Nevada is known as “The Silver State,” a nod to the 1859 discovery of the Comstock Lode. That rich silver endowment led to Nevada’s statehood, and profits from silver mining helped the North come out on top in the American Civil War.
But the discovery of the state’s rich gold districts, including the Carlin and Cortez trends, a century later quickly made Nevada one of the world’s premier gold mining jurisdictions. Those two districts alone have a combined gold endowment of more than 250 million ounces (production + reserves). And gold is the precious metal that remains Nevada’s largest export by dollar value.
However, U.S. Census Bureau statistics show that Nevada’s gold output is slipping. Gold exports of about $4.9 billion in 2018 dropped to $2.7 billion last year, a 45% decrease.
And Nevada is not the only gold-rich jurisdiction with a declining production profile. New discoveries are needed to replace the ounces being mined. And one of the best places to look for gold is on projects that have been orphaned by larger companies or by exploration companies that have shifted their focus elsewhere.
The latter is the story with the past-producing Griffon project at the southern end of Nevada’s Cortez trend. Fremont Gold (FRE-V, USTDF-OTCBB) purchased Griffon and its 89 unpatented mining claims from Liberty Gold (LGD-T) in December 2019, then raised $1.48 million to drill it. The project was orphaned by Liberty (formerly Pilot Gold), which is drilling out its Black Pine oxide gold project in Idaho. Griffon is southeast of Fiore Gold’s (F-V) Pan mine and Contact Gold’s (C-V) past-producing Green Springs heap-leach gold mine.
Fremont plans to drill 2,000 metres at Griffon, beginning in June. Twenty-six drill sites are currently permitted and the project is bonded. Fremont plans to drill a number of untested targets in the hopes of making a new discovery at Griffon.
Griffon was first drilled in 1988. By 1997 two oxide gold deposits had been delineated, at Discovery Ridge and Hammer Ridge. Over the next three years, Alta operated as a small producer, mining oxide gold from those deposits at average grades of 1.03 g/t in a heap-leach operation. That’s well above average grades of 0.6 to 0.7 g/t being heap-leach mined at typical Nevada oxide gold operations.
Alta’s focus was production, not exploration. The company did not thoroughly explore the property and almost all of the holes they drilled were less than 100 metres deep. Fremont has assembled a crack team of geologists to narrow down targets at Griffon:
Clay Newton, Fremont’s VP Exploration and a Phd structural geologist who brings fresh eyes to the project
Andy Wallace, Ph.D., a Carlin expert and co-discoverer of five Nevada gold mines as a principal of Cordex
Jamie Robertson, Ph.D., Alta’s former exploration manager and a regional expert on Nevada’s southern Cortez trend.
Target areas at Griffon include the untested three-kilometre long Blackrock fault to the east of the Hammer Ridge deposit (one of the two deposits mined by Alta Gold Corp.), the Pilot Shale horizon, and a number of geochemical anomalies. In addition, potential remains in and around the two past-producing open pits.
Drilling by Alta in an area southwest of Hammer Ridge hints at the property’s potential. Alta hit near-surface gold mineralization in many holes, including 57.9 metres of 0.86 g/t gold. Other drill holes in this area — all of them within 100 metres of surface — included:
25.9 metres of 1.1 g/t Au
36.6m of 0.93 g/t
24.4m of 0.79 g/t
Last summer, Fremont sold its Gold Canyon project to McEwen Mining for 300,000 McEwen common shares in order to focus on securing more advanced-stage assets. The company’s first move was to option Cobb Creek from Contact Gold. Located in Elko county, Nevada, Cobb Creek is an advanced project with a historical gold resource that hasn’t been drilled since 1992. Although Cobb is an intriguing exploration project, Fremont plans to focus on Griffon this exploration season. The company also has the North Carlin, Hurricane and Goldrun projects in Nevada.
Gold is holding steady above US$1,600 an ounce and doing its job as a safe haven. The precious metal is also, increasingly, a buttress against the impending waves of money-printing as governments globally respond to economic paralysis caused by the COVID-19 pandemic.
Gold producers continue to rely on exploration companies to find the next economic ore bodies. That increases the appeal of well-managed juniors poised to create shareholder value with the drill. Fremont Gold fits the bill as it prepares to drill for discovery at Griffon. Insiders have been adding to their stakes, in both the public market and private placements. I have also been buying shares at these price levels.
Fremont Gold (FRE-V, USTDF-OTCBB) Price: 0.06 Shares out: 81.5 million (121.2M f-d) Market cap: $4.9 million
Disclosure: I own Fremont Gold shares and Fremont is one of three Resource Opportunities sponsor companies. Fremont is a speculative, high-risk exploration stock that may not be suitable for all investors. This article is not intended as financial advice and all investors should conduct their own due diligence and/or consult an investment advisor.
Drilling later this year will test new targets identified by last year’s property-wide soil sampling.
By James Kwantes Resource Opportunities
For veteran speculators, the latest hits to junior mining share prices feels like deja vu all over again. Sentiment is gloomy and market capitalizations are depressed. But gold in U.S. dollar terms is still up more than 25% year-over-year. And US$1,500 gold translates to more than $2,150 Canadian, an exceptional price for Canadian projects whose expenses are measured mostly in loonies.
Gold producers that deplete their reserves with every shift and every scoop still rely on junior exploration companies to find the deposits that will replenish their ore. Most juniors, meanwhile, had yet to respond even BEFORE the Coronavirus corrections — which has further pummelled the sector. Expectations are very low, along with share prices.
For exploration companies with strong management and backing, a flush treasury and potential for high-grade discoveries, it’s not a bad setup. Genesis Metals (GIS-V, GGISF-OTC) fits the bill. The Discovery Group company has $3.5 million in the treasury to drill its flagship Chevrier project in Quebec’s Chibougamau mining district. Chevrier is located in the eastern portion of the prolific Abitibi Greenstone Belt (180M oz of historical gold production).
Genesis is drilling an initial 2,500 metres (10 holes) at Chevrier, part of a planned 8,000-metre drill program this year. The initial program is designed to tap into high-grade shoots within the Chevrier Main zone deposit, expanding the higher-grade domain. Genesis’s market cap of about $7.9 million is backstopped by existing gold resources at Chevrier totalling 395,000 ounces Indicated grading 1.45 g/t Au and 297,000 ounces Inferred at an average grade of 1.33 g/t, at the Chevrier Main and East zones.
The company has already identified high-grade areas within the deposit — assays announced on January 22, 2018 included 8.73 g/t over 21.35 metres and 4.26 g/t over 19.4 metres at the Main Zone. But those results went unappreciated with gold trading at US$1,330 an ounce on its way down to $1,200. Later this year, Genesis plans to test targets elsewhere on the 295-sq-km property that were identified through last year’s property-wide glacial till survey.
Overseeing the exploration program is new CEO David Terry, an economic geologist who was appointed President and CEO on Dec. 2, 2019 (Jeff Sundar remains as Executive Director). Terry obtained a PhD in Geology from Western University in Ontario. He’s also well-schooled in the vagaries of bull and bear market mining cycles, through decades in the industry running projects — both large and small — for majors and helming explorecos. Terry is currently a director of several active exploration companies including Golden Arrow Resources, Aftermath Silver and Great Bear Resources. Great Bear, also a Discovery Group company, is drilling high-grade gold along kilometres of strike at its Dixie project in Red Lake, Ontario.
For Terry, the Great Bear directorship is a kind of return to Red Lake. His first summer job in exploration included mapping and sampling in the prolific district for a large mining company called Goldfields while he attended Western in the 1980s. He later worked for several years as a contract geologist with Cominco (which sponsored his PhD thesis) in Alaska, followed by a stint with Hemlo Gold exploring back in the Abitibi.
After obtaining his PhD, Terry worked for Westmin Resources then Boliden, as a geologist and project manager. When Boliden exited Canada with the mining sector in a post Bre-X slump, Terry took a position as a Regional Geologist for the B.C. Geological Survey in southeastern B.C. for three years. He spoke at the closing ceremony for Teck’s legendary Sullivan mine, which operated for nearly a century and produced 160 million tonnes grading 12% zinc/lead and 67 g/t silver. Since 2004 he has worked in management, director and advisory roles with a number of juniors exploring and advancing precious and base metal projects in both North American and a number of Latin American countries.
Terry joined the Great Bear board in July 2016, before the Dixie project was the company’s flagship. Great Bear’s mineralized LP fault is now recognized as one of the best gold discoveries of recent years, globally. But Terry remembers when the team operated in relative obscurity, with GBR shares trading for dimes not dollars.
As for Genesis, adopting a go-slow approach in 2019 laid the groundwork for an active 2020. Instead of drilling in the depths of a bear market, former President and CEO Jeff Sundar focused on building out the team and raising a war chest. Genesis joined the Discovery Group of companies and added Discovery principals John Robins and Jim Paterson as strategic advisors. The Discovery Group has an impressive record of wins in recent years, including the $520-million sale of Kaminak Gold to Goldcorp and the $117-million sale of Northern Empire Resources to Coeur. Rob Carpenter, the cofounder and former CEO of Kaminak, also came on as a strategic advisor.
Genesis’s successful financings were done in conjunction with a 5-for-1 share consolidation and the appointment of Terry as CEO. Rollbacks have a bad reputation — and rightly so — but consolidations done in conjunction with management changes and large financings can set the stage for success. Great Bear is another example of a successful rollback, its tight share structure helping to propel the stock post-discovery.
Chevrier is located in a prolific district of high-grade gold resources. Directly to the southwest is the Monster Lake gold discovery, where JV partners IAMGOLD and TomaGold have identified an Inferred resource of 433,000 ounces at 12.14 g/t gold. At the Nelligan project further southwest, Vanstar has delineated 3.1 million ounces of gold (Inferred) at about 1 g/t but last year hit 6 metres grading 56.46 g/t Au. IAMGOLD recently increased its interest in the project to 75%.
South of Chevrier, the Joe Mann gold mine produced 1.2 million ounces of gold at 8.26 g/t, as well as silver and copper. Infrastructure is excellent at Chevrier: a highway and power line runs through the property and the regional airport is a few minutes drive to the north.
With Discovery Group backing, a strong management and technical team, and a full treasury to drill high-grade gold targets at Chevrier, Genesis has laid the foundation for success. And high-grade gold discoveries get rewarded by the market, even in these tumultuous times for juniors.
Genesis Metals (GIS-V) Price: 0.18 Shares outstanding: 43.76 million (59M fully diluted) Market cap: $7.9 million
Disclosure: James Kwantes owns Genesis Metals shares and Genesis is one of three Resource Opportunities sponsor companies. Genesis is a speculative, high-risk exploration stock that may not be suitable for all investors. This article is not intended as financial advice and all investors should conduct their own due diligence and/or consult an investment advisor.
By James Kwantes Editor and publisher, Resource Opportunities
Speculating in junior mining equities is a dangerous — and sometimes extremely lucrative — game. Some of the key qualities that lay the groundwork for shareholder value creation in an exploration play are:
Serially successful management
The right commodity, at the right time
Tight share structure.
Discovery drill plays carry both the most risk and potential reward. A discovery can create tremendous — even life-changing — shareholder value. But it’s only the drill — aka the “truth machine” — that will determine whether an economic ore body lurks beneath the surface. Orestone Mining Corp. (ORS-V) is funded to drill two large porphyry targets in British Columbia and Chile and has positioned itself for success by ticking the above boxes.
Next comes a drill program at Orestone’s Captain property, which is host to a large gold-copper porphyry target near Centerra’s Gold’s Mount Milligan copper-gold mine northwest of Prince George. Orestone plans to drill between up to 1,250 metres in 5 holes at its Admiral target. The project is located on flat terrain and accessible via logging roads, making year-round exploration possible.
Mobilizing the drill at the Captain project.
I initiated coverage on Orestone at 7 cents in Resource Opportunities on Sept. 26, 2018 and the stock has since traded as high as 25 cents. Shares now trade at 12.5 cents, giving the company a market capitalization of about $3 million — very modest compared to other cashed-up, high-potential drill plays. Orestone has about $700,000 in the treasury and is raising another $500,000 in flow-through funds to drill Captain. The company is selling 16-cent units, each of which includes one flow-through share and half a warrant (one-year, 22-cent).
Orestone has a clean share structure, with a serially successful management team advancing two high-calibre projects in neighbourhoods that host very large mines. Let’s take a closer look.
Orestone’s chairman and CEO David Hottman and Gary Nordin, an Orestone director and senior consulting geologist, have deep industry experience with successful companies including Bema Gold, Eldorado Gold, Nevada Pacific Gold and Polaris Materials. All of those companies were acquired by larger companies except for Eldorado Gold.
Nordin, a co-founding director and VP of Bema, has been directly involved in several multi-million-ounce gold discoveries, including Refugio in Chile (6-8M oz). He was also a co-founder, director and VP of Eldorado, where he was involved in the Kisladag discovery in Turkey (12M oz) and La Colorada in Mexico (1M oz). Hottman owns about 5.3% of Orestone’s outstanding shares; Nordin owns 4.2%.
The latest team member is Bruce Winfield, appointed president on June 3, and I recently stopped by Orestone’s modest Vancouver offices to meet him. Winfield is a Spanish-speaking geologist who got his first taste of Latin America working on the Cerro Colorado porphyry deposit in Panama for Texas Gulf. He later spent three years working in Spain, including opening a Boliden office in Madrid.
When Winfield (right) returned to North America, Latin America was opening up to mining and his language and operations skills were in demand. He spent seven years working for Greenstone Resources, where he helped acquire and develop four deposits that later became producing mines. One of those was La Libertad gold mine in Nicaragua, the first asset sold after the defeat of the Sandinista government.
La Libertad later became one of B2Gold’s foundational assets (B2Gold recently sold La Libertad to Calibre Mining).
Winfield also spent two years working with Hottman and Nordin at Eldorado Gold, where he was VP Exploration. The focus during his first year there was to increase the resources at the La Colorada mine in Sonora, Mexico to expand production. La Colorada is now owned by Argonaut Gold.
During his second year at Eldorado, the company bought Gencor’s Brazilian and Turkish assets, which included nearly 24,000 square miles of exploration land including several small resources. Persistent exploration subsequently yielded the prolific Kisladag gold porphyry discovery. Winfield was most recently president and CEO of Defiance Silver (DEF-V), a Mexico-focused silver exploration company.
Orestone’s bench strength extends to the board. Director Julia Aspillaga is a Chilean national who played a key role in the development of the Refugio deposit for Bema Gold and also brought the group the Cerro Casale project, where a mineral reserve and resource of more than 23 million ounces of gold, 5.8 billion pounds of copper and 58 million ounces of silver has been drilled off. Barrick Gold and Newmont-Goldcorp are now 50-50 partners on the project.
Daniels is a mining engineer who graduated from the Colorado School of Mines and has worked in 13 countries and more than 50 projects with companies including Gustavson Associates and Caterpillar. Daniels worked on the startup of Bema Gold’s Champagne gold mine in Idaho, the company’s first producing asset, in 1989-90.
The flagship Captain project in northern British Columbia is a gold-copper porphyry target about 30 kilometres (18.6 miles) south of Centerra Gold’s open-pit Mount Milligan copper-gold mine. With drill permits in hand, Orestone is mobilizing the rig and plans to start drilling later this week, once the flow-through financing closes.
During the last drill program, in 2013, hole C13-03 hit a three-metre xenolith fragment of highly altered rock grading 1.9 g/t gold and 0.226% copper over three metres, within a post-mineral dyke.
Orestone’s Gary Nordin believes that fragment is a transported piece of a 2-kilometre by 1-kilometre monzonite porphyry body that correlates with an Induced Polarization (IP) anomaly. The drill will target that interpreted mineralized body with five initial drill holes and about 1,000 to 1,250 metres. The modest program has the potential to hit “pay dirt” — Mount Milligan to the north has proven and probable reserves of 4.7 million ounces of gold and 1.8 billion pounds of copper.
Geologists Gary Nordin, left, and Barney Bowen check out historic core.
The Resguardo project is an 11.3-square-mile copper-gold porphyry target that covers historic oxide copper workings northeast of Copiapo, Chile. A large IP chargeability anomaly under the oxide copper suggests there could be a sulphide copper porphyry at depth — theory that has never been tested. That’s the target for Orestone’s planned drill program.There are several giant gold and copper-gold deposits within 100 kilometres of Resguardo, including El Salvador (CODELCO), Cerro Casale (Barrick/Newmont-Goldcorp), Candelaria (Lundin Mining) and Maricunga (Kinross).
British Columbia has its detractors, but the province remains a favourable place to operate large mines. Australian gold giant Newcrest evidently thinks so, having recently purchased a 70% interest in Imperial Metals’ Red Chris mine for US$807 million. So does Teck, which operates copper and coal mines in B.C. and recently bought a 14% stake in B.C. copper-gold explorer Sun Metals.
As for Chile, the nation produces up to a third of the world’s copper and plenty of gold. Much of the metals come from giant deposits — of 5-30M oz gold and/or more than 5 million tonnes of contained copper. Chile is recognized as one of the most stable mining jurisdictions in the world. And in director Julia Aspillaga, Orestone has a capable operator with excellent in-country connections.
The gold market has come alive and looks better than it has in years — since 2013, to be precise. And back then, gold was on its way down after hitting US$1,900 an ounce. Copper has been weaker — along with the other base metals — on U.S.-China trade wars and growing fears about the health of the global economy. The civilization metal appears to be basing at the US$2.60 level. Copper’s long-term demand case remains intact, however, and a supply crunch is looming as legacy mines deplete their reserves and begin to shut down.
Orestone’s timing could be fortuitous. The company is focusing on a deposit type — gold-copper porphyrys — that is expected to produce an increasing amount of the world’s gold, according to a July 2014 article in the Society of Economic Geologists newsletter. Copper-gold porphyrys have only been mined since the 20th century. Orogenic gold deposits have been mined for thousands of years, while the Witwatersrand has been producing gold since the late 19th century. Production in the rich South African gold belt — an important gold source — has steadily declined since 1970.
Orestone has two planned drill programs in “elephant country” for porphyry deposits. With drilling success, the company projects could eventually contribute to global gold and copper production in already established mining camps. Owning Orestone shares gives you exposure to two large exploration plays and the potential for a dramatic rerating from this $3-million valuation.
Orestone Mining Corp. (ORS-V) Price: 0.125 Shares outstanding: 23.8 million (39.6M fully diluted) Market cap: $3 million
Disclosure: James Kwantes owns Orestone shares and the company is a sponsor of Resource Opportunities. Orestone is a lightly traded, high-risk junior exploration stock. This is not financial advice and all investors need to perform their own due diligence.
Recent discoveries, M&A in the Chibougamau mining district
By James Kwantes
Genesis Metals is one of three Resource Opportunities sponsor companies.
The history of major metals discoveries is rife with stories of deposits that were only uncovered when geologists looked beyond existing mineralization systems, or considered new models. Sometimes the best discoveries occur when exploration takes place off the beaten path — even when there are gold ounces underneath that path. An open mind sometimes opens doors, to both new discoveries and greater shareholder value.
For example, Ivanhoe’s Kamoa-Kakula copper deposit in the Democratic Republic of Congo was already one of the world’s richest and largest copper discoveries when company geologists decided to look further afield. In March 2017 they drilled a new discovery — Kakula West — 4 kilometres west of existing mineralization, making an already world-class deposit even richer.
More recently, Discovery Group company Great Bear Resources (GBR-V) drilled the Bear-Rimini discovery at its Dixie project in Red Lake, Ontario. Great Bear had been intercepting plenty of high-grade gold mineralization at its Hinge and Dixie Limb Zones, with a very pleasing 1-year stock chart to match. But the company’s push beyond areas of known mineralization led Great Bear to hit pay dirt with Bear-Rimini, drilling multiple shallow high-grade intercepts a full 2.5 kilometres away from existing gold zones.
Genesis Metals (GIS-V) has a long way to go before being mentioned in the same breath as Ivanhoe or Great Bear. But the company is utilizing a similar exploration ethos at its Chevrier gold project in Quebec’s Abitibi Greenstone Belt, 35 km southwest of Chibougamau. Genesis, also part of the Discovery Group, is in the middle of a property-wide till geochemical survey at the claims package. It’s an exploration method that has paid off for IAMGOLD, which is drilling the nearby Monster Lake and Nelligan high-grade gold discoveries with its JV partners.
Genesis recently expanded its Chevrier holdings to 275 square kilometres. The goal of the program is to identify high-grade drill targets in new areas, with a secondary focus on increasing grade and tonnage at existing deposits. Genesis’s market capitalization of $7.45 million is underpinned by a resource estimate of 395,000 ounces Indicated grading 1.45 g/t gold and 297,000 ounces Inferred grading 1.33 g/t (0.5 g/t cutoff for open pit, 0.95 g/t for underground). Genesis geologists believe there is yet-uncovered high-grade gold mineralization at Chevrier.
“The idea is to bring in fresh eyes to do systematic property-wide exploration, for the very first time,” said Genesis President Jeff Sundar, who was recently appointed CEO in a management shuffle that saw Adrian Fleming appointed chairman of the board (replacing Brian Groves). Fleming has been involved in discoveries around the world and was CEO and cofounder of Underworld Resources, which discovered and defined the White Gold deposit in Yukon. Underworld sold to Kinross for $138 million in 2010.
North Vancouver-based Vector Geological Solutions is running the property-wide soil sampling program. Vector and partner IOS are using a track-mounted sampling machine to take soil samples at 200-metre lines across the entire Chevrier property. The Fancamp Deformation Zone, the belt that hosts Chevrier, used to be covered by glaciers. Knowing the direction of the ice sheets and interpreting the shape and nature of the gold grains in the till will be key to evaluating the survey results. Geological mapping, prospecting and geophysics will follow, along with a potential drill program later this year.
For years, Quebec has been recognized as one of the best mining jurisdictions, globally. The province is keen to maintain that reputation and has invested billions of dollars into Plan Nord, the extensive infrastructure plan designed to open up the province’s vast north to mining and industry. As for Chevrier, the project is located in a mining-friendly area near major highways and a rail line, with an airport nearby. That’s a tick in the infrastructure box.
Quebec’s support extends to financial assistance for companies doing mining exploration work in the province. The Genesis exploration program is being funded by a $520,000 private placement that closed on May 30. Three Quebec government-sponsored investment funds participated for $350,000 of that total.
The Chibougamau district is heating up along with the gold price, which is trading at about US$1,400 an ounce but has shown strength of late. Encouragingly, Vector’s exploration methodology mirrors tools used by other companies that have successfully identified high-grade gold discoveries nearby. Those include the Monster Lake gold deposit southwest of Chevrier, which already hosts 433,000 ounces of gold (Inferred) at 12.14 g/t Au. Operator IAMGOLD and JV partners TomaGold (45%) and Quinto (5%) continue to hit intercepts above 20 g/t at Monster.
Vanstar’s Nelligan project, about 25 kilometres southwest of Chevrier, is also generating excitement. The latest assays at Nelligan, where IAMGOLD can earn up to an 80% interest, included 6 metres grading 56.5 g/t gold and 7.7 metres grading 7.02 g/t.
And there is an ongoing takeover battle between Osisko and Agnico Eagle that will result in a new neighbour for Chevrier. Osisko looks to have the upper hand: Chantrell Ventures, an Osisko vehicle that will be renamed O3 Mining, recently sweetened its bid for Alexandria Minerals. The move was in response to a hostile offer from Agnico, with both companies eyeing Alexandria’s Val d’Or land package. Alexandria also has the Fancamp property bordering Chevrier to the south and the Embry claims to the north.
Genesis has systematically built its land position and its latest acquisition was the Trenholme claims formerly held by Agnico Eagle. The gold mining company had hit mineralization there — including an intercept of 1.5 metres of 4.5 g/t gold — but shifted focus and let the claims lapse. Genesis picked up the block from a prospector who staked the claims after Agnico left.
Dan MacNeil, Vector’s founder and principal consultant, believes there is “probably some low-hanging fruit outside the resource.” MacNeil’s resume includes stints at Barrick Gold and Anglo American and his partner at Vector, Alan Wainwright, was a co-winner of the H.H. “Spud” Huestis prospecting award in 2013 for the exploration and development of Kaminak Gold’s Coffee gold deposit.
One of the other co-winners of the award was geologist Rob Carpenter, who is now a Genesis advisor. Carpenter co-founded and served as the first CEO of Kaminak Gold, which built the multi-million-ounce Coffee deposit and sold for $520 million to Goldcorp in 2016. Carpenter will be assisting Vector and Genesis in the hunt for high-grade at Chevrier.
People are key to any successful junior mining company and Genesis has a rock-solid roster. The Discovery Group has racked up several wins in a bear market, including Kaminak Gold (sold to Goldcorp), Northern Empire Resources (sold to Coeur Mining) and ongoing drilling success at Great Bear. Principals John Robins and Jim Paterson have come on as Genesis advisors and their impressive track records bode well for success. In addition to Carpenter, Genesis also added exploration geologist Garrett Ainsworth and engineer/financier Andrew Ramcharan as advisors late last year.
The company’s market cap of about $7.45 million is underpinned by the Chevrier resource, a majority of which is open-pittable. But it’s the prospect of high-grade gold intercepts on the expanded claims package — in a rich district with proven high-grade mineralization — that probably offers the most upside for Genesis shares.
Genesis Metals (GIS-V, GGISF-OTC) Price: 0.07 Shares outstanding: 109.3 million (132.2M fully diluted) Market cap: $7.45 million
Disclosure: Genesis Metals is a Resource Opportunities sponsor company and James Kwantes owns Genesis shares, which makes me biased. Genesis Metals is a high-risk junior exploration stock. All investors need to do their own due diligence and/or consult a qualified investment advisor.
Long before Hollywood directors made it a favoured setting for westerns … before Pancho Villa rose from the poverty of a hacienda there to become an important Revolutionary general … the Mexican state of Durango was a major center for global silver production.
Understanding silver’s role in Mexico – formerly part of “New Spain” – requires stepping back about 500 years. The precious metal has been mined in Durango since the time of the Spanish conquest, more or less continuously. Silver enriched the Spanish king and bolstered the treasury, helping fund wars against European rivals. It also funded a magnificent cathedral that still stands in the state capital, also named Durango. And coins minted from Mexican silver soon became a global currency.
One of the sources of that mineral wealth was Avino, the “mountain of silver” on the eastern flank of the Sierra Madre mountains outside of the city of Durango. It’s an ore body now being mined by Vancouver-based Avino Silver & Gold Mines (ASM-T). Avino produces silver, as well as gold and copper, from two underground mines: the main Avino deposit and San Gonzalo, a small higher-grade deposit about two kilometres away.
The metal remains a major export for Mexico, and Avino’s silver still makes its way around the world. But these days, it’s purchased by a division of Samsung. Samsung C&T purchases all of Avino’s production at spot prices and ships it to smelters in Asia.
Avino was founded by current CEO David Wolfin’s father Lou Wolfin (right), who in 1968 bought a 49% stake in the mothballed Mexican mine — which had closed in 1912 due to the Mexican Revolution. The joint venture put the mine back into production, and Avino later purchased the remaining stake from the Mexican family that owned it. Avino’s 50-year history is one of the features that sets the company apart in a junior mining sector where longevity is typically measured in years, not decades.
CEO David Wolfin’s roots at Avino run deep, too — as a teenager, he worked in the underground mine. Lou Wolfin, who died on March 3, 2017 at age 85, was an entrepreneur and inventor who showed a willingness to invest where others feared to tread. And although the company founder’s path to silver mining in Durango started on Howe Street, it began with a detour through Beverly Hills.
That’s where the elder Wolfin met Mexican entrepreneur Fernando Ysita at a party in the late 1960s. The chance Hollywood encounter led to forays into Mexico and eventually, a major investment. Avino purchased a 49-per-cent stake (the maximum allowed) in 1968 when Mexico re-opened to foreign investment. The company later bought the rest of the mine from the Ysita family.
Lou Wolfin was a contemporary of Murray Pezim and a bit of a legend in Vancouver business circles. A former stockbroker, Wolfin bought a seat on the Vancouver Stock Exchange in 1960 and later opened a Vancouver brokerage house. His entrepreneurial instincts extended far beyond mining – he owned the patent on holograms and developed a keyless door-lock entry system decades before those became common.
But it’s in mining that the elder Wolfin’s legacy is felt most acutely. He wasn’t there to see it, but Avino celebrated its 50-year milestone at the Vancouver Resource and Investment Conference in January. Among those at the party were employees who had been there from the beginning, as well as a contingent from Samsung headquarters in Seoul, South Korea.
I toured the Avino mines — which also produce gold and copper concentrates — on a site visit to Durango late last year. After flying into the state capital of Durango via Mexico City, we shuttled to the Hotel Gobernador, a hacienda that was formerly a state prison (complete with bullet holes on one of the outer walls). Our group, mostly German investors and analysts, was hosted by Avino CEO David Wolfin, COO Carlos Rodrigues and investor relations manager Jennifer North.
The mine is about an hour-and-a-half drive through towns and a countryside that looks familiar thanks to westerns such as How The West Was Won and Butch Cassidy and the Sundance Kid. The city of Durango has its own walk of fame featuring Hollywood stars on the sidewalk and several bronze statues including John Wayne — The Duke totes a rifle missing its barrel. (John Candy died of a heart attack in the city in 1994 during a break from filming Wagons East.)
At the mine, silver, gold and copper concentrates are processed using a flotation circuit from ore mined at Avino and San Gonzalo. For the last three years, production has held steady at or above the 2.7 million ounces silver-equivalent produced in 2017 (2.68M AgEq oz in 2016, 3M AgEq oz in 2015).
But a project under construction when I visited and now largely complete should hike that total significantly: the fourth mill circuit. That circuit — with a ball mill purchased from a Quebec mine — is now complete and set to process ore in the first quarter of 2019. The circuit is projected to boost capacity by about 70%, to 2,500 tonnes per day. Once the fourth circuit is commissioned, it will process ore from the San Luis (expansion) area of the Avino mine.
Avino announced Q3 2018 production on Oct. 15 and the company’s silver-equivalent production dropped by 7% year-over-year, to 704,429 ounces AgEq. Avino produced 342,151 ounces of silver (down 7% YOY), 2,204 ounces of gold (down 18% YOY) and 992,271 pounds of copper (down 10% YOY). The lower production and declining grades are partly because San Gonzalo is reaching the end of its mine life as Avino transitions to San Luis ore.
About 90 per cent of Avino’s workers live in villages a short drive away from the mine. The local workers have been a constant for the last five centuries – the jobs pay well and are highly coveted. It’s quite a contrast to the fly-in, fly-out contract mining methods at many modern mines. That helps on the community relations front, in addition to Avino’s decades-long presence there.
The Sinaloa cartel operates in Durango but our group travelled without guards or security, and neither is there a visible security presence at the mine. There are signs of a cartel presence if you pay attention, however, in and around Durango. The police station outside the city is built high on a hill and resembles a fortress. A prison we passed also looked seriously secure.
At the mine site, our group of analysts, investors and newsletter writers donned waterproof protective and safety gear and descended into both mines, the temperature rising with each lower level. It was vaguely reminiscent of the silver price, which has fallen more or less consistently and is now stuck at US$14 after running to almost $50 an ounce in April 2011.
That’s made it tough for silver producers to make money, and Avino is no exception. The company is also in expansion mode; there are exploration drilling projects at both the Avino mine and at the company’s Bralorne project in British Columbia. Avino is also investigating the economics of processing oxide tailings at Avino. It all costs money, and Avino recently raised US$4.6 million through the sale of 65-cent (US) units.
Each unit consisted of one 65-cent share and a full five-year warrant exercisable at 80 cents. But the financing was announced with shares at 79 cents US, and the below-market pricing prompted a selloff in the stock. In conjunction with Q3 production numbers, released October 15, Avino announced cost-reduction initiatives (capital, operating and administrative) at its operations in Mexico and British Columbia.
There are other examples in Avino’s neighbourhood of how silver’s struggles have hit other producers. Nearby is Coeur Mining’s mothballed Preciosa silver deposit, purchased for $382 million from Orko Silver in 2013. That deal was done with silver at about US$30 an ounce.
Growing production from the fourth circuit gives Avino good leverage to rising silver prices. When that occurs is anybody’s guess, but the silver price has a track record of bouncing hard when it reverses. One measure suggestive of a silver bull market is the gold-silver ratio, which is above 80 and near a historical record. Silver has made outsized returns each time it has reached these levels.
Avino also has leverage to gold at Bralorne, its under-the-radar Canadian project. Bralorne is nestled amid rugged mountains in British Columbia’s South Chilcotin range. It was the epicenter of a major gold mining camp that produced 4.2 million ounces of gold between 1928 and 1971. The three adjacent mines — Bralorne, Pioneer and King — produced extremely high-grade ore. Average head grades were above 0.5 ounces per tonne, or 14 g/t gold — multiples of global mined grades that are now below 1 g/t Au.
Bralorne, where Avino is in the middle of a fully funded 28,000-metre drill program, has the potential to become the flagship and a company maker, if things work out. The project already hosts a state-of-the-art water treatment system and dozens of kilometres of underground workings as well as brand-new mining equipment. The latter equipment — including two scoop trams and a jumbo drill — was purchased as part of a prior plan to start small and ramp up production. The company now plans to focus on expanding the historical resource before starting up a larger mine.
As with Avino, Lou Wolfin played a key role in securing the property, including the historical mine workings. Wolfin bought the Bralorne-Pioneer Mines from Homestake and brought it into Avino in 1990. He got Bralorne running at 100 tonnes per day (in a separate company) but the mine shut down due to low silver prices. Bralorne was brought back into Avino in 2014.
Avino funded the drill program through a $6-million flow-through financing priced at $2.00 (Cdn) per share. The drill program is the most extensive in the project’s history, and includes both exploration and resource drilling. The company is using two drill rigs; assay results should start landing in the first quarter of 2019.
The existing Bralorne resource, announced on Oct. 21, 2016, is 91,528 ounces Measured and Indicated at average grades of 0.33 oz/t gold (9.36 g/t) and 83,900 ounces Inferred at 0.22 oz/t gold (6.2 g/t).
Independent geoscientist Garth Kirkham of Kirkham Geosystems completed the NI 43-101 resource model and also played a major role in designing the current drill program. Kirkham is an award-winning geoscientist known for his resource estimation and 3D modelling work. He has worked extensively with John Robins’ Discovery Group companies, including Kaminak Gold (acquired by Goldcorp) and Bluestone Resources (BSR-V). The drilling follows structural modelling and geological mapping as well as airborne and ground geophysics.
Avino’s investment proposition is that of a stable silver producer with growing, lower-grade deposits and a call option on high-grade gold at Bralorne, where drill assays could provide catalysts for the share price.
Avino Silver and Gold Mines (ASM-T)
Price: 0.75 Shares outstanding: 63.3 million (75.5 million fully diluted) Market cap: $47.5 million
Disclosure: James Kwantes has been compensated by Avino Silver & Gold Mines to produce this article and Avino paid for costs of the site visit to Mexico. Avino Silver & Gold Mines is not a Resource Opportunities portfolio company. This article is for informational purposes and does not constitute investment advice. All investors need to do their own due diligence.
October 26, 2018
It’s 1:15 p.m. on a sunny Friday afternoon in Vancouver and I arrive a little early for a downtown meeting with Westhaven Ventures (WHN-V) chairman Gren Thomas. A short elevator ride at Granville and West Hastings takes me to Westhaven’s modest offices on the 10th floor, where I let myself in and drop by CFO Shaun Pollard’s office.
Inside, Pollard and veteran geologist Ed Balon — Westhaven’s technical director — are talking rocks and stocks. Westhaven shares rose 36% on the day to an all-time high close of 94 cents. Teamwork: Balon was key to identifying the Spences Bridge epithermal gold belt, which hosts Shovelnose, outside of Merritt, and Westhaven’s other projects: Prospect Valley, Skoonka and Skoonka North. Pollard runs a tight treasury ship in a sector with its share of (adrift) lifestyle companies.
And it’s at Shovelnose where a high-grade intercept of 17.77 metres of 24.50 g/t gold in hole 14 sent Westhaven shares — which traded between one and three nickels for years until this spring — rocketing from 37 cents to 81 cents on Oct. 16. This is a junior mining market where momentum flows to companies that can hit rich intercepts of high-grade gold. Westhaven has become one of them.
Gren arrives at the office. The soft-spoken mine finder made his reputation and fortune when his Aber Resources discovered Diavik, Canada’s second diamond mine. But these days, it’s mostly gold on his mind.
He comments with a chuckle that he’d had a nap earlier in the day and been surprised when he awoke to see the large stock increase. Making a few million dollars while he slumbers … that’s the new normal for Thomas, who owns (directly and indirectly) almost 30% of Westhaven’s shares. But it’s not like he’s sitting around counting his winnings — the veteran prospector was uncertain and low-balled his stake in the company when asked about it.
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The Westhaven surge is a reversal of fortune for Thomas, who got his share position by bankrolling the company, keeping it afloat through years of struggle and shoestring budgets. Thomas is Westhaven’s chairman and his son Gareth runs the company as president and CEO. Gareth, who was out of the office for interviews, owns 3.3 million shares, a 4.2% stake.
“What are we going to do with all this paper, paper the walls?” Gren says, recalling earlier days of backstopping the operation.
He fills me in on the small, persistent band of believers who were convinced there was high-grade gold at Shovelnose. Central to early-stage exploration was Balon, who discovered Skoonka and found a boulder at Shovelnose in the mid-2000s that ran 100 g/t gold. That was while both projects were still in Strongbow Exploration (SBW-V), where Thomas is also chairman. A 50-metre intercept of 0.5 g/t gold provided further encouragement.
“There were a lot of small programs, but frustrating. We would go back every year thinking we would find more the next year. But we were basically prospecting with a drill. There is lots of cover there, right.”
“We were talking to major companies and they were not remotely interested.”
The majors are interested now, and so are plenty of others. Gren’s cellphone rings in the pocket of his jacket, which is draped over a chair. He apologizes for pausing the interview and walks over to take the call. It’s Peter Brown, the Canaccord cofounder and Howe Street legend — and Westhaven shareholder. Brown, too, is eager to know when assays for hole 15 will arrive (anytime) and when the next drilling starts (early November).
Hole 14 was the intercept that lit a fire under Westhaven shares. Hole 15, 100 metres southeast of 14, hit a 20-metre quartz vein and contains visible gold. Assays are pending and could land at any time. The core for hole 14 contains ginguro bands, a distinctive black sulphide that is sprinkled with visible gold. The latest core looks very similar to the mineralization at Hishikari (Sumitomo), a Japanese gold mine with some of the world’s highest grades, at 40 g/t gold. Exploration manager Peter Fischl also sees parallels to Kupol (Kinross), a large high-grade mine in Russia’s Far East. Both Hishikari and Kupol are world-class epithermal gold deposits. Shovelnose is a speculative, earlier-stage project, but the potential is tantalizing.
A turning point, Gren relates, was when exploration manager Peter Fischl — attempting to zero in on the “heat zone” — targeted a valley with a creek that hosted heavy clay alteration. Hole SN17-06 intersected 85 metres of 0.52 g/t Au. Higher-grade intercepts followed earlier this year, including 17.7 metres of 3.9 g/t Au.
“We still couldn’t get any interest. We’ve got the boulders, we’ve got the showings, we’ve got these intersections — there’s a lot of gold here.”
“One company even went so far as to say, ‘There are no mines here. Why are there no mines?’ ”
“Well, because nobody has found one yet,” Gren says with a laugh.
Westhaven Ventures (WHN-V) Price: 0.94 Shares outstanding: 85 million (92 fully diluted) Market cap: $80 million
There are also new developments in the other two companies where Gren is chairman: Strongbow Exploration (SBW-V) and North Arrow Minerals (NAR-V). He is preparing to fly to the U.K. with Strongbow CEO Richard Williams to work on fundraising and an AIM listing for Strongbow, which is developing the high-grade South Crofty tin project in Cornwall. An Oct. 17 deal with Orion Mine Finance should help on that front — the well-known mining group agreed to finance Strongbow to the tune of US$3 million in conjunction with the AIM listing, which is expected before the end of the year. Thomas owns 5.133 million Strongbow shares, a nearly 6% stake.
There are large pools of capital in London for U.K. mining projects, which Williams and Thomas plan to tap into. There is also renewed interest in Cornwall and tin mining thanks to a popular British television series called Poldark. One participant in a recent tourist walking tour of Cornwall turned out to be a fund manager who was interested in Strongbow and South Crofty.
Strongbow is the “mother ship” of Gren’s three companies: diamond play North Arrow Minerals was spun out of Strongbow in 2007 and Westhaven optioned its Spences Bridge gold belt properties from the company. The deals for Shovelnose and Skoonka have left Strongbow with a 2% royalty on Shovelnose as well as 3.1 million Westhaven shares. Those shares are now worth almost $3 million — a not-insignificant total for a company with a market capitalization of about $14 million. “It’s funny how things morph,” Thomas remarks of Strongbow’s pivot from gold to tin.
Strongbow has a mining permit that is valid until 2017 and the company is currently building a dewatering plant to treat water from the old mine workings. The project was financed by the $7.17-million sale of a 1.5% NSR to major shareholder Osisko Gold Royalties, which owns a 27.5% stake.
Strongbow Exploration (SBW-V) Price: 0.16 Shares outstanding: 86.6 million (127.4M fully diluted) Market cap: $13.9 million
As for North Arrow Minerals, the diamond play is awaiting microdiamond and till sample results from Mel in Nunavut, where it discovered the diamondiferous ML-8 kimberlite last year. This season North Arrow drilled a new kimberlite (ML345), expanded on ML-8 and collected 224 kg of kimberlite for microdiamond analysis.
One of the main focuses of North Arrow CEO Ken Armstrong is getting a road permitted from the town of Naujaat to the Q1-4 kimberlite, which hosts a population of valuable yellow-orangey diamonds.
Completion of a road would dramatically cut the costs of collecting a large bulk sample to get a better sense of diamond values at the 12.5-hectare kimberlite, which is near tidewater. A road to the community, which is very supportive of the idea, would also potentially allow the construction of a small test mill in Naujaat.
“A major should take this on, because they take a longer-term view of it,” Gren says of Naujaat. “It’s the perfect place for a mine, near the coast.” He owns more than 10.5 million North Arrow shares, an 11.5% stake.
North Arrow Minerals (NAR-V) Price: 0.14 Shares outstanding: 92.8 million (128.9M fully diluted) Market cap: $13 million
“We’re quite confident that we’re doing the right things,” Thomas says of progress at Strongbow and North Arrow. “We just wish the markets would show more interest.”
That’s no longer a problem at Westhaven, with shares sitting just shy of a dollar as investors anticipate assays for hole 15. Warrant exercises have topped up the treasury, which sits north of $1.5 million. That’s enough for the next drill program, which is imminent, and it removes the need to finance under a dollar — something Gren is loathe to do.
While Westhaven’s fortunes have changed, its corporate culture will not, Gren pledges. “Gareth and I were talking about it, and I told him – ‘We under-promise and over-deliver.’ So no bullshit. It’s funner and you get a lot fewer phone calls from angry shareholders.”
There aren’t many of those these days, and Westhaven’s share structure all but ensures higher prices IF the company can keep hitting high-grade gold. Management own about 40% of shares, the Plethora Precious Metals Fund owns 16% and friends and family (including Gren’s daughter Eira Thomas) own another 10-15%. Those high ownership levels keep the supply of shares low during a period of rising demand for the stock.
Disclosure: James Kwantes owns shares of Westhaven Ventures, Strongbow Exploration and North Arrow Minerals and covers each company in his newsletter, Resource Opportunities. North Arrow is a sponsor of the newsletter. This article is for informational purposes only and should not be considered financial advice. All investors need to do their own due diligence.
Strategic Metals is one of three Resource Opportunities sponsor companies.
Strategic Metals CEO Doug Eaton has faced a few grizzly bears in his decades of stomping around the Yukon as an Archer Cathro geologist. And he’s been an exec in the junior exploration business long enough to ride out several bear markets. The key to both experiences: don’t get gored.
The Archer Cathro principal has also seen the other side of the coin, though — the one some junior resource speculators fear may never return. In the summer of 2011, ATAC discovered high-grade gold at Osiris, sending ATAC shares above $10 and Strategic shares above $4. Strategic continues to hold a large ATAC stake, currently 6.9%. Those moves occurred as the gold price approached highs of US$1,900 an ounce.
Current share price levels tell the tale of this bear market, and of the long slide down. Strategic shares trade at 41 cents and ATAC shares are stuck in the 52-cent range, near 52-week lows. ATAC recently announced a maiden resource estimate at Osiris, scene of that 2011 discovery hole, of 1.685 million ounces (Inferred) at 4.23 g/t Au, including a pit-constrained resource of more than 1 million ounces.
Eaton is philosophical about the continuing bear market as Strategic advances its properties (121 wholly owned) and looks for optioners. Lately the company has been doing deals on its cobalt and vanadium projects, as battery metal prices continue to rise amid surging demand and limited supply. And he is very bullish on Rockhaven Resources (RK-V), which recently published a resource update at its Klaza project. Eaton has been adding to his personal Rockhaven stake (currently 9.1% of outstanding shares) and Strategic Metals has also been bulking up, taking their stake to 40.23%.
The number of global ounces at Klaza actually dropped in the resource update, but Rockhaven converted 686,000 ounces from the Inferred to Indicated categories. There was also a significant upgrade in pit-constrained tonnes and grade, including 232,000 ounces of gold (Indicated) at grades of 9.5 g/t in the Western BRX zone. Rockhaven is looking at several processing changes, Eaton noted, including a pre-crushing circuit that would both increase ore grades and reduce processing costs.
I recently caught up with Eaton to talk battery metals, bear markets, and why there isn’t more M&A in this beaten-down sector.
Q: Do mining stocks deserve their poor reputation?
As an industry, we have executed quite badly. We have a tendency to disappoint more frequently than exceed expectations. In exploration, because of the nature of the business, that’s a given. In mining, it shouldn’t be.
Meanwhile, the U.S. markets continue to rise. It’s like stepping onto an escalator, it just keeps going up and up (Facebook shares were recently hit hard, post-interview, after the company missed earnings projections). But it takes such a tiny, tiny reallocation of assets back into resources and it’s going to be like a tsunami force.
Q: What catalysts besides a rising gold price could revive the junior exploration market?
We need buyouts of juniors and for people to redeploy money into the juniors. We’re starting to see it with South32 buying Arizona Mining and Orion Mine Finance buying Dalradian. But the retail market is gone and the big banks won’t touch the sector.
Q: Does Strategic Metals have exposure to the battery metals?
We are working on vanadium and cobalt deals. We went through the digital geochem database looking for cobalt showings. We found 20 properties in total and four with cobalt clusters. We did the same with vanadium and were expecting the same kind of result, but we came up with three strong vanadium properties.
Q: Why are you personally, and why is Strategic Metals, loading up on Rockhaven shares, given the size of your existing stakes? (Amount insiders have spent buying Rockhaven shares in the past 3 months: Eaton $50,000 at 13-15 cents, Strategic Metals $72,000 at 13-15 cents, CEO Matt Turner $19,000 at 13 cents.)
The only other time in my career that I’ve seen such low-hanging fruit was in 2008 when we were buying ATAC shares at 10 cents and the stock went to 10 bucks. Rockhaven now has an immediacy that ATAC doesn’t. And there is huge exploration potential that gets no credit. It’s not hard to see Klaza reaching 3-4-5 million ounces if you go up-dip and down-dip from deep, really good hits. I think there’s at least 5 million ounces there.
Come on guys, the writing is on the wall. We effectively told you we have a mine here. At the Western BRX we’ve got a pit with a quarter million ounces at above 9 grams per tonne. Do the math. What the hell is the matter here?
Q: Well, why aren’t majors capitalizing more on low valuations in this sector?
The majors have a habit of overpaying at the top of the market. They are running so fast that their tongues are hanging out, trying to keep up production levels. The majors are high-grading their deposits and not replacing the reserves.
On some of the recent major investments into juniors, they are predatory and smart, quite frankly. But most are not even thinking about new acquisitions, despite the fact they’re depleting their reserves. As a rule, mining companies are run by bean counters and engineers. Mining engineers are the least imaginative people I’ve ever met when it comes to deal making.
If I’m a major or mid-tier mining company, and looking for an economic deposit, I would look for an established resource that has lots of blue sky. Klaza fits the bill.
Q: What approach is Strategic Metals taking in tough market conditions?
We are keeping our powder dry and doing smart deals. It’s a bit of a holding pattern but sometimes the best deal is the one you don’t do. Timing is key.
Disclosure: James Kwantes owns shares of Rockhaven Resources, ATAC Resources and Strategic Metals. Strategic Metals is one of three Resource Opportunities sponsor companies. This article is for informational purposes only and may contain forward-looking statements. All investors need to do their own due diligence.
It’s early afternoon on an overcast Yukon day and CEO Peter Tallman is in show and tell mode at Lone Star, one of Klondike Gold’s properties in the heart of the historic Klondike goldfields. The geologist is dressed in old jeans, a flannel shirt, muddy gumboots and a baseball cap. The trip to the rugged property outside of Dawson City had Tallman’s pickup truck bouncing and bucking like an ornery bull with a rider on its back. It’s 3,000 kilometres and a world away from Vancouver’s Howe Street, a global centre for mining exploration finance.
The Lone Star mine was one of only a handful of bedrock gold mines in the Yukon, albeit a small-scale operation. The mine produced a small amount of gold at average grades of about 5.2 g/t Au between 1911 and 1914. Exhibit A is a faded wooden two-storey building, constructed in 1908 and visibly leaning. The building was abandoned circa World War 1, although it was reinforced and has been used since for various purposes. Nearby are high-grade surface and underground vein workings.
As Tallman walks through high grass toward the sun-burnt structure, he spots something and stops to pick it up. Exhibit B: a dilapidated shoe, several rusted metal tacks keeping the sole on. Tallman marvels at the resilience of the oldtimers, as he outlines his own plans to develop an economic gold deposit on the property.
“Imagine you’re working in minus 30 and wearing these on your feet,” he says, shaking his head.
Inside the dilapidated building are glimpses of the lengths to which fortune seekers would go – and the distances they would travel – in search of gold. After catching up on the news, the miners would line the walls with their newspapers – makeshift insulation in a land where winter temperatures routinely drop below -20 Celsius (-4 Fahrenheit). Posted alongside English-language newspapers from Winnipeg, Toronto and Montreal are broadsheets in Swedish and German.
In the Yukon, these bedrock miners were an anomaly. The Yukon Geological Society estimates that 20 million ounces of gold have been pulled from Klondike-area creeks and gravel beds since 1896. Virtually all of it, of course, has been alluvial gold. The lack of bedrock sources for the gold is one of the enduring riddles of the Yukon, where placer gold mining remains one of the largest industries. Several stores in Dawson City still accept gold nuggets as currency.
Tallman’s goal is to systematically explore the property and identify an open-pittable gold deposit of more than 1 million ounces, for starters. He joined Klondike Gold in December 2013. But before he got to the geology, Tallman spent most of the first year and a half cleaning up the corporate structure and rebuilding relationships in the Yukon. Predecessor companies had raised a lot of money, dug a trench that could be seen from space, and constructed some Cadillac core shacks. But little was spent on systematic property-wide exploration, and not much accomplished.
Diamond drilling is underway on this year’s 5,000- to 7,000-metre program. The 2018 exploration budget is $2.5 million, Klondike Gold’s largest yet, and work will include soil sampling and ground magnetics. The plan builds on last year’s exploration program ($2 million spent) and the Lone Star discovery of 2016, when Klondike spent $750,000 on exploration.
There is high-grade gold on the Lone Star property, as drill intercepts from both 2016 and 2017 have shown. They included:
– 2.4 g/t Au over 41 metres (Lone Star, 2017) – 2.4 g/t Au over 37 m (Lone Star, 2017) – 5.1 g/t Au over 14.3m (Nugget zone, 2016) – 3.3 g/t Au over 11.93m (Nugget zone, 2016)
But key to a new geological interpretation is the presence of disseminated lower-grade gold, which builds ounces even though it doesn’t generate sexy headlines. The new interpretation was the focus of a PhD thesis from Leeds geology student Matt Grimshaw, who will be back this summer helping SRK Consulting map the entire property. Tallman thinks as much as 90% of the gold in the Klondike could be disseminated.
Tallman has also brought on a VP Exploration to help him solve the geological riddles of the goldfields: Ian Perry. The geologist has more than 35 years of experience managing advanced exploration and development projects in Canada and internationally.
Tallman has identified four faults that control gold mineralization at Lone Star: the Bonanza, Nugget, Eldorado and Irish faults. The gold was forced up through the faults and formed veins or was disseminated. Tallman’s theory is that those faults, in turn, are controlled by the Rabbit Creek Thrust, which he believes could run the entire length of Klondike’s 55-km claims holdings.
“Do we know that these gold-bearing structures, that we’ve proven are at Lone Star, do they extend across the entire 55-kilometre structure?” Tallman says. Determining the answer to that question is the goal of the 2018 exploration program, which will include drilling at Gold Run at the southern end of Klondike’s property.
Klondike Gold has a dominant land position in a district where the mining of gold is already a multi-million-dollar business. A few numbers give a sense of just how large Klondike Gold’s property package is. The company owns 2,780 quartz claims, which make up 553 square kilometres to form a district that is 55 kilometres long. Road access is excellent – an important feature in a territory where planes and helicopters are common but expensive tools of modern gold exploration.
And the infrastructure is about to get better. The $360-million “Roads to Resources” plan announced last year by the Canadian and Yukon governments includes reconstruction of two roads that run through Klondike’s claims. The road connecting Goldcorp’s Coffee to Dawson City also goes through Klondike Gold claims. Goldcorp bought Kaminak Gold and its Coffee deposit — 120 kilometres south of Klondike’s claims — for $520 million in 2016. The takeover was part of a flood of Yukon investments from gold producers including Barrick and Newmont.
Tallman wants to build long-term shareholder value at Klondike Gold, so it’s a play that requires patience. On that front, it helps having deep-pocketed shareholders who take a long-term view of their mining exploration investments. Among them are billionaires Frank Giustra (14%), Eric Sprott (13%) and Francesco Aquilini, whose family owns the Vancouver Canucks hockey team. About 56% of Klondike’s shares are held by the top 20 shareholders.
A series of financings has the company fully funded for both this year and next. Klondike Gold has $6.5 million in the treasury and about $7.4 million worth of warrants.
Since bottoming in the fall of 2016, Klondike shares have been making higher highs and higher lows. Tallman has been buying stock in the open market this year, at prices ranging from 22-24 cents. The purchases take his stake in the company to about 2.7 million shares, or 2.8% of outstanding shares.
Klondike Gold (KG-V, KDKGF-OTC) Price: 0.235 Shares outstanding: 96.8 million (120M f-d) Market cap: $22.8 million
Disclosure: Klondike Gold is one of three Resource Opportunities sponsor companies and James Kwantes, editor and publisher of Resource Opportunities, owns Klondike Gold shares. Readers are advised that this article is solely for information purposes. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice. The information is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data.
Copyright: This publication may not be reproduced in whole or in part, in any form, without the express permission of the publisher. Permission is given to extract parts of the report for inclusion or review in other publications only if credit is given, including the name and address of the publisher.
Every junior resource speculator, whether consciously or not, balances risk and reward. The potential for lucrative gains lures investors into this small and notoriously volatile corner of the investment world – the promise of 10-baggers and more. But risk is the admission price for entry. And it comes at a cost, even if the stock is cheap.
Unfortunately, the drill plays that offer the greatest upside potential also carry the most risk. Take too many foolish or reckless risks along the way and you won’t have money left to invest. And today’s high flyer can quickly turn into tomorrow’s pooch. That makes capital preservation a key consideration for junior resource speculators – even though the emphasis is usually on the reward side of the equation. Describing it as the lottery ticket approach to investing is not much of an exaggeration.
Enter project generators, which can allow investors to manage risk while keeping upside exposure in a sector with often binary outcomes. Project generators build value by optioning out properties – and risk – to exploration companies, typically in exchange for cash and shares. The downside is protected by cash, land and proprietary databases, while the shares of optionee companies offer upside. The business method also allows the company to dodge share dilution – a fatal bullet for many juniors.
The business model has been successfully demonstrated by Strategic Metals (SMD-V) in the Yukon. Strategic refocused to adopt the generative model in December 2005, starting out with working capital (cash + shares) of 7 cents and the stock at 21 cents. As of Feb. 14, SMD had working capital of 36 cents per share (now 37 cents) and a share price of 48 cents (now 45 cents). There have also been distributions/spinouts of 24 cents a share along the way, including Silver Range Resources (SNG-V) and most recently, Trifecta Gold (TG-V).
That works out to a compound annual growth rate of 7.6% for the stock, assuming dividends are reinvested. The growth in working capital per share – from 7 cents to 36 cents – has been even more impressive. Strategic has a volatile 10-year stock chart, but the spikes offer shareholders higher exit points. During the severe dips, Strategic buys back its own shares. Want explosive upside potential? Strategic has been no slouch, as demonstrated by 2010 and 2011 share price action. High-grade gold discoveries at ATAC’s Rackla property – along with gold’s run to US$1,900 an ounce – lifted Strategic shares above $3 for several months in 2011 (ATAC shares hit $9 that year).
With gold approaching 2016 and 2017 highs, Strategic is well-positioned to capitalize. The company’s dominant position in the Yukon positioned it ahead of the herd, allowing it to secure key land positions around all the projects that subsequently saw investment by majors including Barrick, Newmont and Agnico Eagle. In a sector where companies burn through capital, think of Strategic as a business that steadily grows shareholder value with a long-term outlook. As Strategic Metals CEO Doug Eaton puts it, “we don’t have the purity of the exploration plays, but we have leverage to all of them.”
The company’s main edge is the vast geological database of storied Yukon consultancy Archer Cathro, run by Strategic CEO Eaton and his team of geologists and project managers. Strategic’s brain trust has been involved in many of Yukon’s top discoveries and deposits, including Western Copper and Gold’s Casino, Rockhaven’s Klaza and ATAC’s Osiris and Tiger projects. Eaton’s knowledge of the Yukon is encyclopedic and his decades operating in the Northern territory help him snap up neglected and forgotten claims.
Strategic is known as a kind of Yukon-focused investment fund, with extensive shareholdings and a treasury currently at about $13.4 million. But a good argument could be made that the company’s true value is its property portfolio. Strategic has more than 100 fully owned projects available for option, many of them permitted for large-scale drill programs. Among them:
Hopper, a large porphyry-style target where Strategic assayed 0.52% copper over 45.7 metres in a trench. Geochemical surveys outlined strong copper, gold and moly soil anomalies covering a 3,600-metre by 2,500-metre area. Similar age as Western’s Casino deposit 190 km to the north-northwest.
Meloy, another large porphyry target in the belt that includes Casino. Chip samples graded up to 8.7% copper, 560 g/t silver, 1.06 g/t gold, 1.47% moly and 3.51% tungsten.
Strategic owns a 39.7% stake in Rockhaven Resources (RK-V) and has a 7.3% stake in ATAC Resources (ATC-V), among other shareholdings. After a busy drill season, Rockhaven is prepping a resource update and looking at processing changes at Klaza, the Yukon’s highest-grade gold deposit of more than 1 million ounces. Last year Coeur Mining bought a 9.9% stake. ATAC is advancing its Carlin-type gold deposits at the Rackla property and last year attracted a $63.3-million investment from Barrick, which is earning a 70% interest in the Orion project. There are also significant stakes in exploreco Precipitate Gold (PRG-V) and project generator Silver Range Resources, among many others.
The latest Strategic spinout was Trifecta, which is exploring properties in Yukon’s White Gold country and B.C.’s Golden Triangle. Trifecta shares flew out of the gate after listing at 10 cents, briefly trading above 30 cents. But the stock has since settled back down to the 10-cent level after disappointing drill results at the Squid claims at its Trident property. Speaking about Squid, Trifecta CEO Dylan Wallinger had pledged to “prove it or kill it” – the company has subsequently dropped those claims, optioned from Metals Creek Resources.
In addition to developments at portfolio companies Rockhaven and ATAC, there are new potential catalysts in 2018. One of the more interesting new positions will be a 19.9% stake in Territory Metals, a private company expected to IPO on the TSX Venture later this year. Territory purchased six high-grade gold and silver prospects from Strategic, which retains a 2% royalty on all the properties – and a 10% NSR on any small-scale high-grade production.
The six properties, in central Yukon’s Tombstone belt, are Mt. Hinton, Plata, Lance/Lois, News, Naws and Nels. At least a couple of them could provide fireworks. Placer miners have been pulling out multi-ounce rounded gold nuggets – believed to be near source – from Granite Creek, which drains the Mt. Hinton property. Mt. Hinton is located near Alexco’s ground in the Keno Hill district.
Plata, subject to Strategic’s high-grade NSR, also offers intriguing potential. The ore mined at Plata, which is atop a mountain, was very rich. In the 1980s, miners hand-mined and transported it down by helicopter to an air strip at the bottom of the mountain. The ore was then flown to Ross River and trucked all the way down to smelter at Trail, B.C., 2,600 kilometres away. Helicopters, airplanes and truck transport – yet the mining was still profitable.
Strategic has also made a foray into Canadian diamond exploration through a $1-million financing that gave Strategic a 45% stake in diamond exploreco GGL Resources (GGL-V). GGL has property holdings in the Lac de Gras diamond field in the Northwest Territories and a diamond database with more than $30 million worth of exploration data. In November GGL brought in David Kelsch as president and chief operating officer. Kelsch is a Canadian diamond exploration veteran who worked for Rio Tinto and was involved in the discovery of the Diavik diamond mine.
Diamonds have been generating some buzz of late. Dominion Diamond Corp., owner of Ekati and 40% owner of Rio’s Diavik mine, was recently bought for US$1.2 billion and taken private by the Washington Group. Mountain Province Diamonds, meanwhile, purchased Kennady Diamonds – a former spinco – and its Kelvin and Faraday diamond projects in the Northwest Territories for $176 million. GGL Resources has two royalties on Kennady claims, on trend with the Gahcho Kue diamond mine and Kennady’s Kelvin-Faraday corridor.
Strategic Metals (SMD-V) Price: 0.45 Cash: $13.4 million Working capital: $33.3 million (37 cents a share) Shares outstanding: 89.44 million (96.8 fully diluted) Market cap: $40.2 million
Disclosure: Strategic Metals is one of three company sponsors of Resource Opportunities and Resource Opportunities editor James Kwantes owns SMD shares, which makes me biased. Readers are advised that the material contained herein is solely for information purposes. Readers are encouraged to always conduct their own research and due diligence, and/or obtain professional advice. Dollar and $ refer to Canadian dollars, unless stated otherwise.
Site visit: Sabina Gold & Silver (SBB-T)
Oct. 4, 2017
By James Kwantes
Canada’s North is a mysterious and forbidding land. There are stories of European explorers disappearing without a trace and place names such as Deadman’s Island. Native legends from the original occupants – not to mention strangely colourful lights that often dance across the night sky – add to the intrigue. I saw the Northern Lights for the first time during the site visit. The scientific explanation does little to diminish their mystique.
Flying over the barren lands of Northwest Territories and Nunavut gave me a renewed respect for Chuck Fipke and all the other Northern pioneers who identified mineral deposits there. Between Yellowknife and Sabina Gold & Silver’s Goose camp, the plane travelled over hundreds of kilometres of waterlogged tundra with nary an interruption. Then, rather suddenly, an open-pit diamond mine – a mineralized pin prick in a pin cushion measuring millions of square kilometres. The diamond mine was Diavik; Ekati is nearby.
This is about as far from “civilization” as it’s possible to get. For perspective, driving from Billings, Montana to Edmonton, Alberta, a major Canadian northern outpost, takes about 11 hours – roughly akin to driving from Durango, Mexico, to Los Angeles. It takes another 15 hours to drive from Edmonton to Yellowknife — the equivalent of travelling from Los Angeles to Portland. Sabina’s Back River project is a further 520 kilometres beyond Yellowknife, to the northeast.
As for Sabina, the main mystery on the company’s vast Back River property may be just how many high-grade ounces are buried under the Arctic tundra. It’s a puzzle this summer’s drill program should go some way to solving. A single early result from the 10,000-metre summer exploration program was promising. The first drill hole, 17GSE516B – released the morning I flew into Yellowknife en route to the site visit – intercepted 9.48 g/t gold over 38.55 metres in a down-plunge extension of the Llama deposit. Not bad for a 460-metre step-out hole. The focus is on adding high-quality ounces — after all, Back River already hosts 7.2 million ounces Au in all categories.
Our plane of analysts landed at the Goose camp on a high-quality air strip made from gravel produced on-site. The camp gets its name from adjacent Goose Lake, which serves as the winter landing strip for 737s that come in laden with fuel. The well-run camp felt more like a mining operation than an exploration camp.
Inside, we were briefed on the objectives of the summer drill program and the path forward by CEO Bruce McLeod, VP Exploration Angus Campbell and Exploration Manager Jamex Maxwell. The broad outlines of the mine were established by the initial project 3,000-tonnes-per-day Feasibility Study (3KFS) McLeod commissioned when he took over in February 2015. At US$1,150/oz gold, C0.80 exchange and a 5% discount rate, the FS showed:
– 240,000 oz annually for first 8 years, about 200,000 oz for 12-year life of mine;
– $415 million initial capex, $185M sustaining capex;
– 6.3 g/t Au average head grade, 93% recovery;
– life-of-mine, all-in cash costs of US$763/oz (incl initial & sustaining capex & closure costs)
VP Ex Campbell spoke about uber-high-grade exploration upside (more on that later), while derisking was the major theme for McLeod: “We can’t afford to make mistakes in this part of the world.” Sabina has spent about $5.5 million on basic engineering since the completion of the Feasibility Study, he said, and is now into detailed engineering.
The CEO describes the Back River project as a straightforward mine in a complex environment. From a geotechnical perspective, McLeod says Back River is probably the simplest project he’s been involved with. His assertion was confirmed by a visit to the nearby mill site, the helicopters landing on flat bedrock terrain. One of the benefits of a vast property is the ability to choose exactly where the mill will be. Standing on the flat terrain of scrub and bedrock, with a 360-degree panorama view, it was easy to visualize a mine taking shape.
I found an analogy McLeod used in his recent presentation at the Beaver Creek precious metals summit useful: “To a layperson, a feasibility is a concept, basic engineering is a plan and detailed engineering is a blueprint.” As Sabina constructs the blueprint, the focus is on investing upfront to avoid problems down the road. During the site visit, McLeod talked about his love for technology and some of the high-tech toys at his house, which he said “has lots of gizmos and bells and whistles and shit that breaks down all the time. It won’t happen here.”
It’s not typical CEO bluster: McLeod has already built a mine in Canada’s North. That was Capstone’s Minto copper mine in the Yukon, built by Sherwood Copper and the first hard-rock mine constructed in the territory in a decade. Sherwood was founded and run by McLeod and later bought by Capstone for $244 million. Minto was built on time and under budget – no small feat in Canada’s North.
Recent problems experienced by Nunavut neighbour TMAC Resources (TMR-T) at its recently opened Hope Bay gold mine illustrate the importance of “doing it right the first time.” TMAC recently slashed its annual guidance in half – from 100,000 to 120,000 ounces of gold to 50,000 to 60,000 ounces – due to processing issues and recovery problems. Sabina is paying close attention to metallurgy and a potential processing change from whole ore leach to flotation is one of the optimizations Sabina is studying.
BACK TO THE FUTURE
Some background on Back River: Sabina Silver became Sabina Gold & Silver with its 2009 purchase of the high-grade gold project from Dundee Precious Metals (DPM-T). Prior to that, the flagship was the silver-rich Hackett River VMS deposit 45 kilometres to the west, which Sabina sold to Xstrata (now Glencore) in 2011 for $50 million cash and a significant silver royalty. That transaction put Sabina into the rare category of well-funded junior, where it remains. More on the silver royalty later.
Sabina has since added about 5 million ounces, bringing the Back River resource to 7.2 million ounces in all categories. Most of the added ounces were drilled in the first two years, followed by a lull in drilling during the 2011-16 bear market. The most recent drill program has taken the number of metres drilled above 500,000.
The scale of the core-cutting facility at Goose is an indication of the size of previous programs. It can comfortably handle 85,000 metres in a single season, so is not stretched at 10,000 metres, McLeod noted. It may seem like a minor detail, but is another box ticked for any major that buys the district-scale project (Goldcorp, for example, is carrying out an aggressive exploration drill program at Coffee).
The Back River project is a banded iron formation project that consists of 10 high-grade gold deposits on Sabina’s 53,000-hectare properties. It’s an 80-kilometre district. Llama is one of four deposits at the main Goose project area, the focus of the 3KFS that McLeod commissioned. (An earlier FS modelled a 6,000tpd operation producing 350,000 oz over a 10-year mine life.) Three of the four Goose deposits are part of the 3KFS: Goose main pit, Umwelt open pit and underground and the Llama open pit. The Llama underground, including hole 17GSE516B, is not.
ECONOMICS OF EXPLORATION
One of the objectives of Sabina’s drilling is to determine if there are enough high-grade ounces underground to define a “treasure box” that could be mined up front. If the company is successful, that would involve shifting sustaining capex into the front end of the mine plan. But it could significantly improve already strong project economics, especially at the front end of the mine life. An increase of just 500 tonnes per day – to 3,500tpd – could vault Sabina into 300,000 oz/year territory.
Angus Campbell, Sabina’s VP Exploration, shed some light on how rich some of the exploration potential is on Sabina’s ground. Being the guy in charge of running exploration programs in a gold-rich 80-kilometre belt must have a kid-in-a-candy-store feel to it. But with McLeod in charge of the candy allocation, Campbell’s targets must be chosen wisely and justified. Despite 500 kilometres of drilling, there remain multiple opportunities for resource expansion, both at existing deposits and at deposits not included in either Feasibility Study.
Consider Sabina’s George deposits, about 50 kilometres away from Goose. George hosts about 2.1 million gold ounces included in the 6KFS but NOT in the 3KFS. Drilling there in the 1980s, outside the resource envelope, also hit several wide, shallow intersections of 6 and 7 g/t Au, McLeod said – rich ore by any standard. Sabina geologists were puzzled why these near-surface intercepts were not followed up at the time.
The answer, from people directly involved in the drill programs: the predecessor company was looking for higher Lupin-like grades of 9 and 10 g/t material. The nearby Lupin mine produced about 3.35 million ounces of gold between 1982 and 2004 at an average head grade of 9.27 g/t.
Under the 6,000tpd plan, George ore was slated to be trucked to the mill at Goose. But McLeod believes George is destined to become a second standalone mine once Goose is put into production. It’s a strategy both Agnico Eagle (Amaruq) and TMAC Resources (Boston) are following with their multi-deposit Nunavut gold districts.
EXPLORING A VAULT
The greatest upside potential, however, is probably where Sabina is drilling now – at the Llama extension and the Umwelt Vault zone. Particularly the latter. Vault assays are outstanding from the summer drill program, which included about 4,000 metres of Vault drilling. A spring hole there hinted at the richness, returning 16.86 g/t gold over 13.5 metres, including 27.11 g/t over 7.95 metres.
The Vault targeting is follow-up from rich 2011-12 intercepts, including 17 metres of 49.24 g/t Au. For perspective, that grade is roughly equal to GT Gold’s (GTT-V) recent intercept that helped send that Golden Triangle-focused play to a $200-million market cap briefly (Sabina’s market cap is $515 million). Except Sabina’s 2012 hole was 17 metres, compared to 6.95 metres for GTT. I asked VP Ex Angus Campbell why the rich hits weren’t followed up on at the time – he said the focus then was on building open-pit ounces.
On the infrastructure and development front, Sabina plans to truck supplies to the mine via a 157-km winter road built every year at a cost of $8 million. The CEO described it as a “fairly simple” road, logistically. Sabina will have about 45 days to truck supplies from the marine laydown area, in southern Bathurst Inlet, to the Goose camp.
Sabina is not banking on it, but a Northern road plan that has been decades in the making could also intervene to lower costs for the project. That’s the Grays Bay port and road initiative, a plan for an all-season 230-km road from a deep-water Arctic port that connects to the Yellowknife winter road. With the buy-in of the Kitikmeot Inuit Association, which also strongly supports Back River, this iteration of the plan looks closer to reality than it has for some time. The road would be closer to the George deposit than Goose, but could result in significant savings.
THE PATH FORWARD
Resource Opportunities initiated coverage on Sabina Gold & Silver on May 18, 2015, during the bear market. The catalyst for coverage was McLeod’s hiring. When I met him and Sabina’s VP Communications Nicole Hoeller in a Vancouver coffee shop, McLeod gave me a taste of his tenacity: “My philosophy is like the Italian rule of driving: you rip the rear-view mirror off, put your foot on the gas and it doesn’t really matter what’s behind you but you’re moving forward … You’re not going to let your foot off the gas.” The line implies recklessness, but it’s more about a single-minded focus on advancing projects.
McLeod could not have foreseen the dark days of summer 2016, but the philosophy served him well during that period. That’s when the Nunavut Impact Review Board (NIRB) recommended to the federal government the rejection of the Back River project as currently constituted, despite widespread Inuit and community support. The reasons given were concern over caribou and climate change implications. Ottawa flipped the tables, rejecting the NIRB’s conclusions and ordering the regulatory agency to re-examine its findings. That resulted in a positive recommendation. A final ruling from the federal government is expected before year-end.
The number of high-quality gold discoveries in recent years has dropped along with the exploration budgets of the majors. Ore grades have steadily fallen and the miners are more reliant than ever on junior exploration companies to fill the supply gap. There are precious few district-scale, high-grade gold projects in safe jurisdictions. Sabina’s Back River fits the bill and has no fatal flaws. I expect Sabina to be acquired by a large gold mining company, at prices well above the current levels. In a rising gold price environment – not a given, a bidding war could well be the outcome.
I have described Sabina previously in the newsletter as a kind of triple leverage play, and it still holds true. The shares were at bear market levels of 39 cents when I initiated coverage, and Sabina had 194 million shares outstanding. Importantly, the share count has risen only 30 million since then as the stock has increased sixfold.
That’s in the rear-view mirror, of course, and the key question is what kind of upside exists from current levels. Gold is showing weakness again, following an increase through US$1,300/oz and rapid rise to $1,350. But I expect the precious metal to resume its rise in an easy-money world, and Sabina’s 7.2 million ounces make the company’s shares an ideal vehicle for exposure to gold. I have added to my position at levels above the current share price. The following factors give Sabina multibagger potential from these levels, and tremendous leverage:
Exploration – Drill plays have been getting much of the love in recent months. GT Gold Corp and other plays focused on British Columbia’s Golden Triangle plays have been leading the charge, but there have been others. The junior market’s enthusiasm for drill plays and ambivalence towards development plays reminds me of the Benjamin Graham quote: “In the short run, the market is a voting machine but in the long run it is a weighing machine.” Sabina’s recent drill results compare favourably with many drill plays that have added tens of millions of dollars of market cap on favourable assays. In Sabina’s case, the assays are overlain on a very high-grade, FS-stage gold project and potentially have a direct favourable impact on project economics. Votes come and go but the weight remains.
Takeover premium. Recent takeover premiums in the gold space have been at healthy premiums (see below). In Sabina’s case, the strength of the project means the premium should at least match the highest-ranking, Integra at about 50%. That offer came from a major (Eldorado Gold) that already owned about 13% of Integra shares. Sabina has no such partner, one of the reasons a bidding war is quite possible. Dundee Precious Metals and Sun Valley Gold are the largest shareholders, each with just above 10%. Here are the takeover premiums a few of the more recent takeovers. The premium to the last close is first, followed by the premium to the 20-day volume-weighted average share price:
3. Silver royalty: Sabina retained a valuable royalty when it sold the prior flagship project, the Hackett River polymetallic deposit, to Xstrata (now Glencore). It’s a 22.5% royalty on the first 190 million ounces of silver produced, and 12.5% on the remainder. Hackett River is one of the world’s largest undeveloped VMS deposits and the main price is zinc. Zinc has soared from below US70 cents/lb in January 2016 to about $1.40 today. The royalty was previously assigned a value of $300 million by analysts, and McLeod contends it would trade at a valuation of $300-$400 million in the portfolio of a larger royalty company such as Wheaton Precious Metals or Royal Gold. The silver royalty gets little to no value in Sabina’s portfolio.
Suitors? It’s a long list. Goldcorp has telegraphed its intention to only acquire district-scale projects, and Back River fits the bill. The project is superior on almost every level – grade, size, scalability – to Kaminak’s Coffee project and Goldcorp spent $520 million to purchase that operation. This is pure speculation, but I bet B2Gold CEO Clive Johnson would also love to open a high-grade gold mine in Canada to go with operations in more exciting jurisdictions that include Mali, the Philippines and Burkina Faso.
Management is the single most important ingredient in the junior mining sector, and Sabina’s is impressive. When he took over as CEO, McLeod refocused the company, trimming some fat and beefing up insider skin in the game. Under his stewardship, Sabina has smartly increased the quality of the gold ounces while controlling the share structure. I was impressed during the site visit by both VP Ex Angus Campbell and Exploration Manager James Maxwell.
Finally, a small detail. Sometimes, they tell a tale. There was no swag on the site visit – company shirts, ball caps, pens, etc – and clearly cost considerations were front and centre for Sabina. I’ve seen lots of swag from plenty of lesser projects in my travels. As a shareholder, seeing that kind of focus on the lesser details reassured me that Sabina will pay close attention on the big details, too – such as a fair takeout price.
Sabina Gold & Silver (SBB-T) Price: $2.30 Shares outstanding: 224 million (243M f-d) Treasury: $36.6 million (as of June 30, not including financing proceeds) Market cap: $515.2 million
Disclosure: I own shares of Sabina Gold & Silver and the company paid for costs associated with the site visit. Readers are advised that the material contained herein is solely for information purposes. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities. The information contained herein is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. The author and their associates are not responsible for errors or omissions. They may from time to time have a position in the securities of the companies mentioned herein, and may change their positions without notice. (Any positions will be disclosed explicitly.)
James Kwantes is the editor of Resource Opportunities, a subscriber supported junior mining investment publication. Mr. Kwantes has two decades of journalism experience and was the mining reporter at the Vancouver Sun. Twitter: @JamesKwantes
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Resource Opportunities (R.O.) is an investment newsletter founded by geologist Lawrence Roulston in 1998. The publication focuses on identifying early stage mining and energy companies with the potential for outsized returns, and the R.O. team has identified over 30 companies that went on to increase in value by at least 500%. Professional investors, corporate managers, brokers and retail investors subscribe to R.O. and receive a minimum of 20 issues per year. Twitter: @ResourceOpp