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Strategic Metals poised to drill wholly owned high-grade gold project

By James Kwantes
Resource Opportunities

Well-run project generators are brick houses in a speculative corner of the market, where the winds of commodity prices and dilution are often house wreckers. Their share prices are typically backstopped by healthy treasuries, royalties and equity stakes, as well as extensive claims holdings. They are businesses, not cash-burning lottery tickets like most junior explorecos.

But for many speculators, that level of diversification is a knock. Those bricks provide stability but weigh down the “rocket ship” when a junior exploration company hits a bona fide high-grade gold discovery. Project generators typically retain only limited exposure to discoveries through royalties or small equity stakes.

The picture changes completely, however, when project generators make a high-grade discovery on a wholly owned project. Azimut Exploration (AZM-V) proved it in January with their Patwon gold discovery at the Elmer property in Quebec. Azimut is Quebec’s largest claims holder, diversified across metals and known for its technical savvy. On January 14, the project generator announced multiple high-grade gold intercepts at the James Bay project, including 12.43 g/t Au over 6 metres and 27.36 g/t Au over 4.7 metres.

The day before the discovery was announced, Azimut shares closed at 50 cents (@ $31M market cap). The stock rocketed to $1.50 the following day and remains at about that level, despite the uncertainty and tough market conditions that persist in the junior mining complex. COVID-19 forced the suspension of Azimut’s follow-up 6,000-metre diamond drill program at Patwon.

Azimut closely resembles another project generator with a wholly owned gold project that will be drilled this summer: Strategic Metals (SMD-V, SMDZF-OTC). Strategic, Yukon’s largest claims holder, is cashed-up to drill its Mount Hinton high-grade gold prospect in the Yukon Territory’s Keno Hill district. Strategic plans to spend about $3 million to explore Mt. Hinton this season, including up to 6,000 metres of drilling (diamond and RAB).

The program, of course, is dependent on how the Coronavirus pandemic plays out in the coming months. In Yukon, mining and exploration have been designated an essential service.

Strategic shares currently trade at about 35 cents, for a $34-million market capitalization. It’s a far cry from the $4.35 level ($381M market cap) that the stock hit in 2011. That share price was propelled by gold’s rise to US$1,900 an ounce — less than $200 an ounce higher than current levels — as well as ATAC’s high-grade gold discoveries at the Rackla property in Yukon (ATAC is part of the Strategic Exploration Group).

Doug Eaton (right), Strategic’s CEO and principal of Archer Cathro, the storied Yukon geological consultancy, was in the thick of it during ATAC’s high-grade discoveries.

But the veteran geologist says he’s more excited about Mount Hinton because of the volume of high-grade gold found at surface at such an early stage, during what appears to be a perfect storm for the gold price.

“Mount Hinton is the same kind of setup but the project is much more readily accessible than Rackla and it’s earlier-stage,” Eaton said. “It’s much more exciting than ATAC was at this stage. We have a chance of a major gold discovery under the till or talus.”

Eaton’s comments about Mount Hinton’s possibilities sound like fairly typical Howe Street-style promotion. But a couple of key differences make his observations worth a closer examination:

  • His comments say much more about Mt. Hinton’s prospectivity than they do the potential of ATAC’s Rackla project. Strategic holds a 6.4% stake in ATAC and is incentivized to see the company succeed. Eaton remains a believer that the Rackla deposits will one day produce tens of millions of ounces of gold.
  • Eaton, a geologist, has been working in the Yukon for almost 50 years. He has an almost-encyclopedic knowledge of Yukon mining projects, which helps Strategic snap up forgotten but highly prospective projects. Eaton has been involved in several of the Territory’s major discoveries, including the Casino copper-gold porphyry (now being developed by Western Copper and Gold).

REWIND: In the summer of 2017, Strategic sold six properties including Mt. Hinton to a private company called Territory Metals. The terms of the deal hinted that Mt. Hinton was no ordinary prospect — in addition to a 2% NSR, the agreement included a 10% NSR on any small-scale high-grade gold production and a $1.5-million milestone payment if Territory identified a 1-million-oz gold equivalent resource on any of the properties.

Territory’s go-public plans fizzled and Strategic got the property back. Archer Cathro geologists hit the ground hard in summer 2018. They extended a large geochemical soil anomaly and found multiple rock samples with high-grade gold samples that assayed greater than 9 g/t gold.

Last summer, Strategic hit paydirt with a prospecting program focused on the 3.5-km by 1.5-km gold-in-soil anomaly. One rock sample came back with a bonanza-grade assay: 2,340 g/t gold and 597 g/t silver. Follow up prospecting discovered visible gold at this site (the first reported native gold on the property) and subsequent samples containing visible gold were not assayed. Other chip samples also carried high gold and silver values, including:

  • 42.4 g/t gold & 94.2 g/t silver
  • 9.9 g/t Au & 5.45 g/t Ag over 1 m
  • 24 g/t Au & 36.1 g/t Ag over 1.25 m
  • 23.5 g/t Au & 1,720 g/t Ag
  • 202.0 g/t Au & 2,020 g/t Ag

The property has not seen much exploration despite its proximity to Alexco’s Keno Hill project — Mt. Hinton is just three kilometres south of Alexco’s Bellekeno deposit. That’s largely because of road access difficulties. But the situation has improved dramatically in recent years thanks to the thriving Granite Creek placer gold camp, located at the base of Mount Hinton. Two placer operators are pulling out multi-ounce gold nuggets and the Granite Creek drainage has become one of Yukon’s hottest gold camps.

Granite Creek placer gold operations, one of Yukon’s hottest mining camps, with Mount Hinton in the background.

Strategic brought in excavators last year to build a road network on the property, an effort that will continue this year once the snow melts. The planned 6,000-metre drill program is a large one for Strategic but so is the size of the potential prize. “To find this material at surface is remarkable,” Eaton remarked. Strategic geologist Steve Israel has now mapped three separate phases of mineralization on the property. More phases means higher volumes of mineralizing fluids, which can lead to more gold.

With Mount Hinton a potential near-term catalyst, Strategic’s share price — and downside — is backstopped by a healthy treasury of $6.8 million and large equity stakes, as well as its extensive Yukon claims portfolio. Significant equity stakes include:

  • ATAC Resources (6.4%): high-grade gold deposits on the Rackla property
  • Rockhaven Resources (36.3%): h-g 1.2M oz Au/28M oz Ag deposit, on a road
  • Terra CO2 (62.6%) – pending patent on non-CO2 generating cement replacement
  • Precipitate Gold (24.3%) – Barrick just signed a 70% earn-in agreement for Precipitate’s Pueblo Grande project beside Barrick’s Pueblo Viejo mine in Dominican Republic
  • Silver Range Resources (17.7%) – project generator focused on high-grade prospects in Nevada, NWT, Nunavut

With gold moving in the right direction, the Mt. Hinton drill program positions Strategic to capture the shareholder value that can result from a high-grade discovery. It’s an outcome Eaton has seen before — and why he kept Mt. Hinton in the portfolio when it came back, rather than optioning it.

“We’ve turned down some pretty good offers for Mt. Hinton,” he remarked. “That’s because everybody wants 100% of it.”

Gold is on the move as governments around the world fire up currency printing presses to counter the economic effects of COVID-19. That lift has not yet translated to the junior sector, despite gold hitting all-time highs in most major world currencies. Eaton believes the malaise of the past several years is partly a generational phenomenon — younger retail investors simply haven’t experienced the large multibagger wins that tend to drive money into the junior space.

“You have a generation of investors who have done well in mining but who are too old,” Eaton said. “The generations of younger investors haven’t benefited the way people who are older did in prior bull markets.” That may be about to change.

A high-grade gold discovery at Mount Hinton could trigger a rush to get into Strategic shares, if the action on Aug. 21, 2019 is any indication. That day, Strategic announced high-grade assays including the bonanza-grade rock sample. The stock shot from 39 cents to 47 cents on multiples of average volume. It could be just a taste of what’s to come if Strategic drills a high-grade gold discovery at Mount Hinton this summer.

Strategic Metals (SMD-V, SMDZF-OTC)
Price: 0.35
Shares out: 96.6 million (108.85M fully diluted)
Market cap: $33.8 million

Disclosure: I own Strategic Metals shares and Strategic is one of three Resource Opportunities sponsor companies. This article is not intended as financial advice and all investors need to conduct their own due diligence and/or consult an investment advisor.

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Genesis Metals drills for high-grade gold in Quebec

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.

Geologist David Terry, the Genesis Metals CEO, in the field at a gold project in central Ecuador.

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.

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5 Reasons IDM Mining is Worth a Look at This Valuation

by James Kwantes
Resource Opportunities

IDM Mining is a Resource Opportunities sponsor company.

In the summer of 2016 I visited IDM Mining’s Red Mountain high-grade gold project in northwestern British Columbia for the first time, and most of the underground workings were still flooded with water. The conditions were a testament to the project’s mothballed status before IDM took over. To the weather, as well: the mountains outside of Stewart get plenty of precipitation in the form of both rain and snow. Some fell during that mid-summer visit.

When I returned recently, most of the water in the two kilometres of underground workings had been pumped out. Our group of analysts and investment bankers was able to hike deep inside the mountain. We crossed the portal and CEO Rob McLeod walked us through a damp, dark world, past several crosscuts accessing mineralized zones as well as sites where the underground drill was turning.

The gold grades have to be rich to make a mine economic in such an environment, and Red Mountain ore is. IDM’s latest intercepts, announced Sept. 5, are the highest-grade ever recorded at Red Mountain: 4.9 metres of 149.2 g/t gold and 59 g/t silver in the Marc Zone, the first mineralized area to be mined. The hit included 0.5 metres of 1,400 g/t Au and 437 g/t Ag. Average grades of reserves at Red Mountain are 7.53 g/t Au and 21.86 g/t Ag – multiples of global grades being mined.

Underground drilling

Majors including Lac Minerals and Royal Oak Mines spent several million dollars blasting out the portal and underground decline before abandoning the project, which IDM CEO Rob McLeod had worked on as a junior geologist. IDM optioned the 17,125-hectare project in 2014 and has systematically advanced it to the permitting stage. A recently published Feasibility Study shows an after-tax NPV of $104 million with an IRR of 32% and a 1.9-year payback, at a 5% discount. That’s based on US$1,250/oz gold and a 76-cent Canadian dollar. Average life-of-mine head grades are 7.53 g/t Au and 21.86 g/t Ag. By comparison, the average gold grade of producing mines, globally, is about 1 g/t Au.

Red Mountain is located in a beautiful corner of the world populated by snowy mountain peaks, glaciers and scenic vistas. We hiked to the top of a ridge as CEO McLeod gave us a tour that was equal parts geology and history. The bird’s-eye view included Bromley Humps, the area that will host the mill and the tailings area (we later visited by helicopter).

IDM Mining CEO Rob McLeod points toward the mill/tailings facility location in the Bitter Creek Valley.

The Golden Triangle’s history of high-grade gold mining points to its potential. Pretium’s Brucejack is just the latest in a region with a long list of past producing high-grade mines, including Snip, Eskay Creek, Premier and Granduc. And IDM’s development is part of a Golden Triangle revival that is driving some incredible share price gains among area drill plays. The most notable is GT Gold Corp., whose shares started 2017 at 25 cents and have rocketed above $2.50 on drill results. The stellar initial intercepts included 6.95 metres grading 51.53 g/t gold and 117.38 g/t silver. The stock surge has vaulted GT Gold to a market capitalization of almost $200 million. That compares to about $50 million for IDM, whose Red Mountain is an FS-stage advanced development project with a defined deposit and lots of upside.

Proven and probable reserves at Red Mountain contain 1.953 million tonnes at an average grade of 7.53 g/t Au, for 473,000 gold ounces, and 21.86 g/t Ag, for 1.373 million silver ounces. Most of the ore is found in three mineralized zones: the Marc, AV and JW Zones. Underground step-out drill results released by IDM this summer hint at the upside potential at Red Mountain. Intercepts have included:

  • 4.9 metres of 149.2 g/t Au & 59.9 g/t Ag, incl. 1,400 g/t over 0.5m (U17-1289, Marc Zone)
  • 8 metres of 12.28 g/t Au & 27.07 g/t Ag (U17-1274, SF Zone step-out)
  • 14 metres of 10.65 g/t Au & 17.37 g/t Ag (U17-1262, JW Zone step-out)
  • 8.6 metres of 12.33 g/t Au & 70.9 g/t Ag (U17-1245, JW Zone step-out).

 

Other high-grade Canadian gold plays are being picked off by majors, one by one. Recent projects that have been purchased include Lake Shore Gold ($945 million by Tahoe), Kaminak ($520 million by Goldcorp) and Integra ($590 million by Eldorado). The latest to be snapped up was Richmont Mines, a high-grade underground producer recently acquired by Alamos Gold for $933 million. Richmont produces gold at two underground mines in Ontario and Quebec.

In USD terms, the price of gold has increased about 15% this year, from $1,150 to the current $1,325. Yet IDM shares have remained at the 14-cent range, after hitting 21 cents about a year ago. Here are five reasons IDM shares are worth a closer look at these levels:

1. GRADE

The global gold mining industry is facing a supply crunch. Demand remains strong, driven primarily by the Asian appetite, ETF inflows and central bank buying. But on the supply side, gold mining companies are struggling to keep pace. It’s primarily due to a lack of new discoveries, a trend that is forcing miners to process lower-grade ore as they deplete existing ore bodies. The average grade at producing gold mines, globally, is about 1 g/t Au. It’s a worrying industry trend since grade remains king, as well as being a key determinant of the profitability of gold mining companies. That puts a target on IDM Mining’s Red Mountain, which has gold grades multiples of the global average. Cash costs net of silver credits for the Red Mountain project would be US$492/oz, according to IDM’s recent Feasibility Study.

2. INFRASTRUCTURE

Smart management teams purchase unloved, unwanted assets for pennies on the dollar during bear markets, then turn them into viable economic projects in time for the commodity upcycle. That’s the playbook for IDM and the timing looks good, especially with gold’s push above $1,300/oz. IDM leveraged millions of dollars of prior development, including almost 2,000 metres of underground tunnels. The infrastructure advantage extends to road access from Stewart, as well as plentiful and cheap power. British Columbia has some of the least-expensive industrial power rates of any jurisdiction in the world.

3. TEAM

Stewart is Rob McLeod’s hometown and he has deep family roots there, which makes construction of a mine at Red Mountain personal. The town of Stewart used to be a thriving mining hub but is heavily exposed to the cyclicality of the sector. For example, Stewart’s 1910 population of 10,000 dropped as low as 17 people less than a decade later, during the First World War years. Rob’s father Ian McLeod and his uncle Don (after whom IDM is named) prospected mountains in the region for gold – including the property that now hosts Pretium’s high-grade Brucejack mine. Stewart boomed again with the opening of the Premier mine, which operated from the 1920s to 1952 and was North America’s largest gold mine.

How deep are the CEO’s ties to Stewart? Rob’s father was born in Stewart in 1927 and served as mayor for 15 years. He also owned the King Edward Hotel in Stewart from 1952 to 2001. IDM’s Executive Chairman is Mike McPhie, a mining veteran who was CEO of Curis Resources (bought by Taseko Mines) and a director of Silver Quest Resources (bought by New Gold). Another third-generation miner, engineer Ryan Weymark, joined IDM Mining in the spring. His father and grandfather were also mining engineers and spent their careers at Teck Cominco.

4. RESOURCE UPSIDE

IDM’s high-grade stepout hits at Red Mountain mean the 5.4-year mine life outlined by the Feasibility Study is likely to be extended, perhaps considerably. Infrastructure costs for a mine would be fixed, so finding additional ounces is highly accretive to mine economics. And the upside goes beyond defining additional ounces at Red Mountain. Glacial melt has uncovered areas of mineralization that have never been drilled or explored, such as Lost Valley. A resource update is expected in the first quarter of 2018.

 

Lost Valley gold mineralization

5. STRIKEPOINT GOLD STAKE

A deal IDM announced in late 2016 has given the company a call option on a promising portfolio in the Yukon, one of the world’s hottest exploration jurisdictions. The company sold its Yukon projects (formerly owned by Ryan Gold) to Strikepoint Gold (SKP-V) for $4 million, most of it in StrikePoint shares. As a result IDM holds 18% of StrikePoint’s outstanding shares, joining other major shareholder Eric Sprott, who owns a 12% stake. StrikePoint’s VP Exploration is Yukon veteran Andy Randall, who was chief geologist for Ryan Gold when that Shawn Ryan vehicle spent $25 million to advance the Yukon projects. StrikePoint is spending $2.5 million this year to explore three properties: Mahtin, Pluto and Golden-Oly. The fledgling company, helmed by Shawn Khunkhun, has about $8 million in the treasury and is fully funded through 2018. IDM’s stake is worth about $2.9 million at StrikePoint’s current share price.

Disclosure: IDM Mining is a Resource Opportunities sponsor and the author is long IDM Mining shares, which makes him biased. This article is for informational purposes only. All investors are responsible for their own trades and need to do their own research and due diligence.