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Site visit: Hunting for riches at Group Ten’s Stillwater West PGE-copper-nickel project

Site visit report: Stillwater West, Montana
Group Ten Metals (PGE-V)

December 3, 2019
By James Kwantes
Editor and publisher, Resource Opportunities

Initially published in Resource Opportunities. Subscribe now: coupon code PGE saves you US$100 on regular prices of US$299 for 1 year, $449 for 2 years. www.ResourceOpportunities.com/subscription-information/

Checking out fresh drill core

Assays are pending for holes drilled this season at Iron Mountain and Camp Zone, two of Group Ten’s most advanced targets at the Stillwater West PGE-copper-nickel project in south-central Montana. I initiated coverage on Group Ten in the Oct. 9, 2017 newsletter and recently went on a site visit to the company’s 54-square-kilometre Stillwater West property. The visit reinforced the enormous mineral potential and gave me a glimpse of some of the hurdles that will need to be cleared in order to create shareholder value.

I flew into Billings, Montana’s largest city with a population of about 110,000, and it was a one-hour drive to Red Lodge, where I stayed. Red Lodge is the “Gateway to Yellowstone Park” and nestled against the majestic Beartooth Mountains. With coal mining roots and a tourist flavour, Red Lodge has multiple bars alongside real estate offices, art galleries (with some mining-themed art) and stores selling MAGA gear.

It’s another hour’s drive to Nye (population 300), where Group Ten’s core facility and helicopter landing zone is located. Nye is also on the doorstep of the Stillwater mine complex, which has three producing mines that form the highest-grade major PGM deposit in the world. Group Ten inherited a vast amount of historical data on Stillwater West, including some 28,000 metres of drill core. Company geologists have re-evaluated about 12,000 metres of that core and some of that has been submitted for assay, in cases where it was not assayed or assayed for only certain metals.

Group Ten is that rare junior mining company that is on the radar of majors but still under the radar for most retail investors. Majors are interested because Stillwater West truly has the potential to host multiple economic deposits (overuse has rendered “district scale” an almost-meaningless cliche but it applies here). I believe Stillwater West hosts several bulk-tonnage deposits containing nickel and copper as well as platinum group metals, gold, rhodium, and cobalt.

And the company is closer to delineating deposits at Stillwater West than many people expect, because of the historical data and core (Group Ten’s qualified person, Mike Ostensen, was also QP for much of the prior drilling). According to their Oct. 31 news release, the company plans to publish mineral resource estimates at the three most advanced targets on the property: Iron Mountain, Camp Zone and Chrome Mountain.

Impression #1: It was quickly apparent that mining is part of this area’s DNA and it’s not just the Stillwater mine complex, a major employer. You can buy miner’s boots (among other more peculiar and charming items) at the general store in Fishtail, which has been open since 1900. Red Lodge was founded on coal; Nye used to be a copper mining camp. A short hike from one of Group Ten’s drill sites was a prospector’s cabin, near an old collapsed adit where the hermit used to hand-mine copper.

Prospector’s cabin: the roof had caved in but the foundation wasn’t going anywhere.

 

Group Ten first caught my attention in June 2017 when they acquired the Stillwater West PGE-nickel-copper project adjacent to the Stillwater mine in south-central Montana. A month before, South African miner Sibanye Gold had spent US$2.2 billion to buy Stillwater, rebranding as Sibanye Stillwater in a major diversification move out of South Africa. Much of the world’s palladium and platinum is mined in South Africa, but Stillwater is the world’s highest-grade PGM mining complex. The deposits host more than 105 million ounces of palladium and platinum (in all categories) at average grades of more than 12 g/t palladium and 3.5 g/t platinum.

The mineralization at Stillwater West is complex: the rocks are up to 2.7 billion years old, with multiple mineralization styles. Metal-rich magma was laid down layer after layer and cooled slowly, creating various deposit types. The closest analogue globally is Platreef in South Africa, the rich PGM-copper-nickel deposit that David Broughton played a key role in discovering (Broughton is a Group Ten advisor). And its mineral endowment makes Platreef one of the most valuable pieces of real estate on Earth.

Flying over Sibanye-Stillwater’s flagship mine (below) in a helicopter provided a good overview of the large operation. There were plenty of vehicles in the parking lot at the mill, which processes ore from three separate underground mines: Stillwater, East Boulder and Blitz. Local considerations are front and centre: a separate vast tailings pond located away from the mill site was built behind a bluff, making it all but invisible from the road.

Impression #2: Group Ten’s local knowledge at Stillwater West is a big edge. In addition to consolidating the previously splintered land package, Group Ten employs geologists with combined decades of experience working the project for prior operators. Chief geologist Craig Bow has 40 years of global experience as an economic geologist, including years of work at Stillwater from exploration to a production decision. Both project geologist Mike Ostenson and project geophysicist Justin Modroo (a professional extreme skier) are Montana natives; both men worked in the Stillwater complex for previous operators Premium Exploration and Beartooth Platinum. A small example of sensitivity to locals: the helicopter landing zone is a short ATV ride from the core shack, in a rural area where the flight path to the drills will cause the least disruption for residents. 

With a helicopter-assisted drill program, Group Ten’s exploration costs are relatively high. (There are trails running to most of the drill locations but they are winding, time-consuming mountain ATV trails.) That makes dilution a major risk factor for Group Ten, but the company does have a few aces up its sleeve. Namely, in-the-money warrants that should help boost the treasury, as well as non-core assets in Yukon (Kluane PGE-Ni-Cu) and Ontario (Black Lake-Drayton Au) that CEO Mike Rowley is working to monetize. 

There has been M&A action in the PGM sector, especially South African producers expanding outside of that (troubled) country. The latest was Impala Platinum’s $1-billion purchase of North American Palladium and its Lac des Iles PGM mine in Quebec. Majors also continue to be on the lookout for nickel and copper, which Group Ten has in abundance at Stillwater West. I was also intrigued to see Group Ten reference rhodium in its Oct. 31 NR headline and wonder if that’s a sign of good things to come. Rhodium is currently trading at about US$5,000 an ounce and palladium trades at US$1,833 an ounce, up almost 45% this year.

The path to shareholder profits for Group Ten probably involves doing a JV deal with a major mining company prepared to spend the money to turn Stillwater West into a drill-hole pin cushion and advance the deposits. That would leave Group Ten with a smaller slice of a very valuable project, which could still be worth many multiples of the current market capitalization. Execution will be key, but Group Ten could be sitting on if not a gold mine, multiple deposits containing PGMs, nickel, copper and cobalt. Upcoming catalysts include drill results and mineral resource estimates from three of the most advanced Stillwater West mineralized zones.

Group Ten Metals (PGE-V, PGEZF-OTC)
Price: 0.17
Shares out: 81.1 million (122M f-d)
Market cap: $13.8 million

Disclosure: This report was published and sent to paid Resource Opportunities subscribers on Nov. 3, 2019. James Kwantes is a Group Ten Metals shareholder and the company covered costs associated with the site visit and for distribution. This report is for informational purposes only and all investors need to do their own research and due diligence.

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Cashed-up explorer prepares to drill large gold-copper porphyry target

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
  • High-quality projects
  • Stable jurisdictions
  • 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.

MANAGEMENT

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.

PROJECTS

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).

STABLE JURISDICTION

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.

COMMODITY

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.

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Genesis hunts for high-grade gold at Chevrier

Recent discoveries, M&A in the Chibougamau mining district

By James Kwantes
Resource Opportunities

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.

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Gold discoveries, garimpeiros and a gringo bar

By James Kwantes
Resource Opportunities

Fremont Gold is a Resource Opportunities sponsor company.

“Hello, you’ve reached Rock Bottom.”

It was the greeting for those calling Mongo’s Rock Bottom Cafe, the popular expat bar opened by exploration geologist Dennis “Mongo” Moore and a partner in La Paz, Bolivia. That was in the early 1990s, before Bolivia became a rather unfriendly place to explore for mineral deposits. At the time, the country was a thriving centre for mineral exploration. And Mongo’s, in Bolivia’s capital city, was a gathering place for geologists and drillers from around the world.

It’s a curious name for a bar in a city situated 3,600 metres above sea level. But it may make perfect sense given the description of geology as “liquor and guessing” — immortalized in a Dilbert comic strip — combined with a sector in which gloomy lows are the companion to occasional euphoric highs.

These days, Moore is president of Fremont Gold (FRE-V), a Nevada-focused exploration company focused on new discoveries and drilling for gold on the doorstep of McEwen Mining’s (MUX-T) Gold Bar mine in the Battle Mountain-Eureka-Cortez trend of northern Nevada.

Fremont is on the eve of a 1,000-metre drill program at Gold Canyon, one of the satellite pits to  the original Gold Bar mine. The other satellite pits are owned by McEwen Mining, which comprise McEwen’s Gold Bar mine — expected to begin production this quarter. Fremont recently cut short a drill program at the original Gold Bar after the first three holes failed to intersect significant mineralization.

The company will also undertake a discovery drill program this summer at its North Carlin project at the northern end of the Carlin trend. Drilling will target a gold and mercury soil anomaly that is coincident with a magnetic high. At least 1,000 metres of drilling is planned.

LOCKING UP LAND IN A TOP JURISDICTION

Last September, Fremont announced it had acquired the Roberts Creek claim block about a kilometre south of McEwen’s Gold Bar mine, taking its holdings in the neighbourhood to 5,348 hectares. Recently concluded magnetic and soil surveys revealed geophysical and geochemical anomalies at Roberts Creek that coincide with multiple faults, according to a Feb. 22 Fremont news release.

The company is more than a McEwen “closeology” play. Moore really likes the company’s North Carlin property, a package of three claim blocks directly on the northern end of the Carlin trend (about two km north of the Rossi mine). Fremont optioned one claim block from Ely Gold Royalties and staked the rest.

Moore is an Aussie-American who landed in Vancouver from the jungles of the Amazon and now makes his home in Lisbon, Portugal. He’s assembled a strong team at Fremont. Clay Newton, the VP Exploration, is a PhD structural geologist with decades of experience in Nevada and California. Last year, Fremont brought in Blaine Monaghan as CEO and director. Monaghan has raised more than $100 million for mining projects around the world and was most recently the VP Corporate Development for Allegiant Gold (AUAU-V), the Nevada-focused spinout of Columbus Gold (CGT-T).

As for Moore (right), the geologist has hit a few bottoms himself and bounced back — both before and after the Bolivian bar venture. He got a BSc in geology/earth sciences at the University of Oregon, where his love of exploration included mountaineering. Moore moved to Australia in 1981 and eventually joined the gold rush that was sweeping through the southwest Pacific (Australia was where he picked up the “Mongo” moniker). Working as a contract geologist based out of Australia, Moore got his first taste of jungle exploration in Papua New Guinea. Those were early days for mineral exploration in PNG. On one expedition, Moore encountered a group of local children who fled in fear because they had never seen a white man with blue eyes. Moore got malaria twice.

His Australia stint coincided with one of mining’s cyclical slowdowns, and Moore obtained a master of environmental engineering from the University of Sydney. What followed was an unsatisfactory foray into environmental engineering — and commuting through heavy Sydney traffic to an office job. That experience and a divorce left Moore itching to return to his first love: exploration. Opportunity knocked when Moore was contacted by David O’Connor, Ross Beaty’s Latin American business partner, who was looking for Spanish-speaking exploration geologists in Bolivia. Moore knew O’Connor from a one-year stint in Fiji, and the geologist was soon en route to Latin America.

FRIENDS IN LOW PLACES ON A LONELY PLANET

Moore landed in La Paz in October 1993 and quickly connected with the large expat geo community, usually over drinks. With only one decent bar in downtown La Paz, a French cafe, “We said, why don’t we open up our own geo-expat bar,” Moore recalled. He and a partner did, and the following year, Mongo’s opened (with the heavy lifting done by Moore’s new girlfriend Sherene, now his wife of 25 years). The bar soon became a centre for both gringo and Bolivian geologists and later, tourists.

Moore’s new home rekindled his interest in mountain climbing; he and friends used to tackle 6,500-metre mountains in multi-day treks. One of the mountains they climbed was Ancohuma (near Illampu), a 6,427-metre peak north of La Paz. After descending Ancohuma, Moore met Sherene at a hotel in the little town of Sorata. She was drinking tea with a female companion, and Moore — exhausted and sunburned after a fantastic but draining experience — was eager to return to La Paz for a celebratory dinner with his climbing companions.

Moore, Mike Schuler and David O’Connor on the afternoon before summiting Ancohuma.

“I said to Sherene, ‘come on, let’s head back to La Paz,’ Moore recalled.

“She said, ‘I’m drinking tea here, can’t we hang out for a bit.’ I said, ‘No, I want to get back before it gets too dark.’ ”

“The other woman looked at me like I was a cretin, and I kind of gave her a dirty look as well.”

“My wife reluctantly came along and she didn’t say a word until we were about 20 minutes down the road. She says, “Do you know who that was?”

I said, “No, and I don’t really give a shit.”

She says: “That’s the woman who writes the Lonely Planet guide for Bolivia,” Moore said with a laugh.

“When she finally came to visit the bar, I told her she had nice eyes, but of course she saw right through me.”

On the geological front, Moore went to work for Altoro Gold, a Ross Beaty company that was exploring for gold but later pivoted to platinum-palladium projects in Brazil. And it was in Brazil where Moore made his first big discovery, in 1996-97.

Northern Brazil was home to one of the world’s largest gold rushes in the 1980s and 90s, with more than 1 million people flocking to the region. The easy gold was largely gone by the time Moore arrived in late 1996, although he immediately heard about golden riches being unearthed in the “wild west of the Amazonian jungle.” One of the main centres of Amazonian gold production is the Tapajos river system, a major tributary of the Amazon in Para state. The system has produced an estimated 25 to 50 million ounces of gold over the past 50 years, making it the third-largest alluvial field in the world. At the time there was not a single industrial-scale gold mine in the region (even now there is only Serabi Gold’s 40,000-oz/yr Palito mine).

THE DAY THAT CHANGED MOORE’S LIFE

In mid-1997 Moore spent five weeks flying around in 30-year-old Cessnas visiting the major “garimpos” (artisanal mines) in the jungles of northern Brazil. He visited, sampled and photographed over 30 garimpos and ranked the 20 best prospects.

Moore’s No. 1 prospect was Tocantinzinho, a small hill with two pits on either side being worked by over 1,000 garimpeiros. It was one of his last stops. “As soon as I saw it, I thought holy shit, this looks good.” He took several channel samples on Aug. 23, 1997, an auspicious date — it was his daughter’s 10th birthday. The characteristics that stood out included the width of the stockwork veining in the saprolite and the number of garimpeiros working it.

“I was very excited about it and David (O’Connor) said, well let’s see how the numbers come up.” The two Tocantinzinho channel samples ran 36 metres at 2.68 g/t gold and 21 metres at 2.01 g/t.

“David came into my office and said, ‘I think you may have found a mine here.’ He was right, basically, and that changed my life.”

Altoro and the JV partner did a deal with the garimpeiros to secure the land package. The company used soil sampling to define a 400-m by 1-km gold-in-soil anomaly and did some auger drilling. However, the Bre-X scandal was in full bloom; in early 1998 Beaty fired virtually the entire Altoro gold exploration team (including Moore), eventually pulled the plug on Tocantinzinho and pivoted to platinum/palladium. Solitario later bought Altoro for the platinum/palladium project. Tocantinzinho was deemed expendable.

After a short solo motorcycle trip to southern Chile, Moore landed contract work in Peru with Barrick and later with Newmont before the work dried up completely. Moore relocated to New Jersey with his wife and again, tried a more conventional job in the environmental field. But he quickly tired of commuting two hours every day to a windowless brick building in a New Jersey industrial park and dealing with large corporate clients. One Sunday his wife was reading the New York Times and commented to Moore about an article on the rising gold price. The piece mentioned Minefinders, which was run by Mark Bailey — whom Moore had worked with in Bolivia. Moore reached out and was soon en route to Mexico. He went to work for Minefinders in the Sierra Madre of Mexico on a 9-month contract.

Over the years, Moore saw how the real money was made — he watched a friend strike out on his own, vend a copper project in northern Peru, and prosper. Inspired by the successful venture, Moore headed to Vancouver to try his luck and visited Alan Carter, who had been with RTZ in Bolivia and was at that time on the management path with BHP. They formed a partnership; Moore put out some feelers and discovered that Tocantinzinho was available from the original garimpeiro owners, whom he knew.

RE-SECURING TOCANTINZINHO

In early 2003, working from an Internet cafe in San Miguel de Allende, Moore negotiated a deal to option Tocantinzinho for $15,000 on signing. Three months later, he and Carter signed with a TSX-V junior for cash, shares and a hefty NSR. Moore sourced a drill and they began drilling 7 months later. The primary discovery hole was hole #4, which ran 170 metres at 1.72 g/t gold.

Exciting moments like this did not come along often. More often, it was small-town life in the jungle away from loved ones, not to mention missing the music, sports and culture of home. A celebration was in order — Moore and the day driller got drunk for three consecutive nights.

Retaining a valuable sliding-scale royalty was a sharp move for the business partners. In 2010, Eldorado Gold paid about $122 million to purchase Brazauro and the Tocantinzinho deposit, which now hosts about 2 million ounces at 1.42 g/t Au. Moore recently sold his share of the royalty for a tidy sum.

After 18 months managing Tocantinzinho, Moore and Carter formed Magellan Minerals and acquired the Cuiu Cuiu district 20 km northwest of Tocantinzinho. Cuiu Cuiu was arguably the largest garimpo in the Tapajos. Moore and a Brazilian partner had staked the area, which had produced more than 2 million ounces just from alluvials.

Moore spent the next 10 years living and working at Cuiu Cuiu and Itaituba, the nearest town which services the Tapajos region. Over the years he discovered about 1.5 million ounces of gold in three separate deposits. Cuiu Cuiu is now being advanced by Carter’s Cabral Gold (CBR-V), which has been finding higher-grade mineralization at the project. On February 28, Cabral announced an intercept of 3.4 metres grading 36.9 g/t gold. Moore is a Cabral director and a large shareholder; Carter is Fremont’s chairman and a large shareholder.

In the 1980s, Cuiu Cuiu was a Wild West boom town with no roads, a short airstrip, about 5,000 residents, a police force, more than 40 brothels, and killings every week. The Itaituba airport was one of the world’s busiest during that decade, with 300 takeoffs and landings daily and more than 1,100 flights on the single busiest day. Companies trying to acquire stakes in the area included majors such as Rio Tinto and Phelps Dodge and personalities including Eike Batista.

Moore and Carter secured the claims to Cuiu Cuiu by convincing the garimpeiros to come together in a coop, then negotiating a deal with them. It was a lengthy process that took most of 2005-2006 and had a successful outcome: “The powerful female garimpeira, Amerita, was the last holdout — I basically had to get down on my knees and beg her!” Moore recalled.

The first Cuiu Cuiu drill program in 2006 — while Moore and Carter’s company, Magellan Minerals, was still private — hit 131 metres of about 1 g/t gold. Magellan went public in early 2008 as the company drilled one of its best holes: 220 metres at 2.2 g/t Au. The share price jumped from a dollar to $2.20 on the news. Moore and Carter managed to keep Cuiu Cuiu when they sold Magellan in 2016 to Ross Beaty’s Anfield Nickel, which was more interested in Magellan’s Coringa gold deposit in the Alta Floresta district of Brazil. (Anfield subsequently sold the Coringa deposit to Serabi Gold; Anfield is now part of Beaty’s Equinox Gold.)

September 2018 site visit to Gold Canyon, Nevada

Back in Nevada, Moore sees Fremont Gold as a kind of double-barrelled play on gold exploration in one of the world’s most prolific districts. A small drill program at Gold Canyon (above) in the summer of 2018 saw Fremont hit 16.8 metres of 1.9 g/t Au and 18.3 metres of 1.1 g/t Au. The company hopes to build on that success in identifying further mineralization on McEwen Mining’s doorstep.

Moore is even more excited by the North Carlin properties that Fremont staked — and by the prospect of new discoveries in the western hemisphere’s most prolific gold belt: the Carlin trend. In a bear market that is disproportionately rewarding new discoveries and discovery plays, identifying a gold discovery in such a rich district would capture the market’s attention. Fremont is also on the lookout for a more advanced project, Moore said.

As for Mongo’s, the watering hole eventually made it into Lonely Planet and other popular travel guides. The bar was sold to Vancouverite Colin Little in 1997 but the popular establishment finally “hit rock-bottom” just last year when it closed its doors.

Fremont Gold (FRE-V)
Price: 0.11
Shares outstanding: 53 million (67.2 million fully diluted)
Market cap: $5.8 million

Disclosure: Fremont Gold is a Resource Opportunities sponsor company and James Kwantes owns Fremont Gold shares. This is not financial advice and all investors need to complete their own due diligence.

 

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Genesis builds ounces, recruits top talent

– New resource estimate shows 423,000 Au oz Indicated at 1.22 g/t Au and 303,000 Au oz Inferred (1.27 g/t) at Chevrier

– Genesis Metals joins Discovery Group; John Robins, Jim Paterson come on as strategic advisors

By James Kwantes
Editor, Resource Opportunities

Genesis Metals is a Resource Opportunities sponsor company.

Chibougamau is Cree for “gathering place” and the First Nations hamlet in northern Quebec served as one long before French explorers and traders travelled the area in the 1600s.

Gold was discovered in 1903 and mining companies followed. Fast-forward 116 years and Chibougamau is now an important hub for the Quebec government’s Plan Nord, an economic development plan designed to open up the vast north of the province to new opportunities, particularly in mining. The initiative has elevated a jurisdiction that was already recognized as among the most mining-friendly in the world.

Genesis Metals’ Chevrier gold project is about 35 kilometres southwest of Chibougamau at the western end of the prolific Abitibi Greenstone Belt, a structure that has produced more than 180 million ounces of gold. Mining operations in the region include Stornoway Diamond Corp.’s Renard mine and the Monster Lake high-grade gold project, a JV between Toma Gold and IAMGOLD.

And Genesis continues to gather ounces at Chevrier, in the Abitibi’s Fancamp Deformation Corridor. An updated resource estimate published February 4 shows 423,000 ounces Indicated at 1.22 g/t gold and another 303,000 ounces Inferred at 1.27 g/t gold at the Main Zone and East Zone at Chevrier. Average grades have decreased because Genesis moved to a lower cut-off grade (0.3 g/t in-pit, 0.95 g/t u-g) for the resource update.

The resource update establishes Chevrier as a growing open-pittable deposit with higher-grade underground and discovery possibilities, says Genesis chairman and CEO Brian Groves.

“This resource is a significant milestone in the history of Chevrier. We have developed a robust model for gold mineralization in the Main Zone with multiple new targets elsewhere on the property,” Groves said. “With our recently strengthened technical team, we will now explore the potential for expansion of the mineralized envelopes as well as other targets on the 130-square-km property.”

Jim Paterson: key contacts

Joining John Robins’ Discovery Group should help Genesis tap into talent and open doors. Robins and Discovery Group principal Jim Paterson have joined Genesis as strategic advisors. The group, founded by Robins in 2005, has an impressive record of creating shareholder value in a dismal market, including:

  • the $520-million sale of Kaminak to Goldcorp in 2016;
  • the 2018 sale of Northern Empire Resources to Coeur Mining for $117 million;
  • Great Bear Resources has been a junior mining standout, with a 1-year return of more than 600% on bonanza-grade gold discoveries at its Dixie project in Ontario’s Red Lake district.

Paterson has already been key to helping Sundar build out the Genesis team. Paterson tapped into his extensive network to attract three experienced operators for the Genesis technical team: geologists Rob Carpenter and Garrett Ainsworth and engineer/financier Andrew Ramcharan. The trio joined the advisory board in November. Each should help unlock further value at Chevrier, including potential new discoveries.

Rob Carpenter, co-founder of Kaminak Gold, checks out Chevrier core. Carpenter is a strategic advisor to Genesis.

Carpenter and Ainsworth are familiar names to Canadian mining investors. Carpenter was a co-founder and the former CEO of Kaminak Gold and key to identifying the 5-million-ounce Coffee gold deposit purchased by Goldcorp. Among other ventures he is a director of White Gold, where he is helping legendary Yukon prospector Shawn Ryan explore the White Gold district between Coffee and the Klondike goldfields.

As for Ainsworth, the exploration geologist’s greatest accomplishments have been in the western Athabasca Basin. As VP Exploration for Alpha Minerals, Ainsworth discovered the Patterson Lake South uranium deposit now being advanced by Fission Uranium (which bought Alpha). Ainsworth then spent four years at NexGen Energy as VP Exploration and Development, a period that saw NexGen’s shares soar from 30 cents to above $4.00 as it expanded the ultra-high-grade Arrow uranium deposit in Saskatchewan.

Andrew Ramcharan, an engineer and graduate of the Colorado School of Mines, was Managing Director of Project Evaluation for debt and equity financings at Sprott Inc. He also worked with IAMGOLD on M&A. Stephen Williams, a metallurgical engineer who is Vice-President of Corporate Development and Investor Relations for Bluestone Resources, has also joined the Genesis board of directors. He previously worked for Canaccord Genuity as a director of the metals and mining investment banking team.

Quebec has earned a reputation as one of the world’s best mining jurisdictions. Now, the province’s Plan Nord has opened up Quebec’s vast north, providing linkages to already exceptional infrastructure in Chevrier’s immediate neighbourhood (the Abitibi’s Fancamp Deformation Corridor). The Genesis gold project is near major highways and a rail line, and has a regional road running through it, as well as an airport nearby. The solid infrastructure in a safe jurisdiction tick off two of the main boxes for both investors and potential suitors.

Jeff Sundar, the president of Genesis, is younger than most mining execs. But he has been working in the sector long enough to see cycles come and go. Sundar has also experienced M&A success, in both 2010 and 2018. He was a director of Underworld Resources, which was acquired by Kinross for $138 million in July 2010 for its White Gold deposit in west-central Yukon (now owned by White Gold Corp). More recently, Northern Empire Resources — where Sundar was on the board — and its Sterling gold project was acquired by Coeur Mining for $117 million.

But the years between those takeovers were mostly punishing, for Genesis and the whole sector. Genesis completed a successful 10,000-metre drill program in 2017 that firmed up the resource at the Main Zone and identified new target areas. But the company received little recognition for it in the market, even though most intercepts were within 150 metres of surface. The final assays, announced Jan. 22, 2018, included some of the best mineralization yet:

  • 21.35 metres of 8.73 g/t gold including 3 metres of 37.97 g/t;
  • 22.6 metres of 3.59 g/t Au;
  • 19.4 metres of 4.26 g/t Au including 7.8 metres of 8.99 g/t.

The program helped Genesis develop a new geological model that laid the foundation for the resource update. Company geologists followed up this past summer with a surface prospecting and mapping program that defined extensions to Main Zone mineralization and identified new target areas. The work was funded by Quebec investment funds that provide assistance to active junior exploration companies in the province.

As for the price of gold, Sundar believes the timing could be right. Gold equities have seldom been cheaper relative to the price of gold, he pointed out.

XAU (the gold miners index) to gold ratio, 1984-present

“Generalist interest is returning to the space,” Sundar said. “People are starting to look at gold and gold equities again. With new team members providing a fresh look at our Chevrier deposit, including the potential for new discoveries, Genesis is well-positioned to capitalize.”

Genesis shares sank as low as 6 cents during tax-loss selling season in December. The stock has since rebounded to the 8-cent level, giving Genesis a market capitalization of about $8.15 million.

Genesis Metals (GIS-V)
Price: 0.08
Shares outstanding: 101.8 million (137.7 million fully diluted)
Market cap: $8.15 million

Disclaimer: James Kwantes owns Genesis shares and Genesis Metals is a Resource Opportunities sponsor company. 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.

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Avino: Silver mining in Mexico, gold exploration in B.C.

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.

The Avino mine on the “mountain of silver.” Durango, Mexico

 

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.

The 4th circuit at Avino’s mill, under construction when I visited, is now complete.

 

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.

Avino’s Bralorne project site: July 2018.

 

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.

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Interview: Gren Thomas, the man with the golden hand

by James Kwantes
Editor, Resource Opportunities

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.

Visible gold in hole 14, from the South Zone at Westhaven’s Shovelnose project

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.

Shaun Pollard, Westhaven CFO (left to right), technical director Ed Balon and CEO Gareth Thomas, atop Shovelnose.

“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.”

Westhaven chairman Gren Thomas

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.

Cut and polished fancy yellow-orangey diamond from Naujaat.

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.

Related reading: West Vancouver diamond pioneer Gren Thomas still in hunt for gems, Vancouver Sun

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.

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Investor Ian Cassel on strategies & the gold miner that got away

“Investing is hard.”

It was a theme microcap investor Ian Cassel returned to again and again during his October 18 talk at the Small-cap Discoveries conference in Vancouver, run by Vancouver-based newsletter writer Paul Andreola.

Successful investing is counterintuitive to human nature, Cassel told the group of about 75 investors, most of them subscribers to Smallcap Discoveries, the investment newsletter run by Andreola and his business partner Brandon Mackie. “Retraining your brain is a lifelong process.”

Ian Cassel, full-time microcap investor

One common mistake investors make is to sell more of their winners and buy more of their losers. Cutting losses quickly and averaging up when management executes is a more rewarding strategy, Cassel said.

Another interesting point for investors: in baseball terms, slugging percentage is more important than batting average. It’s those extra-base hits that really start to grow wealth over time, as opposed to the singles.

Cassel has been a full-time microcap investor for 10 years and is the co-author of two books about Intelligent Fanatics, the great corporate leaders who build sustainable businesses. In 2011, he founded MicroCapClub, a community where experienced microcap investors share ideas and discuss trading.

Cassel said his strategy on position sizing has changed. He used to immediately take on a large position in a company that passed his investment litmus test — as well as the risks associated with going “all-in.”

Now, he takes a one-third position size after extensive due diligence and talking to management. Cassel takes his second third when he has travelled to and met management at their head office, and gotten a sense of company culture and other details. The final third is purchased when management executes on their promises and vision.

Most management teams over-promise and under-deliver, Cassel noted — a reality familiar to junior mining speculators. A key to successful investing is finding management teams that under-promise and over-deliver, he said. An investor’s willingness to perform deep-dive due diligence will give him or her a significant edge over the majority of investors, who do their research with bums planted to a chair, eyes glued to a computer.

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Cassel illustrated the “investing is hard” mantra with some real-life examples, featuring both sad and happy endings.

The story of Apple (AAPL) cofounder Ronald Wayne is relatively well-known, but that doesn’t make it any less dramatic: Wayne sold his 10% stake in Apple for $800 in 1976. A 10% stake in Apple at the current valuation is worth about $100 billion.

When asked about it decades later, Wayne said he had made the “best decision with the information that was available to me at the time.”

“Investing is hard, even when you’re close to a story,” Cassel said.

The narrative of SoftBank founder Masayoshi Son has a happier ending, albeit after more ups and downs than the wooden roller-coaster at the PNE.

Son was a child when his Korean parents moved to Japan, and he grew up poor. He began building up and selling businesses while at university in the U.S., netting millions. He invested early in Internet companies and built a dynamo with SoftBank, which at the peak of the Internet bubble owned an estimated 10-12% of the value of all Internet companies. When the bubble burst, Son lost 99% of his net worth.

However, one of the companies SoftBank bought a stake in was a fledgling Chinese Internet play called Alibaba. That investment worked out nicely and Son is now Japan’s wealthiest man, and SoftBank back on top.

Later in the day, I chatted with Cassel about investing and the resource market. Not only was he aware of the ferocity of the bear market, he had some direct experience with a gold company early in his investing career.

Before he was a full-time microcap investor, Cassel used to do some investor relations work for public companies that he liked and whose shares he owned. One of those was Gold Resource Corp. (GORO). Gold Resource had a gold mine in Mexico and was one of those rare producers that actually made money, with a management team dedicated to creating shareholder value and paying dividends. Cassel got in early, with a cost basis of just over a dollar a share, and rode the stock up before exiting north of $6 a share.

Gold Resource Corp. soon began paying dividends, and Cassel watched from the sidelines as the company built its annual dividend, paid monthly, to $1 a share on its way to a $30 stock price (GORO now trades for just under US$6/share). Painful, to be sure, but a rather charmed “miss” in a sector known to devour shareholder capital.

Follow Ian Cassel on Twitter for more investing insights: @IanCassel

I had my own “investing is hard” moment recently, involving Westhaven Ventures (TSXV-WHN). I initiated coverage on the stock back in April 2016 at 14 cents, describing it as a “speculation on a neglected gold district and a management team with a track record of discovery.” A visit to site with Gareth Thomas, now the CEO, and CFO Shaun Pollard demonstrated Shovelnose’s prospectivity, proximity to Vancouver, and exceptional infrastructure.

But I gave up and sold most of my shares a year later, frustrated with small drill programs and only sniffs of lower-grade mineralization. Westhaven was hunting for the high-grade feeder system and having difficulty finding it. It was a lack of patience, not a fatal flaw, that led me to drop coverage.

Fast-forward to Westhaven’s recent intercept of 17.77 metres of 24.5 g/t gold at Shovelnose, which sent the stock to 81 cents — up 118% on the day. It was an exceptional hit and Westhaven is still awaiting assays from a further three drill holes. The company is already planning a fully funded follow-up drill program, and can drill year-round at the property.

I sent out a Flash Alert to subscribers on the evening of that stellar intercept, resuming coverage on Westhaven and touching on Strongbow Exploration (SBW-V), which owns 3.1 million WHN shares and a royalty on Shovelnose. The next morning I added to my Westhaven position at the open. A visit to Westhaven’s office later that day confirmed my bullishness. It’s not my style to chase stocks, but I believe Westhaven could be onto a large gold system at Shovelnose. The company has a large land position and other highly prospective projects within the belt, as well. A very tight share structure should help propel this stock if subsequent results impress.

Westhaven shares traded above 90 cents on news of the intercept but have since dipped down to the 70-cent range.

Disclosure: James Kwantes is editor and publisher of Resource Opportunities, a subscriber-supported newsletter dedicated to finding under-the-radar resource stocks with high upside potential. He owns shares of Westhaven Ventures and Strongbow Exploration. This is not investment advice and all investors need to do their own due diligence. Use coupon code “CEO” at ResourceOpportunities.com to save US$100 off regular subscription prices of US$299 for one year or US$449 for two years.

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Risk and opportunity: Q&A with Strategic Metals CEO Doug Eaton

By James Kwantes
Resource Opportunities

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.

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Diamonds Q&A: North Arrow Minerals CEO Ken Armstrong

By James Kwantes
Resource Opportunities

North Arrow Minerals is 1 of 3 Resource Opportunities sponsor companies.

Vancouver-based North Arrow Minerals is one of the more active diamond exploration companies globally, with a portfolio of projects focused on Canada. Its most advanced-stage project is the large Naujaat deposit in Nunavut, which has a resource and hosts a population of valuable fancy orange yellow diamonds.

But this season’s focus is on exploration drilling at the Mel and Loki projects in Nunavut and the Northwest Territories, respectively. Mel was a grassroots diamond discovery that North Arrow announced late last year. The company traced kimberlite indicator mineral (KIM) trains up-ice and made a prospecting discovery of kimberlite, from which 23 microdiamonds were recovered from a 62.1-kg sample. The first drilling program on the property is planned for this summer.

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The Loki project is in the Lac de Gras diamond field that hosts the Diavik and Ekati mines. The focus there is EG05, a kimberlite that Rio Tinto discovered, and 465, a kimberlite discovered by North Arrow in the spring. The latter was the first kimberlite discovery in Lac de Gras in the past 5 years. It’s familiar terrain for the North Arrow team, including chairman Gren Thomas whose Aber Resources discovered the Diavik diamond mine.

North Arrow CEO Ken Armstrong

Rough diamond prices are now at a 52-week high and demand for polished diamonds is strong in China, India and the U.S., according to New York-based diamond analyst Paul Zimnisky. On the production side, pending mine closures including Argyle and Victor will put pressure on supply, with few new operations coming online.

The improving picture follows a choppy 2017 that saw high inventory levels at De Beers and Alrosa and flat rough diamond prices. North Arrow shares have been under pressure along with shares of new Canadian producers Stornoway Diamonds and Mountain Province Diamonds, which declined 41% and 18% respectively over the past year as startup problems weighed.

On Monday North Arrow announced a $3-million private placement consisting of flow-through shares at 20 cents and non-flow-through units (one share, one 2-year 30-cent warrant) at 17 cents. We caught up with CEO Ken Armstrong, who was in Calgary for the TakeStock! investor forum, to find out more about plans and how the money will be used.

Q: What is the breakdown on how the $3-million financing will be spent?

A: We’ve allocated $2 million for Mel drilling – testing the 2017 kimberlite discovery and new targets. That number includes microdiamond processing costs. We will also complete microdiamond processing of the EG05 and 465 kimberlites at the Loki project that were drilled in March, as well as some final microdiamond processing from the 2017 drilling of Naujaat. That’ll be a couple hundred grand. We are also looking at getting a remaining top target drilled at Loki, target 853. Ideally we’d tie that onto ongoing drilling at our LDG JV property, which is operated and funded by partner Dominion Diamond. We’d retain a half million or so for G&A.

Q: Any big names buying into the financing? How much will insiders and management participate for?

A: Insiders are committed to taking at least $1.5 million, so half, with most of that being directors/management. Gren Thomas, our chairman, and Eira Thomas, a North Arrow advisor, will both participate. I will also participate.

Q: How did you determine the pricing of the financing?

A: We tried to price it to make the non flow-through unit and flow-through share components equally attractive. On the Unit we put a fairly quick threshold on the accelerator, at 40 cents, however we felt it was justified by pricing it a discount to market with a full warrant, rather than a half-warrant. The flow through is essentially priced at market with the intent to fill the orderbook efficiently. We are looking at immediate use of funds with Mel drilling in July, Loki drilling in July or August and with more diamond results from Loki, Naujaat, and in September or October, from Mel. This is all news flow that will occur before the four-month hold comes off the financing shares which is, we think, a positive feature of the placement. We have been the most active Canadian junior in terms of new kimberlite discoveries in Canada and are poised for more discovery, potentially on up to three projects, over the four months.

The esker location at Mel where North Arrow’s drill camp is being set up.

Q: Which of the three active projects that you’re raising money for is the most likely catalyst — Loki, Mel or Naujaat?

A: All three have potential catalysts. Folks seem to be most interested in new discoveries and Mel certainly fits that bill — it’s a brand new kimberlite discovery made by prospecting last fall. The kimberlite contains some very coarse mantle minerals and we see hints of that coarseness in the initial diamond results, which is positive. Having already found kimberlite and diamonds actually de-risks the initial drilling significantly. We know we will hit kimberlite with diamonds, it’s more a question of how many and how big they are.

Based on the spread of indicator minerals there are certainly multiple sources with some nice, sizable magnetic targets. This is a brand new kimberlite field and the first kimberlite discovered is significantly diamondiferous. It doesn’t happen too often, so we are keen to get drilling. We’re currently mobilizing a camp and drill to the property now with drilling planned for July.

At Loki we also have a new discovery and are waiting on microdiamond results. In early April we announced the discovery of the 465 kimberlite – the first kimberlite discovery made in the Lac de Gras area in over 5 years. There are also pending microdiamond results from the EG05 kimberlite which was also drilled during the spring 2018 program. We also have a number of targets that we’d like to drill test, including target 853, which we’d like to see drilled this summer.

Q: It’s been almost three years since the disappointing Naujaat diamond valuation. Does Naujaat remain North Arrow’s flagship project and what is happening with the project?

A: Naujaat remains North Arrow’s most advanced project. We’re still interested because it’s a significant diamond inventory in a large tonnage deposit (as far as Canadian diamond deposits go) sitting on tidewater near a community. Our work on the Q1-4 diamonds has clearly shown the deposit contains high-value fancy orange yellow diamonds and, overall, is under evaluated. Last summer we completed more drilling to confirm the size potential of the kimberlite down to 300 metres below surface and we had three different holes extend over 100 metres beyond the geological model, with two of those holes ending in kimberlite. It’s a big body. We also collected a 210-tonne sample that confirmed the presence of the coloured diamond population in the A88 phase of the kimberlite. This is a totally different unit than was sampled in 2014 – the 2017 sample pit was over 400 metres away for the 2014 pits – and the proportion of coloured stones is very similar to the 2014 result. The work we’ve done with the diamonds themselves has shown that the coloured stones are a distinct population from the non-coloured stones. The two populations are completely different ages and the yellow population has a markedly coarser distribution than the non coloured stones.

The photos of the diamonds we had polished and certified at the GIA show how beautiful this colour is and highlight the potential value upside in these diamonds. But it is actually the potential for a coarse size distribution that may be even more important in terms of potential upside to the value contribution of the coloured diamonds. And the only way to confirm or disprove the potential value upside is a larger bulk sample.

A cut-and-polished fancy intense orangey yellow diamond from North Arrow’s Naujaat project.

To that end we have hired consultants and been working closely with the community of Naujaat to look at developing a road to the deposit. We’ve also started looking at processing options for a larger sample and how that might look, all with an eye to better pinning down the budget options for collecting a sample of sufficient size to get that answer. Being so close to the community really presents opportunities for reduced costs – we’ve seen that with our exploration programs and we need to make sure we take full advantage of all potential cost savings.

Of course all this takes time, but that is why we have North Arrow evaluating a number of quality projects, not just one. It allows the team to focus on well-informed, cost-effective exploration even if that might mean slower news flow from a particular project. There will be steady news flow from other projects as each cycles through the process.

Q: Along the lines of quiet projects, what is the status of the Lac de Gras joint venture with operator Dominion Diamond Corp.?

A: The LDG JV is having an active year. It has definitely been one of our quieter projects as our partner Dominion spent a lot of effort defining targets through a series of overburden drilling and geophysics programs. Late last year, Dominion also went through a well-documented takeover by the Washington Group of Companies, with the resulting transitions that often accompany such changes. However, a very positive outcome for the LDG joint venture has been Dominion’s renewed commitment to exploration, and, as I understand it, the 2018 LDG JV budget was one of the first budgets approved by the new ownership. The focus of the 2018 program is exploration and discovery-type drilling and we expect that work to pick up again during the summer. North Arrow elected not to finance its share of the current program so we could focus our resources drilling our 100% owned projects at Mel and Loki. However, although we are taking dilution of our joint venture interest, if a Lac de Gras-type discovery is made North Arrow will still maintain a significant interest, north of 25%, in the joint venture.

Q: With Eira recently taking over as CEO of Lucara Diamond Corp., how involved does she remain with North Arrow?

A: Eira’s involvement with North Arrow has been key since we began our focus on the Canadian diamond space. She remains an important advisor and sounding board for management – and the board – as we strategize on how best to move the project portfolio forward.

Disclosure: North Arrow Minerals is one of three Resource Opportunities sponsor companies and James Kwantes owns North Arrow 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.