Amarillo Gold Corp.
Drilling to Improve the Resource and Feasibility
Amarillo Gold has announced drill results from the ongoing infill drill program at its Mara Rosa open-pit project in Brazil. The company’s goal is to upgrade the current inferred resource ahead of a feasibility study (H1/19). We expect the current M&I of 1.27Moz Au grading 1.30g/t Au to grow. These results support our thesis that Amarillo’s Mara Rosa project is a highly undervalued development asset in the hands of a proven development team, where drilling and the upcoming feasibility study should gain market support. Highlights:
- Higher grades bode well for resource upgrade. Amarillo highlighted drill intercepts of 1.81 g/t Au over
13m and 3.54 g/t over 11m in the central and northern zones (Figure 1), which were successful in targeting the gaps within the existing inferred
resource (330koz Au @ 0.92g/t Au). The weighted average grade of the eight holes in this update is 1.26g/t Au.
- Reserves also set to grow. These eight drill holes are apart of the company’s ongoing 10 km drill program
(7 km core & 3 km RC) where 5,179m have been completed to date (includes previously released results).
We believe that the resource growth will translate to growth in reserves (currently 1.09Moz Au grading 1.42g/t Au).
- Reserve growth expected to boost upcoming feasibility study; exploration provides a wild card for growth. Growth
in the company’s reserves should improve the economics of company’s feasibility study through improved mine life. It is important to highlight
Amarillo are now drilling both: 1) resource expansion holes, as well as, 2) new exploratory holes looking for neighboring deposits along trend.
The addition of a second deposit would add new dimension to the project.
We believe Amarillo is a well-positioned gold developer in South America with an undervalued asset with near-term 100koz/year potential.
The company currently trades at a significant discount to peers ($13/oz vs. peers at $37/oz) and believe that upcoming catalysts will help re-rate the
stock. Upcoming catalysts include: 1) Resource update (Q1 2019) and 2) Feasibility Study (H1 2019) and 3) Installation license.
Novo Resources Corp.
Shifting to the Egina
Impact: Mildly Positive
Novo intends to aggressively explore it’s Egina tenements (948 km2), to which we currently ascribe no value in our preliminary valuation. As such, any success would be accretive to our estimates. Following recent bulk sample results , Karratha has transitioned to permitting ahead of large scale bulk sampling, shifting the company's exploration focus to Egina where it has laid out an aggressive program.
Adding Egina to our estimates is likely accretive to our preliminary valuation of C$2.40-4.80/sh. We believe, that with the Karratha project shifting a permitting phase, leaving 6-12 months be larger bulk samples can commence, near-term catalysts are likely to be from the exploration program at Egina. We intend to refine our overall estimates for the company and incorporate a value for Egina following our site visit in November.
Upcoming catalysts include, 1) Larger scale bulk sampling (H2/19) and 2) Ramp-up of exploration work at Egina (Q1/19).
- Three interrelated mineralization styles at Egina. The schematic of the property’s mineralization, shown in Figure 1, indicates
multiple mineralization types at Egina, which includes the basal Fortescue group gold conglomerates (like Karratha), gold bearing marine lag gravels
and lode gold mineralization. Given the scale of the lag gravel blanket and the potential for fine gold, Novo sees this mineralization style as
the most prospective.
- Ramping up on the Egina. The company has laid out a comprehensive plan to explore the project, using multiple methods of geophysics,
trenching, along small and larger scale sampling. The plans to assess its IGR3000 alluvial processing plant ahead of planned bulk sampling in 2019.
A portion of the Engina project (11.8km2) is already covered by mining leases, and is planned to be be the first area where work is completed.
- Upcoming site visit should provide us a view on the initial valuation of Egina. We currently ascribe Egina no value in our estimates;
however, the multiple deposit styles on this project, the fine-grained gold content and the pervasiveness of gold suggest this could be one of
the more prospective projects in Novo. We highlight the Pacton Gold’s (TSXV:PAC) recent success
in the area adds to our positive view on this project.
Nicola Mining inc.
Another Sweetener to a Copper Explorer
Higher cut-off grades applied by historic operators appear to have left a potential bulk mineable copper resource.
Following positive results from the Phase 1 RC drilling program, Nicola is proceeding with Phase 2, focused on the South Waste Piles and 3060 Ore Portal
zones. The objective is to define a resource for the copper-magnetite bearing crushed materials left behind at surface
by previous operators. We note that a Waste Pile processing operation could help kick start a larger copper mining project at New Craigmont or
be of interest to Teck Resources operating the low-grade Highland Valley copper mine next door. 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.
- Assessing Economics of the Waste Piles. Phase 2 will test the South Waste Piles and 3060 Ore Portal area. Dill results from 29 holes
drilled near the 3060 Ore Portal in 2017 suggest an average grade of 0.24% copper within nine meters of surface. Given that the waste piles are
unconsolidated and at surface, mining costs would be negligible. Thus, relatively low copper grades (Q3/18 head grade at Highland Valley was 0.24%Cu)
this would be accretive if a larger copper project is discovered.
- Magnetite – possible sweetener to a copper story? Between 1993 and 2014, 27 million tonnes of historic tailings were processed to
extract magnetite at New Craigmont. In addition to assaying for copper, Nicola will be completing studies to assess the economics of magnetite
in the waste piles.
On track for resource estimate in H1/2019. A resource is expected in H1 2019 for the Waste Piles. We expect any additional mineralized
copper-magnetite ore to enhance potential development of a larger future copper project, as the waste piles could serve as low cost mill feed in
the early years of an operation at New Craigmont.
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 West and Craigmont Central and 2) Drill results from porphyry targets.
Red Pine Exploration Inc.
Impressive Results Validate Geological Model
We continue to believe that the market fails to appreciate the potential size, scope and strategic value of this land package. Red Pine Exploration announced the intersection of additional wide zones of high-grade gold at the Surluga deposit, which follows recent high-grade intercepts announced last week
. These holes targeted the Jubilee Shear and intersected underground ore grade gold mineralization over significant widths, which continues to support our thesis that the Wawa corridor hosts a large gold system which may encompass multiple gold deposits.
- Fill the gaps. Red Pine drilled 5.13 g/t over 13.4m (true width), within a wider interval
of 3.53g/t Au over 24.4m (SD-18-229). These results should have a positive impact on the upcoming resource estimate for Surluga as the company
fills gaps in the existing resource. With a second rig currently being mobilized on the property, we can expect more results from the company as
it drills untested portions of the existing resource model.
- Drilling validates geological model at Surluga. These most recent results at Surluga validate
Red Pine’s geological model, and demonstrate the company’s understanding of the controls on the mineralization. We believe potential exists
(i) to convert waste to ore as additional gaps are drilled and (ii) to expand resources at Surluga as down-plunge extensions are drilled.
- Wawa Corridor coming together. Consistent ore grade drill intercepts reported for Minto South and Surluga suggest the company is on track to deliver its maiden Minto Mine South Zone resource estimate in Q4/18 and updated Surluga Deposit resource estimate in H1/19. We note that a number of other zones and structures have been identified within the Wawa Corridor and that resources are likely to continue to grow.
Discounted valuation reflects ownership structure and not the significant exploration potential that we see.
Pine trades at a steep discount to peers (US$14/oz vs. peers at US$41/oz), due to uncertainty surrounding its ownership structure. It would appear that
the market fails to recognize the exploration upside and we believe the pending resource updates could provide the company renewed momentum. Upcoming Catalysts
1) Minto South maiden resource (Q4/18) and 2) Surluga resource update (H1/19).
Brixton Metals Corp.
Is Atlin the Next Barkerville-Like Gold Discovery?
Brixton’s Atlin project has the potential to deliver a major discovery and we are pricing that possibility into our numbers.
Based on some exceptional historic results, this district scale land package has the potential to deliver a major gold discovery. Similar to the Barkerville
gold project, it is a historic placer mining camp and Brixton has already started the work to unlock its hard rock potential. We believe it is important to highlight that Brixton has now started to focus on Atlin to assess its discovery potential.
- Large placer mining camp but limited hard rock work done to-date. Atlin is British Columbia’s second largest placer mining
camp but has never undergone meaningful hard rock exploration. This is very similar to Barkerville (Caribou Gold Camp) to the south, where
a consolidation of the district, followed by systematic work has lead to an impressive gold discovery which gives Barkerville Gold Mines (TSXV:BGM)
its C$190M market cap.
- Not starting from scratch on this district scale land package. Over the last two years, Brixton has quietly consolidated this
district scale land package (1,004 sq. km), which includes a mining lease and a permitted 200 tpd mill at its Yellowjacket target. Work from
previous operators is highlighted by numerous high-grade intercepts, including 5.57m at 509.96 g/t Au within an 80m wide shear
- Atlin is now the focus, with work ramping up in 2019. Brixton has completed compilation and surface work (soil sampling and rock
chips) and plans to conduct some additional surface work and geophysics in early 2019 before drilling next spring.
Our probability-weighted valuation method estimates Brixton’s current share price should double (Blended Valuation Estimate of C$0.28/share
– see Figure 1). Our methodology considers three possible scenarios: 1) upside-case (a Barkerville type discovery), 2) a middle case (small high-grade resource) and 3) a downside case (status quo after exploration spend). It is important to highlight that we believe there is limited downside from current levels as Brixton’s three other 100% owned projects underpin the company’s current market cap.
Upcoming catalysts: 1) Additional drill results from the Cobalt camp, 2) Surface work results from Atlin and 3) Ramp-up of exploration efforts at Atlin.
Novo Resources Corp.
Time to get Mining
Impact: Mildly Negative
Bulk sample results provide enough information to move the project to the next stage, despite coming in below expectations. The lower grades materially reduce our expected deposit size; however, the results are expected to provide enough information for a mineral inventory. We believe this updated data should allow the company to convert Comet Well into a Mining Lease and result in large scale bulk sampling in H2/19.
While these results suggest the likely mineral endowment at Comet Well & Purdy’s Reward is smaller than previously thought, we continue to believe
that Pilbara is likely to yield multiple significant conglomerate gold deposits.
- Enough information to move to go mining. A mineral inventory is one of the items required to convert Comet Well into a mining
lease. We believe these results, along with the diamond drilling for structure should be sufficient. We expect it will take 6-12 months to
convert it to a mining lease, likely resulting in bulk sampling starting in H2/19.
- Our resource guess is now, 3-5Moz, smaller but still represents a major discovery. Using similar parameters to our previous estimates
(Figure 2), but assuming narrow widths and lower grades we get to our new estimate. We are planning to visit the project before the end of
the year and are likely to evaluate project economics with that visit.
Preliminary valuation reduced to C$2.40-4.80/sh (was C$4.80-18/sh); number to be refined following upcoming site visit.
We now believe Karratha is worth between C$0.90-3.00/sh (was C$3.25-16.25/sh) based on our lower potential resource estimate. In our view the next major
catalyst for Novo and the Pilbara is larger scale bulk sampling, which is expected to start in H2/19. Upcoming catalysts include, 1) Larger scale bulk sampling (H2/19) and 2) Ramp-up of exploration work at Egina.
Anaconda Mining Inc.
Higher Grades = Higher Estimates
Positive Resource Surprise Drives NAVPS Increase. Positive resource update materially improves our NAVPS estimate by 24%. This improvement was driven by material improvement in the overall grade of the project and goes along with recent positive Q3 operating results. In addition, the company confirmed that the PEA, assumed too large a provincial NSR, (was 2%, now 1%) has also benefited our estimates.
Valuation: As result of the tax changes and increased grade, our NAVPS estimate as increased 24%. Our NAVPS estimate for Anaconda has increased to C$1.35/sh (was C$1.02/sh). Anaconda continues to trade at a substantial discount to peers (0.20x NAV vs. peers at 0.55x) despite record production in Q3, improved financial performance and a clear improvement at Goldboro. We expect the company to steadily re-rate, with each successive quarter of improved operations and continued de-risking of Goldboro. Upcoming catalysts include: 1) Q3/18 financial results, 2) 10kt bulk sample at Goldboro, 3) ongoing exploration and 4) debt financing for Goldboro.
- Agressive exploration at Goldboro pays off; drills still turning. Ongoing successful exploration at Goldboro has proven to be fruitful
with an overall 27% increase in grade from 4.4g/t Au to 5.6g/t Au and a 21% increase in gold ounces to 1.06Moz Au from 0.87Moz Au (Figure 1). We
expect that the ongoing drill program could have a similar positive impact on the next resource update.
- Game-changing grades. We believe the material increase in grades is likely to benefit the underground operation (post year 3 of the
mine-life) and in our view, this grade improvement should materially improve costs (now US$448/oz, was US$554/oz) and project economics (pre-tax
NAV now C$196M, was C$122M). We note that despite the increase in overall tonnes, we have not added additional mineable tonnes suggesting there
may be further upside to our estimates.
- Bulk sample results key for next steps. The company is currently completing a bulk sample at Goldboro. In our view, this work is key
for confirming the underground resource grades and allowing the company to complete the next de-risking step of a Feasibility study (expected in
2019). Bulk sample results are expected in H1/19.
Standard Lithium Ltd.
Breaking down the Brine; Rapid Rerate on the Horizon
Commissioning of the prototype pilot plant has started and is an important step before a commercial production decision (2020).
We believe the commissioning of the prototype pilot plant is an important step towards securing an offtake agreement. This in turn would help fund
the construction of a full-scale operation. We continue to believe that Standard Lithium is one of the best ways gain exposure to the space as it already has access to a producing brine field (permits in-a-hand, no exploration work required).
- Another step towards commercial production. The completion of the prototype pilot plant is important, as it will determine the
final process design for the pilot plant. A pilot scale plant is needed to generate enough material for battery manufacturers to test the product
leading to an offtake agreement, which is the precursor to full-scale production. Operations of the prototype is expected to run for 2-3 months
at which point, the company is expected initiate the construction of a pilot plant.
- A high-quality and quick to market product is likely. Previous lab test work on the Arkansas brines yields high purity (>99.5%)
of crystallized lithium product. The brines at Smackover are currently the world’s largest source of bromine, which contain elevated levels
of lithium in the range of 150-500 mg/L. Standard Lithium plans to tap into the existing brine stream to harvest the lithium, and build its
production facilities within already permitted areas, making this a quick to market project.
- Finalizing off-take agreements are key, expected in Q4. We believe that once the company completes its offtake agreement with
the underlying lease holder, Lanxess (ETR:LSX), we would expect it to publish a sizeable lithium resource, likely re-rating the stock and catching
the attention of larger producers.
Re-rating expected when Smackover resource released in Q4.
Standard Lithium’s unique ability to quickly generate a resource (once the off-take agreement is complete) 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)
Red Pine Exploration Inc.
Wawa Wows with Grade and Thickness
Red Pine Exploration announced wide high-grade intercepts from the Surluga Deposit, which follows recent positive results from the nearby Minto South Zone
. These results continue to support our thesis that the Wawa corridor (Figure 1) hosts a large gold system which may encompass multiple gold deposits. We continue to believe that the market fails to appreciate the potential size, scope and strategic value of this land package.
- Mind the gaps. Red Pine drilled 3.5 g/t over 32.8m (true width), including 4.99 g/t over 17.6m (SD-18-228) and 27.3m (true width)
over 1.0 g/t (SD-18-230). These holes targeted gaps within the existing resource model that were previously untested and assigned zero grade.
These results should have a material positive impact on the upcoming resource estimate for Surluga, as waste blocks are converted to ore.
- Drilling validates Red Pine’s structural model at Surluga. While previous operators were focused on down-dip extensions of stacked
shear zones at Surluga, Red Pine has shifted focus to high grade shoots plunging to the southeast within the shears. These most recent
results at Surluga validate Red Pine’s structural model and demonstrate potential (i) to convert waste to ore as additional gaps are drilled
and (ii) to expand resources at Surluga as down-plunge extensions are drilled.
- Wawa Corridor slowly coming together. Consistent ore grade drill intercepts reported for Minto South and Surluga suggest the company is on track to deliver its maiden Minto Mine South Zone resource estimate in Q4/18 and updated
Surluga Deposit resource estimate in H1/19. We note that a number of other zones and structures have been identified within the Wawa Corridor
and that resources are likely to continue to grow.
Discounted valuation reflects ownership structure and not the significant exploration potential that we see. Red Pine trades at a steep discount to peers (US$14/oz vs. peers at US$41/oz), due to uncertainty surrounding its ownership structure. It would appear that the market fails to recognize the exploration upside demonstrated by ongoing drill results. We believe that the pending resource updates could provide the company renewed momentum. Upcoming Catalysts include 1) Minto South maiden resource (Q4/18) and 2) Surluga resource update (H1/19).
Brixton Metals Corp.
Big Grades from Hudson Bay
News from the 11 drill holes at Brixton’s Hudson Bay project comes as an exciting step forward, compounding on the ongoing exploration success
at the nearby Langis mine. The Hudson Bay project is located in the Cobalt Camp, where ~500 Moz Ag and ~50 Mlb Co have historically been produced. Results support our thesis that Brixton remains an undervalued explorer with multiple prospective assets in North America.
- Impressive Ag-Co results. The company released 11 drill holes, highlighted by HB18-31, which intersected 1m grading 3,290 g/t
Ag, 0.14% Co and 0.29% Ni (2.53% CoEq, equivalent to ~25% CuEq) and HB-18-34 which intersected 1.96% Co and 16.2 g/t Ag (1.97% CoEq, equivalent
to ~19.7% CuEq). The results give the company additional leverage to cobalt and nickel, two battery metals with positive long-term supply and
- Being a step ahead has Brixton delivering some of the best results in the Cobalt camp. The company started work in the Cobalt
camp ~1 year ahead of the cobalt rush, putting it ahead of its peers in understanding, as evidenced by the company’s ongoing exploration success.
However, these results have not translated into the share price, suggesting Brixton is significantly undervalued based on its Cobalt assets
- Other assets have high-potential but ascribed little value. The company has 3 other quality assets - Atlin, Thorn and Hog Heaven.
In particular, we believe that Atlin has the potential to yield a high-grade gold discovery in the next 18 months. Historic results at Atlin
include: 5.57m at 509.96 g/t Au and 6.00m at 21.07 g/t Au. We expect the company to ramp-up exploration at Atlin in 2019.
Undervalued based on Cobalt assets alone, investors getting Atlin and the other projects for free. Based on peers in the Cobalt Camp, we believe Brixton remains undervalued based on these assets alone. In our view, continued exploration success, including the ramp-up of exploration efforts at the company’s Atlin project in British Columbia, should benefit shareholders. Upcoming catalysts: 1) Additional drill results from the Cobalt camp, 2) Surface work results from Atlin and 3) Ramp-up of exploration efforts at Atlin.
Pacton Gold Inc.
More Nuggets from the Egina
Impact: Mildly Positive
Pacton Gold continues to discover gold nuggets on its properties in the Egina region; specifically at the Golden Palms property (Figures 1 & 2). The news is another step in the right direction for the company as it ramps up its exploration efforts in Western Australia and transitions from land-acquirer to explorer. In our view, Pacton has multiple projects that could yield a significant conglomerate gold discovery, as demonstrated by its early stage success.
- Nuggets from Golden Palms imply significant scale potential at the company’s Egina tenements. The discoveries were made within
a 300m by 300m area located approximately 2.5km northwest of the company’s previously announced
discovery of gold nuggets at Friendly Creek (Figure 1) and associated with the same 10km stretch of ultramafic and komatitic basalt rocks.
While very early days, the scale potential is similar to that of Novo Resources (TSXV:NVO) Comet Well/Purdy’s Reward project.
- Significant underexplored strike length. The Golden Palm, Friendly Creek and Hong Kong tenements are all located in South Egina,
along a large underexplored 8km thick volcano-sedimentary system, which extends for ~10km along strike (Figure 1). The combined land package
is adjacent to Novo’s recently acquired Egina tenements, which Novo highlighted as prospective.
- More exploration catalysts expected shortly. The company has started to ramp up exploration, specifically at the Egina properties.
We believe that exploration success from its own projects, along with positive news from Novo, should provide additional momentum for the share
Pacton is the third largest conglomerate landholder and its recent exploration success could be repeated at its other projects.
With an excess of 2,500 km2 in the Pilbara and work underway on multiple projects, we believe that exploration success at one or more of its projects could drive Pacton’s share price higher. This should be particularly true if Novo’s bulk sample results provide some positive momentum for the space. Upcoming catalysts: 1) Initial exploration results from Arrow and 2) Novo bulk sample results (Oct).
Orford Mining Corp.
Thick Au Intercepts Found; Follow Up Work Warranted
Impact: Mildly Positive
Thick gold intercepts warrant follow up work in Quebec; Carolina drilling also hit thick zones of low grade gold. The company announced results of the 2018 drilling and mapping program on its Qiqavik property in northern Quebec. Although very early days, the company is methodically progressing exploration at Qiqavik. In addition, they provided an update on the Jones Keystone and Landrum Faulkner drilling in the Carolina's. Qiqavik’s results continue to highlight this projects potential and with only ~16 weeks’ work completed to date, follow-up is needed.
- Drilling and mapping efforts at Qiqavik progressing well but more work is needed. Initial visual results from the summer program uncovered
a thick sequence of quartz veins in three drill holes (QK-18-002, -007 & -008), assay results include: 24.6m @ 0.48g/t Au (QK-18-008). While
not ore grade intercepts, our view is that this target is starting to demonstrate potential and warrants follow-up work, particularly since the
surface expression of the target has extended to 350m. As well, the company expanded the surface expression of the Focused Intrusive (to 800m)
and Gerfaut South zones (to 850m).
- Results suggest short transport distances for some discovery boulders, bodes well for others. Exploration at the Interlake area (Qiqavik)
has led the company to a potential source of the high-grade boulders. The relatively short transport distance, bodes well for discovering the source
of other high-grade boulders on the property.
- Carolina drilling returns thick zones; data review underway. Drilling program at the Jones Keystone and Landrum Faulkner properties
in North and South Carolina was completed in August. Highlighted by hole JK-18-054 which found 41.1 m @ 1.36g/t Au from 108.5m. Overall, the thick
mineralization intersected did not deliver ore grades. The company is reviewing to determine the next steps for both projects.
We believe Orford’s current value does not properly reflect the potential of the Qiqavik. We believe the companies sub C$15M EV, does not reflect the regional scale of the Qiqavik project or its multiple district scale targets.
Upcoming catalysts: 1) 2018 surface sample results and 2) 2019 exploration plans.
Great White Shark Takes Another Bite
Impact: Very Positive
BHP makes a statement by increasing its stake in SolGold at a premium. BHP Billiton (ASX:BHP; LON:BLT) has increased its stake to 11% and has provided a good portion of the funds required for SolGold’s 2019 exploration program. This should lift any perceived financing overhang and opens the door to a valuation rerating. With copper fundamentals improving and few large-scale undeveloped projects available (Figure 1), we expect Alpala to be coveted by major miners looking to bolster future production.
- BHP’s second investment should act like blood in the water with other majors circling this world class asset. BHP Billiton (ASX:BHP;
LON:BLT), the world’s biggest miner, purchased 100M shares at £0.45/sh (C$0.77/sh), a 30% premium to the 20 day VWAP. BHP is now at 11.2% or 203M
shares (was 6% or 103M shares), putting it just behind Newcrest Mining (ASX:NCM) currently holding 14.5% (247M shares) (Figure 2). We believe Alpala
is one of the few large-scale copper assets available (Figure 1); thus, it is likely other large mining companies noticed the feeding frenzy.
- Multiple strategic investors create competitive tension. With two strategic shareholders over 10%, we expect that a takeout is most
likely to occur at a premium to historic transactions. We note that copper projects historically sell for, ~US$0.07/lb CuEq and BHP’s investment
implies a value of ~US$0.065/lb CuEq (pre-material resource update).
- Exploration upside on an already world-class deposit is attracting attention. The current resource of 16.18Blb CuEq, is based on 53,616m
of drilling. The updated resource estimate expected in Q4/18 is expected to include an additional 70,400m of drilling; which we believe should
grow the resource materially.
Valuation neither reflects likely resource growth nor competitive tension on a take-out. SolGold trades at US$0.050/lb (pre-resource update)
versus peers at US$0.037/lb CuEq (Figure 3). In our view, the upcoming resource growth and the strategic interest in the project should warrant a share
price re-rating given that the company is largely funded for 2019 exploration efforts. Upcoming catalysts: 1) Ongoing exploration
and 2) Resource update (Q4/18).
“Roe-ing” Towards Success; New Target Identified
Impact: Mildly Positive
Exploration at Mt. Roe identifies new hard rock target. Recent exploration efforts by NxGold at its Mt. Roe project resulted in the discovery of the Sun target, to go along with the advancing Eagle hard rock target. While at an early stage, proximity to Artemis’ Silica Hill’s project emphasises the potential for discovery. This recent exploration update continues to support our thesis that NxGold provides investors with both conglomerate gold and hard rock exploration potential.
- Trenching at Eagle highlights potential. Initial trenching has exposed two multi-metre wide stockworks of cm scale veining, which further highlights the potential for primary gold mineralization at Eagle. Along with additional trenching, the next step at Eagle is an IP survey, which should help refine potential drill targets.
- Systematic work sheds light on the Sun target (Figure 1). The Sun target was highlighted by 0.08g/t Au, 0.6g/t Ag and 0.18% Cu collected over 5m of a vein that was traced over 50m in length. The vein is located in close proximity to Artemis Resources’ (ASX:ARV) Silica Hills prospect, a hard rock target with significant at surface gold occurrences.
- Conglomerate exploration is still the cornerstone to our investment thesis, with hard rock acting as a valuation buffer. The identification of hard rock targets at Mt. Roe is positive; however, conglomerate gold exploration remains the backbone of our investment thesis. We believe Mt. Roe has compelling conglomerate gold exploration targets that are not priced into the stock.
Market does not account for exploration potential. NxGold’s current EV is C$5M, giving minimal value for its conglomerate targets and none for its recently discovered hard rock targets. In our view, this severe discount to other Pilbara players has the company poised for a significant re-rating should news come from Novo’s pending bulk sample results prove to be positive. Meanwhile, NxGold is focused on its hard rock exploration. Upcoming catalysts include 1) NVO bulk sample results (Oct), 2) Ongoing surface sampling and geophysical results and 3) Access update on the Kuulu Project.
De Grey Mining Ltd.
Hard Rock Asset Continues to Grow
Impact: Mildly Positive
Results point to continued resource growth for De Grey’s hard rock assets. The company’s exploration results from Toweranna and Mallina
are likely to add to the company’s growing inventory of mineable ounces. These results follow a recent resource update where the company more than
doubled mineable ounces. This news supports our theory that the project has significant room to grow (Company aims to build a 3Moz Au resource - Figure 1).
- Near surface drilling continues to impress. Following a 254% increase in total resources at Toweranna to 144koz Au (2Mt @ 2.2g/t Au),
drilling is continuing to highlight its near-surface expansion potential with 17.3m grading 3.91g/t Au from 50m (TRC052D). Now that the company
has defined a high-grade near-surface deposit, focus is shifting to targeting depth extensions. Deeper drilling success opens the door to a potential
higher-grade underground resource, which the company intends to highlight in a Scoping Study following the Open Pit PFS.
- 3km of shallow gold zones largely untested at Mallina. The company is testing 3km of extensive shallow gold zones at Mallina.
Results were highlighted intercept of 56m grading 3.04g/t Au (MLRC214D). Following a 9% increase in total resources to 161koz Au (3.8Mt @ 1.3g/t
Au) in the last update, Mallina remains an important near-surface target (<100m depth) for step-out drilling.
- Expanding resources suggests a larger mine may be possible. The company’s current scoping assumes production of ~58k oz/year
(RCKS est. ~56koz/year); however continued exploration success could see this potential mine exceed 100koz/year.
Current share price does not reflect hard rock value; let alone conglomerate optionality.
Our recently updated preliminary
estimate for De Grey’s hard rock assets is A$0.30-0.45/share. While this reflects a potential doubling of the current A$0.15 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.
Pacton Gold Inc.
Nuggets Delivered from the Egina
Impact: Mildly Positive
Pacton Gold announced the discovery of gold nuggets within favorable stratigraphy. This news is the beginning of an important step for Pacton as it moves from land-acquirer to explorer.
Pacton’s gold nugget discovery at Friendly Creek bodes well for future exploration along the 10km of favourable conglomerate. The Pacton tenements
are in the Egina region of the Pilbara that has been identified as prospective for conglomerate gold by Novo Resources (TSXV:NVO).
Pacton is the third largest conglomerate landholder in the Pilbara. With an excess of 2,500 km2 and work underway on multiple projects, we believe that exploration success at one or more of its projects could drive the share price higher. This should be particularly true if Novo’s bulk sample results provide some positive momentum for the space. Upcoming catalysts: 1) Initial exploration results from Arrow and 2) Novo bulk sample results (Oct).
- Gold nuggets collected from six locations along conglomerate horizon. The discoveries were made along a 10km stretch of ultramafic
and komatiitic basalt rocks (Figure 1). Previous historical reports of gold working in the same geological unit as Friendly Creek have indicated
that the nuggets originated from underlying bedrock and were alluvially transported to surface.
- "Egina-ing out the competition!” Friendly Creek success follows the planned acquisitions of the adjacent Golden Palms and Hong Kong tenements (Figure 1). The combined land package is adjacent to Novo’s recently acquired Egina tenements, which Novo highlighted as prospective in a recent presentation.
We believe ongoing work by Novo, Kairos Minerals (ASX:KAI) and Pacton is likely to demonstrate the potential of this region and benefit all players.
- Transition from acquirer to explorer; catalysts on the way. The company appears to have slowed the pace of acquisitions and has started
to actively explore multiple projects, including its Arrow project and Friendly Creek. We believe that exploration success from its own projects,
along with positive news from Novo, should provide additional momentum for the share price.
Avidian Gold Corp.
Hot Smoke; Signs of Burning Fire!
Early signs of a major discovery at Copper King. Avidian released impressive drill and trenching results from this summer’s program, highlighted by 9.1m of 9.78% CuEq (or 15.48 g/t AuEq) in hole CK18-01. In our view, these results combined with previously released surface work and geophysics, suggest that Avidian is closing in on a larger porphyry source. We believe the market is giving the company no value for a potential major discovery in the prolific Tinitina Gold Belt (see detailed discussion for supporting thesis). We believe that Avidian’s Copper King and Long Creek targets have similar potential to GT Gold’s Saddle North.
- Impressive results especially when placed in context - suggest company is vectoring towards something larger. Putting these strong
trench and drill results in context with the previous work done, especially the geophysics (Figures 3-5), it appears that Avidian may have intersected
the distal portion (skarn) of a larger intrusive porphyry system.
- Follow up drilling results pending. The company has additional results pending from Copper King (2 holes – Figure 2) and Long Creek
(3 holes – Figure 6). While these results may lead to discovery of a skarn hosted deposit, we expect all this data will help Avidian further refine
the next drill program.
- Drawing parallels to another hot discovery story as a guide. These results remind us of the initial Saddle North results announced
by GT Gold (TSXV:GTT) for hole TTD062 in 2017, largely ignored by the market at the time (stock down 6% when released). This drill hole led to
a discovery causing the market to add C$98M in value to GT Gold.
Porphyry discovery could add ~$1.75 to Avidian’s share price which is underpinned by an existing gold resource. Based on the evidence to date, we ascribe a 10% probability that AVG makes a major porphyry discovery and a further 50% chance that an economic base metal project is found. We also believe the current valuation is underpinned by the existing gold resource target (between 0.6Moz and 1.2Moz). Key Upcoming catalysts include: 1) Porphyry target drill results, and 2) Additional gold target drill results.
Anaconda Mining Inc.
Strong H2/18 Ramp Up in Line with Our Forecast
Impact: Mildly Positive
Anaconda Mining reported a strong increase in gold production in Q3/18 that supports our view for a robust finish to 2018. Financials have yet to be released but we expect these results to generate cash that would support the development efforts at the Goldboro project. We believe the company is on track to beat 2018 guidance by approximately 9%.
Near-term production growth not reflected in discounted valuation; Goldboro bulk sample and securing 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. Our NAVPS
estimate for Anaconda has increased to C$1.02/sh (was C$1.00/sh) as a result of our model rolling forward. Anaconda trades at 0.26x NAV, a steep discount
to peers (0.64x) which should close as the company demonstrates the potential of Goldboro. Upcoming catalysts: 1) Q3/18 financial results, 2) 10kt bulk sample at Goldboro, 3) ongoing exploration and 4) debt financing for Goldboro.
- Strong production growth in Q3/18 up 10% Qtr/Qtr (Figure 1). Anaconda produced 5,099 oz Au in Q3/18, which
compares favourably to the 4,632 oz in Q2/18 and supports our view of a strong H2/18. While production for the quarter was slightly below our estimate
of 5,687oz Au, we view this as directionally positive as the transition seems temporary. The primarily difference relative to our model was driven
by slightly lower grades, as the company processed less ore from Stog’er Tight and more from the Pine Cove pit stockpiles.
- Mild impact on our Q3/18 financials estimates. As result of the lower grades in Q3/18 and the company selling
950 oz less than produced, we have modestly adjusted our financial estimates for the quarter. Higher grades from Stog’er Tight should help fuel
production and financial performance over the next 18 months.
- We expect Anaconda to beat 2018 guidance. Based on Q3 results, we now model the company producing 19.6k
oz Au at C$930/oz total cash costs (TCC) (was 20,230oz at C$932/oz TCC), which is ahead of the company’s 2018 guidance for 18koz at C$1,000/oz
TCC. We currently model 26.9k oz at C$859/oz in 2019.
Pacton Gold Inc.
Living on the Egina!
Impact: Mildly Positive
Pacton Gold announced that it has entered into an LOI to acquire additional conglomerate ground in the Egina region. We believe this to be a positive development, as it is an area of the Pilbara that has now been identified as prospective for conglomerate gold by Novo Resources. This pending acquisition is in line with the company’s strategy to use the valuation difference between Canadian and Australian conglomerate gold players, to acquire prospective ground for exposure to conglomerate gold exploration. It is important to highlight that the company has started work on its 100% owned Arrow project; thus, transitioning Pacton from an acquisition strategy to one with some exploration.
- By securing land in the region the company tries to get a lock on perspective ground ahead of news flow. The prospective deal provides
exposure to a project adjacent to Novo’s recently acquired tenements. We continue to believe that upcoming news from Novo Resources should help
dictate the direction of all the stocks with Pilbara conglomerate exposure.
- The Project has historic showings over 5km of prospective strike. The project has seen historical small-scale mining both in traditional
hard rock targets and conglomerates. The exploration licence covers 40.15km2 and is home to over 5km of strike of favourable stratigraphy for conglomerate
- Terms of the acquisition appear reasonable; with limited cash commitments. Terms of the agreement will have the company paying Clancy
the sum of C$175,000 and 3,797,470 common shares, implying a total acquisition cost of ~C$1.47M. In our view, the company’s ability to conserve
cash with these acquisitions puts them in a better financial position to explore them in the near future.
Pacton is the third largest conglomerate landholder (Figure 3); with work underway on its Arrow project. We believe that initial exploration success at its Arrow project could drive the share price higher, particularly if Novo’s pending bulk sample results provide some positive momentum for the space. Upcoming catalysts: 1) Initial exploration results from Arrow and 2) Novo bulk sample results.
Gladiator Resource Update Coming in the Next Month
Impact: Potentially Positive
Bonterra Resources announced that it plans to release an updated Gladiator resource in November. In our view, this should be a material catalyst for Bonterra, as the company’s resource base is expected to significantly increase with this update.
We believe Bonterra trades at a discount to peers, suggesting that the addition of new ounces with this update should drive the share price materially
Resource growth is expected to drive a re-rating. Based on currently reported resources for Gladiator, Barry and Bachelor, Bonterra trades at US$58/oz, a premium to peers but once we factor in our estimate of ~C$50M for the Bachelor mill, Bonterra trades at a slight discount at US$32/oz with peers at US$33/oz. As well, if we factor in our estimate of a 2 million oz gold deposit at Gladiator, Bonterra would trade at a substantial discount to peers at US$20/oz. In our view, every ounce added to the current 273koz resource at Gladiator should move the share price higher. Upcoming catalysts include, 1) Gladiator resource update and 2) Ongoing exploration results.
- We believe a Gladiator resource update could surprise the market. Our site visit
late last year, along with this years continued drilling success leads us to believe that the Gladiator resource could host up to 2Moz Au.
We would note that managements new focus on development could result in a higher cut-off grade (for mining), potentially resulting in the resource
being different than our estimate.
- Gladiator’s ounces have a home. Following the merger with Metanor, Gladiator has a short path to production, with ore planned
to be processed at the recently acquired
Bachelor Mill starting in 2020 (see Figure 1 for development timeline). The company plans to expand the mill from 800 tpd to 2400 tpd.
- Resource at Gladiator puts the company on the path to +190koz per year. Starting in H2 2019, the company plans to restart production
at Moroy (500 tpd at 6/gt Au) and Barry (900 tpd at 7g/t), which should result in +100koz per year of production. When Gladiator starts production
in mid-2020 (1000 tpd at 7.5 g/t) the production profile is expected to increase to +190k oz per year.
Red Pine Exploration Inc.
Minto South Resource Incoming
Impact: Mildly Positive
Red Pine Exploration announced results from 19 holes at its Wawa Gold Project, 2 km west of Wawa, Ontario. Drilling continues to test the southern extension of the Minto Mine South Zone ahead of the resource update for the zone, which is expected Q4 2018. The high-grade drill results continue to support our thesis that the Wawa corridor hosts a large gold system where we see the company building a high-grade underground resource.
We continue to believe that the current uncertainty regarding Red Pine’s ownership structure is causing the company to trade at a steep discount to its peers (US$15/oz vs. peers at US$39/oz). We also believe that the market fails to recognize the exploration upside demonstrated by ongoing drill results.
While ongoing drilling is likely to be a positive for the stock, we view the pending resource update as a catalyst that could provide the stock renewed
momentum.Upcoming catalysts are expected to include, 1) Minto Mine South Zone Maiden Resource (Q4/18), 2) Updated Surluga Resource (H1/19) and 3) Ongoing Exploration results.
- Results validate structural interpretation. The company highlighted 3.3g/t
Au over 15m including 9.93g/t Au over 2.9m (SD-18-223), testing extensions of Minto South. Continued drilling success at Minto Mine South Zone continues
to validate Red Pine’s structural interpretation of this zone. We note that the Minto Mine Shear Zone remains open down plunge to the south and has potential
to host a second shoot up-dip of the existing mineralized zone.
- The pieces are coming together. Results continue to reflect our view that the multiple mineralized zones at Wawa are part of a larger gold system, where the company is slowly building a high-grade resource within the prospective Wawa Gold Corridor.
- Maiden resource expected shortly. The company is continuing its 30,000m drilling campaign leading up to its Q4/18 maiden NI 43-101 resource on the Minto Mine South Zone.We expect a PEA and revised NI 43-101 resource on the Surluga Deposit in H1/19.
Novo Resources Corp.
Bulk Sample Results Coming in October
Impact: Mildly Positive
Novo Resources announced an improved resource at Beatons Creek and has guided to an October release of the bulk samples results from its Karratha project. While we view the resource update as positive, we believe the market has been disappointed by the frequency and amount of data from the conglomerate target so far. Ultimately, we expect the results of the bulk sample to support our thesis of +10 mln ounces of gold at Novo’s Karratha project. We also believe results from the bulk samples will have an impact on all conglomerate gold players in the Pilbara.
- Comet Well bulk sample results are coming in October; stock expected to move on the news. This news is something the market has been waiting for, and we expected it to be a material release for both Novo and other Pilbara players (Figure 1)
- All bulk sample results to-date have returned an average value of 7.4 g/t Au. This weighted average includes all the 5-tonne (2) and 300kg (9) samples released to date, including the released samples that returned zero grade. To maintain our current view that Comet Well & Purdy’s Reward could be between 10-25Moz at 10-15g/t Au, we expect grades to remain at or slightly above the current average.
- Beatons Creek grows and modestly improves our valuation. Based on work since 2015, Novo has increased its Beaton’s Creek near surface resources by 26%, while overall grade decreased by 10%. We have adjust our preliminary valuation for Beaton’s Creek based on the results and now estimate its value between C$175M-C$225M (was C$150-200M), which equates to C$1.10-1.40/sh.
Minor lift to valuation following resource update; pending bulk sample results is the key catalyst.
By applying our increased valuation for Beatons Creek to our, rough valuation for Karratha (C$3.25-16.25/sh
) and a cash balance of ~C$0.43/sh, we believe Novo is worth C$4.80-18.00/sh (was C$4.70-17.90/sh). As a result, we believe there is significant upside from the current share price of C$2.58/sh.
Another Large Specimen from Beta Hunt
Impact: Mildly Positive
RNC Minerals announced another impressive gold specimen stone (90kg or ~1000oz Au) from the Father’s Day Vein at Beta Hunt, supporting the company’s forecast to extract a total of 30-35k oz Au from the initial discovery area. While this news is directionally positive, the key to demonstrating the potential of Beta Hunt should be ongoing exploration development work. With the balance sheet repaired, we expect ongoing exploration and development work that demonstrates the potential of these ultra-high-grade shoots as the key catalysts for the stock.
- 90kg slab specimen stone (Figure 1) supports 30-35k oz of production from initial discovery zone. The continued extraction of
large-scale ultra-high-grade specimens supports the company’s forecast to generate C$46-54M from this area. This should fund the company’s
exploration and development efforts at Beta Hunt.
- Results to date point to something large. Based on the structure defined to date, we continue to believe that these high-grade
structure shoots could yield significant deposits (Figure
2). More drilling and development work, particularly on grade continuity is needed to define the project’s potential.
- “Proof of the Pudding is in the Eating” - work underway. With the Father Day Vein being converted to cash, the company is ramping
up exploration and development, on the A-Zone shear and next closets Western Flanks shear (Figure 3). It will likely take A$10-15 million to
properly define each shear zone with drifting and drilling. We expect work to ramp-up in Q4/18 and a steady stream of results from the end
of this year and into next.
The market is currently pricing in a deposit of ~2.2M oz. Our rough estimates (Figure 2) suggest the deposit could be materially larger, suggesting that with additional information that demonstrates, size and grade continuity RNC’s share price could continue to move higher. Upcoming catalysts include: 1) Drilling and development results from Beta Hunt and 2) Balance sheet update.
Results Suggest Alpala NW Could Be a 2nd Porphyry
SolGold Plc has provided an exploration update which highlights the expansion of its high-grade core. Expanding the high-grade core, should increase the overall grade of the deposit and likely improve project economics. The company is expected to release a resource update later this year that we believe should materially increase the current global resource of 16.18Blb CuEq. In addition, hole 64 shows evidence of a potential second porphyry system that could accelerate the company’s growth profile. These results continue to support our view that this world class deposit is poised to grow materially with its late 2018 resource update.
Lion One Metals Ltd.
Exploration Potential Mirrors 7 Moz Neighbor
We recently had the opportunity to visit Lion One’s (TSXV:LIO, ASX:LLO) Tuvatu project in Fiji. The key takeaway is that the company may be on cusp of demonstrating the significant exploration upside inherent within its 20,000 hectare property. The high-grade Tuvatu gold deposit (739koz grading 9.5 g/t Au) within the Navilawa caldera shares geologic similarities to the operating Vatukoula gold mine (7 Moz Au) and other giant epithermal deposits within the Pacific Ring of Fire, like Newcrest’s Gosowong deposit (6 Moz Au – Figure 5). These similarities along with the work completed to date suggest there is significant “Blue Sky” potential at Tuvatu.
First Cobalt Corp.
FCC Hits Broad Zones of Mineralization at Iron Creek
First Cobalt has released drill results from its Iron Creek Project in Idaho, USA, which were highlighted by
broad zones of mineralization. These results should help growth the resource but may introduce the option of underground bulk mining. Recall that they
recently released an inferred resource estimate that showed growth . The drilling tested a high-grade zone at the western extent of the company’s resource, which remains open along strike and at depth. All of this supports our investment thesis that First Cobalt has shifted from exploration to development, with an increased focus on its Iron Creek project.
Based on the updated resource, First Cobalt trades at, C$0.65/lb CoEq, this compares to other primary cobalt explorers/developers at C$0.46/lb CoEq. We view the premium as warranted given the company’s growing resource at Iron Creek, its dominant land position in the Cobalt Camp and its ownership of the only permitted cobalt refinery in North America.
- First Cobalt intersects both copper-rich and cobalt-rich zones outside the recent resource. The company highlighted copper intercepts
of 10.0m of 4.04% Cu and cobalt intercepts of 1.04% Co (~10.4% CuEq) over 1.5m, where the company is intersecting higher grade cobalt zones towards
the eastern extent of known mineralization and copper-rich zones to the west. We expect these results to be additive to the existing resource,
both from an open-pit and underground perspective.
- Broad zones of mineralization may provide design flexibility in the future. With two possible development scenarios currently under
consideration, open-pit (26.9 Mt grading 0.11% CoEq or ~1.1% CuEq) and underground (4.9 Mt at 0.30% CoEq or ~3.0% Cu), broader zones of high-grade
Cu-Co are likely to benefit both underground and open-pit develop scenarios, for the companies PEA planned for early 2019.
- Mobilization of a third drill rig on site. We are expecting a steady stream of results from the company as it aggressively drills
(30,000m) planned to double the strike length from 450m to 900m. The company intends to add a third drill rig this month to identify extensions
of known mineralization as well as new targets.
Honey Badger Exploration Inc.
Ore Grade Cobalt in Thunder Bay
Honey Badger announced drill results that further supports our belief the Thunder Bay District is Canada’s new “Cobalt Camp”, as geology is similar to
the Cobalt Camp near Cobalt, Ontario. The project is located in Thunder Bay in Northern Ontario, where the company has consolidated a significant land
package in an underexplored district, which we believe is very prospective for cobalt and silver mineralization.
- Results support our theory of a new “Cobalt Camp” that has been under explored and should lead to rapid resource growth. The company
reported the discovery of a high grade zone of mineralization near-surface highlighted by 10.8 m of 0.26% Co (which is equivalent to ~2.6% Cu)
in drill hole BM-18-004.
- Recent resource update contemplates both an open pit and underground target. As the company tests the down plunge extensions
of the Beaver Mine, it appears that the company has intersected cobalt mineralization in both the host rock and the high-grade veins, which has
delivered broad sections of ore grade cobalt mineralization located near surface.
- Historic silver mines with trace cobalt signatures help management vector towards rich cobalt mineralization. The district hosts
multiple past-producing silver mines that have seen very little exploration using modern techniques. We continue to see as an opportunity for Honey
Badger as it explores for cobalt mineralization that has not previously been the commodity of interest in the district. As an early mover in an
underexplored district, we expect to see more positive news flow as they tests mineralization of six past-producing mines on its 37,850ha land
The Cobalt Camp in Ontario produced 600M ounces of silver, at exceptional grades over a 60 year period. We believe Honey Badger could be onto to a similar
scale target but more time is required to test this thesis. With an experienced management team and an extensive land package in an under-explored
district, we expect ongoing exploration supporting this potential to be an important catalyst for the stock.
DeGrey Mining Ltd.
Mr. Market Misses the Point! Mineable Ounces More than Doubled with Updated Resource
De Grey Mining has announced a 15% increase in the overall resource but importantly has resulted in more than doubling the mineable resource at its Pilbara Gold Project in Australia. We believe the market has been underwhelmed by the 15% increase; however, we think the market missing the key point. The fact that the minable ounces increased by 127% right before releasing an open pit pre-feasibility study is very positive news (PFS expected by year end). This news supports our investment thesis that De Gray provides exposure to a solid hard rock development play whilst having the optionality of the Pilbara conglomerate.
- De Grey adds low-cost gold ounces. The increase in M&I resources highlights the company’s success in infilling and expansion drilling
focused on ounces that can be included in a mine plan. The company noted that it believe it has added 391koz (+127%) to the open pit mine plan
in the PFS, which are near-surface resources at a depth of less than 100m, further reflecting the upside potential of continuing to add low-cost
higher-grade ounces to the company’s multiple satellite deposits, which all remain open along strike and at depth (Figure 2).
- Results significantly increase valuation ahead of PFS. Following the addition of 391koz Au to the open pit mine plan, we have adjusted
our preliminary valuation of De Grey’s hard rock assets to include an additional 6Mt at 2.1g/t Au, increasing our estimated mineable resource estimate
by 127%. Our estimates now assume a mine-life of 11 years (was 4.75 years), with average annual production of 56k oz (was 56koz annually) at cash
costs of US$767/oz (was US$871/oz). As a result of these changes our preliminary valuation for De Grey’s hard rock assets to A$0.30-0.45/share
- Defining a high-grade underground resource to be a future focus. Drilling on the property, which includes 154 reverse circulation
(RC) holes and 3 diamond (DD) holes, has previously been focused on targeting near surface mineralization limited to 100m in depth. The company
has announced that deeper drilling will be a significant component of future exploration on the property, which the company has already been doing
at its Withnell property with the recent intersection of gold mineralization with sufficient grade and thickness to consider an underground target
(Figure 3). Drilling at underground targets opens the door to a potential higher-grade underground resource, which the company intends to highlight
in a Scoping Study, to follow the Open Pit PFS.
Stock expected to double from here. Our A$0.30-0.45/share preliminary valuation for De Grey’s hard rock assets does not account for the potential of its
conglomerate assets, where the company has recently commenced a bulk sampling program. We continue to believe that De Grey’s current valuation provides
investors a free option on the conglomerates, as the share price does not appear to properly reflect the hardrock assets. Next catalysts include additional
exploration results (both hard rock and conglomerate) and a PFS for the company’s Pilbara Gold Project in Q4/18.
RNC Minerals Corp
How Big Could it Be? RNC has the Balance Sheet to Find Out; Here is our Best Guess
Following the initial announcement of a 9,000oz Au discovery at RNC Minerals Beta Hunt Mine in Australia, the company expects the original discovery area to yield 30-35koz Au and has continued to extend the high-grade coarse gold structures of the “Father’s Day Vein” to a total of 540m ( Figure 1). RNC is gaining a better understanding of the controls in place and as such, we believe that there is a distinct potential for the controls to repeat and extend. In this note, we examine the impact on exploration, the potential size of the deposit and ultimately the impact on RNC’s valuation.
The market is currently pricing in a deposit of 3M oz. RN
C Minerals has excited the market with its discovery as the stock is up over 900% and now has a market cap of C$344M. Based on last reported cash of C$6.8M,
debt of C$22.8M, C$38M revenue from Fathers Day Vein to date and C$8.4M from warrant proceeds, we see an EV of C$313 for RNC. Based on existing interests
in Orford Mining (35% of equity), the Dumont Project (28% ownership) and the Reed Mine (27% ownership), we estimate the market is valuing Beta Hunt
at ~C$287M. Based on an EV/oz valuation of C$100/oz (producing high-grade deposits attract premium valuations), the market is pricing in a ~3Moz Au
discovery at Beta Hunt.
- The gift that keeps on giving. Since the initial “Father’s Day Vein” discovery of an estimated 9,000oz Au, the company has recovered
a total of 27,000oz from a 60 m3 cut (167 tonnes) on 15 Level at the Beta Hunt Mine, which has yielded an average grade of over 161
oz/tonne (5,000 g/tonne). The company expects further production from this small area should result in total recovered gold of 30-35koz Au.
- How big could this be and is there more? We believe that the confluence of conditions that are leading to the bonanza grades found
to date at the Father’s Day Vein are conducive to shallow plunging shear zones. The big question is how long do they extend, how many are there
and is the grade going to be the same? We examine the potential deposit size per shear zone in Figure 2 and currently believe that if the company
is successful in defining a plunge length of 500 m, we could be looking at a resource target of over 10 million ounces of gold per shear zone.
There are four known shear zones so there could be more. It will likely take $10-15 million to define each shear zone but would be well worth the
- We believe the market is pricing in approximately 3M oz discovery. Based on an EV/oz valuation of C$100/oz (producing high-grade deposits
attract premium valuations), the market is pricing in a 3Moz Au discovery at Beta Hunt.
Callinex Mines Inc.
Prelim IP Results Point to Nash Creek Lookalike; Already Discounted Stock to Re-Rate with Drilling
Callinex Mines has released preliminary results from the 2018 Induced Polarization (IP) program at its Nash Creek Zinc Project in New Brunswick’s Bathurst Mining District. The results point to a geophysical anomaly expected to be associated with a synclinal repetition of the Nash Creek Deposit 1km to the east.
- IP signature resembles that of Nash Creek. The survey highlighted a significant area spanning ~1900m by 400m on the east side of the
known Nash Creek resource (Figure 1), where results demonstrated a footprint with high correlation to the IP signatures of the Nash Creek deposit,
which have previously proven to be linked with mineral resources defined on the property.
- IP results to dictate 2019 drilling targets. We expect these IP results (65-line km) in addition to the remaining results (110 line
km) to direct the company’s drilling later this year and in Spring 2019. IP has already proven to be the most effective method for targeting near-surface
base metal sulphides on the property (Figure 2), which has already been highlighted by the first two holes targeting conductive responses in this
new target area.
Without ascribing any value to the company’s Flin Flon or Buchans assets, Callinex trades at a significant discount to zinc explorer/developer peers ($0.004/lb vs. peers at $0.029/lb ZnEq) based on its current resource base of 1,698Mlb ZnEq in the Bathurst Camp. As illustrated in Figure 3, Nash Creek is still on the lower end of scale and grade. However, if the IP target is successful in adding more tonnes, we believe the market will start to close the valuation gap.
- Only just scratched the surface of a district-scale land package. These results support our thesis that we expect the ongoing district-scale
IP survey to highlight the potential of the remaining 18km of the 20km trend on the property, which encompasses several untested high-grade mineral
occurrences and we expect is likely to reveal Zn-Pb mineralization much like that of Nash Creek
Bonterra Resources Inc
Gladiator Grows Ahead of Resource Update
Impact: Mildly Positive
Bonterra Resources has released drill results from their ongoing resource development program at the Gladiator Gold Deposit that demonstrate the potential for further resource growth. The company plans on publishing an updated resource in Q4/18 that will include these results (no further drilling data will be included).
Based solely on gold resources that have been reported at Gladiator, Barry and Bachelor, Bonterra trades at C$66/oz, which is a significant premium to wider peers. However, once we factor in our estimate of ~C$50M for the
recently acquired Bachelor mill, Bonterra trades at a slight discount at C$34/oz versus the peer group at C$36/oz. As well, if we factor in our estimate of a 2Moz gold deposit at Gladiator, Bonterra would trade at a substantial discount to peers at C$16/oz. The updated resource is expected before year-end 2018.
- Step out drilling continues to extend the limits of the South, Main and Footwall zones at Gladiator. Drilling was highlighted by hole
BA-18-63 intersecting 37.5g/t Au over 3.3 m in the South zone, proving continuity of the high-grade trend within the zone.
- Drilling continues to materially extend and expand the known footprint at the South, Main and Footwall zones. The Gladiator deposit
has expanded to a strike length of 1,300m and to a depth of 1,100m (Figure 1 – was 250m and 250m, respectively).
- We continue to expect a 2Moz Au resource in Q/18. These results further support our investment thesis calling for the resource to
grow to 2Moz Au. If we are correct about the resource growth and the value of the mill, we believe the share price should more than a double from
here (see below).
De Grey Mining Ltd.
Higher-Grade Drill Results Expand Withnell to Depth; Results Open the Door to a Potential Underground Target
De Grey Mining has reported new high-grade intercepts at beneath their Withnell proposed open pit at the Pilbara Gold Project in Western Australia. Importantly, results from the recently completed 15 drill hole program suggest the open pit plan could include a potential higher-grade underground target. This could significantly increase the value of the overall deposit.
Our preliminary valuation of De Grey’s hard rock assets of A$0.15-0.23/share does not account for the potential of its conglomerates or the recent hard rock exploration success. We continue to believe that De Grey’s current valuation provides investors a low-cost option on the conglomerates, which is underpinned by traditional hard rock assets that have demonstrated resource growth. Next catalysts include a resource update in October 2018, additional exploration results and a PFS for the company’s Pilbara Gold Project in Q4/18.
- Higher-grade results expand the known envelope of mineralization and opens the potential for an underground target. Highlights include
4.85 m @ 8.46g/t Au from 158.15 m and 7.97m @ 6.85 g/t Au from 137.03 m immediately below the existing 377,300 oz Au resource.
- System remains open. The gold system at Withnell remains open along strike and at depth, with improving grades. We see the potential
of extending the previously defined ultimate pit limits found in the company’s 2017 Scoping Study (pit is currently being contemplated down to
- Mineralization is of sufficient grade and thickness to consider an underground target; more data on the come. We believe the drilling
that was released today opens the door to a potential higher-grade underground resource and the company plans to do more work to support this potential.
Avidian Gold Corp.
Big Breccia Hole Should Add Ounces; High-Potential Porphyry Results Pending
Avidian Gold announced exceptional drill results from the Breccia deposit and Mayflower Trend at its 100% owned Golden Zone project in Alaska. The results suggest to us there may be significant growth potential for the gold resource both respect to tonnes and grade.
- Breccia deposit drilling points to higher grade and mineralization outside the Breccia pipe
- Mayflower trend strike length extended over 400m; open at depth
- Pending holes from the Long Creek and Copper King Au-Cu porphyry targets could be game changing
We are encouraged by these initial gold results from Avidian, as they point to the potential for a much larger gold deposit than previously thought possible
(Figure 1). Additionally, we are looking forward to the pending results from the Long Creek and Copper King Au-Cu porphyry targets as these could be
an even bigger catalyst for the stock, similar to what has happened with other recent exploration successes. Red Cloud Klondike Strike Inc. and Avidian
will be hosting a conference call for investors to provide an exploration update on Tuesday October 2, 2018 at 2 pm EST.