Category: Stock

Investing in high quality companies can bring you gains in any segment of the market cycle. But, when you’re buying a high quality company at the bottom of a commodity cycle, the result can be truly spectacular.

When I bought the best junior gold companies in 2014 and 2015, near the bottom of the last bear cycle, it turned out to be a fantastic contrarian decision, giving me incredible gains in 2016 as sentiment changed.

Today, I feel the same could be said for investing in the nickel market, which, up until 2016, has been decimated by over-supply. This change in the supply dynamic is just one of the reasons why I’m bullish on nickel. In August of this year (2017), I wrote a two-part series on the nickel market and why I’m bullish on its future. For those who would like a closer look at my analysis, check out my series on nickel, Part 1 and Part 2.

So, how do I look to profit from my bullish nickel thesis? For me, the key is FPX Nickel Corp. FPX is the 100% owner of its flagship Decar Nickel District, which is located in central British Columbia, just 80 km west of the Mount Milligan open-pit Cu-Au mine.

Let’s take a look.

 

 

FPX Nickel Corp (FPX:TSXV)

MCAP – $13.4 million (at the time of writing)

 

As of November, 2017

Shares – 133,770,339

Fully Diluted – 141,920,339 (no warrants outstanding)

Management & Directors – 19.3%

Cash – $750K

 

FPX Nickel’s People

If you have invested in the resource sector long enough, you have most likely heard the adage that people are the most important part of a company. It’s absolutely true. The fact is, however, like everything else in life, most people fall within the average moniker. Besides being average, you, of course, have the bottom feeders – the people you really want to avoid – and conversely, you have the cream of the crop at the top. Without a doubt, you want to be invested with the best people, as they give you the best chance of being right in the mining sector.

Peter Bradshaw is the co-founder and Chairman of the Board of FPX Nickel and, to me, is one of those outliers at the top of the industry . Bradshaw was inducted into the Canadian Mining Hall of Fame in 2015 for his achievements in what has been, thus far, a 40+ year career.

Bradshaw is best known for his involvement with Placer Development and their discovery of the high-grade zone VII at Porgera in Papua New Guinea, as well as co-founding the Mineral Deposit Research Unit (MDRU) at the University of British Columbia. Bradshaw has also worked or contributed to a few other companies, such as Barringer Research and Orvana Minerals. Today, he is Chairman of the Board for FPX and a Director with Aquila Resources.

Here’s a list of Bradshaw’s key discoveries and projects: Porgera Gold Mine, Kidston Gold Mine, Misima Gold Mine, Big Bell Gold Mine, Omai Gold Mine and Decar Nickel Project. As you can see, Bradshaw is a minefinder, and I think Decar will be his next mine. Here’s a link to Bradshaw’s must-see Canadian Mining Hall of Fame Tribute Video.

 

FPX is led by President and CEO, Martin Turenne. Turenne, a Chartered Accountant by trade, has worked in the commodities industry for over 15 years. Five of those years have been spent with FPX, where he was first the CFO from 2012 to 2015.

I have spoken to Turenne on a few occasions and am always impressed by his knowledge of the nickel market and, of course, the level of detail with which he answers my questions regarding FPX. Turenne is a major reason why I’m confident in investing in FPX and believe that their future is very bright given the quality of his leadership and vision.

FPX’s team is rounded out by consulting geologist and formerly FPX’s (formerly, First Point Minerals) VP of exploration, Trevor Rabb. Rabb has been busy this summer with FPX’s step-out drill program, which tested the southeast extension of the Baptiste deposit at Decar.

Last, but not least, is FPX’s CFO, J. Christopher Mitchell, who has more than 40 years of experience in the mineral industry. Mitchell has held senior roles with Viceroy Resource Corp. and Orvana Minerals Corp.

 

Board of Directors

Over the last few months, FPX has added two key pieces to its Board of Directors, with the appointment of Robert Pease and Peter Marshall. For those who aren’t familiar, both Pease and Marshall have extensive experience within the mining industry, more specifically, with the development and construction of mining projects in central British Columbia.

Both Pease and Marshall were a part of Terrane Metals; Pease as the founder and Marshall as the Senior VP of Project Development.  Terrane owned the Mt. Milligan copper-gold project, which they developed from the PEA stage through to final feasibility and the commencement of project construction. To note, Terrane was later acquired by Thompson Creek Metals Company Inc. for $650 million in 2010.

Clearly, both Pease and Marshall have great knowledge and experience to draw on as they move toward the development of Decar with the rest of the FPX team.

 

Turenne’s comments with regards to his Board of Directors and how FPX will conduct themselves, moving forward;

Turenne: “We have begun to assemble a team of world-class mine builders and operators. The recent additions of Peter Marshall and Rob Pease are very important, as they have significant experience in developing and building mines in our region in central British Columbia.

Peter and Rob were the team behind Terrane Metals, which developed the similar scale, open-pit, bulk-tonnage Mt. Milligan project from the resource stage to construction in five years before selling the company for $650 million.

 One of our other board members is Bill Myckatyn, who has built and operated several large-scale base metal mines in his career, most notably as the CEO of Quadra-FNX (acquired by KGHM for $3 billion in 2011). We will continue to add new team members with deep experience in mine development, construction and operation. This is a major company-style asset; our ongoing development of Decar will continue to be performed to major-company standards.”

 

 

 

The Decar Nickel District

 

Central British Columbia

The Decar Nickel District consists of 4 main targets, Baptiste (the focus of the 2013 PEA), Van, Sid and Target B. They total 60 mineral claims and encompass a total area over 245 square kilometres. The Decar Nickel District is located in central BC within 5 km of an existing railroad and is accessible by 4WD on logging roads.Decar sits roughly 90 km northwest of the town of Fort St. James, which is well equipped with most services, including accommodation, stores, private airbase, a bank and medical services.

Decar is expected to require 106 MW of power for its production, which can be accessed via a connection to BC Hydro’s Glenannan Substation (GLN). Accessibility and power are two of the major needs for a developing mine.

 

BC and its NDP Provincial Government

I have written about BC’s NDP government in a previous article, so I won’t take up space repeating myself here. The long and short of it is that while I believe there is risk with any political party, I feel the most risk comes from the far left, which, in Canada’s political world, is represented by the NDP.

I had a great discussion about the BC political situation with Turenne. Here’s what he had to say;

“British Columbia has a long history as one of the most mining-friendly jurisdictions in the world. In fact, in a 2017 ranking of safest places to invest resource capital, the Mining Journal rated British Columbia as the second-most attractive jurisdiction in the world, second only to Saskatchewan. An Executive Summary of the report can be accessed on the Mining Journal website.

During this year’s election campaign and since taking office, the NDP government has expressed its support for safe and responsible mining in B.C.  Mining will remain a key driver of economic growth in the province, regardless of changes in the governing party. As with most jurisdictions, there are some profound regional differences in the ability to develop mining projects in B.C.; in the case of our Decar nickel project, it’s located in north-central British Columbia, which has several active mines and projects. For example, Decar sits just 80 km from Mt. Milligan, a similar-scale operation which was permitted and put into production in the last five years, demonstrating that north-central B.C. is an attractive setting for bulk-tonnage, open-pit mining operations like Decar.“

In the end, besides the political risk, BC has one of the richest mineral endowments in the world, let alone Canada.  Whether it be gold exploration in the Golden Triangle or the copper mines throughout the north and central part of the province, BC is a top tier destination for mining and exploration.

While I do see risk in the NDP, when I have the chance to invest in what I believe is a great company, like FPX Nickel Corp., I think it’s worth the associated risk and have been a buyer since the summer of 2017.

 

History of Decar District Ownership

In a 2009 option agreement, what was then First Point Minerals (now FPX) granted Cliffs Natural Resources Exploration Inc. the option to acquire a 75% interest in the Decar property contingent on a number of criteria being met over the coming years.

From 2010 to 2013, Cliffs went on to spend roughly $22 million USD leading up to the completion of a PEA in 2013, giving them a 60% ownership of the project. In August of 2014, however, following a proxy battle, Cliffs’ Board of Directors and management were replaced, and the new management initiated a fire sale of all of the company’s non-core assets, including Decar.

In September of 2015, FPX purchased Cliffs’ 60% ownership of Decar for $4.75 million USD, giving FPX 100% ownership of the project.

 

 

Decar Nickel-Iron Alloy Project PEA 2013

Decar’s nickel is found in a mineral called Awaruite.  Awaruite is a dense and highly magnetic nickel-iron alloy, Ni₃Fe, which is commonly referred to as a ‘ naturally occurring stainless steel.’  Awaruite’s physical properties make it perfect for conventional processing and extraction techniques such as grinding, magnetic separation and gravity concentration.

 

Additionally, in the case of the Baptise Deposit mineralization, there are little to no sulphides present, meaning that both the host rock and tailings are non-acid generating, which is a huge plus when it comes time to permit the project.

 

Mineral Processing and Metallurgical Testing

In 2012, SGS Minerals Services conducted “A Bench-Scale Investigation into the Recovery of Nickel from the Decar Awaruite Deposit.” From their tests, SGS selected a process which uses a grind size of 600 µm for the magnetic concentration stage, and 70 µm for the gravity concentration stage. This process results in an 84.7% recovery of DTR nickel, resulting in a concentrate with a grade between 12% and 15% total nickel.

The concentrate produced by FPX should be highly desirable in the stainless steel market, as steel producers, particularly in China, shift toward using higher grade sources of feedstockl to supply their steel making operations. For your information, lower grade concentrates or pellets have higher amounts of impurities, which, if not properly captured by a Bag House (essentially a massive vacuum), are exhausted into the atmosphere.

For those who aren’t familiar, nickel pig iron (“NPI”) is a major additive in the stainless steel making process, as it contains both nickel and iron, two of the main constituents in stainless steel. The FPX concentrate or pellet, as mentioned earlier, will have a nickel grade of around 13.5% and iron content around 50%, which compares favourably to the specs of high-grade NPI.

I had the chance to ask Turenne about the metallurgy of the Decar Project and the outlook for the concentrate. Here’s what he had to say;

 Turenne: “Decar will produce a premium nickel-iron product in the form of either a concentrate or a pellet with a nickel grade in the range of 12-15% and containing 40-50% iron. The closest market analogues to the Decar pellet are high-grade Chinese nickel pig iron (which typically grades 10-12% nickel with iron making up the balance) and ferronickel (grading 30% nickel, 70% iron). The significant iron content in ferronickel and Chinese NPI makes these products highly desirable for the production of stainless steel, which requires nickel and iron as key inputs; these products, therefore, attract premium pricing in the range of 102 to 110% of the LME nickel per contained nickel unit, as compared to typical nickel sulphide concentrate, which yields 70-75% of the LME nickel price when it is sold to a smelter.

In 2014, FPX conducted market testing of Decar product samples with six of the largest ferronickel and stainless steel producers in the world. The results of this program confirmed the potential for Decar product to bypass smelting and be injected as direct feed for the production of either ferronickel or stainless steel. The commercial feedback provided by the market test participants indicated that Decar product may achieve payability up to 95% or more of the LME nickel price, which is a material improvement over the 75% payability assumed in the 2013 Decar PEA. This improvement will be a key driver underpinning potentially robust economics in an upcoming updated PEA.”

From Turenne’s comments, I think the comment about the potential difference in payability, 20%, is a big deal and should be realized in an updated PEA in the future.

 

Metallurgical Comparison to RNC Nickel

For a better perspective of FPX’s metallurgical advantage, I have a comparison of Process Plant Schematic’s or Flow Sheets of RNC Nickel and FPX.  First, let’s take a look at RNC Nickel’s Dumont Feasibility Study Technical Report, which shows the following flowsheet for the Dumont nickel sulphide deposit:

Source: RNC Nickel’s Dumont Feasibility Study Technical Report – pg.1-10

 

I am not showing RNC’s flow sheet to be critical of their process, but more to point out its complexity versus FPX’s flow sheet. FPX’s process is simple and widely used in the iron ore industry, and, in my opinion, presents fewer risks for economic production in the future.

 

Source: FPX Nickel’s Decar PEA Technical Report – pg.13-12

 

You be the judge. In my mind, metallurgical processing is arguably the most important part of a mine and, therefore, for me, FPX is clearly the better place for my investment dollars.

 

 

 

Summer Step-Out Drill Program

On September 25th , FPX completed their step-out drill program on the Baptiste Deposit.  Eight diamond drill holes were completed, totalling 1,917 metres.  The drill program area was 500 metres along strike from historical drilling, and covered a width of 500 metres.

 

On October 18 and November 20th, the results of the 8 hole program were released. The highlights from the program are as follows:

• Hole 63 had an interval containing 104 m of 0.163% Davis Tube magnetically-recovered (DTR) nickel at a vertical depth of 66 metres below surface.
• Hole 65 had an interval containing 132 m of 0.147% DTR nickel at a vertical depth of 32 m below surface.
• Hole 67 had an interval containing 96 m of 0.167% DTR nickel at a vertical depth of 42 m below surface.
• Hole 68 had an interval containing 124 m of 0.133% DTR nickel at a vertical depth of 20m below surface.

In my opinion, these results are excellent. To understand, let’s put it into perspective; the Baptiste deposit’s indicated DTR nickel resource estimate has a grade of 0.124%, and its inferred DTR nickel resource estimate has a grade of 0.125%.

The highlighted drill results are significantly higher-grade than the existing indicated and inferred resource estimate grades, they are large intervals and they are shallow. These are very positive signs that an updated PEA on the project should have better economics.

The question is how much of an impact can the step-out drill results have on the project’s economics? Well, the historically identified strike length totals 2.5 km in length, the summer drill program stepped out a further 500 m or a roughly 25% extension of the strike length. Given that the mineralization is shallow and higher grade than the existing resource estimates, I think this is going to have a very positive effect on the PEA update.

 

2013 PEA Results

The Baptiste Deposit will be mined via an open pit which is estimated to contain an Indicated Resource of 1.1 billion tonnes of 0.124% DTR Ni, and an Inferred Resource of 0.87 billion tonnes of 0.125% DTR Ni. Based on this, Tetra Tech calculated the following 2013 PEA results:

• Post-Tax NPV @8% – $579 million CAD
• Post –Tax IRR – 12.8%
• Pre-Production CAPEX Cost – $1.3 billion CAD
• Total CAPEX Cost over life-of-mine –k $2.1 billion CAD
• Post-Tax Payback – 6.4 years
• Nickel Price – $9.39 USD/lb.
• Mining Rate – 114,000 t/day or roughly 40 million t/year
• Exchange Rate – $0.97 CAD/ USD

Nickel Price Assumption

As you can see, the Decar project has some robust economics, with a post-tax NPV @8% of $579 million and an IRR of 12.8%. The downside to these numbers is that they were calculated using a nickel price of $9.39 USD/lbs.

For those who have been following the nickel price, you will know that nickel currently trades at roughly $5.50 USD/lbs, with most industry experts using $7.50 USD/lbs as their long-term target price.

At face value, the nickel price assumption is a troubling aspect of the 2013 PEA. A lot, however, has changed in the last 4 years, since the PEA was conducted.

• Firstly, as outlined in the previous section of the report, FPX’s 2017 step-out drill program, completed this past fall, intercepted large intervals of shallow, high-grade DTR nickel, which appears to have extended the existing deposit by another 500 metres or roughly 25%.
• Secondly, as outlined in the metallurgical section of this report, the PEA considered a conservative concentrate payback of 75%. However, FPX’s latest market testing suggests that a payback of 85 to 95% is more realistic due to the product’s high quality.
• Thirdly, the CAD to USD exchange rate was almost 1 for 1 back in 2013. Today, in 2017, according to the Bank of Canada website, for every Canadian dollar we would receive 0.7911 American dollars, making the difference between the two exchange rates almost 20%.

It is my contention that given the 3 outlined changes since the original PEA was conducted, that a new PEA at a lower nickel price will again show robust economics.

 

CAPEX Cost

With a pre-production CAPEX cost of roughly $1.3 billion CAD, you may be thinking, ‘how are they going to pay for this?’ Well, in actuality, for those who aren’t familiar with base metals project development costs, US$1.3 billion is relatively cheap.

FPX’s most current corporate presentation, on slide 23, has a great graph depicting the capital cost (USD) per tonne annual nickel production of the largest nickel mines built   around the world since 2010.

 

As you can see, Decar has the lowest capital cost (USD) per tonne of annual nickel production of all the listed nickel mines.  The key take away from this graph, in my opinion, is two-fold; First, CAPEX costs in the billions of dollars won’t be the reason why this project isn’t developed. As you can see, the average CAPEX cost of the listed comparisons is close to $4 billion, making Decar’s current US$1.3 billion look quite low. Second, if FPX were to complete an updated PEA on Decar, they could potentially lower the throughput rate, which would have an effecton the overall CAPEX value.

Here are Turenne’s comments surrounding the $1.3 billion pre-production CAPEX cost;

Turenne: “The estimated pre-production capital cost in the 2013 PEA was C$1.3 billion for a 114,000 tonne-per-day operation, or approximately US$1.1 million at today’s exchange rate. We are looking at a potential smaller-scale operation, which could potentially reduce capital costs.

We believe that Decar is the most attractive undeveloped nickel asset in the world, truly a tier-1 asset due to the size of the ore body (supporting a top-15 annual nickel producer over a 25+ year mine life) and bottom-quartile operating costs (C$3.23 on-site operating costs in the 2013 PEA).

Due largely to the somewhat depressed state of the nickel market, and due to the modest headline economics in the 2013 PEA (resulting mostly from the low assumed nickel payability and high Canadian dollar assumption), FPX’s current valuation is absurdly low. Our strategy is to continue to demonstrate the technical and economic feasibility of the project, and to commence the permitting process, so that as the nickel price continues to rise, the market will begin to value us more appropriately. As and when this occurs, this will give us a better basis on which to raise funds to advance the project on our own, or to advance the asset with a senior partner. “

 

 

FPX’s Plans for 2018

In my opinion, it’s important to have a long-term outlook when it comes to your investment within the resource sector, as it gives you the best chance for your thesis to be right and helps you manage the ebbs and flows of a volatile sector.

In saying this, I asked Turenne about 2018 and what they had planned. Here’s what he had to say;

Turenne:  “We will continue to advance the Decar project, likely with the release of an updated resource estimate for the Baptiste deposit which will incorporate the results of our very successful 2017 step-out drilling program. The 2017 drilling defined the Southeast Zone, which is the highest-grading portion of Baptiste.

There are a couple of key features of the Southeast Zone: first, it’s a very large zone measuring 1,000 metres long east-west and up to 600 metres north-south; second, long, near-surface drill intercepts in the Southeast Zone have returned grades in a range between 0.14% to 0.16% Davis Tube recoverable nickel. These results compare very favourably with the undiluted head grade in the first five years of the 2013 PEA mine plan, which ranged from 0.105% to 0.116% DTR nickel.  The incorporation of this near-surface, higher-grade tonnage in the early years of a new mine plan has the potential to significantly improve project economics.

Once we have completed an updated Baptiste resource estimate, the next major step is the completion of an updated PEA. Since early 2017, we have been evaluating a number of parameters to optimize project economics, including the development of an optimized mine schedule and process flowsheet, an evaluation of various alternatives for minimizingupfront capital, and incorporation of the results of market testing on payability for our nickel product.

The point on payability is particularly important to understand the upside in a new PEA. We have conducted market testing of Decar nickel product with some of the largest ferronickel and stainless steel producers in the world to confirm the technical and commercial viability of Decar product. The response received from those potential offtakers have demonstrated the potential to achieve nickel payability in the range of 85% to 95% of the LME nickel price, as compared to the 75% LME payability assumed in the 2013 PEA. This implies a significant potential for increased revenue over the life-of-mine, with obvious positive implications for overall project economics.”

 

 

Nickel Company Comparables

For perspective on the value of FPX, I have put together a comparison with another junior nickel company which has a development project in BC.

 

Giga Metals

MCAP – $27.4 million (at the time of writing) based on the current share price of $0.70/share, with 41.4 million shares and 26 million warrants outstanding at exercise prices ranging from $0.07 to $0.70/share

Giga Metals owns the Turnagain Nickel-Cobalt Project in northern BC. Turnagain is a large, low-grade sulphide deposit containing nickel and cobalt-bearing pentlandite and pyrrhotite. The project’s main economic value is found in its nickel, with a much smaller portion being derived from its cobalt credits.

As you will see below, many of Giga’s Turnagain Project economic valuations are very similar to FPX’s Baptiste Deposit. However, I see some areas in which, I believe, FPX is stronger than Giga – let’s take a look:

• Metallurgy – Complex mineralization, which, if successfully processed into a concentrate, will not fetch a premium price in the market, meaning payability of 75% of the LME price, at best. Please read the section of the PEA regarding metallurgy.
• Location – remote location in northern BC with higher hydro power access and concentrate shipment costs
• Limited Upside – The 2012 PEA has a high nickel price assumption ($8.50/lb.) and GIGA has not defined a clear path to making Turnagain an economic project below $8.50 USD/lb nickel.
• Share structure – while the shares outstanding is lower than FPX, this is only after a couple of recent share roll backs, and keep in mind that GIGA’s share count will almost double if all the outstanding warrants and options are exercised.

Here are a few of the highlights from the PEA:

• Measured and Indicated Resource – 865 Mt @0.21% Ni and 0.013% Co and an Inferred Resource – 976 Mt @0.20% and 0.013% Co.

Giga’s Results:

• Post-Tax NPV @8% – $724 million
• Post-Tax IRR – 13.5%
• Initial CAPEX – $1.357 billion
• Year 5 Expansion CAPEX – $492 million
• Total CAPEX Cost over life-of-mine – $1.849 billion
• Post-Tax Payback – 7.3 years
• Nickel Price – $8.50 USD/lb. and Cobalt Price – $14.00 USD/lb.
• Mining Rate – 28.1 Mt/year (average LOM)
• Exchange Rate – $0.95 USD/CAD

 

Currently, Giga Metals trades more than double the MCAP of FPX, which I don’t think is justified. Giga’s Turnagain has a lot of positive aspects, however, when it comes down to valuations, I don’t believe it’s more valuable than FPX’s Decar Nickel District, given the reasons I outlined.

 

 

Concluding Remarks

I’m very bullish on the future of nickel and am investing my money into what, I believe, are the best investments to capitalize on a rising nickel price.

Even if you agree with my bullish nickel outlook, you may have a different risk tolerance when it comes to investing. For me, I prefer the junior portion of the resource sector, as I believe it gives the investor the best risk to reward ratio.

In saying this, I will continue to buy shares in FPX Nickel Corp. because, in my opinion, their Decar Nickel District is among the best undeveloped nickel projects in the world.

As I outlined in the report, there’s some risk associated with FPX, mainly in the nickel price assumption from its 2013 PEA and the NDP political party which currently leads the BC provincial government. I do believe, however, that given the step-out drill results, the expected 85-95% payability on the concentrate and a change in the exchange rate, the Decar Nickel District will be economic at sub $8 USD/lb. nickel.

In my opinion, there’s more upside potential than downside, especially at its current MCAP. Here’s a list of the reasons I’m investing in FPX Nickel:

• Great leadership from CEO, Martin Turenne, and a group of proven mine builders, beginning with Peter Bradshaw and Board members, Robert Pease, Peter Marshall and Bill Myckatyn. This team is being assembled with the successful development of Decar in mind.
• A desirable concentrate or pellet which is made via a simple metallurgical process. Market research carried out by FPX suggests that the concentrate could sell for around 85-95% of the LME price, which is 20% higher than the 75% used in the 2013 PEA.
• The Baptise Deposit mineralization has little to no sulphides present, meaning that both the host rock and tailings are non-acid generating, which is a huge plus when it comes time to permit the project.
• Low Pre-Production CAPEX cost of $1.3 billion – World-class nickel projects come with large price tags, making Decar look very reasonable, if not cheap.
• Low on-site operating costs of C$3.23/lb, which would position Decar in the lowest quartile of the nickel industry cost curve.
• Given the PEA nickel production rate of 82 million lbs. per year, at today’s nickel price of US$5.75/lb, Decar would yield around US$250 million in annual pre-tax operating cash flows.
• Large resource containing over 5.5 billion pounds of nickel in the combined indicated and inferred categories, making Decar one of the five-largest undeveloped nickel deposits in the world
• Successful step-out drill program results from the Southeast Zone, which has increased the strike length by 500 metres or roughly 25%.
• PUSH – An update to the Baptiste Deposit’s resource estimate should come in 2018, setting the stage for an updated PEA.
• FPX is trading for less than half (in terms of MCAP) the value of a comparable junior nickel company which, I believe, doesn’t have as high quality an asset as FPX.

In my opinion, all of these points make a great investment proposition. One that I think will be very hard for a major mining company to ignore in the future. With the completion of an updated PEA, a rising nickel price, and the overall lack of comparably great projects in the world, I believe FPX is HIGHLY undervalued and am looking forward to its re-rating in the market.

 

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Until next time,

 

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer: All statements in this report, other than statements of historical fact should be considered forward-looking statements. These statements relate to future events or future performance. Forward-looking statements are often, but not always identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. Much of this report is comprised of statements of projection. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.  Risks and uncertainties respecting mineral exploration companies are generally disclosed in the annual financial or other filing documents of those and similar companies as filed with the relevant securities commissions, and should be reviewed by any reader of this newsletter.

Brian Leni is an online financial newsletter writer. He is focused on researching and marketing resource and other public companies. Nothing in this article should be construed as a solicitation to buy or sell any securities mentioned anywhere in this newsletter. This article is intended for informational and entertainment purposes only!

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Brian Leni does own shares in FPX Nickel Corp.

The research I did on Newfoundland and Labrador as a destination for mineral exploration and production had me excited to see, in person, if the province would deliver. On October 23rd, I visited Rambler Metals and Mining, and specifically their Ming’s Mine site, which sits roughly 15 minutes from Baie Verte.

View of the water from Baie Verte

Before getting into my visit to Rambler, I want to give you a quick intro to the Baie Verte Peninsula’s mining history and, in particular, a story of how Canada’s smallest town came to be.

 

Tilt Cove

Tilt Cove is currently the smallest town in Canada; with a population of just 6 people, it sits just a few kilometers from Rambler’s Nugget Pond Mill.  The story of how Tilt Cove came to be varies depending on who you speak to, but here’s a brief summary of what I was told.

The story begins with a man named Issac Winser. Winser was a fisherman, who frequently fished the waters surrounding the Baie Verte Peninsula. In a chance encounter on the water between Winser and another man, Smith McKay, McKay noticed Winser was in possession of a large metallic rock, which he was using as an anchor for his boat.

Curiously, McKay took a closer look at the bluish green coloured rock and asked Winser where he had found it. Winser said he’d found it on the shores of the Tilt Cove area, and that there was a great deal more sticking out of the cliffs.

McKay, having a mining background, recognized the rock to be copper ore and later made his way to the Tilt Cove area to set up a mining operation, where he and his team mined the copper ore by hand. The Tilt Cove town was quickly established and grew from a town of 3 families in 1863 to a town of over 700 inhabitants by 1869.

In the Nugget Pond Mill offices, there is a copy of a very old Tilt Cove grocery store flyer advertising sale items. Additionally, the town’s prosperity even brought a movie theatre to the area and many other unexpected perks for such a small community in northwestern Newfoundland and Labrador.

For those interested in reading more about the history of Tilt Cove, here are a couple of links to check out: CBC – Tilt Cove, Canada’s smallest town, a big draw for tourists and Newfoundland Heritage – Once Upon A Mine.

 

 

 

 

Rambler Metals and Mining (RAB:TSXV)

MCAP – 82.4 million (at the time of writing)

Shares – 549 million

Fully Diluted – 627 million

Cash – $2 million

Institutional Shareholders – CE Mining 72%, Lombard Odier 6%, CI Global Investments 5%, Tinma International 4%

 

 

Ming’s Mine and Nugget Pond Mill

Rambler Metals and Mining owns 100% of its 1640 ha property, which is home to the Ming Mine and Nugget Pond Mill. Rambler’s operation is expanding its underground operation by blending ores from the Lower Footwall Zone with the current mining from the massive sulphide zones to produce roughly 16 million pounds of copper annually, at a cost that’s below $2 USD per pound, giving the operation good upside potential against a rising copper price.

The Ming’s Mine has a total Proven and Probable Reserve of 8.7 million tonnes at 1.79% copper and 0.48 g/t gold, for a total of 341.2 million lbs of copper and 133.5 K oz of gold. All zones of the deposit remain open at depth.

Ming Mine – New portal cover installed as part of the ventilation upgrade project

Currently, the mine is targeting 1250 mtpd, which will help drive down costs and allow Rambler to maximize their profits in what appears to be a strong future market for copper prices. Rambler’s  corporate presentation gives us a glimpse of their sensitivity to a rising copper price – below is the graph.

Data Source NI43-101 2015 Technical Report – Financial KPIs @ 1,250 MTPD

 

Although the mine site is closer to Baie Verte, where I was staying, we started the site visit at the Nugget Pond Mill, which sits roughly 40km away from the mine site, near Canada’s smallest town, Tilt Cove.

The Nugget Pond Mill is located 10km off the 414, and is at about the 5km mark where the road breaks in two. On your left, you head to Snook’ Arm, and to your right, our destination, Nugget Pond.

Ming Mine – Truck being loaded with Copper Ore

 

Rambler purchased the Nugget Pond Mill in October of 2009 for $3.5 million CAD, which, at the time, was owned by Crew Gold Corporation. Crew was using the mill to process their gold ore, which was mined at their Nalunaq Gold Deposit in Greenland.

NOTE: The Nugget Pond Mill was originally built back in 1996 by Richmond Mines to mine the Nugget Pond deposit.  When that ore body was depleted, Richmond movedto the Hammerdown mine, near Springdale, and mined, trucked and milled the ore at the Nugget Pond mill.

Nugget Pond Mill – Truck dumping a load of Copper Ore for Processing

The bulk of my site visit was spent at the Nugget Pond Mill, where I was given a detailed overview of the operation by the Mill Superintendent, Dwight Goudie. I then toured the facility, where I met with a couple of operators, Chester and Andrew, who took me through their respective operations and explained to me how the process works and the key parameters that they monitor.

 

Nugget Pond Mill – Operator Andrew, holding a piece of Dry Copper Concentrate

 

I was very impressed at the level of knowledge which both operators displayed. Clearly, they are both fully engaged in the whole process and take great pride in what they’re doing. Speaking from experience, getting and maintaining this sort of engagement isn’t always easy, but pays huge dividends to a company that can sustain it.

 

Future Growth

Rambler is steering towards  a definitive engineering study with regards to an expansion of the mining process, in which their target is to achieve a production rate of 2,000 mtpd, Phase III. An increase to this level of production should lower costs, ergo giving even more potential protection against a falling copper price or upside potential in a rising copper price market.

Along with a longer term production goal of 2,000 mtpd, Rambler’s Chief Exploration Geologist, Larry Pilgrim, mentioned that they are targeting further exploration of the deposit, down plunge, as all zones remain open at depth. In particular, the Ming North Zone remains largely unexplored and will be the exploration focus of the future. A surface drill program is also underway targeting the down plunge extension of the Lower Footwall Zone.

This surface drilling has been successful in expanding the LFZ zone as well as expanding the massive sulphide zone (Ming South zone).  A September news release highlighted some of the results from the first hole.

• Ming Massive Sulphide (MMS) – Upper lens 1.02 m of 1.63% Cu and 1.23 g/t Au and Lower lens 6.30 m of 2.85% Cu and 2.99 g/t Au
• Lower Footwall Zone (LFZ) – 40.0 m of 1.42% Cu, including 6.0 m of 2.51% Cu and 7.57 m of 2.27% Cu

Results from the second hole are expected in the next couple of weeks.

 

NOTE: Pilgrim is a native Newfoundlander with a lot of experience in the mining industry. He mentioned that western Newfoundland, right up the Baie Verte Peninsula, had enough prospective geological targets to last him 3 lifetimes. I mention this because it appears we have only hit the tip of the iceberg in Newfoundland and Labrador’s exploration potential, which is great for the future of mining within the province.

Ming Deposit – Slide from Rambler Corporate Presentation

 

In a news release on June 27 of this year, Rambler reported some great drill results from the Ming North Zone, which aren’t included in the current resource or reserve calculation. Some highlights were: R17-675-04: 4.00m of 3.17% Cu with 6.56 g/t Au, R17-675-05: 21.00m of 3.1% Cu with 1.13 g/t Au and R17-675-07: 17.97m of 2.79% Cu with 1.73 g/t Au. At the very least, the drill results show the potential to help replace the depleted reserves and, on the upside, show the potential to expand the resource and/or reserves in the future.

 

Concluding Remarks

I think it’s undeniable that the world is moving away from the use of fossil fuels as an energy source. In the coming years, alternative non-carbon emitting energy sources, such as solar and wind, appear as though they will have a larger footprint in energy generation. With this movement will come the need to store and transmit electricity on a far larger scale than we are today.

Thus, in my opinion, a major disruption in the primary battery metals and copper markets is destined to come.  In saying this, positioning yourself in high quality companies such as Rambler Metals and Mining, could prove to be a good investment in the years ahead.

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer: All statements in this report, other than statements of historical fact should be considered forward-looking statements. These statements relate to future events or future performance. Forward-looking statements are often, but not always identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. Much of this report is comprised of statements of projection. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.  Risks and uncertainties respecting mineral exploration companies are generally disclosed in the annual financial or other filing documents of those and similar companies as filed with the relevant securities commissions, and should be reviewed by any reader of this newsletter.

Brian Leni is an online financial newsletter writer. He is focused on researching and marketing resource and other public companies. Nothing in this article should be construed as a solicitation to buy or sell any securities mentioned anywhere in this newsletter. This article is intended for informational and entertainment purposes only!

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Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction, and should only be made after such person has consulted a registered financial advisor and conducted thorough due diligence. Information in this report has been obtained from sources considered to be reliable, but we do not guarantee that they are accurate or complete. Our views and opinions in this newsletter are our own views and are based on information that we have received, which we assumed to be reliable. We do not guarantee that any of the companies mentioned in this newsletter will perform as we expect, and any comparisons we have made to other companies may not be valid or come into effect.
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Day 3 of my Newfoundland trip started at the crack of dawn, when I was awakened before 4am by the alarm of the logger in the room next to me at the Lakeview Inn in Millertown.  I tossed and turned for the next hour and a half and then made my way downstairs, where I had a terrific breakfast with Antler Gold’s exploration team. After breakfast, we headed to the team’s exploration home base, a rented cabin a few blocks away from the Inn.

Millertown located on the Shores of Red Indian Lake

For the exploration team, each day starts here with a safety review and a delegation of assignments by  Exploration Manager, Dave Evans. By about 7 am, we were on the road headed south of Millertown, down a set of logging roads, to Antler’s Wilding Lake Gold Project.

Yours Truly standing in Antler’s Elm Zone Trench

Before getting any further into my site visit report, I’m going to share some interesting facts about the history of Millertown.

 

Millertown

Just south of Buchans junction, which sits at the north end of Red Indian Lake in central Newfoundland, is Millertown.  Millertown was established in about 1900 by Lewis Miller, a timber baron and merchant from Crieff, Scotland.

Having exhausted his timber lands in Sweden, Miller brought a team of Scots and 100 Swedish lumberman to the Red Indian Lake area, in an effort to establish a logging operation that could supply the British Empire with pine timber.

What is left of the old saw mill in Millertown

The town was created to house this team of lumbermen as they built 80 Swedish style, two-room cottages along the shores of the lake. Additionally, they constructed a school and a church on the hill overlooking the lake, which still stands today.

Millertown Church and homes along the shores of Red Indian Lake

 

During my visit, I asked about the logging industry in the area, and was told that since the closure of the pulp and paper mill in Grand Falls, logging in the area has really declined with only a small number of companies still in operation. Unfortunately, the industry’s decline has had a major effect on the town and many younger families have left.

Shores of Red Indian Lake

With the area’s great geology and the access provided by the logging roads, however, a mining renaissance could be coming to Millertown and the surrounding area. Companies such as Antler Gold, Marathon Gold and Torq Resources are exploring heavily in this general region. A large discovery and the development of a mine could bring much needed cash and jobs to this beautiful area in central Newfoundland.

 

The Wilding Lake Gold Project

After driving for about an hour on the rough logging roads, we arrived at the point of the original Wilding Lake gold mineralization discovery, which occurred just a few years ago. The gold was found in 2015 by prospectors, Brian Jones and Gary Rowsell, in quartz boulders alongside a new logging road. Grab samples from these boulders assayed up to 74.8 g/ton gold.

Approximate location of the first boulders discovered by Jones and Rowsell

 

Jones and Rowsell eventually sold the property to Altius Minerals, which is a large mining royalty company based in St. John’s, Newfoundland and Labrador. Altius then carried out further exploration activities in the fall of 2016, such as soil and basal till sampling, airborne and ground geophysics.

Fast-forwarding to today, Altius has since optioned the property to Antler Gold, who is currently conducting a systematic exploration program of the property with soil sampling, trenching and, most recently, a 2,500m drill program of some highly prospective targets.

To note, Antler’s Wilding Lake Project covers 215 sq. km and more than 50 km of strike length of the projected structural trend that is believed to control the regional gold mineralization. This trend is the same as Marathon Gold’s Valentine Lake Gold Camp, which currently boasts a total over 2 million ounces of 43-101 compliant gold resources in the Measured and Indicated, and Inferred Resource categories.

Wilding Lake Gold Project Geology Map

Text Book Example of Rogerson Lake Conglomerate

Gold Mineralization Zones

In 2016, 5 gold mineralization zones – Alder, Taz, Elm, Cedar and Dogberry – were found by Atlius’ exploration team. The gold showings mainly consist of quartz-tourmaline veins containing clots of coarse-grained chalcopyrite, hematite, malachite and visible gold is hosted by the Rogerson Lake Conglomerate.

Taz Zone Trench located in Close Proximity to Original Boulder Discovery

In the picture below, the purplish coloured rock is the Rogerson Lake Conglomerate. As the conglomerate nears the quartz veining, its colour changes to brownish. The Elm Zone was the most developed trench I saw, and the focus of drilling at the time of my visit.

Elm Zone Trench – Rogerson Lake Conglomerate, bottom left purplish colour

 

Elm Zone Trench – Site of drilling on the day of my visit

 

Taz Trench Rock

 

Systematic Exploration

The drive down the logging roads to Wilding Lake gave Exploration Manager Dave Evans and I a chance to talk about the project, and the systematic approach they are using to find gold mineralization on the property. In the mining industry, a systematic approach is paramount to conserving capital and making every dollar count.

Beginning in the summer, Evans and his team set out to explore as much of the property as possible, taking soil samples and mapping the property, in hopes of identifying further targets for this fall’s 2,500m drill program.

This systematic approach is particularly important for exploration in Central Newfoundland and Labrador because of the amount of overburden which masks most outcroppings. This overburden layer can vary in depth from 0.5m to 15m throughout Newfoundland and Labrador.

The layering of the soil can be seen when standing in the dug trenches, as the top thin layer of organics clearly sticks out on top, followed by an overburden blanket of varying thickness, which is followed by basal till along the top of the rock.

Evans pointed out that the key to proper soil sampling is to get a sample below the organics in the A horizon, down to the brownish soil, where there is the possibility for gold to be present. When high potential soil samples or boulders are found, the geologists identify the path of the glaciers, which would have worn the mineralized outcrops as they moved across, many years ago. The exploration team then moves up ice of the high gold in soil or boulder samples to (hopefully)  find the buried quartz vein outcrops.

 

 

By overlaying soil and till sampling data with the geophysical data, followed by trenching and channel sampling along the quartz veins in each zone, the team has identified high potential targets which, at the time of my visit, were the focus of the drilling.

Evans told me that, to date, they have collected over 6000 samples across the property. In the July 26^th, 2017 news release, Antler released the gold soil geochemistry diagram seen below.

2016 and 2017 Soil Geochemistry Wilding Lake Project – News Release July 26^th, 2017

Further in the August 30^th, 2017 news release, Antler announced the discovery of new mineralized zones, Red Ochre and Raven. The Red Ochre Zone is located roughly 900 meters to the southwest of the Alder Zone, while the Raven Zone is located 400m to the northeast of the Red Ochre Zone.

Antler’s systematic approach to exploration is clearly working and makes me confident that if there is more gold mineralization within their claim boundaries, they will find it!

Pointing out a Fleck of Gold at the Taz Trench Outcrop

Trenching Work

I have included a few pictures from my visit and a few images produced by Antler depicting the Elm Zone, Alder Zone and Dogberry Zone trenches, which have channel sampling data included from the quartz veins. These were a part of a January 24, 2017 news release.

Elm Zone Trench – Quartz Vein Outcrop

Elm Zone Trench – Exploration Manager, Dave Evans

 

News Release Jan.24, 2017 – Alder Zone Trench

 

News Release Jan.24, 2017 – Elm Zone Trench

 

 

News Release Jan.24, 2017 – Dogberry Zone Trench

 

Newfoundland and Labrador – A New Frontier for Gold Exploration

Finally, for those who haven’t read my article on Newfoundland and Labrador as a mining jurisdiction, and/or don’t know much about this great province on Canada’s East Coast, you can find it here.

 

 

Concluding Remarks

Touring the property with Exploration Manager, Dave Evans, was an exciting and very insightful experience. In any mineral exploration endeavour, a systematic approach that ensures dollars are spent wisely is vital to the success of the operation. In the case of Antler, I had the chance to see, first hand, the dividends that are paid when you have a defined process that’s performed by an experienced team.

Secondly, having met Antler CEO, Dan Whittaker, this past summer in Toronto, I’m confident Antler shareholders, including myself, are in good hands moving forward. I am a buyer of Antler Gold and look forward to the first round of drill results in the coming weeks.

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company(s) and sector that is best suited for your personal investment criteria. Junior Stock Review does not guarantee the accuracy of any of the analytics used in this report. I do own Antler Gold shares. I have NOT been compensated to write this article and have No business relationship with Antler Gold.

If you’re looking to take your due diligence process to the next level, you have to incorporate a site visit into your repertoire. All the analysis in the world can’t replace the effectiveness of seeing a project and meeting the people in person.

Not only can you confirm what the management team is telling you, but you can meet the people who are on the front lines, mining underground, driving loaders, collecting soil samples or simply answering the phone in the office. All of this can tell you a lot about the health of a company and how it treats its employees, which is paramount to the company’s success, in my opinion.

In October, I had the opportunity to visit Anaconda Mining’s Point Rousse Project, and was not surprised to see that Anaconda’s leadership makes it a priority to empower their workforce. For this, they’re paid back through a motivated workforce.

I returned from my visit to Newfoundland and Labrador very satisfied that Anaconda’s operational team has the right ingredients for success; they look set to put the Stog’er Tight Deposit into production, produce a maiden resource estimate for the Argyle Zone, and explore and develop the Goldboro Project toward production.

2018 looks to be a monumental year of growth for Anaconda, one that I look forward to as a shareholder!

 

 

Anaconda Mining – Site Visit October 2017

On the morning of October 22^nd, I flew out of Toronto’s Pearson International Airport on my way to Deer Lake, located in western Newfoundland and Labrador. While I was here, I had the opportunity to visit Anaconda Mining’s Point Rousee Project, located on the Baie Verte Peninsula in north western Newfoundland and Labrador.

Gros Morne National Park – Western Brook Trail

 

The western portion of the island of Newfoundland, while sparsly populated, possesses, in my opinion, some of  Canada’s most spectacular scenery and destinations. I landed in Deer Lake, an interesting town because it’s home to western Newfoundland and Labrador’s major airport, and compared to many of the other areas in this part of the island, it’s also well developed on a commerical level.

Most importantly, however, it’s the largest centre next to Gros Morne National Park, and acts as a jumping point for people looking to explore this UNESCO world heritage site.

On the last day of my trip, I spent the day hiking a few of the trails in Gros Morne and was amazed by the scenery – this is a place you will want to add to your bucket list, you won’t be disappointed!

Baie Verte, Newfoundland and Labrador

Baie Verte – HWY 410 thru the main part of town

Baie Verte – A view from Bistro on the Bay

Baie Verte is a small town located on the coast of the Baie Verte Peninsula. Baie Verte’s history as a town is rooted in the pulp and paper industry, but owes its major growth to the asbestos mine which was founded in 1955 by George McNaughton and Norman Peters.

Asbestos Open Pit Mine – 1963 to 1995

The open pit asbestos mining operation, which is located a short drive north of Baie Verte, employed 500 people at its peak. The mine was operated by a number of companies throughout its history, including  Advocate Mines Ltd., Baie Verte Mines Inc., and Teranova. The mine was closed permanently in 1995.

While there are other employers in this region of Newfoundland, I definitely got the feeling from speaking to a few of the residents that, outside of being employed by government, mining was the most desirable industry in which to work.

The mining operations that are closest to Baie Verte are Anaconda Mining’s Point Rousse Project and Rambler Metals and Mining’s Ming Mine and Nugget Pond Mill. The two companies, in total, employ roughly 400 people in the surrounding area.

Depending on your speed, it’s roughly a 2 hour drive from the Deer Lake airport to Baie Verte.  I spent two days in Baie Verte, staying at the Dorset Inn, which is right in the heart of town.  From here, Anaconda’s Point Rousse Project is about a 30 minute drive on the 418, which leads to the town of Ming’s Bight.

 

 

The Point Rousse Project

The Point Rousse Project is a collection of Anaconda’s Newfoundland assets, which include the Pine Cove Mine and Mill, the Stog’er Tight Deposit, the Aggregates Project and over 5,800 ha of prospective property.

The Point Rousse Project is located down a very well kept gravel road, about 5 km off the 418. The road makes its way through the forest, up and down hills, until reaching the site’s main offices to your left, and tailings pond to your right. Elevation-wise, the main offices, mill and tailings pond are set roughly 75 to 100 ft above the top of the Pine Cove open pit, and probably another 75 to 100 ft above the sea level at the Port Facility.

During my visit, I was accompanied by the Mine and Mill Superintendent, Tony Chislett. Chislett has been with Anaconda for 10 years, working in a few different roles before becoming Superintendent. In my experience, the best operation managers typically work their way up to the position after having extensive experience in the various jobs that they are going to manage. This not only gives them the much needed knowledge of the process, but also the respect of the workers.

Chislett and his team will be put to the test in the coming months with the conversion of the Pine Cove open pit mine to a long term tailings facility and the start up of the Stog’er Tight Mine, which should occur in early 2018. Not only this, but on the horizon there is the possible processing of the Goldboro ore, which will be an extra wrinkle for the team to deal with, as the Goldboro ore is different from what is mined along the Scrape Trend.

Pine Cove Mine and Mill Superintendent, Tony Chislett

As we drove around the property, Chislett gave me a break down of the operation, and how they have incorporated cutting-edge technology and their personnel’s input to improve the process. For instance, GPS targeting for blasting and on the company’s heavy equipment allows for precision mining and the ability to maximize efficiency with the flow of ore to and from the open pit to the mill. With the movement to Stog’er Tight getting closer, these technologies, I believe, will aid Anaconda in avoiding some of the pitfalls that could accompany the mining operation’s move.

Pine Cove Open Pit Mine– Dump Truck Driving Up the Ramp

 

Pine Cove Open Pit Mine – Mining of Gold Ore from the Bottom of the Pit

 

Stog’er Tight Deposit – Located in Close Proximity to the Pine Cove Mill

 

Scrape Trend

While the Stog’er Tight Deposit looks to become Anaconda’s next producing asset, there are many more prospective targets located in what is called the Scrape Trend.

Source: Anaconda Mining

 

In the image above, you can see the exploration targets listed from 1 to 4. Starting on the left-hand side of the image with #1, is Anaroc, which is located in close proximity to the Pine Cove open pit mine.  Next, #4 is Corkscrew Road, followed by the #2 Connector and, finally, #3 the most explored of the targets, the Argyle Zone.

 

 

Argyle Zone

Fifty-two holes have been drilled at the Argyle Zone, totalling 4,860 meters.  The strike length is over 600m and 225m down dip. To date, here are some of the drill highlights at the Argyle Zone: 6.09 g/t over 8.9m (AE-16-11), 9.31 g/t over 6.0m (AE-16-39) and 3.63 g/t over 12.0m (AE-17-46).

In a recent news release, Anaconda announced a flotation recovery of 97.3% and a leach recovery of 94.5% for a combined recovery of 91.9% of a 25 kg sample of blended core samples from Argyle, with an average grade of 2.69 g/ton gold.

Additionally, Anaconda’s geologists have identified other targets to the south and along strike using geophysical data.

Source: Anaconda Mining

PUSH:  A maiden resource estimation for the Argyle Zone is expected to be announced in December 2017. Additionally, Anaconda’s team is working on an environmental assessment application, conducting metallurgical and ARD testing and government consultations.

Aggregates Project

Deep Sea Port which Facilitates the Aggregate Shipments

While not a focus for Anaconda, the cash and the removal of waste rock that the Aggregates Project provides is a huge plus for the company. The Aggregates Project and the proposed use of some of the larger waste rock as armour stone is a testament to the innovation that Anaconda’s leadership has instilled in their workforce.

With the first Aggregates Project contract having just expired, Chislett mentioned that they intend to negotiate additional contracts in the future. In the last fiscal year ending on May 31 2017, the project generated $0.9 million.

 

 

 

The Goldboro Project

From the first time we met, Anaconda’s CEO, Dustin Angelo, has told me that Anaconda has lofty goals for expansion, as they intend on becoming a 50,000 ounce per year gold producer. To more than triple their current production rate, they will, without a doubt, lean heavily on their latest acquisition, the Goldboro Project, which is located a couple of hours northeast of Halifax, Nova Scotia.

In recent news, Anaconda was able to raise $3 million dollars in a non-brokered private placement. VP of Exploration, Paul McNeill, says roughly half will be put toward further exploration and development at Goldboro.

In a news release on November 1^st, Anaconda  announced a 6,000m diamond drill program, focusing on the Boston Richardson and East Goldbrook gold systems. The goal of the program is to expand the mineral resource along strike and down plunge, while also completing infill drilling in specific portions of the deposit as they look to move some of the Inferred resource up to the Measured and Indicated categories.

Goldboro IP Chargeability Map

In the same release, Anaconda reported that initial drill core observations support the thesis that the Goldboro Deposit continues at depth, as the first diamond drill hole (BR-17-06) intersected the geological structure hosting the Boston Richardson System between 400 to 475 meters, which is 75 meters below the current resource model.

Goldboro Deposit Vertical Longitudinal Section

PUSH: Drill results from the recently commenced 6,000m diamond drill program. Expansion of the resource at depth and along strike has the potential to do great things for the economics of this project.  Pay close attention to drill results coming in the weeks and months ahead.

PUSH: Additionally, a PEA is scheduled to be completed by the end of this year, the economics of which could be enhanced with further expansion of the Goldboro Deposit.

Anaconda possesses a proven team with a track record for success in mining. I believe that Goldboro will be the next feather in their cap, as they look to develop the Project into a producing mine. For a detailed look at Anaconda, check out my last article here.

 

 

Concluding Remarks

Before my visit, I felt the future was very bright for Anaconda. After seeing their Point Rousse Project in person, I’m convinced Anaconda is a company that is dedicated to empowering its people. It has not only survived the depths of the recent bear market, but has emerged in this new gold bull market as a premier gold producer, set to grow in the coming years.

I’m looking to add to my position in Anaconda in the weeks ahead, and see weakness in the share price as an opportunity. Putting it all together, there’s a lot of news flow to watch for in the coming weeks and months, which could provide some PUSH for the stock price:

• Results from the 6,000m diamond drill program at the Goldboro Project. They are looking to expand along strike and at depth.
• Completion of a PEA on the Goldboro Project by the end of 2017
• Stog’er Tight Deposit will begin production in early 2018
• Maiden Resource Estimation announcement on the Argyle Zone in December 2017

 

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

 

Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company(s) and sector that is best suited for your personal investment criteria. Junior Stock Review does not guarantee the accuracy of any of the analytics used in this report. I do own Anaconda Mining Inc. shares. Anaconda Mining Inc. is a Sponsor of Junior Stock Review.

 

 

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Adventus Zinc Corp. – ADZN:TSXV

MCAP – $34.2 million CAD (at the time of publishing this report)

Adventus Zinc is a young company, having just completed its IPO in February of this year. Interestingly, it also has a great list of strategic shareholders, which includes Altius Resources Inc., Resource Capital Funds, Greenstone Resources, John Tognetti and Equinox Funds. Adventus has 10 projects in both Newfoundland & Labrador and Ireland, two premier mining jurisdictions; ones which I believe are only going to get more attention from the mining industry in the years to come. Check out the interview to get a good overview of the company.

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company(s) and sector that is best suited for your personal investment criteria. Junior Stock Review does not guarantee the accuracy of any of the analytics mentioned in this podcast. I do own Adventus Zinc Corp. shares. I have NOT been compensated to do this podcast.

 

With turmoil ramping up around the world in recent weeks, from Hurricane Harvey wreaking havoc in Texas to the mounting discord between North Korea and the United States over missile testing, and a weakening U.S. dollar, the price of gold pushed up over $1300/oz USD.

A rising gold price and the end of the summer doldrums could spell the beginning of the next leg up in the gold bull market. For those looking to profit in this next wave, today I have a gold producing company which is set to be re-rated in the coming months.

This company is Anaconda Mining, a gold producer with its flagship property, The Point Rousse Project, on the Baie Verte Peninsula in Newfoundland & Labrador. Looking out to 2020, the company’s short term goal is to significantly increase their gold production up to 50,000 ounces per year. Through further project acquisitions in Atlantic Canada which have NI 43-101 resources, and the development of Anaconda’s existing projects, they hope to leverage their team’s mine building experience and existing Point Rousse Project infrastructure, Pine Cove Mill, port and in-pit tailings facility, to push them towards their long term goal of becoming a 100,000 ounce per year producer.

Here is an executive summary of my conclusions on Anaconda, which will be followed by my in-depth analysis of the company.

• Led by CEO, Dustin Angelo, Anaconda has a great team of professionals who are looking to take the company to the next level.  The Goldboro Project acquisition and further acquisitions in the future will cement Anaconda’s reputation as a premier gold producing company.

• Anaconda Mining’s assets are located in Canada, more specifically, the provinces of Newfoundland & Labrador and Nova Scotia. These are premier destinations for mining as they present a stable political landscape and world-class geology.
• Anaconda achieved gold sales totalling 15,562 ounces in the fiscal year ended on May 31, 2017. The gold was produced from the cash flowing Point Rousse Project, which includes the Pine Cove Mill and Mine.
• Existing 43-101 Measured & Indicated + Inferred Resource Total of 1.1million ounces of gold
• Anaconda Mining’s EV/Oz is well below similar gold companies developing properties on Canada’s east coast.
• PUSH: Anaconda will be drilling Goldboro this fall, with the intent of both expanding the resource and shoring up the existing deposit. Watch for these drill results.
• PUSH: A PEA on the Goldboro Project will be completed by the end of this year, giving us a clear picture on the project’s potential profitability.

 

Anaconda Mining (ANX:TSX)

MCAP – roughly $28.6 million CAD (at the time of writing)

Cash – As reported in Anaconda’s news release dated August 2017, reflecting fiscal year end on May 31, 2017 – $2.5 million CAD

Shares – 382.0 million – NOTE: On May 8, 2017 Shareholders voted to give management the right to consolidate shares – 0.25 to 1. The Board of Directors has discretion to implement a consolidation within 12 months.

Stock Options – 33.0 million

Warrants – 34.0 million

Fully Diluted – 449.0 million

Officers & Directors’ Ownership – 7.8%

 

 

Anaconda’s People

Since taking the helm of Anaconda Mining in 2010, CEO, Dustin Angelo, has eliminated the company’s interest bearing debt and funnelled cash flow towards the development of its Point Rousse Project and further expansion of their land package, increasing it ten-fold over the last 6 years.  The Goldboro Project, Anaconda’s most recent acquisition under Angelo, is the most aggressive to date, adding much needed gold resource ounces to Anaconda’s books.

Previously, Angelo held senior level management positions with Waller Capital Corporation, MHI Energy Partners and Elgin Mining Incorporated. These positions have given him a great base of knowledge and experience to draw on, as he leads Anaconda Mining into a major stage of growth, during what looks to be one of the biggest gold bull markets in history.

Also to note, Angelo is an accountant by trade, earning a BSBA in accounting and international business from Georgetown University and a MBA from the Columbia Business School.

Speaking from experience and a little bit bias, operations are the heart of any mining or manufacturing company.  Let’s take a look at who is leading operations for Anaconda.

At the top of operations is COO, Gordana Slepcev. Slepcev, prior to her promotion, was VP of Technical Services, managing the mining and geology departments at the Point Rousse Project. Now in her new position, she is responsible for all operational aspects of the company, including permitting, mine development,  strategic planning, project evaluation, and also delivering long/short-term planning and geological support to mining operations. Slepcev is a professional mining engineer and has prior working experience with Labrador Iron Mines Holdings, Agrium Inc., and Western Coal Corporation.

Next is Anthony Chislett, Operations Manager for the Point Rousse Project, managing all aspects of the milling and mining operations. The Pin Cove Mill will be counted on in the future to process ore from Anaconda’s other projects and still maintain a high level of efficiency in its recoveries. Chislett and those who operate the mill will be strong contributors in the near future as they get set to incorporate Goldboro’s ore. Chislett has a Certificate in Civil Engineering Technology and over 26 years of work experience over his career.

Additionally, Robert Dufour is the CFO, Allan Cramm is VP of Innovation & Development, Paul McNeill is VP of Exploration, and Lynn Hammond is VP of Public Relations.

 

Anaconda’s Board of Directors

Anaconda’s Board of Directors has a great balance of experience, with members who have strong resumes in both the geological and financial sides of the mining industry. Here is a quick look at the board members:

John Fitzgerald is the Chairman of the Anaconda Mining Board of Directors and former Chairman and CEO of Orex Explorations. Fitzgerald’s expertise in finance comes from 25 years in the investment banking industry. Also, he has been a member of or advised a number of different companies including Boston Poly Corporation, Epcylon Technologies, DayStar Technologies, Hesat Acquisition Corp., iSense Corporation and Trustwater PLC.

Michael Byron is a board member and also the CEO of Nighthawk Gold, a gold exploration company, exploring the Indin Lake Greenstone Belt in the Northwest Territories. Byron, a geoscientist, has been in the mining industry for over 30 years and brings  with him plenty of geological technical expertise to the Anaconda Board.

Additionally, on the geological technical side, is Kevin Bullock, a registered Professional Mining Engineer with over 25 years of experience in the mining industry. Currently, Bullock is the CEO of Golden Reign Resources and has held senior positions at a number of other junior mining companies, including being a Director at B2Gold.

On the financial side of the Board are Maruf Raza,  Jacques Levesque, and last but not least, Anaconda’s CEO, Dustin Angelo.

 

Newfoundland & Labrador and Nova Scotia

The bulk of Anaconda Mining’s assets, Point Rousse Project, Viking Project, Great Northern Project and Tilt Cove Property, are located on the island of Newfoundland in the province of Newfoundland & Labrador.  The Goldboro Project, their most recent acquisition from Orex Exploration, is located in Nova Scotia.

Both Newfoundland & Labrador and Nova Scotia are provinces located on Canada’s east coast. Both provinces have a long history of mining but have recently seen a staking rush, particularly on the island of Newfoundland.

 

Newfoundland & Labrador

I recently wrote an article about Newfoundland & Labrador and why I think it is a premier destination for our mining investment dollars; for the full article follow this link. Otherwise, here is a list of my summarized thoughts regarding Newfoundland & Labrador:

• Newfoundland & Labrador’s geology has long been associated with base metals such as iron ore and nickel, however, I think this is quickly changing as a number of precious metals companies look to explore and develop some highly prospective properties. Compared to the rest of Canada, NL is under explored, especially for precious metals, such as gold.
• Newfoundland & Labrador encourages mineral exploration within its borders with the Junior Exploration Assistance Program (JEA). While the available funds in the program are small, it is a step in the right direction towards encouraging mining investment in Newfoundland & Labrador.
• Newfoundland & Labrador has a workforce which is accustomed to heavy industry. With low oil prices hurting the oil fields of Alberta, many native Newfoundlanders are finding their way back to the island and, with them, comes multiple years of heavy industrial experience. As properties develop, there is both a workforce to fill the needed positions and the infrastructure to produce and export their goods.
• The people of Newfoundland & Labrador have consistently voted for Conservative and Liberal governments since joining Canada in 1949. I expect this tradition to continue, which presents a stable political landscape for mining companies looking to explore and develop properties within its borders.
• From an investment standpoint, First Nations’ involvement in the mining sector can cause trepidation for the investor. In Newfoundland’s case, this isn’t an issue, as the First Nations do not control any large blocks of land that are prospective for mineralization. NOTE, it is a different story for Labrador.

 

Nova Scotia

• Since 2013, Nova Scotia has been led by Premier Stephen McNeil, a member of the Canadian Liberal Party. Historically, dating back to Confederation, the people of Nova Scotia have voted either Conservative or Liberal, however, it should be noted that they did vote NDP in 2009, by electing Darrell Dexter who is a member of the NDP Party. For those unaware, the NDP Party is typically cast as being bad for business, and given their history, this isn’t without cause. However, even though the past is typically prologue, we need to examine the policies of each incoming government no matter what their party affiliation, as they are all capable of introducing policy which is detrimental to mining. One thing to keep in mind, Nova Scotia’s unemployment rate is almost 9%, a government which would hinder job creation in the province’s current state wouldn’t last long.

• In total, there are 16,245 registered Indians in Nova Scotia. The Indian population is represented by 13 band councils and 2 tribal councils, the Confederacy of Mainland Mi’kmaq and the Union of Nova Scotia Indians. The Mi’kmaq are the predominant Aboriginal group in Nova Scotia, with 13 communities across the province.
• Nova Scotia has a long history of mining dating back 300 years. Gold, in particular, has played a big role in the Nova Scotia economy, with 3 separate gold rushes having produced over 1 million ounces gold since the 1860s.
• Geologically, Nova Scotia is broken up into two main geological terranes. The Avalone Zone, which forms the northern half of the province, and the Meguma Zone which forms the southern half. The two zones are separated by the Cobequid-Chedabucto Fault Zone, which runs east to west. This fault zone represents where the two zones collided over 400 million years ago. The geology specific to Anaconda’s Goldboro can be found later on in this article.

 

 

Anaconda’s Properties

Source: Anaconda Mining Corporate Presentation – August 2017

The Point Rousse Project

The Point Rousse Project is Anaconda’s Flagship 6,300 hectare property and is located on the Baie Verte Peninsula which is on the north west coast of the island of Newfoundland in the province of Newfoundland & Labrador.

Source: Anaconda Mining – Appendix Slide 1

 

The Point Rousse Project consists of the Pine Cove Mill and Mine, the Argyle Zone, the Stog’er Tight Deposit and Aggregates Project, all are located within 8 km of each other. The Project is underlain by Cambro-Ordocivian ophiolitic and cover-sequence rocks of the Point Rousse Complex, which is part of the Baie Verte Tract.

The Point Rousse Complex is host to both orogenic-style gold and volcanogenic sulphide mineralization. There are three identified mineralized trends within the Project: the Scrape Trend, the Goldenville Trend, and the Deer Cove Trend.

 

Pine Cove Mill and Mine

The Pine Cove Mill and Mine began producing in 2008, with commercial production achieved in September 2010.  To date, Pine Cove has produced 76,379.34 ounces of gold. In a news release dated August 25, 2017 Anaconda announced it fiscal year ending production figures which were highlighted by:

• Pine Cove Mill increased throughput by 8% to 1,223 tonnes per day when compared to the 2016 fiscal year.
• Operating cash cost per ounce sold was $1,126 CAD or USD $$856/oz and an all-in sustaining cost (AISC) per ounce of $1,735 CAD.  NOTE: Remember that AISC includes: CAPEX, Corp Admin and exploration expenses.
• Additionally, the Pine Cove pit, generated $0.9 million CAD from the sale of waste rock.  Anaconda is working with Shore Line Aggregates and Phoenix Bulk Carriers to supply 3.5 million tonnes of construction aggregate using Anaconda’s waste rock from the Pine Cove Mine and Mill operation. The waste rock is transported via Anaconda’s Point Rousse Port Facility.

The Pine Cove Mine is an open pit design, which is designed to be 350 m wide by a maximum depth of 150 m by the end of mine life. The pit’s main access ramps are designed at a 10% gradient and are 15 m wide, facilitating two-way truck traffic. The pit rock is drilled and blasted and then loaded into haul trucks by excavators, which transport the ore to the crusher ROM Pad.

The future of Anaconda lays in the hands of the Pine Cove Mill, which operates as a grind/flotation circuit followed by leaching. The Mill will be counted on in future to process the ore generated by Goldboro and Anaconda’s other deposit on the island of Newfoundland.

Here is an excerpt from the 2015 Point Rousse Technical Report,

“The concentrator has a flotation circuit which produces a gold-pyrite concentrate that advances to the leach circuit. Comminution is via a two-stage crushing plant followed by a 10 ft by 14 ft primary ball mill. Cyclone overflow feeds the flotation circuit, with four unit cells for roughing and one cleaner cell. Mass recovery is typically 2-4 percent. Flotation concentrate is thickened in a 4.5 m diameter thickener and reground in a 5.5 ft diameter ball mill. Leaching is conducted in a series of four 70 cubic metre mechanically agitated leach tanks. Two drum filters and a Merrill-Crowe circuit are used for gold recovery from the pregnant solution. Cyanide destruction of leach tailings is achieved through the Inco SO2 process. The mill currently achieves 86-88 percent recovery.” ~ 2015 Point Rousse Technical Report – pg. 21

Anaconda has two tailings facilities and a polishing pond. The Tailings 1 storage facility had its final expansion in 2014, increasing its elevation up to 103 (msl). Additionally, in the last fiscal year, the Tailings 2 storage facility and new polishing pond were constructed on the property.

 

Stog’er Tight Deposit

The Stog’er Tight Deposit was originally discovered by Noranda Exploration Company in the late 1980s. Anaconda optioned the property from 1512513 Alberta Ltd. in 2012, with the intent of securing future supply for the Pine Cove Mill.

Anaconda has since worked on evaluating the deposit’s potential, by the verifying of historic drill data with the completion of nine twinned diamond-drill holes. Anaconda’s work indicates that other similar prospects lay adjacent to the Stog’er Tight Deposit and may represent an expansion of resource for the area.

Currently, the Stog’er Tight Deposit is estimated to contain Indicated Mineral Resources of 204,100 tonnes grading 3.59 g/t gold for a total of 23,540 ounces and an Inferred Resource of 252,100 tonnes gtrading 3.27 g/t gold for a total of 26,460 ounces, both using a cut-off grade of 0.8 g/t gold.

As mentioned in the August 25, 2017 news release, CEO, Dustin Angelo, states,

“Looking ahead to 2018, the Company is projecting to produce and sell approximately 15,500 ounces of gold.  Production in the first three quarters will be from the Pine Cove Pit, and will transition to the Stog’er Tight pit early in the 2018 calendar year.”

 

Argyle Zone

The Argyle Zone is a highly prospective zone located immediately northwest of the community of Ming’s Bight.  The Argyle Zone has seen a reconnaissance soil survey in 2012, with a total of 364 samples collected at 25m intervals. These samples returned some impressive assay values, highlighted by 112 samples assayed 25 ppb gold or greater to a maximum of 4.88 g/t and several pieces of mineralized float returned assay values of up to 9 g/t gold.

The property has since seen additional exploration work including an airborne magnetic survey, trenching and drilling. The trenching revealed strongly-altered, quartz-veined and pyritized gabbro. Highlights of the trenching include 3.75 g/t gold over 16 m and 1.49 g/t gold over 3.5 m. While a total of 5,000m of drilling has been completed on the zone, which is highlighted by 3.63 g/t gold over 12m, 5.52 g/t gold over 12m, and 9.31 g/t gold over 6m.

Argyle remains a highly prospective Zone within a stone’s throw of the Pine Cove Mill; it will need additional exploration to fully understand its potential.

 

The Goldboro Project

Anaconda’s Goldboro Project is located on the north east coast of Nova Scotia and consists of 37 mineral claims on 600 hectares. The main portion of the Goldboro property is accessible year- round via Highway 316 on a 2.5 km gravel road, with the other more obscure parts of the property having access via logging roads.

Highway 316 connects Goldboro to the nearest full service town of Antigonish, which sits approximately 75km to the north west. The capital of Nova Scotia and home to the province’s international airport, is Halifax, which sits 250 km to the south west.

Arguably the most important available access to the property comes from Isaac’s Harbour, a tide water port which is key for Anaconda’s plan to transport Goldboro’s ore back to their existing Pine Cove Mill in Baie Verte, Newfoundland & Labrador. Also, to note, a larger deep water port is located 60 km north east, in the Strait of Canso Superport.

 

Goldboro Infrastructure

The property has access to power and has existing buildings, a tailings pond, a settling pond and some advantageous underground workings.

Goldboro’s existing underground infrastructure includes a vertical shaft from surface down to the old 400 ft level and an inclined shaft from the bottom of the vertical shaft, running down plunge of the anticline fold axis of the main Boston-Richardson Belt down to the old 700 ft level. Also, there are several drifts which could possibly be used for future exploration, along with some minor workings in the East and West Goldbrook zones.

 

Goldboro’s History

The Goldboro property has a long history, dating back to 1862 when mineralization was first found, and then 1893 when mining began. In the 17 years that it was mined, it produced roughly 55,000 ounces of gold at an average grade of 4.5 g/t.

Modern exploration began on the property  with Patino Mines Ltd in 1981. Further work was completed on the overlying claims by Onitap, who completed diamond drilling, airborne VLF-EM and magnetic surveys and ground based IP surveys.

In 1988, Orex Exploration purchased the property from Onitap. Over the course of the next 26 years, Orex developed the property with further drilling and the refurbishment of its existing underground infrastructure, but also optioned the property to Placer Dome.

In 1995, Placer Dome optioned Goldboro with the objective of determining whether the property could be mined as an open pit operation. To determine this, they would focus on exploring for low-grade gold mineralization in the Boston-Richardson arenite or hanging wall sequence in the range of 0.5 g/t to 1.0 g/t.

Placer Dome was unsuccessful in their pursuit as they let their option on the property expire. They are quoted as saying,

” the property did not meet corporate requirements with respect to large open pit mining opportunities” ~ 2014 Goldboro PEA – pg.63

In 2010, Orex and Osisko formed a joint venture partnership for the exploration of Goldboro. Together, they drilled 59 NQ-sized drill holes with a combined length of close to 13,000m. The data from the drill program provided in-fill data to the property drillhole database.

 

 

Goldboro Gold Mineralization

Goldboro is entirely underlain by sedimentary rocks of the Goldenville Group, which are made up of greywacke, arenite and slate. Gold mineralization is found in quartz veins and within disseminated sulphides in the wall rock.

From the 2014 Goldboro PEA,

” Gold mineralization at Goldboro occurs in quartz veins and wall rocks adjacent to the veins. At the deposit scale, the veins form a swarm and are clearly located in the flexure zone (hinge and adjacent limbs) of the Upper Seal Harbour anticline. The gold-bearing veins are found in a 140- to 160-m wide envelope centred on the axial surface. The veins occur mostly on the limbs of the fold, but also in the hinge, and all are hosted by turbiditic metasedimentary rocks consisting of metagreywacke, arenite and slate.” ~2014 Goldboro PEA – pg.51

 

Source: 2014 Goldboro PEA – pg.48

Goldboro’s deposit is broken down into three main areas, the Boston-Richardson gold system and the East and West Goldbrook gold systems. Currently, the deposit’s known strike length is 1.6 km and is associated with a geophysical anomaly. This anomaly extends east and west beyond the current known strike length of the deposit.

Source: Anaconda Mining – Slide 14

The IP anomaly and the fact that historical drill results from those prospective areas east and west of the known strike length, led Anaconda geologists to believe that there is potential to expand the Goldboro Deposit east and west along strike.

Source: Anaconda Mining – Slide 13

PUSH: Anaconda plans to drill Goldboro this fall, with the intent of both expanding the resource and shoring up the existing deposit.

Source: 2014 Goldboro PEA – pg.13

 

Boston-Richardson Gold System

As described earlier in the article, the Boston-Richardson (BR) gold system was the first mineralization discovered and mined on the property, along with being the host of the existing underground infrastructure.

The BR Belt is host to 15 tightly-stacked, high-grade, gold bearing vein zones. The zones are characterized by thick gold bearing quartz veins and thin veins arrays within the highly altered argillite, separated from the neighbouring vein zones by un-mineralized greywacke.

The BR Belt has been modelled to a depth of  350 metres and plunges eastward beneath East Goldbrook. Anaconda believes that the deposit continues at depth, as some historical drill results have retuned results with high grade and widths at depth in the eastern portion of the deposit.

 

East Goldbrook Gold System

East Goldbrook is host to 7 stacked vein zones, but has not seen the amount of drilling that the BR gold system has and, therefore, is home to the majority of the deposit’s inferred resource. Drill holes are broadly spaced at intervals of roughly 100 metres. Like the BR system, Anaconda believes that given historical drill results, a portion of the veins in East Goldbrook, extend farther west, beyond what is currently modelled.

 

The Nugget Effect

Interestingly, the Goldboro gold mineralization is subject to what they call the Nugget Effect, where the gold is present in large nuggets, fine disseminations within the wall rock and fine gold grains associated with carbonaceous material.

The nugget effect can both inflate and deflate the sampling results. However, a lot of work on Goldboro has focused on better understanding this effect, including undergoing  multiple instances of twinning drill holes in an attempt to validate results, drilling samples with a larger HQ-sized diamond drill core, plus the use of field duplicates, certified reference standards and field blanks were used during their 2008 program.

A.S. Horvath Consulting remarks,

“At Goldboro, historic conventional sampling, processing and analytical gold determination protocols consistently under-estimate the grade due to the extreme nugget effect.” ~ 2014 Goldboro PEA – pg.83

 

Anaconda’s Plans for Goldboro

Anaconda has a tremendous advantage when it comes to developing the Goldboro Project, as they’re the owner and operator of the Pine Cove Mill. Theoretically, the ore mined at Goldboro can be shipped via the tide water port, in Isaac’s Harbour, to Anaconda’s Pine Cove Mill on the Baie Verte Peninsula in Newfoundland & Labrador for processing.

A bulk sample of Goldboro ore is planned for completion in early 2018 and will test the Pine Cove Mill’s ability to recovey the gold from the ore. The successful completion of the bulk sample will be a major accomplishment by the Anaconda team and one that we, as investors, should pay close attention to.

The 2014 PEA on Goldboro estimated the total CAPEX cost for development, expansion and the sustaining of the Goldboro Project to be $46.4 million USD. Considering this cost, the estimated Net Present Value (NPV) at a 7.5% discount is $80 million USD, with an Internal Rate of Return (IRR) of 52% at $1200 USD/oz gold.

Within the PEA, one of the projected CAPEX costs is for processing equipment and the tailings management facility, which accounted for $16.1 million USD or 35% of the total cost. Therefore, although this is a crude estimate, the CAPEX costs in the newly proposed scenario of shipping the ore to the Pine Cove Mill may come closer to $30 million USD, which gives the project a lot of breathing room, as far as profitability is concerned.

PUSH: With the future mine production processing moving to the Pine Cove Mill and the additional drilling completed by Anaconda this fall, and a new PEA on the project by December of 2017, should provide us with a view of the potential profitability of this new arrangement.

Additionally, Anaconda has a few other goals to complete for the Goldboro Project this fall and winter, including: Complete an archeology study report, Mik’maq ecological studies, and environmental baseline studies for the property.

 

Summarizing the important points on The Goldboro Project:

• The Goldboro deposit is open along strike, in both directions and at depth. Anaconda will be drilling the property this fall in an attempt to increase the resource size and infill drill the areas of the deposit where further information is needed.
• The metallurgical drill program is completed and testing is underway. A bulk sample of the Goldboro ore is planned to be completed by early 2018 and will be a great indication of gold recoveries for the project.
• A PEA of Anaconda’s Goldboro Project will be completed by December of this year. Given the savings provided by Anaconda’s existing Pine Cove Mill, it will be interesting to see how it translates into the project’s potential profits.

 

The Viking Project

The Viking Project is set on 6,225 hectares of property located roughly 180 km by road from the Pine Cove Mill and 10 km southwest of Pollards Point and Sop’s Arm in White Bay, on the island of Newfoundland.  The Project is underlain by rocks of variable age that are separated along the large-scale Doucers Valley Fault System.

The Viking Project has two main properties within it, The Kramer property and The Viking property. The mineralization and alteration on the Kramer property are developed in the Main River Plutonic rocks and adjacent Cambro-Ordovician quartzites. The Viking property’s mineralization and alteration are developed in potassium-fieldspar megacrystic to augen granodiorite of the Main River Pluton.

 

Kramer Property

Historic exploration on the Kramer property was conducted by BP Resources in 1987 and Spruce Ridge Resources from 2009 to 2013. The property has seen soil sampling, geological mapping, airborne magentics, VLF-EM, trenching and diamond drilling. Currently, gold mineralization is defined over a strike length of 1.3 km and remains open to the northeast and southwest. Some of the drilling highlights include 3.78 g/t gold over 5.15 m and 25.41 g/t gold over 0.5 m.

 

Viking Property

Historic exploration on the Viking property was conducted by BP Resources in 1987, Noranda from 1988 to 1990, Altius Minerals in 2006, and Northern Abitibi from 2007 to 2011. Like the Kramer property, Viking has seen soil sampling, geological mapping, airborne magentics, VLF-EM, trenching and diamond drilling, but to a much higher degree, with 62 trenches and 131 holes totalling almost 19,000 m.

Mineralization has been found along the Thor and Viking Trends. The Thor Deposit has a historical 43-101 resource estimate of 63,000 ounces of gold at 2.09 g/t in the Indicated category and 20,000 ounces of gold at 1.79 g/t in the Inferred category, however, Anaconda does not consider this to be a current mineral resource as an Anaconda Qualified Person has not completed sufficient work to classify it as a current mineral resource. See SEDAR for the technical report entitled, “MINERAL RESOURCE ESTIMATE UPDATE FOR THE THOR TREND GOLD DEPOSIT, NORTHERN ABITIBI MINING CORP”.

 

Additional Projects

Additionally, Anaconda has the Great Northern Project and Tilt Cove property which are very early stage projects. These will not be covered in this report, please see their respective web pages for further information.

 

 

Anaconda Mining Financials

Anaconda’s fiscal year report was released on August 25, 2017 and covered the company’s financial and operating results for the fiscal year ended on May 31, 2017. Here is a look at some of the important high level figures (Note: figures have been rounded and are in CAD unless otherwise stated)

• Production – 15,562 ounces of gold at an average sale price $1,651/oz or USD $1,248/oz
• Point Rousse Project EBITDA – $8.0 million
• Consolidated EBITDA – $6.3 million
• Revenue Generation – $25.7 million
• Total cost of operations – $24.8 million at an operating cash cost per ounce of $1,126/oz or USD $856/oz
• All-in Sustaining Cost (AISC) – $1,735/oz or USD $1,318/oz
• AISC includes corporate administration, capital expenditures (CAPEX) and exploration costs
• CAPEX included tailings and polishing pond construction of $1.9 million, mill equipment upgrades of $0.7 million, production stripping asset additions of $1.1 million and dock facility permitting/legal costs of $0.1 million
• Exploration and evaluation costs were high, with purchase of Orex Exploration, as the company conducted its due diligence. Additionally, exploration of all Anaconda properties totalled $3.3 million for the fiscal year, as drilling, trenching, mapping and mineral resource estimates were completed.
• Mine Operating Income – $900K
• Expenses and other Income – $2 million
• Loss before Income Tax – ($1.1 million)
• Net Loss and Comprehensive Loss for the Period – ($3.6 million) or $0.02 Net Loss per share
• Net Loss for the fiscal year is attributed to higher non-cash charges including depletion and depreciation expense and deferred tax expense.
• Weighted average number of shares – 210,921,901

 

Anaconda Mining is a company in a major growth stage of its development, and their financials reflect it in their net loss for the fiscal year. However, this loss comes with the development of their projects: Point Rousse and Viking, and includes the transformative purchase of the Goldboro Project, which should pay back in a big way once in production. The upcoming PEA should provide us with a relatively clear guideline of how lucrative Goldboro will be.

Bottom line is that the Point Rousse Project creates a cash flow which the company can deploy into its other assets for development. This is a situation which many other companies try and foreshadow, but Anaconda is actually doing it.

 

 

Anaconda Comparables

Who are Anaconda’s comparables? This is a great question, one that is hard to answer for a number of reasons. One thing that I try and keep constant when comparing companies is jurisdiction, as this is a huge wildcard and arguably has the largest speculative affect on the value of a company.

Therefore, I will be comparing Anaconda to two companies, one in Newfoundland & Labrador and the other in Nova Scotia. While the two companies aren’t currently producing gold, I feel they are as close to comparables as you can get for Anaconda on Canada’s east coast.

NOTE: These calculations are approximations and shouldn’t be counted on as being exact or reflecting the enterprise values at the time of reading this report.

 

Anaconda’s Enterprise Value per Ounce of Gold

Before getting to the comparisons, let us take a look at Anaconda’s Enterprise Value in relation to their 43-101 Resource.

MCAP at the time of writing – roughly $28.6 million CAD

Cash – As reported in Anaconda Corporate Presentation dated August 2017 , reflecting fiscal year end on May 31, 2017- $2.5 million CAD

Debt – As reported in Anaconda Corporate Presentation dated August 2017 , reflecting fiscal year end on May 31, 2017- $1.0 million CAD

Therefore, Anaconda’s Enterprise Value (EV) = 28.6 + 1.0 – 2.5 = $27.1 million CAD

43-101 Total M&I + I Resource = 1.1 million ounces of gold

Therefore, EV / Resource = 27.1 / 1.1 = 24.6

 

Marathon Gold (MOZ:TSX)

The first company is Marathon Gold, which owns the Valentine Lake Gold (VLG) property in Newfoundland. The VLG property, is being developed as an open pit mine, which may be later converted to an underground operation. VLG has a 43-101 Measured and Indicated Resource of roughly 1.4 Moz of gold and an Inferred Resource of 0.8 Moz of gold, giving VLG a total of 2.2 Moz of gold.

MCAP at the time of writing – roughly $145 million CAD

Cash – As reported in Marathon’s Financials dated June 30, 2017  – $21.1 million CAD

Debt – As reported in Marathon’s Financials dated June 30, 2017  – $0 million CAD

Therefore, Marathon’s Enterprise Value (EV) = 145 – 21.1 = $123.9 million CAD

43-101 Total M&I + I Resource = 2.2 million ounces of gold

Therefore, EV / Resource = 123.9 / 2.2 = 56.3

 

Atlantic Gold (AGB:TSXV)

The second company is Atlantic Gold, which owns 4 gold development projects in Nova Scotia. Atlantic’s Touquor Project is its most advanced project, with open pit mining production slated for October 2017. Atlantic Gold has a 43-101 Measured and Indicated Resource of 1.7 Moz of gold and an Inferred Resource of 0.4 Moz of gold, for a total of 2.1 Moz of gold.

MCAP at the time of writing – roughly $277 million CAD

Cash – As reported in Atlantic’s Financials dated June 30, 2017  – $11.5 million CAD

Debt – As reported in Atlantic’s Financials dated June 30, 2017  – $128.3 million CAD

Therefore, Atlantic’s Enterprise Value (EV) = 277 + 142.2 – 11.5 = $407.7 million CAD

43-101 Total M&I + I Resource = 2.1 million ounces of gold

Therefore, EV / Resource = 407.7 / 2.1 = 194.1

 

While ounces in the ground are not created equal, using a comparison method such as EV/Oz is a great way to gauge the valuations of companies of similar ilk. In this case, I think it’s clear that Anaconda is undervalued in comparison to Marathon Gold and Atlantic Gold.

Anaconda’s production is small at approximately 16,000 ounces per year, but they are in full production and have acquired a project in Goldboro, which looks to bring them to the next level of gold producers. I expect Anaconda’s market capitalization to be re-rated in the near future, as its story becomes more widely known.

 

 

Concluding Remarks

In conclusion, Anaconda Mining is an under-valued gold producing company, which I believe is set for a MCAP re-rating in the months ahead. To refresh your memory, here’s a list of the contributing factors:

• Anaconda has a great team of professionals led by CEO, Dustin Angelo.  The Goldboro Project acquisition and further acquisitions in the future will cement Anaconda’s reputation as a premier gold producing company

• Anaconda Mining’s assets are located in the provinces of Newfoundland & Labrador and Nova Scotia, Canada. These are premier destinations for mining with a stable political landscape and world-class geology
• Anaconda achieved gold sales totalling 15,562 ounces in the fiscal year ended on May 31, 2017. The gold was produced at the Point Rousse Project, which includes Pine Cove Mill and Mine
• An existing 43-101 Measured & Indicated + Inferred Resource Total of 1.1million ounces of gold
• Their EV/Oz is well below similar gold companies developing properties on the east coast of Canada
• PUSH: Anaconda plans to drill Goldboro this fall and intends to expand the resource and shore up the existing deposit.
• PUSH: A PEA on the Goldboro Project will take place by the end of 2017, giving us an idea of the potential profitability.

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company(s) and sector that is best suited for your personal investment criteria. Junior Stock Review does not guarantee the accuracy of any of the analytics used in this report. I do own Anaconda Mining Inc. and Marathon Gold Corp. shares. Anaconda Mining Inc. is a Sponsor of Junior Stock Review.

I’m bullish on the price of zinc. For those who may have missed it, here’s a link to Part 1 and Part 2 of Zinc’s Bullish Narrative, which I wrote last month.  After hitting a low of $0.66/lbs in the beginning of 2016, the zinc price rose off of its bottom, hitting a high of $1.33/lbs early in 2017.

 

Source: London Metals Exchange

 

The price has since corrected, currently sitting at roughly $1.12/lbs, and a lot of people are asking, ‘is the zinc bull market over?’ In my opinion, definitely not.

Simply put,  inventories are still falling without the aid of new supply coming online. I believe the cure for low prices is low prices, and while that still may be a few months away, I’ve found a company which has interests in a highly leveraged zinc deposit in a great mining jurisdiction. It gets even better, because their 30%  interest in the project is further strengthened by the fact that they will not have to pay a cent in the development of the asset, right through to production as Milpo will lend Solitario the construction funding necessary to maintain its 30% interest in the project.

Further, this company is currently awaiting the conclusion of a deal with another large, high-grade zinc deposit, which sits at the foot of the giant zinc mine, Teck’s Red Dog.

This company is cashed up and led by an experienced and savvy management team, which is dedicated to bringing value to its shareholders. This company is Solitario Exploration and Royalty Corporation.

Let’s take a closer look!

 

 

Solitario Exploration and Royalty (SLR:TSX, XPL:NYSE)

MCAP – 38.6 million (at the time of writing this report)

Shares – 38,685,189

Fully Diluted – 38,685,189

Cash – roughly USD $17 million in cash or cash equivalents – Q1 Financial Report shows $14.9 million in short-term investments, which I’m told are U.S. Treasury Securities and Bank CDs.

 

Solitario’s People

Solitario is led by CEO, Christopher E. Herald, who is a geologist by trade, having received a B.Sc. in geology from the University of Notre Dame, and a M.Sc. in geology from the Colorado School of Mines. Herald has been with Solitario since 1992, starting out as a Director and then taking on the CEO position in 1999. Prior to Solitario, Herald was President and CEO of Crown Resources Corp., which was sold to Kinross Gold.  Prior to Crown, Mr. Herald was a senior geologist with both Echo Bay Mines and Anaconda Minerals.

Walter H. Hunt is Solitario’s COO, a position he has held since 2008. Hunt’s work history is closely tied to Herald’s, having worked for Echo Bay Mines, Anaconda and Noranda in various senior roles. Hunt is a geologist by trade, having received his B.Sc. from Furman University, and a M.Sc. from the Colorado School of Mines. Before becoming COO of Solitario, Hunt was VP of Operations and President of Solitario’s South American Operations, positions he held since 1999.

Solitario’s Corporate Officers are rounded out by James R. Maronick, who is the company’s CFO.  Maronick is an accountant by trade, having received a B.A. in accounting from the University of Notre Dame, and a M.A. in finance from the University of Denver.

NOTE: Solitario is formerly the South American portion or subsidiary of Crown Resources, of which Herald, Hunt and Maronick were all a part. Crown owned the Buckhorn Mountain Gold Project in Washington State, which was sold to Kinross in 2006 for around $220 million. Solitario is now the sole focus of the management team, a team which has led the company through multiple commodities cycles, while minimally diluting its shareholders; not many companies are able to check off those two boxes!

Solitario’s management has set itself up well to capitalize on a zinc market which, in my opinion, is set to get hot as supply is falling short of demand. Let’s take a look at the properties in which Solitario has an interest.

 

Properties

Bongará Zinc Project

• The Bongará Zinc Project is located in the Eastern Cordillera of Peru at the sub-Andean front in the upper Amazon River Basin. 680 km north-northeast of Peru’s capital Lima and 245 km northeast of Chiclayo.

Source: 43-101 Technical Report – pg.4

• The location of Bongará is remote, which will certainly add cost to the infrastructure needed to run a mine. Workforce for a mine is another potential question mark. The Technical Report says the following,

“High-relief terrain and high annual rainfall are conditions affecting development, especially in the area of infrastructure construction and process/tailings containment and stability. Politically and socially, however, the development of a mining operation at this location is considered low risk as many of the local residents are already employed or seeking employment with Votorantim.” ~43-101 Technical Report – pg. 137

• By the end of 2017, the project will be fully accessible from the main highway via a 35 km road. In addition, further road construction will be completed on the property, as Milpo will construct roads to access some of the deeper areas of the property for exploration.
• In the Technical Report, the remoteness of the project brought into question the power source for the future mine. In the report, they refer to the construction of the Bagua/Jaen power station as a possible power source. Via email, I corresponded with Soliatrio’s Investor Relations Director, Debbie Mino-Austin. In our correspondence, she said that access to power shouldn’t be an issue and that the Bagua/Jaen power station had been completed. It’s likely, however, that a mini-hydroelectric plant on the Utcombamba River will be constructed for Bongará power (mini hydroelectric plants are common in Peru and relatively inexpensive to construct).
• Bongará is comprised of 16 contiguous mining concessions, covering approximately 12,600 hectares. In the image below, you can see the “newly” (at the time of the technical report) staked ground, which is on trend with the rest of the deposit and may provide some upside to the resource size with further exploration.

Source: Solitario

 

• The mineralization is polymetallic and of Mississippi Valley Type (MVT). To note, it’s expected to be an underground mine.
• Bongará is a Joint Venture project between Solitario and Milpo.
• Currently, Solitario owns 39% of the project, but Milpo can earn up to a 70% interest in the project by funding all project expenditures and, based on a positive feasibility study, commit to putting the project into production. Also, Milpo will finance Solitario’s 30% portion of the construction costs via a loan, which will be paid back with 50% of its net cash flow distributions, once in production.
• More than 80% of Milpo’s publically traded shares are owned by Votorantim, Solitario’s former JV partner. In 2014, Milpo announced its intent to acquire Votorantim’s share of the Bongará Project. Milpo is the 2^nd largest zinc producer in Peru, operating 3 other underground zinc mines and, from my perspective, is the perfect JV partner for this project.

PUSH: A Preliminary Economic Assessment (PEA) is expected to be completed by the end of July 2017.  The PEA should bring some much needed attention to the Solitario story, especially given its upside to a rising zinc price. What really strikes me is that Milpo did not have to jointly fund this PEA, which makes me think they’re confident that the PEA is going to show a lot of value in this deposit and, from a promotional side, is well worth the money.

 

Resource Estimate

Measured and Indicated Resource Total: tonnes – 2.78 million, Zn% – 12.77, Pb% – 1.78, Ag g/t – 18.2, ZnEq% – 15.1 – Contained metal: Zn Mlbs – 782.5    Inferred Resource: tonnes – 9.07, Zn% – 10.87, Pb% – 1.21, Ag g/t – 12.2, ZnEq% – 12.44 – Contained metal: Zn Mlbs – 2,173      Metal price assumptions in USD: Zn – $0.95/lbs, Pb –$0.95/lbs, Ag – $20/oz

NOTE: These are great zinc resource numbers, with both size (Total M&I + Inferred Zn contained metal = 2,955.5 Mlbs) and grade. The metal price assumptions are good, especially with upside in the zinc price. Also, as described in the Technical Report, mineralization is open and provides exploration upside to an already large high grade deposit.

What is Solitario’s portion of the Bongará mine worth? Until the PEA is complete, which will be soon, we really don’t know.  Not all in-situ metal is created equal and, therefore, makes it tough to realistically compare Bongará to other zinc projects in the world.

NOTE: Solitario’s 30% of Bongará is currently equivalent to: (925.3 Mlbs + 2,487.6 Mlbs) x 30% = 1,023.87 Mlbs of Zinc Equivalent.

However, I think the value proposition is fairly straightforward. Solitario has a tight share structure with roughly half of its MCAP in cash, therefore, not even considering Solitario’s other interests, you can see that the value per lbs, in USD, is roughly $0.011/lbs. That’s very cheap, in my mind, and I’m sure that the upcoming PEA will confirm this.

 

• The metallurgy of the deposit appears to be in good order as the predicted concentrate grades are as follows: Sulfide – concentrate Zn% – 55.2, Pb% – 52.6, Ag g/t – 7.3 Mixed – concentrate Zn% – 52.0, Pb% – 52.6, Ag g/t – 7.3   Oxide – concentrate Zn% – 47.5
• Comments regarding the metallurgy of the mineralization from the Technical Report,

“the high in-situ grades of the zinc mineralization and low impurities in sulfide at Bongará should generate a premium concentrate and a highly saleable product in a market where strong future demand is forecasted. The challenge to Project development lies in its remote location, which raises capital costs for construction and operating costs for concentrate delivery, among other things.” ~ 43-101 Technical Report – pg.137

• In my discussion with CEO, Chris Herald, he mentioned that one of the highlights of the Bongará Project is how clean the metallurgy is. The future mine should produce a top notch concentrate, one that will have smelters lining up to purchase it. This is really important when it comes to zinc deposits, because there’s a good portion of deposits out there that have mercury, iron or manganese issues with their concentrate, and require much more refinement to produce something saleable. In my opinion, metallurgy is arguably the most important attribute of any mineral deposit, not just zinc. So the fact that the Bongará metallurgy checks out is a big plus.

 

 

Peru as a Jurisdiction

In its latest rankings, the Fraser Institute lists Peru as the #1 jurisdiction for mining investment attractiveness in Latin America, with a score of 73.47 and 28th in the world.  Mining is a major source of employment for the Peruvian people; as you will see in the table below, Peru ranks not only tops for metal production in Latin America, but also close to the top in most categories throughout the world.

~ Source: Mining Peru

 

“[T]he mining industry believes that Peru’s favourable geology has been under-exploited…to date only about 12 per cent of Peru’s mineral resources have been worked…In all, Peru holds about 16 per cent of the word’s known mineral reserves, including 15 per cent copper and 7 per cent zinc reserves.”~ Mining Peru

 

Peruvian Leadership

The Prime Minister of Peru is determined in a two round election system.  A two round system works in the following manner; a single vote is cast for their chosen candidate. If no candidate receives the majority of the votes, usually 40 to 45% of the vote and a margin of 5 to 15%, all but the two candidates with the largest percentages are eliminated and then placed into a second election.

2016 was an election year in Peru. The Congressional election saw the Party, Popular Force, win in a landslide, taking 36.34% of the vote (~Peruvian Election Results). However, the Prime Minister election, which took two rounds to decide, went to the Party, Peruvians for Change, which is led by candidate, Pedro Pablo Kuczynski.

Kuczynski has held positions in the United States with the World Bank and the International Monetary Fund. He later became Peru’s designated general manger of its Central Reserve Bank. From the standpoint of an investor, I believe that Kuczynski’s western influenced work experience should prove to be an asset.

Will he be good for the Peruvian people? Hard to say, as developing a country’s economy is a costly business (debt) these days. But, if done properly, it could be the dawn of a new age for the Peruvian people, and may bring what is currently a third of the population, out of poverty.

My guess is that Kuczynski will be good for mining and, as a western investor, I’m comfortable with the risk that Peru’s leadership presents.

 

43-101 Technical Report – Peru as a Jurisdiction

SRK Consulting, the company that prepared the 43-101 Technical Report, has a great section discussing property and title in Peru:

“Mining in Peru is governed by the General Mining Law, which specifies that all mineral assets belong to the federal government. Mining concessions granted to individuals or other entities authorize the title holder to perform all minerals related activates from exploration to exploitation and, once titled, are irrevocable for so long as the fees are paid to the federal government on time.” ~43-101 Technical Report – pg.7

SRK Consulting also comments on the Peruvian workforce in relation to Bongará Project,

“No trained mining personnel reside near the Project. Untrained labor is readily available from local communities where few employment opportunities exist. Peru is a mature mining country with a mobile workforce. Abundant trained labor is present in all categories of mining throughout Peru. “ ~ 43-101 Technical Report – pg.8

The first thing that comes to mind when I read this is, “if you build it, they will come.”As cheesy as that may sound, Peru is a country that depends on mining for employment and, therefore, I do believe that when the time comes, a workforce will be available.

Source: U.S. Geological Survey

 

Peru is a country on the rise, as it has grown its economy at a rate of 6.4% annually, on average, for the last 10 years, which is 2nd among Latin American countries (~ Peru). The service industry represents the largest chunk of the country’s GDP, with agriculture following a close second.  Mining follows these top two industries and looks set for growth in the coming years, with further development of its prospective mining properties.

As Peru looks to further its economic growth, in my mind, mining will have to constitute a major part of their future. Therefore, while not without risk, Peru does present great value from a jurisdictional standpoint, today and into the future.

NOTE: In relation to Solitario, remember that its majority owner, Milpo, the 2^nd largest zinc mine operator in Peru, is handling development of the property and, thus, in my mind, reduces the risk associated with a foreign entity developing or operating the property.

 

 

Zazu Acquistion – Lik Property

• Solitario, upon approval of the purchase, will acquire all of the issued and outstanding shares of Zazu Metals Corporation. It is an all shares deal wherein holders of Zazu shares will receive, on closing, 0.3572 of a common share of Solitario, which represents a 41% premium over the VWAP20 of Zazu. Zazu shareholders are expected to represent approximately 34% of the issued and outstanding shares of the combined company. See the news release for the exact details of the transaction.
• Zazu acquired a 50% interest in the Lik property for $20 million in June 2007, from GCO Minerals. The remaining 50% of the project was and still is held by Teck Resources. The terms of the GCO agreement carried over to Zazu, which has the option to acquire an additional 30% of the property by qualifying expenditures of $20 million prior to 2018. See Technical Report or SEDAR for further information.

Further, in my email correspondence with IR, I asked, ‘how much money must be spent by Solitario to attain the additional 30% in the Lik property?’

“Approximately $20 million…If we don’t spend the $20 million, then Solitario will own 50% of the Lik Project and will continue to be the operator.”

• The Lik property is located in Northwest Alaska, 22 km from Teck Resources’ Red Dog Open Pit Mine.

Source: Zazu Metals

 

• The Fraser Institute’s ranking for Mining Investment Attractiveness gives Alaska a score of 80.27, placing it 5^th amongst the American States, and 14^th in the world. Even with this great ranking, at this current time, Alaska may still be associated with the highly publicized issues between Northern Dynasty and the EPA over their Pebble Project. Isolated incidents such as this can be present in the best of jurisdictions, as the score gives a broader view on the jurisdiction on a whole.  Proximity doesn’t mean that the Lik property is guaranteed to be approved for the construction of a mine, but Teck’s Red Dog mine is only 22 km away and has been operating for a long time. I’m confident that permitting won’t be an issue.
• The Lik deposit is divided by faulting into two parts, Lik South and Lik North. The PEA that was completed in 2014 was on the Lik South Deposit, which they believe can be mined in an open pit. The Lik North Deposit is much deeper than the South and will most likely require underground mining techniques for its removal.
• Original drilling (137 holes) of the project occurred in the 1970s, 80s, and early 1990’s with some historical mineral resource estimates completed by GCO and Noranda. Zazu completed an additional 92 holes from 2007 to 2011.
• Total Mineral Resource Estimate (North and South Deposits) taken from PEA Report:  Indicated:Mt – 18.11, Zn% – 8.1, Pb% – 2.72, Ag g/t – 50.2   Inferred: Mt – 5.34, Zn% – 8.66, Pb% – 2.69, Ag g/t – 38.0  (See the PEA for further details)

 

• The PEA was completed for the Lik South Deposit ONLY
  • After Tax NPV @8% – USD $25 million, IRR – 9.7%, 5.8 year Payback, CAPEX Cost – $351.7 million Metals Price Assumptions in USD – Zn – $0.9242/lbs, Pb – $1.013 lbs, Ag – $19.43/oz  – At first glance, this may seem low, but remember this is a high-grade zinc project and, therefore, should present a high sensitivity to the zinc price. The PEA lists revenue associated with each metal as approximately 70% zinc, 29% lead and 1% silver on pg.1-16.
• In Zazu’s corporate presentation on page 16, a price sensitivity table reveals the upside potential of the project. Using today’s zinc price of roughly $1.12 per pound, and the project After Tax NPV @8% jumps to USD $195 million, IRR – 20.0%, Payback 3.4 years.
• The Lik Property PEA envisions a 5,500 tpd mill, with a CAPEX cost of $352 million, including a 20% contingency. Again, remember that this only concerns the South deposit.

 

9.97% Equity Interest in Vendetta Mining

– On May 5^th, 2016 Solitario announced a strategic 9.97% equity investment in Vendetta Mining. Solitario purchased 8,000,000 units of Vendetta for a total consideration of CDN $362,000, with each common share priced at CDN $0.05, and one full warrant with a two-year term, and exercisable at CDN $0.10.  Please see SEDAR for more detailed information regarding the financing.

– This investment shows great foresight by Solitario’s management into the zinc market and the potential of Vendetta Mining, which has seen great gains in its share price since their purchase.

– While I like this investment, it’s a much smaller piece of my speculative thesis regarding Solitario. I have compiled some notes on Vendetta Mining because I really like their story and its potential, but I will publish those in a separate article. If you aren’t already a subscriber and don’t want to miss that article, become a Junior Stock Reivew VIP and have the article sent to your inbox for FREE.

 

Solitario’s Remaining Royalties

While Solitario does have additional royalties, I haven’t considered their value at their current stage of development. Nonetheless, here’s a list of Solitario’s 3 other royalties:

• Pedra Branca Platinum/Palladium Project – Solitario retains a 1% royalty
• Montana Royalties – 1.5% NSR on 11 properties
• Yanacocha NSR Royalty Project

Concluding Remarks

There’s always downside risk in any speculation that you make. In the case of Solitario, I think the current downside risk comes from the potential for the zinc price to fall. That said, a lower zinc price wouldn’t make their projects uneconomic, it would likely result in losses for zinc companies overall. Secondly, due to a lack of promotion, the stock is being thinly traded at just below 10,000 shares on the TSX per day and 58,000 on NYSE-MKT. However, I view this in a positive light; I relish the opportunity to buy shares of a company before their story catches on in the mainstream.  I expect post-transaction, that Solitario will want to get their new story out to the investment community.

For me, the release of the Bongará PEA in the next month or so and the confirmation of the Zazu purchase will be turning points for attention on Solitario, and will allow investors to put a proper valuation on this company. Now, with a MCAP of around $39 million, it’s undervalued, especially in context to the supply and demand fundamentals of the zinc market.

To summarize my reasons for buying shares of Solitario:

• An experienced management team which seeks and capitalizes on value in the market – without major shareholder dilution.
• PUSH from an upcoming Bongará PEA, which I believe will shine a very bright light on this large and high-grade zinc deposit.
• Bongará JV partner, Milpo – an experienced zinc mining company, which is set to cover all expenses and technical work on the project right up to the commitment for mine construction. The 30% interest in Bongará comes at no upfront capex cost to Solitario, just the repayment of Milpo-funded construction costs paid from operating cash flow. Consequently Solitario will receive cash flow starting day-one of production without dilution.
• Upon closing the deal – Lik Property JV partner, Teck – large senior multi-metal miner, which I would guess will be motivated to see development of this Alaskan deposit, as their massive Red Dog Mine will see reduced production numbers in the years ahead, right in the face of a supply shortage in the zinc market.
• Leverage to higher zinc prices – Both the Bongará and Lik Projects are highly sensitive to a rising zinc price.
• A good sized position in a highly prospective zinc exploration company – Vendetta Mining, which is currently worth: $0.34/share x 8,000,000 shares = $2,720,000. There are 5,000,000 Cdn $0.10 warrants, too!
• CASH – Solitario is sitting on roughly USD $17 million – almost half of their market cap – to my knowledge, ONLY Arizona Mining, amongst zinc companies, has a larger cash position.

 

Do your due diligence on Solitario and see if they are a company that fits your speculative criteria. For me, they present a great risk to reward speculation, especially going forward, as I’m confident that even if we don’t see higher zinc prices, there is still great value in this company.

 

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please do your own due diligence. I have NOT been compensated to write this article and do NOT have a business relationship with Solitario Exploration & Royalty. However, I do own shares in Solitario Exploration & Royalty. Please check SEDAR for the most accurate data regarding Solitario Exploration & Royalty information and analytics.

 

We’re currently in the first correction stage of this new gold bull market. When will we exit the correction? It’s hard to say, maybe it’s happening now. What I do know, is that we need to take advantage of this weakness in the gold price and the junior market to buy quality companies that will set us up for profits when the market turns up.

With regards to catalysts for a market turn around in the juniors, one thought I have is that it may be brought about by discovery. Over the first 5 months of 2017, we have seen a few hundred million dollars fed into the junior market via financing, setting us up for discovery possibilities as soon as right now, in some explorations camps.

Whether it be in the Urban Barry Camp in Quebec’s Abitibi Greenstone Belt or a company in BC’s Golden Triangle, discovery excitement is contagious and something that I believe could set the next leg of the bull market on fire.

Today, I have for you a company which is set to bring short term PUSH with a 7500 m drill program on their 30,000 hectare KSP property in BC’s Golden Triangle. This company is Colorado Resources – let’s take a look!

 

 

Colorado Resources (CXO:TSXV)

MCAP – 26.9 million (At the time of writing)

Shares – 94,820,386 (as of April 2, 2017)

Fully Diluted Shares – 112,362,482

• Warrants – see corporate presentation or SEDAR for most accurate information. The warrants range from a low of $0.13 to $0.60, with around 2 million expiring in 2017, more than half in 2018, and the remaining 4.4 million in 2019.

Cash – Around $6.5 million, of which $4.3 million is flow-through

Management Ownership – Approximately 6 million shares or roughly 6%

 

Colorado’s People

Colorado Resources is led by President and CEO, Adam Travis. Travis is a geologist by trade and gained his work experience with Keewatin Engineering, the Ron Netolitzky group of companies, and Hunter Dickinson group of companies. This work experience is especially pertinent to Travis’ current pursuit, exploration in BC’s Golden Triangle.

For those who aren’t aware, Ron Netolitzky and his associated companies have a history of success in the mining industry, in particular, within the Golden Triangle. A few of the highlights of his great career are the discovery of the Snip gold deposit and the massive Eskay Creek deposit.

With Travis and Colorado’s KSP property in the Golden Triangle, I’m not sure you could ask for better experience than working with Netolitzky.

Also, Travis started his own private company, Cazador Resources. Cazador was focused on the purchase of highly prospective properties which were later optioned by other prominent junior mining companies, such as Skeena Resources and Ascot Resources. This entrepreneurial attitude will translate well in Colorado, as a CEO must have this attribute to be successful.

The strength of a junior company, especially those focused on exploration, is highly correlated to the strength of the team doing the exploring. In Colorado’s case, I think this may be the aspect that stands out the most for me, as Travis has surrounded himself with a group of people that have extensive exploration experience in the Golden Triangle, which, most importantly, was successful, and as an added bonus, have worked together in different capacities over the past 20 years.

Beginning with Dr. Jim Oliver, who is Colorado’s chief geoscientist. Oliver has over 25 years of experience within the mining industry, having worked for both junior and major mining companies over the course of his career. Most recently, Oliver was VP of geology for the Hunter Dickinson Group of Companies before joining the Colorado team.

Also, Colorado has an extensive technical team which bring an added dimension to this junior exploration company. Here is a comment by Blanchard on the Technical Advisory Committee,

“Our technical advisory team are recognized experts in their respective fields and provide additional expertise in geophysics and geology with projects in this area of BC and these types of deposits.  Adam has been lucky to work with some very accomplished mining people throughout his career.  He spent the early years of his career with Keewatin Engineering (Ron Netolitzky and Larry Nagy) and also spent 5 years with Hunter Dickinson working with some of the best exploration geos in the business.  The relationships he developed and the support of our advisory board has been very valuable to Colorado.  It is always good to get 2^nd and 3^rd opinions and interpretations of your data.  Our team is as good as you get in this business and they all work very well together.”

 

Technical Advisory Committee:

• Mark Rebagliati is a geological engineer with a good portion of his career spent with the Hunter Dickinson Group of Companies. Rebagliati is a Canadian Mining Hall of Fame member.
• Charlie Grieg is a geologist who specializes in geological mapping. His career has spanned over 35 years, bringing him around the world to work numerous projects with Agnico Eagle, Yukon Zinc and Nevsun.
• David Rhys is a geologist with over 25 years of experience in the mining industry. His expertise is mainly with the interpretation of mine site ore controls and applications of mine geology to local and district scale exploration activities.
• Alex Walcott is a geophysicist with 20 years of experience in geophysical surveying and consulting around the world.

 

 

BC Politics

For those who don’t know, there was a provincial election in BC on May 9^th, which the Liberals won, edging out the NDP.  A Liberal win should result in a status quo for the miners, as the party appears to be set on promoting and supporting mining.

In a letter to the honourable Bill Bennett, the Minister of Energy and Mines, BC Premier, Christy Clark, stated,

“Work with the Ministry of Finance and Geoscience BC to establish long-term, predictable funding to foster oil, gas and mineral exploration and development in BC” ~Minister Letter

Further, BC Hydro completed the $716 million Northwest Transmission Line Project (NTLP), which was provided by the province to supply power to potential industrial developments in northern BC. The new line runs from Skeena Substation north to a new substation near Bob Quinn Lake, a stretch of nearly 344 kilometres (BC Hydro) (Power Line Geography ).

Typically, energy and accessibility are major sticking points for companies that explore in some of the more remote parts of the world. In BC’s case, they are trying to remedy this sticking point by providing the infrastructure needed for junior companies to become producers or, more importantly for the provincial government, to become large employers.

 

Tahltan Territory

On January 26^th, 2017 Colorado announced a communications agreement with the Tahltan Central Government (TCG).  The TCG is the governing body of the Tahltan Nation, which works to protect the Aboriginal rights and title, ecosystem and natural resources of the Tahltan community.

Tahltan territory encompasses 93,500 square kilometres in northwestern BC, running parallel to the Alaskan/Canadian border. Their three main communities are Telegraph Creek, Dease Lake and Iskut.

I was able to connect with VP of Corporate Development, Alex Blanchard, and asked him a few questions, one of which was in regards to the TCG. This was his response,

“We have a very good relationship with the TCG and signed a communications agreement with them in January.  Pretivm has worked closely with the TCG through mine development and they have a good working relationship.  I see a strong working relationship between Colorado and the Tahltan in the future.”

The engagement of the TCG well before the development of a mine in the area is a smart move by Colorado management, as a relationship started early on with full disclosure should build trust and, therefore, in my mind, has a higher probability of success in the future.

 

Colorado’s Properties

For this article, I will concentrate on what I think are Colorado’s primary projects, KSP, North ROK and Green Springs. Colorado does own 4 other projects in BC, which are Kinaskan, Kingpin, Hit and Heart Peaks.

KSP Property

• The KSP property is located in BC’s northwest region, referred to by most as the Golden Triangle. The property is made up of 59 claims covering 30,504 ha and is located approximately 15 km along strike to the southeast of the past producing Snip Mine, which produced over 1 million high grade gold ounces over its mine life.
• Colorado has the ability to gain an 80% interest in the property with Seabridge Gold, who purchased SnipGold Corp last summer.
  • In a December 20, 2013 news release, Colorado announced they had entered into the agreement with SnipGold for the KSP property. The option agreement included aggregate payments by Colorado of $500,000 and exploration work of $6,000,000 over a 4 year time period for a 51% interest.

The KSP property is large and diverse as Colorado is targeting both high grade gold veins within the Inel Khyber Pass and A-J zones, and bulk tonnage copper-gold mineralization within Sericite Ridge, Josh and Black Bluff zones.

 

There’s a good amount of historical data that’s presented in the May 7^th, 2014 news release, outlining the important data that had been compiled by the former explorers of the property.  I will list the data presented for the two most explored zones, Inel and Khyber Pass:

• Khyber – 1100 soil samples over a 400m x 1200m open ended area averaging 0.810 g/t Au – great grade for a soil sample
• Khyber – drill testing over a small portion of this soil anomaly returning drill intervals of up to 74.7 m of 2.2 g/t

• Inel – 1,240 m historical underground development, 192 holes with drill intercepts up to 15.5 m of 13.2 g/t Au. High grade intercepts – S116 (1989) with 7.3m of 20.93 g/t Au; U171 (1990) with 7.4m of 41.1 g/t Au and IS130 (1989) with 3.5m of 423.81 g/t

• Inel Ridge (500m east of Inel) – veins traced for over 1000 m with drill results up to 29.8 g/t Au over 1.25 m

Check out the KSP page of the Colorado website for further examples of historical drills on the properties’ other zones: Tami, Pins, Sericite Ridge, Josh, Black Buff and A-J.  Also, see SEDAR for further details on historical data.

KSP work completed by Colorado can be found in the following news releases (See SEDAR for the most comprehensive list of news releases):

• Colorado Resources’ KSP Property Update – September 24^th, 2014
• Colorado Drills 34 m @ 3 g/t Gold and Discovers New Zones at KSP Property – November 5th, 2014
• KSP Property Update- Colorado Acquires 3 More Gold Showings and Confirms KSP Joint Venture – January 19, 2015
• Colorado Announces Second New Porphyry Discovery At KSP – October 8th, 2015
• Colorado Resources Plans 5,000 m Drill Program at KSP Property Inel Area – February 29th, 2016
• Colorado Resources Announces KSP- Inel Zone Drilling Progress – June 30th, 2016
• Colorado Resources Reports Assay Results of First 8 of 37 Drill holes Completed to Date at the KSP-Inel Zone – July 19th, 2016
• Colorado Resources Drills 25.7 m of 9.24 g/t Au at Inel and Expands Drill Program – August 8th, 2016
• Colorado Continues to Return High Grade Gold from Inel Drilling at KSP District in the Golden Triangle, BC – September 21, 2016
• Colorado Drills 64 metres of 2.63 g/t Au and Outlines Several New High Grade Trends with > 1 oz/t Gold Intercepts at KSP Project – October 5th, 2016

 

Through the analyzing of historical data and completing their own geophysics and soil sampling, the Colorado team developed targets for their drill programs. In the summer of 2016, 59 holes were drilled for a total of 8,861.8 metres between the Inel, Tami and Khyber Pass zones.

• 53 holes were drilled at Inel, with hole INDDH16-029 delivering a hit of 1.0m of 165.5 g/t Au and broad low grades which included, hole INDDH16-025 with 99.0m of 2.11 g/t Au.

On May 11^th, Colorado released their plan for the KSP’s 2017 summer drill program and have confirmed that they will be drilling 7,500 m which will result in them spending the remaining $4 million dollars on the property to gain an 80% interest. I believe this is a big milestone in Colorado’s history, as the KSP property has a ton of potential, potential which I believe a major will have interest in, especially now that Colorado looks to control 80% of the property.  I would speculate that you could see a major buy a position just under 20%, like so many have been doing in this market cycle, but time will tell.

From the news release,

“A review of the 2016 geochemical data when referenced to last year’s drill program has shown that there are at least 10 soil geochemical anomalies of similar size and strength in the Inel –Khyber area (see News Release dated December 19, 2016 and Table 1) of which only one was tested by our 2016 drill program to shallow depths of approximately 125 m. Reviews of geological and geochemical data along with new geophysical Induced Polarization (I.P.) and Magnetic data have recently been completed and are showing some very compelling targets at depth and along strike of our 2016 drilling.”

Travis comments further in the news release about the mineralization,

“Our 2016 drilling also demonstrated that gold mineralization is not only restricted to the volcanic-sediment contact as previously thought, but is also found within the underlying sedimentary rocks, thus opening up a considerably larger target area. The current geological, geochemical data and geophysical models are also suggesting that the known mineralization outlined over a 400 m x 600 m area in our 2016 drilling is perhaps only a small portion of a much larger system.”

PUSH: This summer’s drill program, if successful, will provide some PUSH to the company’s share price, and for good reason – bigger is better.  The IP and magnetic data are showing some great prospects, especially when compared to where they drilled in 2016, see image below.

 

North ROK

• The North ROK property, like KSP, is located approximately 190 km north of Stewart in the Golden Triangle, in BC’s northwest. The property consists of 45 claims and is 21,179.89 hectares. Colorado owns 100% of the property, however, some of the claims are subject to a 2% NSR (see SEDAR for further info).
  • Travis’ past at Brett Resources is tied to the North ROK property, because in 2009, while working for Brett Resources, he staked the claim that covers the current Mabon showing. Brett Resources proceeded to carry out initial exploration of the claim, which consisted of silt sampling, prospecting and contour line controlled rock chip sampling.
• The property is underlain by volcanic and sedimentary rocks of the Upper Triassic, Stuhini Group to Lower Jurassic, Hazelton Group.
• Accessibility to the property is outlined in the NI 43-101 Technical Report,

“Access to the North ROK property is usually gained by taking Highway 37, commonly referred to as the Stewart-Cassiar Highway, north from Smithers or by taking a scheduled air flight from Smithers to Dease Lake. Property access to lower elevations is obtainable by truck or car from Highway 37 which passes through the western portion of the property. The extreme southeastern part of the property can be accessed by truck or car from the gravel, Ealue Lake road which passes along the north-shore of Ealue Lake in a north-easterly direction. The upper portions of the property are most easily accessed by helicopter.” ~Technical Report – pg.8

 

Targeting Porphyry Copper-Gold

Colorado is targeting porphyry copper-gold on this property and has an inferred resource, which currently sits at 142.3 million tonnes, averaging 0.22% Cu and 0.26 g/t Au. The NI 43-101 report can be found here.

“Based on the results of the 2013 exploration program at North ROK, a two phase 15,000 m success-contingent drilling program is recommended. It is also recommended that a downhole IP program be completed prior to the initiation of Phase 1 drilling. Phase 1 is divided into two non-contingent components. One 7000 m drilling component to focus on delineating the full extent of the North ROK deposit and another 3000 m drilling component to test other geological, geochemical and geophysical features including the West Mabon, Edon, Lower Mabon and North Mabon zones. A proposed Phase I budget of C$3,250,000 inclusive of all auxiliary, technical and support costs is recommended. The Phase II 5,000 m drilling program is contingent upon success at either or both of the two Phase 1 components and is budgeted at C$ 1,625,000 and will be guided by the results of the preceding drilling programs.” ~ Technical Report – page 3

• In 2014, Colorado followed these recommendations and succeeded in:
  • Intersecting new mineralization at the West Mabon Zone
  • Establishing significant depth potential and continuity of gold-copper mineralization over 250m below mineralization in DDH NR13-001
  • Defining the broad, deposit scale geometries and controls on mineralized zones
  • Extending mineralization southwest of DDH NR13-013
  • Testing of other Areas

 

BC Copper Grades

BC has a history of producing copper, with 13 Mt being produced between 1894 and 2014. 90% of that production came from 15 deposits, which were calcalkalic porphyries, alkali porphyries and VMS deposits.  Today, 0.3 to 0.4% copper is widely held as a gauge for an economic grade, however, when examining BC’s producing mines, you will see that the grades are lower yet still economical.  Mines which have grades in the 0.2 to 0.3% copper, typically have additional help from moly, gold or silver credits, which can make or break a mine. This is a point that needs to be considered when examining deposits that depend on credits from secondary metals, as base metal prices and precious metals prices don’t always coincide with upwards trends or generally high prices.

Source: BC Ministry of Energy and Mines

Examining the table, you can see that the grades of Colorado’s inferred resource are pretty good, the biggest difference right now is the size.   North ROK won’t see any drilling as it stands right now, as the main focus in the Golden Triangle this summer will be KSP.

 

 

ROK-Coyote Property Acquisition

On March 13, 2017 Colorado announced the purchase of the ROK-Coyote property from Firesteel Resources. The property lies south and east of North ROK, greatly expanding Colorado’s prospective land size. Firesteel received 1.5 million units of Colorado, with consist of both 1 common share and 1 common share purchase warrant at a price of $0.45 for a period of 24 months. There is a 2% NSR on the property, see news release for further details.

The property has been explored since the late ’60s, with geological mapping, geochemical surveys, grid-based geophysics, surface trenching and some drilling (see news release for more detailed information).  I believe Travis and his team are in a great position to explore and advance the ROK-Coyote effectively, as their experience not only in the Golden Triangle, but specifically on the North ROK property, has set them up well for being as efficient as possible in choosing the right targets to find mineralization.

As you can see in the image above, North ROK’s existing mineralization is found right on the border of the two properties, and it’s thought that it may continue into the ROK-Coyote property. If the mineralization does continue and it’s of a similar grade, this could be game changing because an increase in the size of this porphyry system would really bring attention to this deposit.

 

 

Nevada

Nevada has a long history of being a mining friendly state and ranks 4^th in the world according to the Frasier Institute’s ranking of the most attractive jurisdictions for mining investment. Some quick facts from the Nevada Mining Association:

• Nevada’s production accounted for 77.6% of the United States’ total and 5.4% of the World total gold production.
• 2015 Gold Production Totalled 5,339,663 Troy ounces
• 119 mines in Nevada
• Nevada Mining Gross Domestic Product – $4.6 Billion

Nevada is a hot bed for gold production – and for good reason. The state is home to Carlin Trend gold, which is characterized as typically hosting large oxidized ore bodies, which can be open pit mined and with low gold cut-off grade (<0.2 g/t). All of these attributes spell cheap gold production for the lucky company that finds it, which is key to making money in both a bull and a bear market.

One final thing on Nevada, Green Springs diversifies Colorado’s property portfolio out of BC, which, prior to knowing the outcome of this provincial election, was a great move in my mind, and shows that management is cognizant of jurisdictional risk.

 

Green Springs

The Green Springs Property consists of 193 unpatented claims covering 1,416 hectares, and sits approximately 50 miles south of Kinross’ Blad Mountain/Alligator Ridge Mine.  Colorado announced the optioning of the property last December from Ely Gold and Minerals. The option terms can be found in the news release.

Green Springs is a past producing property, having produced 1.1 million tons @ 2.1 g/t gold, which was heap leachable at an over 80% recovery.  Following USMX’s operation of the mine, it was further controlled by Palladon Ventures, which produced a 43-101 report in 2005, and then Ely Gold and Minerals, which has owned the property since 2013.

 

Colorado’s Work

Colorado was able to outline 8 exploration targets based on historical data, and completed a drill program in the first part of this year, 2017. Drill results were released on April 4, 2017 and were highlighted by intercepts of 135 ft of 3.23 g/t gold, 25 feet of 9.75 g/t gold in the E Zone.  From the news release in reference to the E Zone,

“These results confirm our concept that high grade feeder structures may exist to the south of the old pits and that mineralization can extend into the underlying Joana limestone.”

 

Further, the company highlighted work in the A zone to which they say, in reference to the drill results,

“These results confirm our premise that rocks mapped as the underlying and un-mined Pilot Shale have the potential to host significant gold mineralized zones at relatively shallow depths.”

In my discussion with Travis, he mentioned that they were sending their geological team to Green Springs for further work and preparation for further exploration this fall. The Green Springs property will bring Colorado year-round news flow and presents great speculative upside given the nature of the Nevada geology.

 

 

Colorado Resources’ Company Valuation

At the time of writing this report, Colorado had a MCAP of around $25 million.  Is that over-valued, under-valued or fair valued? Valuing companies at this stage in development isn’t easy, in my opinion, as we will be assigning value to a property’s potential rather than with an actual measurable resource, excluding North ROK, which does have an inferred resource.

A base value for a company can be found by looking at the liquidation value of their properties. Meaning, if the company were to stop exploring and sell their properties at this moment in time, how much money could they get? This isn’t an exact science, as all of the properties aren’t exactly alike and their selling price has a lot to do with where in the market cycle they are being sold.

For comparison purposes, let’s take a look at Seabridge Gold’s purchase of SnipGold in early 2016.  From Seabridge’s Annual Report 2016,

“SnipGold common shares received 1/63rd of a common share of the Company in exchange for 1 SnipGold common share held. 695,277 common shares of the Company were issued to existing SnipGold shareholders. The Company also issued 54,968 stock options and 1,587 warrants to existing SnipGold holders of similar securities. The fair value of the shares, stock options and warrants was $13.1 million. The Company also incurred $1.7 million of acquisition costs. The total purchase price of $14.8 million has been allocated to the assets acquired and the liabilities assumed based on the fair value of the total consideration at the closing date of the acquisition.” ~ Annual Report 2016 – pg.43

The acquisition by Seabridge was aided by the bottom of the bear market cycle, which made it hard for SnipGold to find financing. SnipGold isn’t a perfect comparison, but is a stone’s throw from Colorado’s properties and has similar geology, IE speculative upside.  Fast forward a year into the new bull market cycle and SnipGold is probably financed easily on its own, or is sold for more than the $15 million in this transaction.

If we assign this value to Colorado’s properties, which I think is really under selling what they have, and add their $6.5 million in cash, you have $21.5 million which is just below their current MCAP. Therefore, without even getting into where we are in the bull market cycle and the speculative upside of their properties, you are basically buying Colorado for the liquidation value right now – not many companies can say this.

While, for me, the liquidation value comparison is solid and enough for me to make a decision, for those who want a little more, let’s take a look at one more comparison; neighbouring Skeena Resources, which is a great comparison from a geological sense.

To begin the comparison, I’ll start with the copper-gold porphyry deposits’ Spectrum and GJ, which have resource estimates. Referring to the Spectrum Technical Report, page.8,

“NSR AuEq Cut-off (g/t) – 0.5, tonnes – 8,590,000, Au – 1.04 g/t, Ag – 6.58 g/t, Cu – 0.11%, AuEq – 0.87 g/t – Therefore contained metal – Au – 290,000 oz, Ag – 1,820,000, Cu – 20,835,000 lbs – Indicated Resource… NSR AuEq Cut-off (g/t) – 0.5, tonnes – 22,630,000, Au – 1.03 g/t, Ag – 3.85 g/t, Cu – 0.11%, AuEq – 0.85 g/t – Therefore contained metal – Au –750,000 oz, Ag – 2,800,000, Cu – 54,889,000 lbs – Inferred Resource”

Referring to the GJ Technical Report, page.5,

“Cut-off Cu % – 0.2, tonnes – 133,670,000, Cu – 0.32 %, Au – 0.36 g/t – Therefore the contained metal Cu – 940.23 million lbs, Au – 1.56 Moz – Measured plus Indicated Resource…Cut-off Cu % – 0.2, tonnes – 53,690,000, Cu – 0.26%, Au – 0.33 g/t – Therefore the contained metal – Cu – 312.54 million lbs, Au – 0.57 Moz – Inferred Resource”

 

How does Colorado’s North ROK compare? Here is a look at the 43-101 resource estimate. Referring to the Technical Report, page.2,

“Cut-off CuEq % – 0.20, Tonnes – 142,300,000, Cu – 0.22%, Au – 0.26 g/t, CuEq – 0.37% – Therefore contained metal Cu – 690,297,300 lbs and Au – 1,189,512 oz – Inferred Resource”

As you can see from the Technical Report data, Skeena’s resource estimates are more developed and larger than that of Colorado’s North ROK.  Skeena’s current MCAP, at the time of writing this report, is around $35 million, this valuation isn’t just based off of their resource estimate, but also the speculative value of their other properties.

Is Skeena worth more than Colorado? It’s up for debate, but I would say that from this perspective, Colorado is at least fair value. Personally, I think they’re both on the undervalued side in comparison to other junior companies, given what they have and their speculative upside potential and the management teams that are leading them. With the BC provincial election behind us, I think these companies will see their share prices rise as their value becomes more apparent.

 

 

In conclusion, like any exploration company, there are a lot of questions that need to be answered, and answered with good results. As we all know, in mining, the odds are stacked against us in terms of finding economic mineralization. However, I believe that Colorado Resources is a company which strengthens your odds of success because they possess the most important aspects of a junior miner.

They have:

• CASH – roughly $6.5 million
• A management team which has the knowledge and  X-Factor experience for exploration within the Golden Triangle
• Multiple district scale land packages with speculative potential – similar geology as some of the area’s most prolific mines and deposits: Eskay Creek mine, Snip mine, Pretium’s Brucejack Deposit and Seabridge’s KSM Deposit.
• Short term PUSH from a 7500 m drill program at their highly prospective KSP property

You be the judge as to whether Colorado Resources fits your individual investment criteria. For me, they’re a welcome addition to my speculative portfolio!

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

 

Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please do your own due diligence. I have NOT been compensated to write this article and do NOT have a business relationship with Colorado Resources. However, I do own shares in Colorado Resources. Please check SEDAR for the most accurate data regarding Colorado Resources information and analytics.

 

For those who read my report on lithium, you know that I think the future is bright. Due to the attention that lithium has received, however, many moose pasture projects have entered the market and pose a real threat for those who don’t perform their due diligence and dig into the real story behind a prospective investment.

Today, I’m excited to share with you a lithium company whose project has the 3^rd best lithium grades in the world, the lowest concentrations of impurities in the business, and the cash to PUSH it all the way to a feasibility study, which is currently set for Q3 or Q4 of 2018.

This company is Neo Lithium. At PDAC this year, I had the chance to speak to Carlos Vicens, Neo’s CFO and just recently I exchange emails with CEO Waldo Perez. This report is a culmination of the notes I took from the conversations as well as my due diligence.

Let’s take a look:

 

Neo Lithium (NLC:TSXV)

MCAP – $124 million (at the time of writing this report)

Shares Outstanding – 88.6 million

Fully Diluted Shares – 109.6 million

• $25 million bought deal Private Placement closed on February 22, 2017
  • 7 million shares at $1.10 and a full warrant at $1.40 for a period of 18 months

Cash Position – $39 million as of September 30, 2016

Insider Ownership – 20%

• Refer to SEDAR and SEDI for the most accurate information

 

 

Neo Lithium’s People:

• Neo is led by President and CEO, Waldo Perez. Perez has 28 years combined experience in academia and within the mining industry. He has held senior positions with Barrick Gold, IAMGOLD, Latin America Minerals and Lithium Americas Corporation. Perez is highly respected by his peers for his geological knowledge and experience in lithium brine exploration. His intellectual acumen is further demonstrated by the proprietary lithium extraction process that he and Neo Lithium Technical Advisory Team member, Dr. Claudio Suarez-Authievre, co-developed for Cauchari Salar.

• Neo Lithium’s Technical Advisory Team is made up of three members who have worked with Perez at previous companies and, most importantly, have lithium brine work experience in South America’s Lithium Triangle.
  • Project Manager, Martin Erroz, brings 15 years of experience to Neo, having worked for a number of different companies over the course of his career, including: Lithium Americas Corp. and Latin America Minerals.
  • Mark King is a hydro geologist by trade and has 25 years of experience in academia and the mining industry. King specializes in ground water flow and migration of constituents dissolved in groundwater, making him a welcome addition to any lithium brine team.
  • Last but not least, Dr. Claudio Suarez-Authievre, whom I mentioned earlier, brings 17 years of experience in academia and the mining industry. Suarez-Authievre has worked for SQM and Lithium Americas Corp., and is now Process Engineer Manager at Neo.
• Neo’s CFO is Carlos Vicens, and the Board of Directors includes: Constantine Karayannopoulos (Chairman), Thomas Pladsen, Gabriel Pindar and Paul Fornazzari.

 

Jurisdiction Argentina:

• President – Mauricio Macri
• Macri has outlined a pro-business agenda for his government, which he has started to execute since his inauguration. His pro-business agenda is headlined with:
  • Filling his cabinet with former business executives.
  • Eliminated currency and trade controls and cut government spending

• • Cutting export taxes, most importantly on mineral products.

• Attracting foreign investment, most importantly, repairing the relationship with the United States. As reported by Reuters on March 24, 2016, Barrack Obama stated, “Argentina is re-assuming its traditional leadership role in the region and around the world.” From the same article,Reuters reports, “The American Chamber of Commerce in Argentina said U.S. firms would invest $2.3 billion in Argentina over the 18 months, including more than $100 million each from General Motors Co., Dow Chemical Co., AES Corp. and Ford Motor Co.”
• These are great signs for there being a change in global perspective, one that will only help future investment in the country and make it safer for our investment dollars.
• Argentina was the host of the World Economic Forum on Latin America, April 5-7, 2017. The event brought clashes between protestors and police, and was said to be provoked by Macri’s cuts to government spending.
  • The Euronews reports, “Protesters in Argentina have clashed with police during demonstrations against government austerity measures…Left-wing politician Alejandro Bodart said: ‘Macri will open the World Economic Forum and economists from around the world will come— they are all neo-liberal. There will also be business leaders who will come to discuss how to continue stealing the riches of our people, how to continue with plans to exclude one section of society so as to enrich the same old ones.’ ” ~ Euronews

It isn’t all rosy in Argentina, but many, including Neo CEO, Waldo Perez, believe that Argentina’s future is bright. In response to my question regarding Argentina’s outlook for the future, Perez responded,

“The outlook is very positive, favourable to foreign investors and pro-business.”

NOTE: The 3Q project is subject to a 3% royalty as outlined in the 3Q Technical Report,

“Article 6th of Provincial Law # 4757, establishes a mining royalty of 3% over the mineral value at mine mouth (Boca Mina). According to the National Law for the reordering on the Mining sector, the law applies for coordinating and organizing the payment of royalties to the Provincial Tax Collectors, therefore LIEX S.A. is required to pay the aforementioned 3% Boca Mina royalty to the provincial government of Catamarca.” ~ Technical Report – page.19

I think that the risk to reward potential of Neo Lithium, from a jurisdictional perspective, is worth the speculation, because assets like the 3Q property don’t come along very often.

 

 

Neo Lithium’s Property:

Tres Quebradas (3Q) Lithium Project

• 100% owned by Neo Lithium
• Located in northern Argentina, 25 km from Chilean border, in the southwest portion of the Catamarca Province.
• Within approximately 200 km of the Chilean Pacific coast – Port of Caldera (Copiapo)
• Closet city is the town of Fiambala, which is approximately 100 km east of the project.
• The 3Q property is accessible via a road which stretches up to the Northern Target area. In my conversation with Perez, I asked him about the property’s accessibility for trucks that would be transporting the lithium concentrate now and in the winter. He responded,

“Trucks with 15t [of] brine are already operating, transporting brine to the ponds. The [3Q] area is cold in winter but [there] is no snow near the salar, the salt precludes snow accumulation. We will operate all winter.”

• Total property size is 350 square kilometers.
• Exploration has been concentrated in, but not limited to, the Northern portion of the salar and brine complex, where very high grade targets have been found.
  • Northern Target area measures 20 km by 5 km
  • The latest drill results, release on March 20th, show that the project has a lot of potential to expand outside of the Northern Target.  The southern target results have lithium and potassium grades that are lower than those those in the Northern Target, but are still high in comparison to others found in the lithium triangle. Check out the news release for more detail.
• A geophysical survey of the Northern Target reservoir supports the 20 km by 5 km area and that the reservoir extends down 100m.
  • Brine Reservoir average lithium concentration, thus far, is 895 mg/L, making it the 3^rd highest grade lithium project in the world and 1^st in Argentina.
  • Brine Reservoir average Potassium grade is 7,694 mg/L.
  • Salar samples contain an average lithium concentration of 784 mg/L and an average potassium concentration of 6,796 mg/L.
  • Very low magnesium and sulphate impurities, in fact, they are the lowest combined impurity content of any known salar. This is a HUGE plus for Neo, as high grades of lithium can lose their lustre when mixed with high magnesium and sulphate contents, as they affect the cost of brine processing.
  • The average magnesium/lithium ratio is 1.58 in the brine reservoir and 1.87 in the salar.
  • The average sulphate/lithium ratio is 0.67 in the brine reservoir and 0.46 in the salar.
• Last year, the company, along with two engineering firms, Novigi Ltd. and Celimin, conducted a lithium processing test on a 0.5 tonne sample from the Northern Target area. The test concluded that the brine will not require any additives for lithium extraction and will be able to rely on solar evaporation for lithium concentrating.
  • In my discussion with Vicens at PDAC, he stated that the evaporation ponds will be located close to the northern target, yet still in range of an existing dirt road for trucks to pick up the concentrate and ship to the refineries.
  • Brine can be concentrated up to 4.6% Li with minimal reagent consumption, and up to 7% with further evaporation.
  • Pond recoveries are estimated at 25 tonnes of lithium carbonate per hectare of pond constructed.
    • Example – The area needed to extract 20,000 tonnes of lithium carbonate per year, 800 ha. This is less than a quarter of the flat property that they own.

 

Potential Fatal Flaw

The Preliminary Economic Assessment (PEA) should provide us with the best gauge as to what the upside potential is for the 3Q project.  The PEA is scheduled for Q3 of 2017, giving us very important insight in the near future.

Poor economics could leave this project to collect dust, but given what we have seen in Neo’s drill results, Li and K concentrations are impeccable and impurities are low. The biggest questions may lie in the actual size of the lithium resource and whether or not it can be concentrated.

• A resource estimate is due in the very immediate future, Q2 2017, and should give a good indication of the PEA potential.
• On-site evaporation testing will need to confirm that the engineering firm test results are reliable.

 

UPDATE – April 25, 2017

This update is to address a couple of potential issues that weren’t included in my original write- up for Neo Lithium.  I contacted CEO, Waldo Perez, and Investor Relations representative, Ali Mahdavi, and asked them questions that should help shed some light on these potential issues.

Question #1

Brian: Is the 3Q Project property considered a Ramsar site? If so, how do you plan to deal with permitting?

 Waldo: THE PERMIT HAS ALREADY BEEN OBTAINED. THE COMPANY IS FULLY PERMITED TO DRILL, BUILD PILOT PONDS, LABS, ROADS,  AND PERMANENT CONSTRUCTIONS AT THE SITE. A RAMSAR SITE DOES NOT IMPOSE LIMITATIONS FOR MINING, FORESTRY, INDUSTRIES OR ANY OTHER ACTIVITY. A RAMSAR SITE ONLY CONTEMPLATES WETLANDS. THE SALAR IS NOT A WETLAND AND THE TARGET AREA IS NOT LOCATED IN A WETLAND. THERE IS A WETLAND 50 KM SOUTH OF THE PROJECT.

Brian: As you describe, the permit that Neo attained was for preliminary work on the project, exploration, pilot ponds, etc. My concern is more with regards to bringing the project to production in the future; could the Ramsar designation hinder your attempts to attain a permit to extract the brine in a commercial scenario? Secondly, my concern is with the extraction of the water/brine from the salar affecting the wetlands south of the project. Is that a viable concern?

Waldo: NO, ONCE THE EXPLORATION AND DEVEOLOPMENT PERMIT IS OBTAINED, THE GOVERNMENT CANNOT DENY THE NEXT STAGE PERMIT. IT NEVER HAPPENED IN THE PAST. THERE IS MINING OPERATIONS IN RAMSAR SITES AND THERE ARE 1 MILLION PEOPLE LIVING IN ANOTHER RAMSAR SITE IN ARGENTINA. ARGENTINA HAS 5 MILLON SQUARE KILOMETERS OF RAMSAR SITES. THEY HAVE NO LEGAL PROTECTION STATUS OF ANY KIND. SO THERE IS NO LIMITATIONS ON WHAT CAN BE DONE, BUT OBVIOUSLY THE WETLAND ASPECTS OF THE SITES (AND PARTICULARLY NESTING SITES) MUST BE PROTECTED. WITHIN THE LITHIUM PROJECT THERE IS NO NESTING SITES. THE SITES IN THE SOUTH WITH NESTING SITES ARE ACTUALLY HIGHER THAN THE SALAR, SO WHATEVER IS DONE IN THE SALAR WILL HAVE NO IMPACT IN THE NESTING SITE.

 

Question #2

Brian: Will Neo’s evaporation ponds encroach upon flamingo nesting grounds?

Waldo: NO. FLAMINGO NESTING AREAS ARE 50 KM AWAY.

 

Question #3

Brian: Why is it primarily the Northern Target that sees the high lithium grades? Why isn’t the grade more uniform across the entire system?

Waldo: MOST LIKELY BECAUSE THE INFLOW OF HOT SPRINGS WITH LITHIUM IS FROM THE NORTH, CREATING A LITHIUM GRADIENT. ALSO THE LAKE IS A NATURAL EVAPORATION POND, INCREASING LITHIUM GRADE IN THE NORTH

 

Question #4

Brian: Will high iron levels brought into the salar by the hot springs and 3Q river prevent the brine from being concentrated into battery grade lithium carbonate?

Waldo: THERE IS NO IRON IN THE BRINE. IRON PRECIPITATES OUT OF THE SALAR. THE RED COLOUR YOU SEE IN THE HOT SPRING IS MOSTLY A BACTERIAL EFFECT.

Brian: My reference to high iron levels is from what I read in the Technical Report, page 38;

“High levels of dissolved iron and manganese are present in the discharge of the Tres Quebradas River, and widespread rust-coloured precipitate of iron hydroxide can be seen in the diffuse flow issuing from the alluvial fan (Photo 6.1). The thick occurrence of this material throughout the discharge zone indicates the flow is anoxic (strongly reducing) prior to discharge. Elevated levels of manganese in this discharge may be the source of the dark colouration noted for Laguna Tres Quebradas.”

Since it is a closed system, will these high levels of dissolved iron impact the brine ability to be concentrated into battery grade lithium carbonate?

Waldo: THE HIGH LEVELS REFER TO GEOCHEMICAL ANOMALIES FOR FRESH WATER COMPARISON. THERE IS BARELY ANY IRON IF YOU COMPARE THIS TO THE IRON CONTENTS OF PEGMATITES. THIS IRON AND THE MANGANESE DISSOLVED IN BRINE HAS NO SIGNIFICANT IMPACT IN THE PROCESS, ACTUALLY, ALL PRECIPITATES IN THE FIRST STAGES OF EVAPORATION.

 

Environmental issues can quickly become costly or even prevent a mining project from getting started. In Neo’s case, CEO, Waldo Perez, gives a very direct answer to my questions regarding the Ramsar site designation and its possible future ramifications.

You be the judge. Neo has a ton of positive characteristics, many of which I believe make it a world-class lithium deposit. That said, these potential environmental issues could have an impact on Neo’s future if they don’t play out as Perez suggests.

 

Despite these potential flaws, I’m extremely encouraged by what I see in Neo Lithium:

• A management and technical team led by Waldo Perez, which has been together for a number of years but, most importantly, have done it before with Lithium Americas.
• 3^rd highest lithium concentrations in the world.
• Lowest Impurities of any known salar– Magnesium and Sulphate.
• Short term PUSH from a resource estimate in Q2 of 2017 and a PEA in Q3 of 2017.

 

I believe that in the not-too-distant future, the 3Q Project will be considered lithium’s equivalent to uranium’s world-class Arrow Deposit. I’m a buyer and am optimistic about lithium’s future but, even if I wasn’t, I would still believe that Neo Lithium’s 3Q project is world-class, making it a great addition to anyone’s portfolio. I look forward to the news that’s to come in the remainder of 2017.

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please do your own due diligence. I have NOT been compensated to write this article and do NOT have a business relationship with Neo Lithium. However, I do own shares in Neo Lithium. Please check SEDAR for the most accurate data regarding Neo Lithium information and analytics.

Quebec’s Abitibi Greenstone Belt is one of the top ranked regions in the world for mining investment attractiveness – and for good reason. Currently, there is one region in particular in the Abitibi which has attracted a lot of attention; the Urban-Barry Greenstone Belt, which sits 170 km northeast of Val d’Or and 125 km southwest of Chibougamau.

The Urban-Barry belt is located in the Abitibi sub-province of Superior. This area is underlain by Archean Volcano-Sedimentary, which mainly contains gold mineralization in quartz-carbonate veins mineralized with sulphides. Although a few of the companies in the area possess a NI 43-101 resource, the area hasn’t seen a lot of exploration, in relative terms. The area will, however, see thousands of metres of drilling over the course of 2017, which should provide insight into the value of the mineralization in the area.

What’s the source of the excitement for this region of the Abitibi? In my opinion, it’s because of the great results that Osisko Mining (OSK:TSX) has been releasing over the last few months. Their Windfall Lake Gold Deposit has had some stellar drill holes and appears to possess all of the makings of the region’s next mine.

Windfall is in close proximity to Beaufield Resources (BFD:TSXV), Bonterra Resources (BTR:TSXV), Metanor Resources (MTO:TSXV) and Urbana Corporation (URB:TSX). Each of these juniors own prospective land packages around Windfall and are fully financed to explore for the next economic gold deposit in the area.

Today, I would like to introduce you to the Beaufield Resources story.  Beaufield owns property in the heart of the Urban-Barry Belt, where it shares its border with Osisko’s Windfall Gold Deposit. I believe the company has a ton of potential, especially in the near term with its Urban property. Let’s take a look:

 

Beaufield Resources (BFD:TSXV)

• MCAP – $28 million (at the time of writing this report)
• Shares Outstanding – 195 million
• Fully Diluted Shares – 215 million
  • Options – 6 million
  • Warrants – 14 million
• Osisko owns 16.4% of the company – a sign of the potential value in the properties that Beaufield owns.
• Closed a $6 million financing on Feb 9, 2017
  • Issuing a total of 40 million common shares at $0.10 and 13.3 million flow-through shares at $0.15.
  • O3 investments a wholly owned subsidiary of Osisko Mining subscribed to 31.7 million of these shares.
• $8 million in working capital

 

Beaufield’s People

• Beaufield has seen some changes in management as of late, with long time President and CEO, Jens Hansen, and Board of Directors member, Bernard Deluce, resigning.
  • Ron Stewart, a Professional Geologist with over 30 years experience within the mining industry has been appointed interim President and CEO. Stewart has experience on both sides of the table, having worked in both capital markets and as an Executive on a few junior resource companies. He has held positions with Dundee Capital Markets, Macquarie Capital Markets, Clarus Securities, Verena Minerals (now Belo Sun Mining), and Kinross Gold Corp. Presently, Stewart is also the President and CEO of Eros Resource Corporation. Stewart has a well rounded background and will be able to bridge the gap between the exiting Jen Hansen and a new, permanent CEO.
  • Robert Wares was appointed Chairman of Beaufield’s Board of Directors. Wares has over 35 years of experience in the mining industry, with a long history of success. He is credited with the discovery of the Canadian Malartic gold deposit and was a co-founder of Osisko. Wares is a fantastic edition to the Beaufield team, one that I suspect will prove to be instrumental in their success in the months ahead.
  • Mathieu Stephens is a Professional Geologist and VP of exploration and has been with Beaufield since 2008. I had the chance to speak to Stephens at PDAC this year and was very pleased with what I heard for this year’s upcoming drill program.
• In February of this year, a press release was issued by Jim Deluce (Former BFD Director) and Shanghai Huaxin Group Limited, expressing their displeasure with the progress the company has made over the last few years, as well as with the recent financing terms, which they believe were too favourable to the financing parties (which included O3 Investments, a subsidiary of Osisko). In all, this group of concerned shareholders represents around 21.5 million shares or 11% of the company.
  • Beaufield has responded to the complaints in a news release, which can be found here. In my opinion, Beaufield has done a great job with their response and I feel comfortable as a shareholder that the situation will not affect their progress moving forward. The Beaufield shareholder’s meeting has been rescheduled for April 11, 2017.
  • Beaufield responded to my question, via email, pertaining to the concerned shareholder with, “The new Board has been endorsed by the concerned shareholders.  The Annual Meeting of Shareholders will be held onApril 11, 2017 and the shareholders will receive over the next week the proxy material. We are confident this matter is settled and that the company will be able to focus its efforts on exploration and create value for its shareholders.”

 

 

Beaufield’s Properties

• Urban Property, located within the Urban-Barry Belt, consisting of 3 blocks of property: Rouleau Block, Golden Retriever Block and Macho Block
  • Urban Property Historic Resource (not 43-101) – 540,000 tons @ 7.2 g/t, which is roughly 125,000 oz Au
  • The Rouleau Phase 1 drill results
  • Rouleau Phase 2 drilling has begun and is focusing on deeper drilling and a series of exploration targets just beyond the known Rouleau zone. Results should be released in the next 2 to 3 weeks.
  • 1500 m from Windfall’s Caribou zone lies the ET zone of the Rouleau Block. This area is of particular interest because it shares a similar geophysical signature,
    • “A linear magnetic depression that is interpreted to be related to a magnetite destructive silica-sericite alteration corridor associated with the Windfall intrusive system.” ~ Beaufield Corporate Presentation
    • The geophysics and geology clearly indicate the presence of a fold in this area, meaning that the host lithological units of the Windfall deposit may be present within Beaufield’s ET zone.
    • Two holes will be drilled before winter is over, so we will stay tuned for those results.
  • The Golden Retriever Block is currently priority, as the Beaufield team believe that this area, which is partially covered by swamp, may be a continuation of the mineralization found in the 1980s on Osisko’s Black Dog Property. An induced polarization survey was executed on this target area and did indicate a strong chargeability anomaly.
  • The Macho Block drill program is still under consideration. If it happens it will be in the summer as Beaufield has prioritized its drilling for the immediate future.

The Urban property is the focus of my speculation, as I believe there is a ton of potential in drill results that we will see over the course of this year.  Urban, however, is just one of 5 properties that Beaufield owns; here is a hyperlinked list of Beaufield’s other 4 properties:

• Eleonore-Opinaca Property, located adjacent to Goldcorp’s Eleonore gold mine
• Trolilus-Tortigny Property, possesses a 43-101 resource estimate Measured and Indicated (Au, Ag, Cu and Zn)
• Hemlo Property, located adjacent to Barrick’s Hemlo gold mine
• Launay Property, located in northwest Quebec, near the Ontario border with near surface mineralization

 

The Beaufield story is not without its potential detractors:

• Management changes – the issues and changes within the management structure that have arisen over the last couple of months may be concerning for some. In my opinion, Beaufield has dealt with the situation well and has appointed some quality people to help add value to shareholders in the immediate future.
• Exploration blunders – bad drill results are always a risk with mineral exploration companies, however, given the Beaufield property locations and their due diligence in preparing for their drill programs, I believe the odds of good results are closer to being in our favour.
• Share structure – there are a lot of shares out, which is all too common for an exploration company of this age and size, however, I am willing to accept this, due to the upside potential I see with this year’s drill program results.

 

There are always detractors or potential pitfalls in every junior company’s story, but now I would like to review the reasons I believe Beaufield has such great upside potential.

• Great land package – Not only is the Urban-Barry Belt arguably the hottest exploration area in Canada right now, but Beaufield owns some great properties in some other highly prospective areas, such as the area around Goldcorp’s Eleonore gold mine or its Trolilus-Tortigny Property, which possesses a 43-101 resource estimate (Au, Ag, Cu and Zn). There is a lot of potential in Beaufield’s properties.
• PUSH – we should have a good idea of Beaufield’s potential in the next 6 months, giving us great short term PUSH for upside in the stock price. Plus, I wouldn’t hang my hat on this, but good results from the neighbouring Osisko, Bonterra Resouces or Metanor Resources could see a spike in all of their share prices.
• $8 million in working capital – it is one thing to have great properties, but you need money to explore them and $8 million gives Beaufield the working capital it needs to add value for shareholders.
• Osisko’s ownership and involvement – Osisko has a great management team and, for me, their interest in a company goes a long way. Osisko owns 16.4% of Beaufield and has one of their own, Robert Wares, on the Board of Directors. For me, this is a good indication of Beaufield’s potential.

 

You be the judge. Great properties, short term PUSH, $8 million in working capital and keen interest from one of the best junior mining teams in the mining industry. I’m biased because I bought shares within the last two weeks. Do your own due diligence and decide for yourself.

Stay tuned for a look at the other main juniors in the Urban-Barry Belt, Bonterra Resources and Metanor Resources.

 

Don’t want to miss a new investment idea, interview or financial product review, become a Junior Stock Review VIP now – for FREE!

 

Until Next time,

 

Brian Leni  P.Eng

 

Founder – Junior Stock Review

 

 

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please due your own due diligence. I have NOT been compensated to write this article and do not have a business relationship with Beaufield Resources. However, I do own shares in Beaufield Resources.