate grade measurements.  
    • Results are additive to the hard rock story. While assessing the conglomerate units at Loudens in addition to both the Jarret Well and Steel Well areas, the company is simultaneously exploring its hard rock assets where promising drill results have found underground extensions of the mineralization. It appears that the conglomerate assets may provide a nice grade sweetener to the hard rock assets, where the average resource grade currently stands at 1.6g/t Au . 
    Valuation:
    Share price action driven by expiring warrants and not fundamental value of both hard rock and conglomerate assets. Our preliminary estimate for De Grey’s hard rock assets is A$0.30-0.45/share, which we plan to refine, following our site visit this week. Near-term head winds for the share price may include 60M in-the-money options (at A$0.10, expiring November 30) and the remaining A$10.4M cash payment for the Indee project. Upcoming catalysts: 1) Additional exploration results and 2) PFS in Q4/18.

09-Nov-2018

Anaconda Mining Inc.

Q3 Financials in Line, Strong Q4 Anticipated

Impact: Mildly Positive

Anaconda Mining’s financials reflect strong Q3 operating results. Anaconda released Q3 financials results that were roughly in-line with our estimates (strong operating results were pre- released last month). Financial and operating performance supports our view that production and costs are benefiting as higher grade Stog’er Tight ore is being processed. Improved operating cash flow should allow the company to partially fund the ongoing development work at Goldboro. Anaconda is steeply discounted relative to peers despite continued strong operating performance. We believe the advancement of Goldboro should help re-rate the stock.

Highlights:
    • Results are roughly in-line with our estimates. With operating results and the quarter-end cash balance previously announced, results were roughly in line with our estimates (Figure 1). We highlight that, ~785 ounces of gold were produced and not sold in the quarter, which should benefit Q4 financial results.
    • Record Q4 anticipated. As higher-grade Stog’er Tight ore is processed, we expect production to continue to improve in Q4. We model, 5.7k oz at US$801/oz or 19.6k oz at US$759/oz in Q4 and for the full year, respectively. This would be a significant beat of the company’s 2018 guidance of 18k oz at C$1,000/oz (US$780/oz).
    • Operational execution; provides the capital to advance Goldboro. The company continues to actively drill Goldboro, which should result in additional exploration results in the coming weeks. In our view, ongoing exploration, should fuel further growth in what we view is an already economic resource. The company has just started the bulk sampling program, the results of which (Q1/19) are expected to be a key de-risking step for the project.
    Valuation:
    Further operating success combined with de-risking Goldboro are key to share price performance. Anaconda continues to trade at a steep discount to peers (0.16x NAV, peers 0.58x) despite anticipated production growth and improved financial performance over the next 18-months. We believe this valuation gap should close with continued operational success and advancement of Goldboro. As a result of Q3 financials, our NAVPS estimate has increased to C$1.36 (was C$1.35). Upcoming catalysts: 1) 10kt bulk sample at Goldboro 2) ongoing exploration and 3) debt financing for Goldboro.

05-Nov-2018

De Grey Mining Ltd.

Underground Expected to Add Scale

Impact: Mildly Positive

De Grey’s most recent drill results indicate increased underground potential at Withnell and should add scale to the development plan. Drilling beneath the Withnell pit continues to deliver encouraging underground grades and widths and De Grey has now defined an underground exploration target of 330-720k oz. This success supports our view, that the resource is likely to grow materially and that De Grey may be able to develop a project of +100k oz per year at its Pilbara Gold Project.

Highlights:
    • Underground success points to a sufficient scale to add a high-grade sweetener. The company is targeting 2.6-3.5Mt @ 4.0-6.5 g/t Au (330-720koz). The last two rounds of underground drill results have returned a weighted average grade of ~5.1 g/t Au over an average width of ~2.3m, which we view as a potentially economic underground operation when added to the planned open-pit mines. We note that a resource around the midpoint of the range provided would push the project over 2Moz Au. 
    • Production would likely increase if an underground component were added. We highlight that even if a small percentage of these higher tonnes (current mineable resource grade is 2.1 g/t Au) were added, our current estimate for 56k oz/year at total cash costs of US$767/oz would be conservative. We note that the underground target is sulfide (majority of the existing resource is oxide), so additional metallurgical work would be required to determine how this resource fits in. 
    • Follow-up drilling being planned. The company is in the process of planning a follow-up program to convert this exploration target into a resource. We note that the upcoming PFS for the Pilbara Gold project is not expected to include this underground resource.
Valuation:
Current share price does not reflect hard rock value. Our preliminary estimate for De Grey’s hard rock assets is A$0.30-0.45/share, which we plan to refine, following our upcoming site visit. While this reflects a potential doubling of the current A$0.14 share price, near-term head winds for the share price may include 60M in-the-money options (at A$0.10, expiring November 30) and the remaining A$10.4M cash payment for the Indee project. Upcoming catalysts: 1) Additional exploration results and 2) PFS in Q4/18.

01-Nov-2018

SolGold Plc.

Growing Monster with Largest Predators Circling

Impact: Positive

We are publishing our initial estimates on SolGold Plc with a NAVPS 8% of C$1.30. SolGold’s Alpala deposit is a world-class copper project with significant exploration upside. We believe SolGold’s asset suit is coveted by multiple major miners that may lead to a competitive takeout scenario over the next two years. We view Alpala and the wider Cascabel project as a world-class deposit with scale potential that separates it from the pack. We believe the maiden resource is set to double in December with room to grow further. As a result, we believe that the significant interest that major copper miners already have in SolGold is about to heat up.

Investment Thesis: 
  • Already a World-Scale project with solid economics. The size and grade of this project places it among the largest undeveloped copper projects in the world (Figure 2) and our estimates suggest that Alpala would be one of the larger lower cost producers in the world once in production (Figure 3 & Figure 28).
  • This monster is about to have a high-grade growth spurt and may double again thereafter. We believe the resource is set to double with the Q4/18 update. More importantly, we believe the high-grade core is set to grow by 50% improving project economics (we estimate project post-tax NPV8% of C$2.38B and an IRR of 20%). As well, preliminary evidence suggests the company may have only found “half” the deposit and could double it again with 2019 drilling (see section on Geology). 
  • Largest mining predators circling. With few available undeveloped world-class copper assets, major mining companies have been on the hunt globally for projects such as Cascabel. With two majors already on the share register, our expectation is that a takeout is likely by the end of 2020.  
  • Valuation: 
    Market is not pricing in pending resource update, let alone the premium warranted for this world class deposit. We believe that the pending resource update and ongoing exploration success are likely to drive our base case NAVPS8% to C$1.30. While SolGold already trades at a premium to peers (0.49x NAV vs peers 0.37x), 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, 2) Resource update (Q4/18) and 3) Maiden PEA (Q1/19).
10-Oct-2018

GT Gold Corp.

Saddle North Growing with Every Hole

Impact: Very Positive

GT Gold has announced two strong drill results from two holes from its Saddle North porphyry target (Au-Cu-Ag). These two step-out holes continue to demonstrate the size and grade potential of Saddle North and support our view that the company has made a significant porphyry discovery.

Highlights: 

  • Growing mineralized footprint. GT Gold announced drill results from its recently discovered Saddle North porphyry discovery with highlights of 904m grading 0.98g/t Au (TTD093 - Figure 1) from 15m depth and 494m grading 0.65g/t AuEq from 31m depth (TTD090 – Figure 2). Results confirm our theory that Saddle North may cover a large mineralized footprint, with a drilled strike length of at least 200m (geophysics suggests >1,000m) and true widths in excess of 700m. Saddle North remains open in all directions.         
  • Results pending on 4 holes. We can expect assays from four more widely-spaced holes (TTD098, 102, 106, and 107) targeting the Saddle North porphyry discovery this season. These pending results should provide a better understanding of the potential scale of this deposit and are likely to be additional catalysts for the stock.
  • Another Red Chris? The mineralized footprint and lithology of the intrusive complex at Saddle North appear to be similar to 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).

Valuation: 
Market starting to price in the porphyry discovery. After today’s 46% increase in the share price, the company now has a market cap of C$114M (EV C$100M) suggesting to us the market has started to price in the Saddle North porphyry. 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$25-62.5M 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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