RCKS Talk

14-Nov-2018

Callinex Mines Inc.

In the Shadow of a World Class-Mine

Impact: Positive

Callinex has acquired a high-grade VMS deposit in the shadow of the world-class Brunswick #12 mine in Bathurst, NB. With the Headway deposit within trucking distance of the company’s proposed Nash Creek mill (2018 PEA), this acquisition supports our view that the company is successfully assembling a portfolio of deposits in a prolific VMS mining camp (Figure 1).

Highlights: 
    • In the shadow of a world-class mine. The Headway deposit is the closest deposit to the historic Brunswick #12 mine (Figure 2), where 137Mt grading ~14.2% ZnEq was produced between 1964 and 2013. Most importantly, the deposit is hosted by the same stratigraphy, the ‘Brunswick Horizon’ (Figure 3, in yellow), which can be considered one of the most prolific base metals VMS horizons in the world.
    • Largely underexplored. While the existing resource (Figure 4) is not NI 43-101 compliant, drilling to date (1965-66) confirms the same high-grade nature of the VMS mineralization as the adjacent Brunswick #12. Based on depth, thickness and grade, we expect the deposit to be amenable to underground bulk mining methods once size is demonstrated by Callinex. Besides two holes drilled by Nexa Resources (TSX:NEXA) in 2011, the property has received no modern exploration and remains largely unexplored. There has been very little exploration beyond the 160m depth of the current deposit, which is where we see the most potential, as the adjacent Brunswick #12 deposit was mined to a depth of over 1km.
  • The right deal at the right time. At a transaction value of C$25k (US$19k) for an estimated 75Mlb ZnEq of high-grade mineralization (317.1kt grading 10.75% ZnEq), Callinex has paid US$0.0002/lb ZnEq. This suggests a very accretive acquisition for the company and fits well in the Bathurst portfolio alongside the company’s nearby high-grade Superjack deposit. 
Valuation:
The company is again expanding its resource base in the prolific Bathurst Mining District of New Brunswick. Callinex currently trades at a significant discount to peers ($0.001/lb vs. peers at $0.003/lb ZnEq). Considering our expectation for further resource growth at Nash Creek beyond the recent update, we expect the upcoming drill results in addition to the IP survey could close the valuation gap to peers. Upcoming catalysts: 1) Results from drilling IP anomaly 2) District scale IP results 2)  
14-Nov-2018

Standard Lithium Ltd.

A Sizeable Maiden resource at Smackover

Impact: Very Positive

Standard Lithium’s recent announcement of a maiden resource brings in to light the significant valuation discount relative to brine developer/explorer peers. With access to over 150,000 acres of brine fields with existing permitted infrastructure, the company is quickly surpassing the normally lengthy milestones required to get in to production. 

Highlights: 
    • A sizeable maiden resource. With sufficient data from its recent agreement with LANXESS, the company has been able to output an inferred resource of 3.1Mt LCE within brines which are currently in production for bromine extraction by LANXESS and re-injected into the aquifer awaiting Standard Lithium’s extraction. This resource estimate was based on estimated lithium concentrations in the wellheads that ranged from 53-292 mg/L, where a conservative average in-situ concentration of 165 mg/L was used for resource calculation. Once the company’s lithium extraction plant is interconnected with LANXESS’ bromine plant, lithium is to be extracted as a by-product to bromine from the Smackover brines.
    • Success at pilot plant now a key catalyst.
      While an in-situ grade of 165mg/L is on the lower end of lithium brine grades, with in-place infrastructure, the hurdle rate is far lower. The next key catalyst, is expected to be the results of the company’s mini-pilot plant testing, which is expected in early 2019. The results of which are expected to inform a H1 2019 PEA, which will provide initial economics for the project.
    • Another step on the short path to production. Once proof of concept is achieved by 2020E, we expect with permits in-hand, significant infrastructure in-place and JV funding from LANXESS that Standard Lithium is likely to be quick to market.
Valuation:
Standard Lithium now trades at a discount to brine developers and explorers. With a fully permitted facility and now a sizeable resource, Standard Lithium is well-positioned to rapidly advance towards production. We believe the market is currently undervaluing the potential of this update as company currently trades at US$21/t LCE in contrast to brine exploration and development peers at US$54/t LCE. Upcoming Catalysts include 1) Positive results from prototype test-work (Q1/19) and 2) Completing the offtake agreement (Q4/18).

13-Nov-2018

Anaconda Mining Inc.

Additional Resource Growth Potential at Depth

Impact: Mildly Positive

Anaconda has delivered positive drill results from its Goldboro development project, driving further potential for resource growth, particularly at depth. Results continue to support our expectation for further resource growth and follow a recent 27% increase in resource grade and 21% increase in gold ounces. Overall, we believe Anaconda’s fundamental value is not reflected in the current market’s pricing and as a result, could see significant re-rating with continued exploration success at Goldboro.  
Highlights:  

  • Results highlight the potential for growth at depth. Anaconda highlighted 8.79 g/t over 8m at 483m (BR-18-44), suggesting that grades may improve at depth. This hole appears to extend the Boston Richardson mineralization to 525m below surface (Figure 1), which reflects high-grade resource expansion potential at depth and follows a recent 28% increase in underground resource grade to 6.0g/t Au.
  • Results continue to be roughly in line with expectations. The weighted average grade of the drill results returned 4.54 g/t over 2.2m which, although lying slightly below the range of the current resource grade of 5.6 g/t (was 4.4g/t), add value by filling in the company’s understanding of the structural controls and depth extensions of the mineralization. 
  • Drills still turning and bulk sample underway. To date, the company is only 75% through its 10km 2018 drilling program with final work to be completed by year end and includes testing depth extensions to 400m at West Goldbrook. Bulk sampling is being completed in conjunction with the remaining drilling and the company plans to use results to produce another updated mineral resource ahead of a Goldboro feasibility study.
Valuation:
Goldboro drilling and bulk sample along with 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. Anaconda trades at 0.15x NAV based on our current NAVPS of C$1.36, a steep discount to peers (0.51x) which should close as the company demonstrates the potential of Goldboro. Upcoming catalysts: 1) 10kt bulk sample at Goldboro, 2) ongoing exploration mineral resource update and 3) debt financing for Goldboro.

 

13-Nov-2018

SolGold Plc.

Technical Success Reveals Potential Alpala 2.0

Impact: Positive

    Ongoing exploration by SolGold continues to support our thesis that Alpala is likely to double with the resource update expected in Q4 2018. The technical success from hole 64 also supports our theory of a potential second porphyry adjacent to Alpala, further reflecting the world-class scale of Cascabel.
    Highlights:
  • Results support our view for a potential 50% increase of the high-grade core. We previously stated that the high-grade core was set to grow by 50% as the company further defined controls of the high-grade mineralization at Alpala Central. This is supported by hole 68 returning 664 m grading 1.53% CuEq, including 348m grading 2.25% CuEq, which intersected wide intercepts of high-grade mineralization (>1.5% CuEq cut-off) and is open at depth.
  • Potential doubling of the overall resource. We continue to believe the resource is set to double with the pending Q4/18 update, which was reflected by hole 69 that was drilled in the Alpala West Limb and returned 852m grading 1.14% CuEq. A total of 82,400m has now been drilled since the last Mineral Resource Estimate in December 2018 and therefore further reflects the amount of successful exploration drilling has been completed for the pending update.
  • A second Alpala deposit? Our estimates assume a 100% increase in the Alpala deposit but we have not accounted for the potential of an adjacent porphyry system. Hole 64 was drilled deep into the northwest target and returned 402m grading 0.65% CuEq of primary bornite mineralization, which is indicative of an additional porphyry core. Although a technical success, more drilling in this northwest sector towards Trivino needs to be done to confirm potential scale and grade.
    Valuation:
    Technical success of hole supports meaningful upside in scope and scale of an already world class size project. In our view, this warrants premium valuation. We believe that the pending resource update and ongoing exploration success are likely to drive our base case NAVPS8% to C$1.30. SolGold trades at a premium to peers (0.51x NAV vs peers 0.35x) and we believe a further premium is warranted given the scarcity and scale of Cascabel and that willing suitors are ready to pounce. Upcoming catalysts: 1) Ongoing exploration, 2) Resource update (Q4/18) and 3) Maiden PEA (Q1/19).



13-Nov-2018

Standard Lithium Ltd.

One Step Closer with LANXESS JV

Impact: Very Positive

New partnership, with valuable data, will be focused on quick lithium production timetable. A term sheet has been signed between Standard Lithium and LANXESS Corp., a subsidiary of LANXESS AG (XTRA:LXS), to form a joint venture (JV) in the commercial production of battery grade lithium as by-product to bromine production from the brine extracted at the Smackover Formation in South Arkansas. The partnership adds momentum to Standard Lithium’s already quick timeline to production and may give LANXESS, a top bromine producer, the opportunity to extract value from a by-product of its lithium carrying brines. 

Highlights: 
    • Going right to the source. Previously, Standard Lithium had acquire off-take rights to TETRA Technologies, off-take from LANXESS’ large scale brine extraction operation. With this agreement Standard Lithium now has full access to the network of pipelines from the wells to the processing plants and all the years of data that comes with it, currently owned by major bromine producer, LANXESS. Therefore, a JV would provide the data to fast track defining a lithium resource (Figure 1).
    • One step closer. A JV would provide extraction rights to Standard Lithium to produce lithium as by-product from LANXESS’ existing bromine operations. Where LANXESS would allow the use of existing infrastructure and Standard Lithium would contribute its
      proprietary extraction processes in addition to existing rights and leases held in the Smackover Formation, acquired from TETRA.
    • JV provides big brother for funding and tech support. Besides shortening the benefit of existing infrastructure and data, the strategic partnership is likely to bring in a partner with significant experience and deep pockets for development funding. Once proof of concept has been achieved, a JV announcement is expected by 2020.
Valuation:
Re-rating expected when Smackover resource released in Q4. Standard Lithium’s unique ability to quickly generate a resource 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).

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