RCKS talk

Thursday, January 19, 2017 Derek Macpherson

RPX's Resampling Program Continues to Bear Fruit

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Red Pine Exploration Inc. (TSXV:RPX) released further results from its ongoing core resampling program which returned a weighted average grade of 1.43 g/t Au over 19.6m, representing a 10% increase in average intersection length from the previous sampling of the same drill holes. Although the average grade of today’s samples decreased by 4.7%, the overall metal factor (grade x intersection length) increased supporting our view that the resampling program is likely to grow the existing resource. In addition, assays are pending from the ongoing 6km drill which is focused on expanding the current resource to the North. In our view, the likely resource growth from the ongoing drill and resampling programs are not incorporated into Red Pine’s share price. This likely growth, along with the planned ownership consolidation of the Wawa Gold project should allow Red Pine to close the valuation gap to peers. Red Pine currently trades at C$41/oz versus peers at C$51/oz.  read more


Wednesday, January 18, 2017 Derek Macpherson

Sierra Reports a Solid Q4

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Sierra Metals Inc. (TSX:SMT,BVL:SMT) reported Q4 and 2016 production results that were highlighted by record consolidated throughput and the company’s second highest level of annual metal production to date. At 79.1M lb CuEq, Sierra’s annual production increased by 4% YoY and reached the higher end of the company’s 2016 guidance (69.1-85.3M lb CuEq). The company’s Q4 production was flat QoQ but increased by 31% YoY (Figure 1). Of note, Yauricocha’s quarterly production increased by 1% QoQ, although a planned shutdown took place at the mine during Q4. Bolivar benefited from record annual throughput in 2016 which increased by 14% YoY but the mine’s annual production, which increased by only 4% YoY, was impacted by declines in grades and recoveries. In addition, the company released its 2017 production and cost guidance with an expected increase of 25-45% over 2016 production. In our view, it is likely that Sierra is posed for a strong 2017 on the back of operational improvements at Yauricocha and continued exploration success at the mine’s Esperanza zone. We expect Sierra’s operational execution to bring about the capital structure changes needed to improve the stock’s liquidity, which in our view, has the potential to positively benefit the company’s share price.  read more


Wednesday, January 18, 2017 Derek Macpherson

ANX Expands Argyle

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Anaconda Mining Inc (TSX:ANX) announced results from its ~2.2km (22 holes) Phase II drill program at the Argyle target at its Point Rousse project in Newfoundland. We view today’s results positively as the mineralization has potentially been extended to ~600m along strike, which represents a 50% increase, and ~225m down-dip (~100% increase). Although it is early days, based on these expanded potential deposit dimensions and the higher grades seen in these results we have increased our resource approximation for the deposit to ~40-45k oz Au (was ~25-30k oz Au). We highlight that Argyle remains open in all directions, suggesting further resource growth is possible. We highlight that Argyle appears likely to extend Anaconda’s short production life at higher grades than currently being processed. While this exploration success is important for Anaconda to re-rate to typical producer valuations; improved operations and cash flow in H2 2017 (YE May 31st) is critical to allow exploration, particularly at Argyle, to continue.  read more


Wednesday, January 18, 2017 Derek Macpherson

AMI's Royalties Perform Well in 2016

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AuRico Metals Inc. (TSX:AMI) provided an update on its royalty portfolio and continues to expect royalty revenues for 2016 to be at the higher end of the US$7.7 - US$8.1 million guided range as result of recently released production results. The majority of royalty revenue is expected to come from Young-Davidson (US$3.3M – US$3.4M) and Fosterville (US$3.4M-US$3.5M), with the remainder from Hemlo and Eagle River. In 2016, production at Young-Davidson was 170,000 oz Au, and is forecasted to increase by 6% in 2017. Fosterville produced record annual gold results of 151,755 oz in 2016 and is expected to produce 140–145k oz Au in 2017. In addition, AuRico announced it expects to close the Kiska Metals transaction later in Q1, growing its royalty portfolio. AuRico’s current Enterprise Value (EV) is sitting at ~C$154 million, which implies an EV/EBITDA for royalties only (excluding Kemess costs, annualizing Q3 results) of ~23.6x. This is higher than the EV of royalty peers at 18.7x, which implies that the market currently allocates a value of ~C$32.0 million to Kemess. Similar stage development peers trade at 0.54x NAV or C$50/oz which suggests Kemess could easily be ascribed a value around C$115-120 million. This suggests to us that as permitting advances for Kemess Underground and AuRico continues to grow its royalty portfolio, it should enhance value for shareholders. read more


Tuesday, January 17, 2017 Derek Macpherson

Savary's Drill Results Point to Resource Growth

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Savary Gold Corp (TSXV:SCA), along with its partner Sarama Resources Ltd (TSXV:SWA), announced results from 22 step-out and infill holes, totalling ~3km, drilled at the Karankasso JV project (69.5% SCA/30.5% SWA) in Burkina Faso. Today’s results returned a weighted average grade of 1.79 g/t Au over a relatively narrow average width of 3.2m. Although the weighted average grade of today’s results is below the current resource grade, results continue to extend mineralization to depth and along strike at the Karangosso and Diosso South zones and were highlighted by a wider interval of 7.5m returning 6.73 g/t Au (HE-RCD-16-56). In our view, recent results imply that resources are likely to grow beyond the currently defined 671k oz (9.2M tonnes at 2.28 g/t Au – Inferred) with the update planned for later this year. Prior to that, results from the upcoming 10km drill program is likely benefit Savary’s share price, which at C$26/oz, trades at a discount to peers (C$39/oz).  read more


Monday, January 16, 2017 Derek Macpherson

SMT Advances Spin-off of Northern Peru Assets

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Sierra Metals Inc (TSX:SMT, BVL:SMT) announced the filing of a preliminary prospectus as part of the previously announced spin-off of its northern Peru exploration assets. Sierra intends to spin out its 320 km2 Las Lomas property in Peru by distributing shares of its newly formed Peruvian subsidiary, Cautivo Mining Inc., to existing shareholders. To adjust its share capital in accordance with the impact of the transaction, the company intends to reduce Sierra shares by an amount equal to the fair market value of the Cautivo shares distributed. While conditions of the transaction have not been finalized we view the spin-off positively as besides reducing holding costs, this could provide Sierra shareholders with the potential to obtain value for this non-core asset. Coupled with the continued exploration success at the Esperanza zone and operational improvements at its Yauricocha mine in Peru, the transaction could contribute to Sierra’s efforts in bringing about the capital structure changes needed to improve the stock’s liquidity, which we believe has the potential to positively benefit Sierra’s share price.  read more


Sunday, January 15, 2017 Derek Macpherson

AMI Grows Kemess East; Adds Long-term Value

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AuRico Metals Inc. (TSX:AMI) released an updated resource estimate for Kemess East and has grown the overall resource and the high-grade core of the deposit. The overall tonnage increased by 19% and with grades seeing a very minor decrease, metal content has increased a similar amount (Figure 1). We view this as mildly positive since it enhances the long-term value of the Kemess project. The Kemess Underground project currently has a 12 year mine-life based on current reserves. This update, in-particular the high-grade core at Kemess East, along with the resources excluded from reserves at Kemess Underground, suggests this could be an exceptionally long-life mine, which would be attractive to larger mining companies. While this update adds long-term value to Kemess, in our view the key catalyst for unlocking this project’s value is the completion of Kemess’ Environmental Assessment expected in Q1 2017 and mine permit expected in H2 2017. These catalysts should allow AuRico to decouple its royalty and development assets and enable the company to unlock value for shareholders. read more


Sunday, January 15, 2017 Derek Macpherson

RCKS Drilling Deeper Lunch Features Three Royalty Companies

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Last week, Red Cloud Klondike Strike Inc. (RCKS) hosted another installment as part of our Drilling Deeper lunch series, this time featuring three companies that own and are unlocking royalty value in unique ways. The presenting companies were AuRico Metals Inc (TSX:AMI), Marlin Gold Mining Ltd (TSXV:MLN) and Maverix Metals Inc (TSXV:MMX). We believe all three presenters have the potential to unlock value for investors through each company’s royalty and streaming assets. read more


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