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Friday, October 06, 2017 Derek Macpherson

Site Visit: NEE Progressing Towards First Gold Pour


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Recently we had the opportunity to visit Northern Vertex Mining Corp.’s (TSXV:NEE) Moss mine which is progressing towards its first gold pour. The construction period can be a challenging time for any company and a risky period for investors, as the company works to take the major de-risking step of transitioning from a developer to a producer. Our site visit highlights that Northern Vertex is well down the path to production, with all major components showing meaningful progress. Based on what we saw on-site, we expect Northern Vertex to pour gold before year-end. We highlight that Northern Vertex is very well funded with both debt (Sprott loan, CAT finance facility) and recent equity investments resulting in low completion risk (i.e. running out of capital before construction). Northern Vertex’s current valuation does not appear to reflect likely reserve growth, currently excluded from the mine plan. We expect ongoing construction updates and first production to be key catalyst for the stock.


Major components showing meaningful progress. The three main processing components needed to start an open-pit heap leach mine, besides the pit, are: crushers (Figure 1), heap leach pad (Figure 2) and Merrill Crowe facility (Figure 3). In our view all three are showing sufficient progress for the first gold pour to occur in Q4 2017. We note, that the previously completed Phase 1 test mining, means there is little additional stripping required before first ore is mined (Figure 4).





Production growth beyond the feasibility study is right there, Northern Vertex just needs a little more space. The 5-year 42k oz AuEq feasibility study was constrained by the mines footprint, not resources. The current mine has been designed and is being constructed to fit onto the existed patented mining claims in an effort to simplify the permitting process. Because of this constraint, there is ~200k oz of resource excluded from the feasibility study that would materially extend the mine-life. We expect the land expansion to be permitted following the completion of the ongoing permitting processes for the road upgrade and powerline (not needed to start production). We note that the current footprint appears to be very tight, and we believe the sooner the company can receive permits for the surrounding unpatented claims, the better it is likely to be for operations.

Exceptional funding position materially reduces completion risk at this stage. As of June 30th, the company had ~US$16.7 million in working capital, has raised through debt and equity ~US$35 million and has US$5 million remaining to draw on its Sprott Credit Facility and US$3.2 million equipment lease facility with CAT Financial. This nearly US$58 million of liquidity should have the company well-funded to complete construction of the Moss mine which had an original capital cost of US$33 million.

Valuation does not reflect likely reserve growth, currently excluded from the mine plan. Northern Vertex currently has an EV of ~C$83 million, implying an EV/oz of C$174/oz and while this is a premium to development stage peers (C$52/oz), this is warranted because the company is fully financed and close to the start of production. As well, the recent share price move, suggests the market is starting to apply some value for the mine-life extension that is likely with additional permits. We note that beyond the resources that could be brought into the mine-plan, there remains regional exploration upside. In our view, near-term share price movements are likely to be driven by construction and commissioning updates, along with the start of production.

 
Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
 
Red Cloud Klondike Strike Inc.
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Toronto ON, M5C 1G6
RCKSTalk@RedCloudKS.com

Priced as of prior trading day's market close, EDT (unless otherwise noted).
All values in USD unless otherwise noted.

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Company Specific Disclosure Details
Northern Vertex Mining Corp. - TSXV:NEE - 1,2,3,4

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