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Friday, February 24, 2017 Derek Macpherson

AEM Invests in Otis; Affirms Potential of Kilgore

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Otis Gold Corp. (TSXV:OOO) announced a private placement with Agnico Eagle Mines Ltd. (TSX:AEM, NYSE:AEM) for C$5.047 million to fund working capital and exploration at Otis’ Kilgore gold project in Idaho. The financing consists of 14.42 million common shares priced at a C$0.35/sh which represents a 12.9% premium to the prior day’s close. As a result of the transaction, Agnico Eagle would own ~9.95% of Otis on a non-diluted basis. In conjunction with the financing, Agnico Eagle and Otis are to enter into an investor rights agreement where Agnico Eagle has the right to participate in subsequent financings to maintain its 9.95% interest in Otis. The transaction is expected to close on February 28. In our view, this strategic investment by Agnico Eagle provides confidence for investors and supports our view on the Kilgore project’s technical merits and upside potential. We believe the market does not appear to fully account for Kilgore’s likely resource growth over the current 820k oz Au (47.5M tonnes @ 0.53 g/t Au) resource (indicated + inferred) as indicated by recent drill results and we discussed in a previous post. Coupled with the project being located in a stable jurisdiction in the vicinity of infrastructure, we expect the pending resource update (Q2 2017) and PEA (Q3 2017) to be important catalysts for the company, allowing Otis, which currently trades at C$38/oz, to close the valuation gap to peers (C$47/oz). read more


Thursday, February 23, 2017 Derek Macpherson

NEE Optimization Plan Should Improve Moss' Economics

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Northern Vertex Mining Corp. (TSXV:NEE) provided an update on its optimization plan which should improve both the mine’s economics, both for the five-year mine-life (Phase II) and the longer-term (Phase III). A key piece of the plan is to move the mine from diesel power, as envisioned in the feasibility study, to grid power. We expect a nominal increase in initial capital; however, the planned savings of US$16 million over the first five years should materially improve the project´s currently robust after-tax IRR of 48%. As well, the company plans infrastructure improvements (upgrade to Silver Creek Road) and is examining the sale of its waste rock as aggregate which may be a source of additional revenue. Although the power line construction and road upgrades require additional permits, the Moss mine remains on schedule to commence commercial production in Q4 2017. With the project remaining on schedule, we view these optimization initiatives positively, allowing NEE to further reduce costs and improve project economics. At C$99/oz, Northern Vertex currently trades at a premium to peers (C$54/oz). In our view, this premium valuation is warranted given that the Moss mine is financed and under construction. In addition, the company’s valuation does not appear to account for the potential of meaningful mine-life extension potential from the ongoing Phase III engineering work or the ongoing exploration program. read more


Wednesday, February 22, 2017 Derek Macpherson

Osisko Gold Royalties to Invest C$15.2 Million in IDM

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IDM Mining Ltd. (TSXV:IDM) announced a private placement with Osisko Gold Royalties Ltd. (TSX:OR, NYSE:OR) for C$15.248 million which should provide IDM the necessary funds to move its Red Mountain project to a production decision along with allowing for a significant 2017 exploration program. The financing was a combination of flow-through shares that are priced at a 61.3% premium to the prior day’s close (41 million shares at C$0.25 for gross proceeds of C$10.250 million) and common shares that are priced at a 9.7% premium to the prior day’s close (29.4 million shares at C$0.17 for gross proceeds of C$4.998 million). As a result of the transaction Osisko Gold Royalties would own ~19.9% of IDM on a non-diluted basis. In conjunction with the financing, Osisko will be granted certain preemptive rights in respect to the acquisition of royalties or streams from the Red Mountain project. The transaction is expected to close on March 1st. This should provide IDM the balance sheet flexibility to advance the Red Mountain project to a production decision and fund a significant exploration program in 2017. IDM trades at a discount to peers on a P/NAV basis (0.39x vs. peers at 0.56x) and on a per ounce basis (C$41/oz vs. peers at C$57/oz). We expect the pending feasibility study for Red Mountain, coupled with the project’s ongoing de-risking (engineering and permitting), should help close the valuation gap to peers. read more


Monday, February 20, 2017 Derek Macpherson

Dominican Republic Creates Uncertainty for UGD

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Unigold Inc. (TSXV:UGD) provided an update that suggests there is uncertainty around its ability to renew its Neita exploration concession when the current one expires on March 7, 2017. While this is likely to negatively impact the stock, we highlight that no official decision has been made, as the letter received from the Dominican government was from the General Mines Director, not the Minister of Mines and Energy who makes the final decision with respect to granting the concession. A decision to not re-grant the exploration concession would differ from historical precedent, as other companies operating in the Dominican typically have been re-granted their concessions in similar circumstances. In our view, the most likely outcome is that Unigold is re-granted the exploration concession; however, until there is new information from the government this outcome has elevated risk. As well, this news, at least temporarily, elevates the political risk for the Dominican Republic as a mining jurisdiction and we expect other explorers and developers’ share prices to be negatively impacted by the news, including: GoldQuest (TSXV:GQC), Precipitate Gold (TSXV:PRG) and Everton Resources (TSXV:EVR).  read more


Monday, February 20, 2017 Derek Macpherson

NEE Looks to Add Cash with Warrant Incentive

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Northern Vertex Mining Corp. (TSXV:NEE) announced it has initiated an incentive program to encourage the early exercise of up to ~29 million warrants in order to fund the ongoing construction of the Moss gold-silver mine in Arizona. Exercisable warrants from four out of the five eligible tranches have an exercise price of C$0.50 per warrant while warrants from one tranche have an exercise price of C$0.45 per warrant. For each full warrant exercised, holders will receive a new transferable half warrant. Each new full warrant is exercisable at a price of $1.00 for four years from the issue date (~March 22, 2021). As well, the company plans on listing the newly issued warrants. If all the warrants were exercised the total proceeds from the incentive program would amount to ~C$13.9 million. While it is not possible to determine the number of warrants that are going to be exercised, the proceeds should provide Northern Vertex’s balance sheet flexibility as it constructs the Moss mine. As we discussed in a previous post, the company completed a US$20.0 million credit facility and a US$8.5 million equipment lease facility in Q4 2016. With the project’s feasibility study suggesting initial capex of US$33 million and combined with the US$5.6 million of convertible debt raised in H2 2016, these recent financings should provide Northern Vertex with funds to construct the project. At C$111/oz, Northern Vertex currently trades at a premium to peers (C$58/oz). In our view, this premium valuation is warranted given that the Moss mine is financed and under construction. In addition, the company’s valuation does not appear to account for the potential of meaningful mine-life extension from the Phase III engineering work or the ongoing exploration program. read more


Monday, February 20, 2017 Derek Macpherson

SWA's Warrant Incentive Program to Strengthen Balance Sheet

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Sarama Resources (TSXV:SWA) announced it has initiated an incentive program to encourage the early exercise of ~10 million warrants in order to fund working capital and exploration activities. At an exercise price of C$0.20 per warrant, the exercise of all of the eligible warrants would result in total proceeds of ~C$2.1 million. For each full warrant exercised, holders will receive a new half warrant. Each new full warrant is exercisable at a price of $0.35 until March 10, 2019. We expect the majority of warrants to be exercised with this incentive program and highlight that management, insiders and a significant shareholder have committed to exercise ~36% for proceeds of ~C$750k. Combined with Sarama’s cash position at the end of Q3 2016 (C$2.1 million), we believe that the proceeds from the early exercise would suffice to cover Sarama’s share (~C$1.0 million) of the announced exploration expenses at Karankasso (total C$3.4 million) and working capital needs in 2017. We expect that the ongoing exploration at South Houndé (50% interest) and Karankasso (30.5% interest), along with likely work at Bondi (100% interest), may provide the necessary catalysts for the stock to begin closing the valuation gap to peers. read more


Friday, February 17, 2017 Derek Macpherson

SCA Advancing Karankasso; Drill Results Coming

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Savary Gold Corp (TSXV:SCA) provided an update on the ongoing exploration activities at the Karankasso JV project (69.5% SCA / 30.5% SWA) in Burkina Faso. Savary has collected 5,231 soil samples and completed auger drilling of 1,381 holes and 275 line km of IP gradient geophysical surveys since the current exploration program was initiated in October 2016. Of note, the program has delineated a 3.9 km long untested target that links the Diosso South, West Trend, Kueredougou West and Kueredougou Main. In addition, geophysical surveying at the Serakoro 1 Main area appears to have extended the control shear/alteration structure an additional 13 km to the south to a total traceable distance of ~43 km. In our view, these initial results are promising and suggest that further resource growth is possible outside the existing resources. The current 10 km, 90 hole Phase 2 drill program that commenced in January 2017 has been focused on exploration drilling in the southern part of the property. In our view, pending drill results from the drill campaign that is ~27% complete with 28 holes drilled, and the resource update expected in H2 2017, are likely to benefit Savary’s share price. Savary currently trades at a discount to peers (C$27/oz vs. peers at C$43/oz), suggesting that Karankasso’s potential resource growth is not yet priced into the stock. read more


Wednesday, February 15, 2017 Derek Macpherson

SMT Reports Q4 Cost Improvements at Yauricocha

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Sierra Metals Inc. (TSX:SMT, BVL:SMT) reported Q4 and full-year 2016 financial results from its Yauricocha mine in Peru (Sociedad Minera Corona – 81.8% owned subsidiary) which continues to demonstrate the benefits of the optimization program and improving grades. As the result of a planned shutdown, costs were modestly higher versus Q3 2016, with cash costs coming in ~11% higher and all-in sustaining costs (AISC) up ~6%. However, costs were substantially improved over Q4 2015, as cash costs were 23% lower and AISC were 25% lower; highlighting the operational and grade improvements Sierra has delivered in 2016. We view the results positively as continued operating execution along with exploration success at Yauricocha is key to enhancing the company’s value and positioning to bring about the necessary capital structure changes needed. read more


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