RCKS Talk

17-Oct-2018

Pacton Gold Inc.

Pacton Leapfrogs with Visibility to Processing

Impact: Mildly Positive

Access to processing facility accelerates Pacton's evolution.
Pacton announced a Memorandum of Understanding (MOU) with Artemis Resources (ASX:ARV) for a strategic processing alliance that should allow Pacton to process future bulk samples through Artemis’ Radio Hill plant. While Pacton is at an early stage of exploration, this MOU provides a clear path to the bulk sampling stage. This deal confirms our thesis that the company has continued to transition from land-acquirer to explorer.
Highlights: 

  • Alliance combined with multiple mining leases should fast-track bulk sampling. The Radio Hill mill is 30km from Karratha (Figure 1) and should allow the company to quickly move to bulk sampling at its projects with mining leases (Friendly Creek, Yandicoogina, Boodalyerrie) where initial results have been encouraging. We note that terms of the processing alliance are to be determined.
  • Radio Hill mill set-up for coarse gold. Artemis recently refurbished the 0.5 Mtpa Radio Hill, and set it up to process free gold, as it is not permitted for cyanide use (unlikely to be needed for conglomerate gold, where high gravity recoveries are expected). While permitted to operate, we note that the mill has yet to be commissioned and we expect Artemis to wait on tailings expansion permits before starting.
  • Bulk sampling plans should allow Pacton to quickly advance its projects. We view bulk sampling as the second stage of conglomerate exploration, with surface sampling, mapping, trenching and metal detecting being used to determine where to sample. While, the company’s projects are still at an early stage, having plans in place for bulk sampling should accelerate the exploration process.
Valuation: 
Pacton is the third largest conglomerate landholder in the Pilbara and should add to the market's excitement with upcoming sampling. With work underway on multiple projects, we believe that exploration success at one or more of its projects could drive the share price higher. This should be particularly true if Novo’s bulk sample results provide some positive momentum for the space. Upcoming catalysts: 1) Initial exploration results from Arrow, 2) Novo bulk sample results (Oct) and 3) Terms for processing at Radio Hill. 

 

17-Oct-2018

Orford Mining Corp.

Thick Au Intercepts Found; Follow Up Work Warranted

Impact: Mildly Positive

Thick gold intercepts warrant follow up work in Quebec; Carolina drilling also hit thick zones of low grade gold. The company announced results of the 2018 drilling and mapping program on its Qiqavik property in northern Quebec. Although very early days, the company is methodically progressing exploration at Qiqavik. In addition, they provided an update on the Jones Keystone and Landrum Faulkner drilling in the Carolina's. Qiqavik’s results continue to highlight this projects potential and with only ~16 weeks’ work completed to date, follow-up is needed.

Highlights:
  • Drilling and mapping efforts at Qiqavik progressing well but more work is needed. Initial visual results from the summer program uncovered a thick sequence of quartz veins in three drill holes (QK-18-002, -007 & -008), assay results include: 24.6m @ 0.48g/t Au (QK-18-008). While not ore grade intercepts, our view is that this target is starting to demonstrate potential and warrants follow-up work, particularly since the surface expression of the target has extended to 350m. As well, the company expanded the surface expression of the Focused Intrusive (to 800m) and Gerfaut South zones (to 850m).
  • Results suggest short transport distances for some discovery boulders, bodes well for others. Exploration at the Interlake area (Qiqavik) has led the company to a potential source of the high-grade boulders. The relatively short transport distance, bodes well for discovering the source of other high-grade boulders on the property.
  • Carolina drilling returns thick zones; data review underway. Drilling program at the Jones Keystone and Landrum Faulkner properties in North and South Carolina was completed in August. Highlighted by hole JK-18-054 which found 41.1 m @ 1.36g/t Au from 108.5m. Overall, the thick mineralization intersected did not deliver ore grades. The company is reviewing to determine the next steps for both projects.
Valuation:
We believe Orford’s current value does not properly reflect the potential of the Qiqavik. We believe the companies sub C$15M EV, does not reflect the regional scale of the Qiqavik project or its multiple district scale targets. Upcoming catalysts: 1) 2018 surface sample results and 2) 2019 exploration plans.
16-Oct-2018

SolGold Plc

Great White Shark Takes Another Bite

Impact: Very Positive

BHP makes a statement by increasing its stake in SolGold at a premium. BHP Billiton (ASX:BHP; LON:BLT) has increased its stake to 11% and has provided a good portion of the funds required for SolGold’s 2019 exploration program. This should lift any perceived financing overhang and opens the door to a valuation rerating. With copper fundamentals improving and few large-scale undeveloped projects available (Figure 1), we expect Alpala to be coveted by major miners looking to bolster future production.   

Highlights:
  • BHP’s second investment should act like blood in the water with other majors circling this world class asset. BHP Billiton (ASX:BHP; LON:BLT), the world’s biggest miner, purchased 100M shares at £0.45/sh (C$0.77/sh), a 30% premium to the 20 day VWAP. BHP is now at 11.2% or 203M shares (was 6% or 103M shares), putting it just behind Newcrest Mining (ASX:NCM) currently holding 14.5% (247M shares) (Figure 2). We believe Alpala is one of the few large-scale copper assets available (Figure 1); thus, it is likely other large mining companies noticed the feeding frenzy.
  • Multiple strategic investors create competitive tension. With two strategic shareholders over 10%, we expect that a takeout is most likely to occur at a premium to historic transactions. We note that copper projects historically sell for, ~US$0.07/lb CuEq and BHP’s investment implies a value of ~US$0.065/lb CuEq (pre-material resource update).
  • Exploration upside on an already world-class deposit is attracting attention. The current resource of 16.18Blb CuEq, is based on 53,616m of drilling. The updated resource estimate expected in Q4/18 is expected to include an additional 70,400m of drilling; which we believe should grow the resource materially.
Valuation:
Valuation neither reflects likely resource growth nor competitive tension on a take-out. SolGold trades at US$0.050/lb (pre-resource update) versus peers at US$0.037/lb CuEq (Figure 3). In our view, the upcoming resource growth and the strategic interest in the project should warrant a share price re-rating given that the company is largely funded for 2019 exploration efforts. Upcoming catalysts: 1) Ongoing exploration and 2) Resource update (Q4/18).

 

15-Oct-2018

NXGold Ltd.

“Roe-ing” Towards Success; New Target Identified

Impact: Mildly Positive

Exploration at Mt. Roe identifies new hard rock target. Recent exploration efforts by NxGold at its Mt. Roe project resulted in the discovery of the Sun target, to go along with the advancing Eagle hard rock target. While at an early stage, proximity to Artemis’ Silica Hill’s project emphasises the potential for discovery. This recent exploration update continues to support our thesis that NxGold provides investors with both conglomerate gold and hard rock exploration potential. 

Highlights:
  • Trenching at Eagle highlights potential. Initial trenching has exposed two multi-metre wide stockworks of cm scale veining, which further highlights the potential for primary gold mineralization at Eagle. Along with additional trenching, the next step at Eagle is an IP survey, which should help refine potential drill targets.
  • Systematic work sheds light on the Sun target (Figure 1). The Sun target was highlighted by 0.08g/t Au, 0.6g/t Ag and 0.18% Cu collected over 5m of a vein that was traced over 50m in length. The vein is located in close proximity to Artemis Resources’ (ASX:ARV) Silica Hills prospect, a hard rock target with significant at surface gold occurrences.
  • Conglomerate exploration is still the cornerstone to our investment thesis, with hard rock acting as a valuation buffer. The identification of hard rock targets at Mt. Roe is positive; however, conglomerate gold exploration remains the backbone of our investment thesis. We believe Mt. Roe has compelling conglomerate gold exploration targets that are not priced into the stock. 
Valuation:
Market does not account for exploration potential. NxGold’s current EV is C$5M, giving minimal value for its conglomerate targets and none for its recently discovered hard rock targets. In our view, this severe discount to other Pilbara players has the company poised for a significant re-rating should news come from Novo’s pending bulk sample results prove to be positive. Meanwhile, NxGold is focused on its hard rock exploration. Upcoming catalysts include 1) NVO bulk sample results (Oct), 2) Ongoing surface sampling and geophysical results and 3) Access update on the Kuulu Project.

15-Oct-2018

De Grey Mining Ltd.

Hard Rock Asset Continues to Grow

Impact: Mildly Positive

Results point to continued resource growth for De Grey’s hard rock assets. The company’s exploration results from Toweranna and Mallina are likely to add to the company’s growing inventory of mineable ounces. These results follow a recent resource update where the company more than doubled mineable ounces. This news supports our theory that the project has significant room to grow (Company aims to build a 3Moz Au resource - Figure 1).
Highlights:

  • Near surface drilling continues to impress. Following a 254% increase in total resources at Toweranna to 144koz Au (2Mt @ 2.2g/t Au), drilling is continuing to highlight its near-surface expansion potential with 17.3m grading 3.91g/t Au from 50m (TRC052D). Now that the company has defined a high-grade near-surface deposit, focus is shifting to targeting depth extensions. Deeper drilling success opens the door to a potential higher-grade underground resource, which the company intends to highlight in a Scoping Study following the Open Pit PFS.
  •  3km of shallow gold zones largely untested at Mallina. The company is testing 3km of extensive shallow gold zones at Mallina. Results were highlighted intercept of 56m grading 3.04g/t Au (MLRC214D). Following a 9% increase in total resources to 161koz Au (3.8Mt @ 1.3g/t Au) in the last update, Mallina remains an important near-surface target (<100m depth) for step-out drilling.
  •  Expanding resources suggests a larger mine may be possible. The company’s current scoping assumes production of ~58k oz/year (RCKS est. ~56koz/year); however continued exploration success could see this potential mine exceed 100koz/year. 
Valuation:
Current share price does not reflect hard rock value; let alone conglomerate optionality.
Our recently updated preliminary estimate for De Grey’s hard rock assets is A$0.30-0.45/share. While this reflects a potential doubling of the current A$0.15 share price, near-term head winds for the share price may include 60M in-the-money options (at A$0.10, expiring November 30) and the remaining A$10.4M cash payment for the Indee project. Upcoming catalysts: 1) Additional exploration results and 2) PFS in Q4/18.

 

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