Kitchen-table deal launched a Nevada gold royalty play

Goldstrike1

Gold standard: Barrick’s Goldstrike mine was a company maker for both Barrick and Franco-Nevada.

By James Kwantes

“Royalty” — the primary definition refers to kings, queens and others of royal blood. And that usage hints at the strength of the mining industry variety — a defined share of revenues from a mining operation.

Mining royalties can be a fabulous business model, as demonstrated by royalty and streaming giant Franco-Nevada. The company has become a $15-billion powerhouse with claims on assets ranging from gold and base metals mines to oil and gas operations.

It all started in 1985 when cofounders Seymour Schulich and Pierre Lassonde purchased a 4% royalty on a small Nevada gold mine called Goldstrike. The $2 million they paid was no small bet — it represented the majority of cash on the budding company’s balance sheet. But the titans reasoned they were buying both a cut of production and exploration upside on the surrounding properties.

It turned out to be the bet of a lifetime. Barrick Gold purchased Goldstrike and soon hit a rich discovery on the way to a 50-million-ounce gold deposit. As Goldstrike grew to become Barrick’s flagship mine, it became a golden goose for Franco-Nevada.

Investors have taken note — Franco-Nevada shares have returned more than 140% in the past five years as commodity prices cratered and mining shares descended.

Others have followed in Franco-Nevada’s footsteps. One of the largest is Royal Gold, which also expanded rapidly by deploying cash flow from its flagship royalty on Barrick’s massive Cortez mine complex. More recently, Silver Wheaton, Osisko Gold Royalties and Sandstorm Gold have entered the scene, as well as smaller plays including AuRico Metals, Eurasian Minerals and Abitibi Royalties.

Mining exploration is a notoriously difficult, Darwinian business that weeds out the weak. Few junior exploration companies will find a mine and those that do face multiple headwinds that include regulatory, operating and financial risks. In short, it’s a tough business.

Royalty companies bypass most of these pitfalls. Royalties represent a perpetual, iron-clad claim on revenues, usually for life-of-mine. Royalty companies get paid whether the mine makes money or not. They get upside exposure to exploration and expansions, while being insulated from operating risks. Shares of royalty companies typically outperform mining company equities.

It’s no surprise the royalty structure is popular among mining investors who appreciate the upside exposure to attractive deposits minus the operational risks. But the key to profiting is not so different from hockey superstar Wayne Gretzky’s approach on the ice — skate to where the puck is going, not where it has been.

There’s a new royalty company on the scene and like young Franco-Nevada, its flagship asset is an attractive royalty on a Nevada gold deposit — Waterton’s Spring Valley. The company, Terraco Gold, recently closed a deal that sees it exercise options on the Spring Valley royalties and add another royalty on an adjoining property in Pershing County, Nevada.

Terraco exercised its option to buy the royalties through a US$19-million agreement with Waterton, the mining-focused private equity group that acquired Spring Valley last year from Barrick Gold (70%) and Midway Gold (30%). The deal sees Waterton pick up Terraco’s Moonlight property adjoining Spring Valley on the north by paying Terraco US$7 million in cash and subscribing to a US$12-million convertible debenture. The five-year debenture bears interest at .05% annually (more or less zero coupon) and is convertible to shares of Terraco at an exercise price of 18 cents or convertible into 45% of a Terraco subsidiary.

Terraco used US$16 million of the debenture and cash proceeds to exercise options to acquire and directly own a 3% royalty on most of the Spring Valley gold deposit, as well as royalties of up to 1% on contiguous properties that cover additional gold ounces. Terraco also retains a 2% NSR on the large 35-square-km Moonlight property adjoining Spring Valley to the north, which Waterton picked up as part of the deal.

TENroyalties

Terraco Gold is run by Todd Hilditch, not Lassonde and Schulich. The company’s royalties are on a deposit that is not yet producing. And the deal just closed on June 17. Terraco Gold is a minnow, Franco-Nevada a whale.

But Hilditch doesn’t have to duplicate Franco-Nevada’s success to make Terraco shareholders a lot of money. The stock trades at 14.5 cents, giving the royalty upstart a market capitalization of just $20.8 million, including more than $3 million in the treasury. Terraco also owns the Almaden-Nutmeg Mountain gold deposit in western Idaho, which has a NI 43-101 compliant resource of 864,000 ounces Measured and Indicated (near-surface) and 84,000 Inferred.

The debenture deal with Waterton, subject to a conversion into equity at 18 cents, hints at the value embedded in Terraco’s shares. Put differently, the group that is developing Spring Valley (and knows the most about it) has assigned a value to Terraco stock 25% higher than current levels.

Do the math on Terraco’s enterprise value and the picture gets even more interesting. A share price of 14.5 cents means a market capitalization of about $20.8 million. Add in debt of US$12 million ($15.6 million Canadian) and subtract Terraco’s cash — about $3.3 million — and the enterprise value comes to $33.1 million.

That works out to about 23 cents a share. And it doesn’t factor in rising gold or any blue-sky potential, including Hilditch’s plan to use the cash and/or stock to bolt on more royalties. He thinks Terraco stock is undervalued and has been accumulating in the public market. He’s purchased more than 1.6 million shares in the past year (between $0.07 and $0.13 a share), including spending more than $15,000 on shares in the past month at 13 cents. Hilditch owns more than 7.5 million shares, a 5.25% stake.

“Some people call me crazy, but I’ve never sold a Terraco share and I’ve added plenty,” he says of the company he co-founded 20 years ago as an oil and gas play. “This is my first-born.”

Terraco’s portfolio now includes:

  • 3% NSR on the majority of current resources of Spring Valley (the “Schmidt claims”);
  • 1% NSR on an additional portion of Spring Valley;
  • a right of first refusal relating to a 1% NSR on certain lands within one-half mile of the Schmidt claims;
  • 2% NSR on the Moonlight Project;
  • the Almaden-Nutmeg Mountain Gold Project located in Western Idaho;
  • about $3.3 million Canadian in cash.

According to a 2014 resource estimate, Spring Valley hosts 4.37 million ounces of gold Measured and Indicated at average grades of .55 g/t, as well as 1.07 million ounces Inferred at a grade of .47 g/t. The deposit is located north of and along trend with Coeur Mining’s Rochester silver-gold mine, which has produced 1.47 million ounces of gold and 134 million ounces of silver.

Hilditch’s plan is to build a royalty company with the Spring Valley gold royalties as the flagship. And while the Vancouver mining executive keeps a low profile, his track record shows he’s no rookie when it comes to creating shareholder value in the mining space.

A lithium score

Hilditch’s biggest score was in the lithium space, well before lithium plays became the TSXV’s hottest commodity. The financial crisis had taken the wind out of gold’s sails, and Hilditch was looking around for other opportunities. He co-founded and became president and CEO of Salares Lithium, which structured a deal on 7 lithium brine salars in Chile. Salares IPOed at 16 cents (included a concurrent 2 for 1 rollback from 8 cents) and was taken over by private lithium giant Talison Lithium just 17 months later, in 2010, for $1.25 a share.

ToddHilditch

Terraco Gold CEO Todd Hilditch

For Salares shareholders, the gains didn’t end there. Talison, which produced hard-rock lithium in Australia, used the Salares listing to go public. In 2012 Talison sold for $850 million ($7.50 a share) to Chengdu Tianqi, a Chinese company that outbid Rockwood Lithium (which itself later sold to Albemarle).

“Salares helped pay the bills while Terraco was on the back burner during a tough market time from 2008,” Hilditch says. But gold — specifically, royalties in Nevada — beckoned.

A passion for hockey is a thread woven through Hilditch’s life — he was drafted in 1988 by the Washington Capitals and later played pro in Europe. He now coaches his own kids. And it was through hockey that he got into the gold mining business.

Hilditch grew up in Vancouver and co-founded Terraco (with a junior hockey teammate and good friend) as an oil and gas play after studying business and economics at Rensselaer Polytechnic Institute (RPI) in New York. He also played defence at RPI, a NCAA Division 1 university whose most famous mining graduate is probably Western Copper and Gold chairman Dale Corman.

One of Hilditch’s grandfathers was a miner who worked at Bralorne and Britannia, two legendary British Columbia mines. Bralorne was a storied underground gold mine that was a rare employment bright spot during the Great Depression and Britannia, now a mining museum, used to be the largest copper mine in the British Empire.

But it was an encounter at a hockey tournament in the early 2000s that got Hilditch started in gold. He was relaxing poolside one evening playing cribbage with a teammate who ran a gold company with Nevada projects. The CEO’s phone was buzzing non-stop. Conversation turned to business and Hilditch’s oil and gas play, which was struggling with its Saskatchewan properties.

Hilditch pivoted to gold and optioned two Nevada gold projects, including one from a mining veteran named Paul Schmidt. Schmidt had also optioned the Spring Valley gold project to Midway Gold. Hilditch broke his pick on the two Terraco projects, but impressive drill results from Spring Valley began to capture his attention. Terraco picked up the Moonlight property, adjoining Spring Valley on the north, in 2006. And he kept in touch with Schmidt, who had retained valuable royalties on the Spring Valley properties.

In 2010 Terraco picked up the Almaden-Nutmeg Mountain gold project in Idaho through a takeover of Western Standard Metals. Hilditch built a strong team at the operational and board levels. One of Terraco’s directors is William Lamb, the Lucara CEO whose company is preparing for Wednesday’s live auction of its historic 1,109-carat Lesedi La Rona diamond. Lamb was a Salares Lithium director at the time of the Talison Lithium takeover.

Securing the Spring Valley royalties

In 2011, Hilditch was reminded of Schmidt’s Spring Valley royalties while watching the ounces build at Spring Valley through Barrick’s joint venture program with Midway Gold. He went to visit the veteran geologist at his Colorado home in the fall of 2011 to see if Schmidt would part with the NSR royalties he owned. Schmidt was skeptical.

“I said to him, Paul, I’m interested in doing a deal here,” recalled Hilditch, who had come to the meeting prepared. “He said, well, I’ve got somebody coming to see me tomorrow and besides Todd, you and Terraco can’t afford these royalties!”

“I don’t think he expected me to drop a $20-million term sheet on his kitchen table.”

On the way back to the Denver airport, Hilditch broke into a sweat wondering how he was going to pay for the royalty options. Schmidt had given him a 45-day term to come up with the cash, which he managed to secure and got the deal done. For Hilditch, the June 17, 2016 royalty financing agreement with Waterton represented the conclusion of a journey that began in Schmidt’s kitchen in Evergreen, Colorado five years ago.

Securing the option to exercise NSRs on Spring Valley over the past five years gave Terraco a toehold in a royalty space occupied by much larger players. The market, on the other hand, provided a few hurdles to full valuation for the company. Firstly, the NSR royalties were under an option and not full ownership yet.

“The market clearly gave us a discount for ‘leasing the car’ … not owning it,” Hilditch said. The junior bear market didn’t help, especially for companies with several different asset types, including royalties, advanced-stage and exploration projects. What was Terraco going to be when it grew up?

“Terraco went into stealth mode to ride out uncertainty in the junior mining space, we were very quiet,” Hilditch explained. “The Spring Valley project itself was garnering a lot of attention based on its results, so we felt that riding the quiet period out until we could exercise the royalty options was priority #1 — and it worked.”

The intercepts at Spring Valley, by now a Barrick-Midway Gold joint venture, had become even more eye-catching. In June 2013, for example, Barrick drilled 361 metres of 1.47 g/t gold. Through their option deal with Midway Gold, Barrick upped their interest in Spring Valley to 70% by spending US$38 million as of February 2014. Including earlier private placements, Barrick spent more than $70 million at Spring Valley. The pre-feasibility-stage project was one of four flagship Nevada development projects (pre-feasibility) for Barrick.

And that’s where things stood when Barrick’s JV partner, Midway Gold, went bankrupt last year. It had nothing to do with Spring Valley — the problems were at Midway’s Pan project, also in Nevada. Barrick was grappling with a few problems of its own — most significantly, a crippling debt load of more than $10 billion.

That’s when Waterton Global Resource Management swooped in. The Toronto-based private equity giant paid US$25 million for Midway’s 30% stake in Spring Valley (through bankruptcy court) and another US$110 million to purchase two projects from Barrick — 70% of Spring Valley and the Ruby Hill gold mine.

Gold in Nevada — it’s been a company maker for Franco-Nevada and Barrick Gold and it’s a major focus for Waterton as well. Several of their deals have been for Nevada assets, with the Spring Valley transactions among the most significant. As other mining companies struggled through the bear market, Waterton has put a strong technical team (many of them ex-Barrick employees) to work with money raised from sovereign wealth funds, university endowments and foundations.

And the private equity giant isn’t done yet. After raising $1 billion in 2014, Waterton just announced another US$725-million fund for mining investments in stable jurisdictions.

That gives Waterton an estimated US$2-billion-plus under management — and ensures Terraco Gold shareholders have a serious, deep-pocketed mining group advancing Spring Valley.

There are few small- to medium-sized players in the royalty space with high-quality, safe-jurisdiction assets that don’t become targets of the majors. Mid-tier royalty companies like Sandstorm Gold and Osisko Gold Royalties need to acquire or expand organically in order to maintain and grow their stature. So do the biggest players in the space, including Franco-Nevada and Royal Gold.

Terraco’s new royalty platform, starting with the 3% NSR on a multi-million-ounce Nevada gold deposit, gives the company a solid base for growth. It could also put a target on Terraco’s back before long.

Terraco Gold
Price: 14.5 cents
Shares outstanding: 143.6 million
Market cap: $20.8 million
Cash: $3.3 million

Disclosure: Author owns shares of Terraco Gold and the company is one of a small number of Resource Opportunities sponsors, who help support the subscriber-funded newsletter. The work included in this article is based on SEDAR filings, current events, interviews, and corporate press releases. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value, so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.

Introducing our new editor

Message from Tommy Humphreys:

This morning, Resource Opportunities, a subscriber-supported investment newsletter founded by geologist Lawrence Roulston in 1998, appointed its next editor, Mr. James Kwantes, currently mining reporter with Vancouver Sun and editor of the World of Mining blog.

I know this because I recruited him for the position, having been working with Lawrence Roulston to revive Resource Opportunities since last Summer.

James and I have been close friends and associates for five years since I helped him establish the World of Mining blog. He has been an invaluable editor and source of council to me in the years I have built up CEO.ca, and is absolutely determined to make a success of Resource Opportunities.

Here’s the note I sent to subscribers this morning, introducing James:

James Kwantes

James Kwantes

Dear valued subscribers,

I have very good news about the future of this newsletter to share with you today. I also have a number of company updates and developments with Resource Opportunities companies.

As founder of CEO.CA, a digital business media startup, I’m overseeing the rapid growth of our new Canadian investor app, chat.ceo.ca.

Three talented Vancouver-based web developers and myself are experimenting with new messaging technology, specifically for junior resource investors. The users are playing an important role as well, providing feedback for continual improvements.

In recent weeks, Resource Opportunities has not been getting the attention it deserves.

Resource Opportunities’ founder, Lawrence Roulston, has also been busy building up a mining private equity firm with Quintana Resources Capital ULC. While Lawrence is able to provide as-needed technical advice for this newsletter, he and I both realized you deserve a dedicated editor.

Lawrence and I are proud to introduce James Kwantes as the next Editor of Resource Opportunities. James is someone who has subscribers’ best interests at heart and will help us profit greatly as the junior mining bull market inevitably returns.

James is the mining reporter at the Vancouver Sun, the city’s paper of record. A journalist with over 20 years of experience, James has interviewed a long list of executives, financiers and minefinders. In my five years of close friendship with James, he’s shown focus on only the highest-quality mining projects and management teams (including firms like Pretium Resources, Kaminak Gold and North Arrow Minerals, of late).

It’s important for you to know we recruited James because he is honest; he made the conscious decision to keep his independence from stock promoters, making him unique among mining writers.

James Kwantes is fully invested in making profits for subscribers. He is dedicated to identifying under-the-radar and high-quality junior mining companies, and has the help of a quality network of geologists, engineers and analysts, including Lawrence, to help with critical technical due diligence.

Ongoing, I will assist James with marketing and proactively share my top exploration ideas with him. You will always still be able to find me at CEO.ca and chat.ceo.ca, where we discuss many Resource Opportunities companies.

The Jack Nicklaus of newsletter writers was one of Lawrence’s contemporaries, Mr. Bob Bishop, who discovered countless major junior mining successes before the mainstream, and was wise enough to retire in 2007, at the top of the market. Mr. Bishop accomplished great success as a newsletter writer without a background in mining; he was a journalist, able to tell both sides of a story while educating readers.

I’m not saying James is going to win 18 major championships, or even come close to Mr. Bishop’s accomplishments. But I do think he is the best person in the world to be running this newsletter, and I am excited for what he can accomplish for subscribers, especially given the current low point in the mining cycle.

Please join me in welcoming our new editor, James Kwantes. He is taking subscriber emails and feedback at james.kwantes@gmail.com. For subscription-related inquiries, please email info@resourceopportunities.com.

And with that I’d like to hand it off to James.

James is already off to the races, commenting decisively on several junior prominent junior mines in this morning’s issue.

There’s a 30 day money-back-guarantee offered for test-driving Resource Opportunities ($299/year here), and junior mining investors should consider subscribing.

Here’s to the start of something good,

Tommy Humphreys
Founder, CEO.ca
Partner site, ResourceOpportunities.com

James Kwantes’s Vancouver Sun Interviews

James Kwantes has built an impressive library of interviews with mining executives.

West Vancouver diamond pioneer Gren Thomas still in the hunt for gems
March 17, 2015

Passion, persistence pave Peter Bradshaw’s path to top
February 24, 2015

Fronk eyes majors to develop northwestern bonanza
January 27, 2015

Home soil feels good for globe-trotting gold exec, Bob Gallagher
January 20, 2015

2014 another gruelling year for miners
December 30, 2014

Mining exec Randy Smallwood rides a silver stream
December 09, 2014

Pretium Resources lands $81-million deal with Chinese gold mining giant
December 08, 2014

De Beers lifts veil on where its best diamonds come from and how much they fetch per carat
November 04, 2014

Mining deals a positive sign, but insiders skeptical
October 28, 2014

Precious metals investing in not-so-golden times
October 14, 2014

Gold mining titan retains underdog sensibilities
September 23, 2014

CEO Watson grows a golden stream at Sandstorm Gold (updated with video)
August 26, 2014

Mount Polley mine disaster a blow to First Nations cooperation on B.C. mines
August 06, 2014

‘Queen of Diamonds’ has golden plans for Yukon project
July 08, 2014

O’Dea grows mining empire through a bear market
June 24, 2014

Diamond pioneer returns to the hunt for gems
June 10, 2014

Looking ahead to the next boom
May 20, 2014

Mining: Geologist takes mineral hunt to his hometown
May 13, 2014

Mining executive Bob Quartermain goes for gold in northwest B.C.
April 15, 2014

Roundup: Pretium CEO Bob Quartermain at Vancouver mining show
January 28, 2014

Junior miners: Worth the investment?
January 31, 2012

Minefinder Dave Broughton on Kaizen’s Discovery Trail

Billionaire mine developer Robert Friedland has said that real wealth in the mining sector is created by finding something.

Friedland would know this, having driven 5+ world-class mining discoveries in his career. He knows that to find a mine you have to spend a lot of money, and drill a lot of holes.

Another secret weapon of Friedland’s is people; he surrounds himself with impressive technical minds, and provides them with big budgets and plenty of autonomy to test their theories. Statistically speaking, explorationists who have already found mines are more likely to make future discoveries.

I first met Dave Broughton on an Ivanhoe Mines field trip to South Africa and D.R. Congo last year. Friedland stood beside Broughton at the site of Ivanhoe’s world-class Kamoa copper discovery. There, a Broughton led team had chased an exploration concept from stream and soil anomalies to drill targets and eventually, a world-class discovery. Kamoa was the first major copper discovery in the D.R.Congo in a hundred years.

At the 2015 PDAC conference in Toronto, Dr. Broughton and Mr. Friedland received the Thayer Lindsley International Discovery Award for their work finding Kamoa. This was the second time the Ivanhoe group had won the prestigious award at mining’s largest convention.

Just a few hours before Dr. Broughton received the award, he met up with Exploration Insights editor Brent Cook, CEO.ca cameraman Carter Smith and myself to talk a bit about his exploration methodology, as well as his plans for a next discovery.

David Broughton, Kaizen Discovery, Brent Cook, Exploration Insights, and Tommy Humphreys, CEO.ca discuss Kaizen’s Discovery Trail at the PDAC in Toronto, Mar 1, 2015:

Tommy Humphreys: I’m here with Dave Broughton who is the exploration boss at Kaizen Discovery as well as Ivanhoe Capital group, a very accomplished geologist, and my friend Brent Cook, editor of Exploration Insights. I wanted to introduce these guys because I think some of the work that Kaizen is doing is very fascinating and Brent hadn’t heard the story yet, and knows more than I do. To start off, what is the award that you’re receiving today and what brings you to PDAC?

Dave Broughton (DB): We are receiving, on behalf of a whole lot of people, the Thayer Lindsley Discovery Award, which is given every year by the PDAC for a significant international discovery. It’s the second time Ivanhoe group has won this. They won it for OT [Oyu Tolgoi] at the inaugural event when they first awarded it a number of years ago.

Brent Cook (BC): So now you’re up in the Yukon for something different?

DB: Kaizen, late last year, picked up a package of land and took over a small company with an adjoining package of land up in the Western part of Nunavut, and its another stratiform copper play like the one we found at Kamoa [Ivanhoe Mines’ DR Congo copper discovery]. There’s copper everywhere you land, so there are good signs when you just get on the ground and wander around. That’s been appreciated for a long time, it was discovered initially in the 60’s and some work was done then, but really, nothing’s happened for about 20 years. The last group of people to be in there in a significant way on the play we’re really excited about was Cominco and that was in the early 90s.

There really are two plays, there’s a volcanic hosted copper play, that has a lot of very high grade copper, well known, lode copper, I guess you’d call it, in volcanic rocks, and there’s a more, less appreciated play, which is what we’re really excited about, and it’s in the sedimentary rocks overlying it. The rocks are similar in age to those in the copperbelt which is intriguing, and there’s mineralization that’s outcropping and in most places it’s covered, certainly 95% cover. 150 kilometre strike of these sedimentary rocks with copper showing here and there but it really hasn’t been tested.

BC: How many holes have been put into this?

DB: Well, Cominco put about a half a dozen holes at the far eastern end of the area and the rest is basically untouched.

BC: What did they find?

DB: They hit mineralization. They didn’t hit an ore grade intersection over ore grade widths, but there are lots of holes at Kamoa or Kupferschiefer, or anywhere you want to go in these systems, you don’t always hit ore on your first hole. The usual things right: persistent and all that.

BC: What sort of width and thickness are we talking in this horizon from the drilling you’ve got so far?

DB: You’ve got mineralization over metres in lenses and so on. There is some government geophysical data that gives up some idea as to what the big structures might be that might help control mineralization. We have some old prospecting that we know about. It’s really going to be getting on the ground and walking those contacts and making up our own mind of where we can find mineralization. And then we’re looking at doing a series of widely spaced stratigraphic holes, just like you would in other districts. You’ve really got to step back. These things go for kilometres, Kamoa is 50 square kilometres in area, so you really have to look at it at a base of scale and then narrow in on what you find. We’re going to take a big-scaled approach to start with and test as much of the strike length as we can, I think.

BC: What’s the access like?

DB: The access is actually excellent. We’re just south of the old town of Coppermine.

BC: Ah, the old famous Coppermine?

DB: It’s a short helicopter ride from there to the project. There’s an airstrip, regular air service. There’s an old air strip actually on one of the properties we’re going to use for direct access with a fixed wing aircraft, so it doesn’t get much better in that sense.

BC: Conceptually, what do you need to see, what do you need to find there to take it to the Kamoa stage, or up to a stage where it’s a world class deposit or something that’s really profitable.

DB: Like anywhere, you want to drill a discovery hole that’s got an ore grade and width and then you want to step out from that and build tonnes. That’s what it’s all about.

BC: What grade do you need?

DB: Up there, good question. Kamoa’s average grade is close to 3%, there are other deposits around the world that have that. If you get 3% copper of sufficient width, you’re in business.

BC: So that’s how we can judge your program. Although admittedly the first round is basic geology which I think is really smart. Get a handle on what’s going on and then zero in. If we’re going to watch this play, it’s about, first off, we get the concept, it’s coming together or it’s not coming together, here’s our targets, next round or two rounds after that, we’re getting low cost mineable widths over 3+% copper, okay.

DB: That’s the objective but like anything, you find what you find, and you go with it. They are mining the Kupferschiefer at under 2%. It really depends on all sorts of other factors, I’m not going to be able to predict that.

BC: You’re not that good yet?

DB: Not that good yet, sorry.

BC: What sort of shape is the company in? How much cash do you have and what’s your market cap?

DB: We’re in good shape. We’ve got a unique strategic relationship with the Japanese trading houses, they fund a number of our exploration projects, and we’ve got a long history of relationships with them, going back to the Ivanhoe group as well. That’s kind of our key strategic difference that we’ve got. In addition, we’ve got a treasury and no debt so that helps too.

BC: They are funding by way of placements, or getting a piece of the project, or an offtake agreement, what’s their relationship?

DB: It varies project to project. We have projects in BC where they are funding the exploration directly. They are interested in the offtake in the long term for Japan; that’s really what’s driving them. And we’re interested in the metals that work for that reason.

BC: That was Kaizen. They are looking for stratiform copper in Nunavut. Actually pretty interesting concept. If they can pull together a large enough volume of rock at 3%, which is what they’re after, it sounds like the infrastructure is not too bad, that could be quite significant. They’ve got a good deal structured with a number of Japanese groups, so it’s worth watching for sure.

Discuss @ chat.ceo.ca

FORWARD-LOOKING STATEMENTS

Statements in this video and article that are forward-looking statements are subject to various risks and uncertainties concerning the specific factors disclosed here and elsewhere in Kaizen’s periodic filings with Canadian securities regulators. When used in this video and article, words such as “will, could, plan, estimate, expect, intend, may, potential, should,” and similar expressions, are forward-looking statements. Information provided in this document is necessarily summarized and may not contain all available material information.

Although Kaizen has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in the forward-looking statements, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate or that management’s expectations or estimates of future developments, circumstances or results will materialize. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events.

Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release are made as of the date of this release. Kaizen disclaims any intention or obligation to update or revise such information, except as required by applicable law, and Kaizen does not assume any liability for disclosure relating to any other company mentioned herein.

Disclosure: Author is a small shareholder in both Ivanhoe Mines and Kaizen Discovery. This is not investment advice. Consult a professional investment advisor prior to making any investment decision.

Photo credit: Ivanhoe Mines

Lukas Lundin interview in the Financial Post

lundinI interviewed mining and oil tycoon Lukas Lundin for the Financial Post’s PDAC edition which is in print today.

Mr. Lundin talks about how he’s positioned his family natural resources empire for the next 1-4 years.

Read: PDAC 2015: Lukas Lundin sets lofty goals as he re-enters gold game

Mr. Lundin said a lot of stuff the interview we were unable to include due to brevity and editing requirements.

I may write a follow up when I get back from Toronto later this week.

Please check out the interview and share it around so the Financial Post will invite me back to write!

Again, here is the link: PDAC 2015: Lukas Lundin sets lofty goals as he re-enters gold game

Thanks,

Tommy

Fipke, Ulansky take uranium hunt outside the Basin

Northern Uranium CEO Chad Ulansky (left) and geological consultant and investor Chuck Fipke, in Kelowna, British Columbia. Credit: Northern Uranium

Northern Uranium CEO Chad Ulansky (left) and geological consultant and investor Chuck Fipke, in Kelowna, British Columbia. Photo: Northern Uranium

Chad Ulansky cut his teeth on Ekati, Canada’s first diamond discovery, but it’s uranium that he’s hunting for now in Canada’s frozen North.

The Kelowna geologist is president and CEO of Northern Uranium (TSXV:UNO), which is exploring in northwestern Manitoba just beyond the eastern edge of the prolific Athabasca Basin.

Ulansky got his start as a geologist with Chuck Fipke’s Dia Met Minerals, which discovered Ekati, Canada’s first diamond mine, at Lac de Gras in 1991. The discovery by Fipke and Dia Met partner Stu Blusson, which came after years of systematic exploration, rocked the global diamond industry and sparked the biggest staking rush since the discovery of gold in the Klondike.

The Ekati discovery also kick-started the Canadian diamond industry and upset the De Beers cartel. Canada is now the world’s third largest producer of diamonds by value, with four mines and another two under construction.

Last year, Fipke sold his 10% interest in Ekati for $67 million US to Dominion Diamond Corp., which owns 89% of the mine (Blusson retains a 10% interest).

The Fipke-Ulansky partnership began when Ulansky was just a teenager. An avid outdoorsman from a young age, Ulansky met Fipke when the geologist attended a presentation Ulansky gave to a Kelowna scout troop, and the two hit it off. Fipke told him he would call him at the end of the school year.

Sure enough, Fipke phoned in June and offered Ulansky a summer job, a gig that turned into a continuing, decades-long partnership.

Ulansky continued working for Dia Met until its purchase by BHP in 2001.

Along the way, he obtained a bachelor’s degree in geology at the University of Cape Town in South Africa, where he studied under renowned diamond geologist Dr. John Gurney.

Ulansky retained his love of the outdoors while living in Cape Town. In 2001, he set a record for the Three Peaks Challenge, a 50-km mountain running trail that involves ascents of the three major peaks above Cape Town — Devil’s Peak, Table Mountain and Lion’s Head.

URANIUM HUNT

He’s climbing a peak of a different sort as president and CEO of Northern Uranium, which is searching for an economic uranium deposit just outside the Athabasca Basin — home to dozens of competitors.

Northern Uranium has earned a 50% option on the Maguire Lake property from CanAlaska Uranium. The property borders on Saskatchewan and is located along the extension of the Mudjatik Wollaston tectonic zone, which runs southwest-northeast near the Manitoba border. The zone hosts many of the Basin’s major uranium deposits, including Cameco’s Cigar Lake, McArthur River and Key Lake.

Northern Uranium licenses on mine trend. Source: Corporate presentation

Northern Uranium licenses on mine trend. Source: Corporate presentation

Cigar Lake and McArthur River both have uranium grades above 20%, and Ulansky is out to prove that high-grade uranium exists on Northern Uranium’s property as well.

His thesis is that extensive glaciation stripped off the sandstone and sediments and left basement rock exposed, hosting shallow uranium mineralization.

There is some early evidence supporting his thesis. Prospecting work done by CanAlaska uncovered a boulder that contained 66% uranium oxide, and in situ grab samples have contained grades up to 9% U308.

Finding dozens of mineralized boulders in a small area is highly uncommon, Ulansky says, and Northern Uranium is now searching for the bedrock source of that mineralization.

“What we need geologically is all that uranium in trace quantities across huge volumes of rocks to be picked up and brought to one spot and concentrated there,” Ulansky says, talking about geological changes that occur over millions of years. “The mechanism for that is percolating fluids, waters that circulate through bedrock. When these fluids are slightly oxidizing, they scavenge uranium, they move thru cracks, fissures and preferentially strip out the uranium and carry it with them. The fluids migrate through rocks, when they get to a fault zone that’s permeable, they’ll rise to the surface and cool. Solubility drops and over millions of years, fluids will circulate and uranium will start to precipitate out.”

Northern Uranium has expanded on CanAlaska’s program using various methods — including electromagnetic, magnetic, ground gravity and radon surveys — to narrow down drill targets for a “focused” $1.5-million exploration program.

Airborne magnetics has identified faults that could provide an important pathway for mineralizing fluids, while electromagnetics has identified a 35-kilometre conductor path where precipitation of uranium mineralization is more likely.

RADON RESULTS STELLAR

Radon surveys — which are not being used by all early-stage uranium explorers in the Basin — are among the most useful tools in the hunt for uranium mineralization, Ulansky says.

Just as Fipke used diamond indicator minerals to find Ekati, Northern Uranium is using radon surveys to detect the presence of uranium mineralization.

“The silver bullet for uranium is radon. It’s a gas, highly mobile, very short half-life, that percolates up from uranium mineralization at depth,” Ulansky says.

“Imagine if you were exploring for gold and it uniquely gave off something called gold gas. You’d just go look for the gold gas.”

Radonex, the same company that completed radon surveys for Fission’s high-grade Patterson Lake South project did lake-based radon work for Northern Uranium, and the results were comparable to PLS’s, Ulansky says. Results from the land-based radon surveys were also strong.

However, the challenging part is that the radon signature is much larger than the uranium mineralization associated with it.

“We are very, very strong believers in the fact that there is high-grade uranium mineralization there, it’s just a matter of figuring out where it is,” Ulansky says. “I firmly believe there’s a major discovery to be found, and it’s just a matter of drill testing to find it.”

Watch: Mr. Fipke’s Canadian Mining Hall of Fame 2013 Induction Video

TARGET ZONE IDENTIFIED

Ulansky’s team has zeroed in on an area 3 kilometres wide by 10 kilometres long, centred over Maguire Lake. The target zone is northeast and up ice of the high-grade boulder discovered by CanAlaska.

“The ice direction is from northeast down to the southwest, so it certainly hasn’t come from the Athabasca, which is down-ice,” Ulansky says. “That’s telling us that up-ice there is some exceptionally rich mineralization to be found.”

During the 3 coldest months of winter, crews have been testing priority targets underneath the lake.

Early drilling has hit some uranium mineralization but not in economic quantities, Ulansky says.

Drill results are expected in the coming months, and with $500,000 in the treasury, Northern Uranium will need to raise money to fund more drilling.

Fipke is a special advisor and major shareholder.

“All the geology to date looks exceptionally promising, it’s just a matter of raising the funds to continue drilling,” Ulansky says.

Northern Uranium can earn up to an 80% interest in the project by spending an additional $8.4 million in two tranches and issuing 7.5 million shares and 3.75 million warrants over four years.

Ulansky remains a key player in Fipke’s group of companies; he’s president of Cantex Mine Development and president and CEO of Metalex Ventures. The two companies share Kelowna office space with Northern Uranium, helping keep the burn rate down to $10,000 a month.

The group of companies also own the drill rigs.

The radon and boulder indicators that Northern Uranium has are promising, but now comes the hard part: finding high-grade uranium mineralization. Ulansky compared the exploration effort to trying to break a plate at the bottom of a swimming pool blindfolded, with a pool cue. You know the plate’s there, but to smash it, you have to find it.

If you’re going for that type of swim, the partners you want are Chad Ulansky and Chuck Fipke.

To receive drilling news directly from the company, email info@northernuranium.com with the subject line, “Please add me to your email list.” That or call the company’s Kelowna office at 1.250.448.4110 for more information.

 

Author has a financial interest in Northern Uranium. The article is not intended to be investment or professional advice of any kind. Readers are strongly encouraged to independently verify all information contained in the article, as it may contain errors. Please see Terms of Use and Privacy Policy for important disclosures. Some of the statements contained herein may be forward-looking statements which involve known and unknown risks and uncertainties. Without limitation, statements regarding potential mineralization and resources, exploration results, and future plans and objectives of Northern Uranium are forward looking statements that involve various risks. The following are important factors that could cause Northern Uranium’s actual results to differ materially from those expressed or implied by such forward looking statements: changes in the world wide price of mineral commodities, general market conditions, risks inherent in mineral exploration, risks associated with development, construction and mining operations, the uncertainty of future profitability and the uncertainty of access to additional capital. There can be no assurance that forward-looking statements will prove to be accurate as actual results and future events may differ materially from those anticipated in such statements. Northern Uranium undertakes no obligation to update such forward-looking statements if circumstances or management’s estimates or opinions should change. The reader is cautioned not to place undue reliance on such forward-looking statements.

What smart investors do in Toronto the day before PDAC

Dear Subscribers,

For those of you attending this year’s PDAC in Toronto, the world’s largest mining convention, this is your invitation to our CEO Summit on Saturday Feb. 28th at the Hilton Hotel – that’s the day before the PDAC begins.

Click here for event details and here to register now.

This exclusive event is put on by three leading mining and energy newsletter writers, Keith Schaefer of the Oil and Gas Investment Bulletin, Eric Coffin of Hard Rock Advisory, and me.

The Summit is everything the PDAC isn’t. Rather than trying to put 25,000 people in a room we’ve invited 15 of our favorite mining and energy CEOs to present and meet with a few hundred of our subscribers in an intimate setting that’s for serious investors only.

Here are three reasons you should register now:

  1. Grow your wealth. These are hand picked companies presenting chosen for their immediate investment merit. No brokerage research, SEDAR filing of press release will ever tell you as much as a CEOs body language. Additionally, get all your questions answered directly from the CEOs themselves during breakout sessions.
  2. Grow your knowledge. The newsletter writers and CEOs themselves will share their industry and regional expertise. The knowledge will allow you to make better investment decisions.
  3. Grow your network. You’ll be in excellent company at the CEO Summit. Many of the most influential entrepreneurs and investors in our network, from investment bankers, fund managers, and analysts, to CEOs and technical professionals, will be on hand to take in the presentations and catch up over coffee and lunch. Building networks of like-minded investors is absolutely critical to becoming a successful investor (in addition to meeting the CEO’s in person).

Presenting companies include cash cow Nevsun Resources, high grade Colombian gold juggernaut Continental Gold, sister explorer Cordoba Minerals, the latest uranium discoverer NexGen Energy, and arguably the most exciting diamond junior, North Arrow Minerals. There couldn’t be a better time to meet the CEO’s of these companies, as current markets are resulting in profound change in the sector.

“Meet our hand-picked success stories for 2015 in person—and give yourself some high conviction stocks for the rest of the year.” Keith Schaefer commented.

“These are the companies positioned to make the most of a new bull market. Do yourself a favor and be there to meet the CEOs and hear their stories.” Eric Coffin added.

Personally, I’m excited about the chance to catch up with some of the CEO.ca subscribers who make all of this worthwhile. I know I’ll learn about investment opportunities, meet some in the know people, and potentially find the next big winner.

Register for the Feb 28, 2015 Toronto Subscriber Summit now (click here to do so).

Seating is limited so don’t wait.

Sincerely,

Tommy Humphreys
Resource Opportunities

Welcoming Tommy Humphreys to the Resource Opportunities Team

I am very pleased to welcome Tommy Humphreys to the Resource Opportunities team.

Tommy is a bright, energetic young man with exceptional contacts in the mining industry. He earned a great deal of respect for building the website www.CEO.ca, which has become an important information source, especially with regard to people and insights in the mining industry (See Lukas Lundin, Dave Lowell and other examples of Tommy’s unprecedented interviews).

One of the most important elements in the success of Resource Opportunities over the years has been in building close relationships with influential people, and in identifying the rising stars. We learned early that the people running the company and advancing the projects are the most important element in the success of any company.

Tommy has the respect of the old guard in our industry, and is equally tied in with the new generation of younger mining executives, geologists, engineers, investment bankers and analysts.

He is committed to identifying the up-coming talent: to being the first to identify the people who the other media will report on in two or three years’ time, after they have achieved success. Tommy will also continue to gain knowledge and insights from the people who are now the most influential players in this market. His relationships (current and future) will greatly enhance our analytical abilities and help us to be the first to identify the exciting new deals that can make money for subscribers.

I am looking forward to working with Tommy on upcoming issues, and the renewed energy he brings this newsletter.

We plan to further strengthen the team in the near term, with the next target being an experienced mining engineer.

Please join me in welcoming Tommy Humphreys to the Resource Opportunities team.

Lawrence Roulston