Golden Reign Resources (TSXV:GRR) released partial results from its ongoing grade control drill program at its San Albino project in Nicaragua. While
the results returned high grades as expected, they appear to have expanded the known pit boundaries, by potentially combining two smaller pits and
extending mineralization both along strike and at depth. As well, the results confirm Golden Reign’s existing resource model, which helps de-risk the
project as Golden Reign advances San Albino towards production. Golden Reign currently trades in line with peers but despite being small scale, we
believe it should trade at a premium because of its exceptional economics and unencumbered exploration upside.
Drilling yields splashy results and more importantly confirms the resource model. Results were highlighted by 4.0m at 37.70 g/t Au and
57.7 g/t Ag and 4.0m at 27.1 g/t Au and 74.6 g/t Ag. While these results remind us of this project’s exceptional open-pit grades (7.05 g/t AuEq, diluted),
more importantly the company believes these results correlate with the existing resource model, de-risking initial production. The company is currently
awaiting the completion of the permitting process to start construction on the 250 tpd operation, with first production expected in late 2017.
Resource area appears to be growing; likelihood of an expansion increases. Interestingly, this infill drilling appears to have expanded
the known resource area, by filling in a 39m gap between two smaller pits and extending the resource beyond the modelled pit boundaries. The current
PEA envisions a combination open-pit (first eleven years), underground operation at 250 tpd for a 31 year mine-life. While this small scale operation
already provides exceptional economics, an expansion to 500 tpd would improve it. We anticipate that an expansion to 500 tpd would be completed out
of initial cash flow and we believe that the addition of open-pit ounces could accelerate the expansion.
Current valuation does not account for exceptional economics or exploration upside. Golden Reign currently trades at C$63/oz, essentially
in line with peers at C$61/oz. However, despite its small size (21.8k AuEq oz/year at 250 tpd) we believe it should trade at premium to peers because
of the projects exceptional economics (AISC of US$464/oz, IRR of 37.4%) and the wider properties exploration upside. It’s important to note that although
the current project has a stream to Marlin Gold (TSXV:MLN), this covers only a small portion of the overall land package, which previous work suggests
could be very prospective. We highlight that the stream on the project area should provide sufficient funding to build the 250 tpd operation and besides
the likely expansion, we expect Golden Reign to fund exploration on the wider operation out of cash flow, providing investors the potential for exceptional
returns without significant funding requirements.
Company Description: Golden Reign Resources Ltd. (TSXV: GRR) is a mineral exploration company engaged in exploring the San Albino-Murra
Property and the El Jicaro Property, both of which are located in Nueva Segovia, Nicaragua.
Red Cloud Klondike Strike Inc. is registered as an Exempt Market Dealer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick,
Nova Scotia, Prince Edward Island, Newfoundland & Labrador, and the Yukon. Part of Red Cloud Klondike Strike Inc.'s business is to connect mining
companies with suitable investors that qualify under available regulatory exemptions (the "Red Cloud KS Business"). Red Cloud Klondike
Strike Inc., its affiliates and associates, and their respective officers, directors, representatives, researchers and members of their families (collectively,
"Red Cloud KS") may hold positions in the companies mentioned in this publication and may buy or sell, or buy and sell their securities
or securities of the same class on the market or otherwise. Additionally, Red Cloud KS may have provided in the past, and may provide in the future,
certain advisory or corporate finance services and receive financial and other incentives from issuers as consideration for the provision of such services.
Red Cloud KS has prepared this publication for general information purposes only, NOT as part of the Red Cloud KS Business. This
document should not be considered a solicitation to purchase or sell securities or a recommendation to buy or sell securities. The information provided
by Red Cloud KS for the purposes of this publication has been derived from sources believed to be accurate, but cannot be guaranteed. Opinions or analysis
contained in this publication may be subject to change and Red Cloud KS does not undertake to advise the reader of such changes. This publication does
NOT take into account the particular investment objectives, financial situations, or needs of individual recipients and other
issues (e.g. prohibitions to investments due to law, jurisdiction issues, etc.) which may exist for certain persons. Recipients should rely on their
own investigations and take their own professional advice before investment. Red Cloud KS will not treat recipients of this publication as customers
or clients by virtue of having viewed this report.
Company Specific Disclosure Details
1) A member of Red Cloud KS team has visited/viewed material operations of the issuer.
2) In the last 12 months, Red Cloud KS has been retained under a service or advisory agreement by the subject issuer.
3) In the last 12 months, Red Cloud KS has received compensation for investment banking services.
4) Red Cloud KS or a member of the Red Cloud KS team or household, has a long position in the shares and/or the options of the subject issuer.
5) Red Cloud KS or a member of the Red Cloud KS team or household, has a short position in the shares and/or the options of the subject issuer.
6) Red Cloud KS or a member of the Red Cloud KS team own more than 1% of any class of common equity of the subject issuer.
7) A member of Red Cloud KS team or a member’s household serves as a Director or Officer or Advisory Board Member of the subject issuer.