RCKS Talk

30-Oct-2018

Nicola Mining inc.

Another Sweetener to a Copper Explorer

Impact: Positive

Higher cut-off grades applied by historic operators appear to have left a potential bulk mineable copper resource. Following positive results from the Phase 1 RC drilling program, Nicola is proceeding with Phase 2, focused on the South Waste Piles and 3060 Ore Portal zones. The objective is to define a resource for the copper-magnetite bearing crushed materials left behind at surface by previous operators. We note that a Waste Pile processing operation could help kick start a larger copper mining project at New Craigmont or be of interest to Teck Resources operating the low-grade Highland Valley copper mine next door. We continue to view Nicola as a high-potential copper exploration story and await results from diamond drilling of the mineralized halo surrounding the existing pit and previously identified porphyry targets.
Highlights:

  • Assessing Economics of the Waste Piles. Phase 2 will test the South Waste Piles and 3060 Ore Portal area. Dill results from 29 holes drilled near the 3060 Ore Portal in 2017 suggest an average grade of 0.24% copper within nine meters of surface. Given that the waste piles are unconsolidated and at surface, mining costs would be negligible. Thus, relatively low copper grades (Q3/18 head grade at Highland Valley was 0.24%Cu) this would be accretive if a larger copper project is discovered. 
  • Magnetite – possible sweetener to a copper story? Between 1993 and 2014, 27 million tonnes of historic tailings were processed to extract magnetite at New Craigmont. In addition to assaying for copper, Nicola will be completing studies to assess the economics of magnetite in the waste piles.
    On track for resource estimate in H1/2019. A resource is expected in H1 2019 for the Waste Piles. We expect any additional mineralized copper-magnetite ore to enhance potential development of a larger future copper project, as the waste piles could serve as low cost mill feed in the early years of an operation at New Craigmont.
Valuation:
We continue to view Nicola as an undervalued copper explorer with highly prospective past producing assets in BC. Due to high cut-off grades applied by historic operators at New Craigmont, we see the potential for the company to define a bulk mineable copper resource. Upcoming Catalysts include: 1) Results from further exploration drilling at Craigmont West and Craigmont Central and 2) Drill results from porphyry targets.

 

30-Oct-2018

Red Pine Exploration Inc.

Impressive Results Validate Geological Model

Impact: Positive

We continue to believe that the market fails to appreciate the potential size, scope and strategic value of this land package. Red Pine Exploration announced the intersection of additional wide zones of high-grade gold at the Surluga deposit, which follows recent high-grade intercepts announced last week . These holes targeted the Jubilee Shear and intersected underground ore grade gold mineralization over significant widths, which continues to support our thesis that the Wawa corridor hosts a large gold system which may encompass multiple gold deposits.

Highlights:  

  • Fill the gaps. Red Pine drilled 5.13 g/t over 13.4m (true width), within a wider interval of 3.53g/t Au over 24.4m (SD-18-229). These results should have a positive impact on the upcoming resource estimate for Surluga as the company fills gaps in the existing resource. With a second rig currently being mobilized on the property, we can expect more results from the company as it drills untested portions of the existing resource model.
  • Drilling validates geological model at Surluga. These most recent results at Surluga validate Red Pine’s geological model, and demonstrate the company’s understanding of the controls on the mineralization. We believe potential exists (i) to convert waste to ore as additional gaps are drilled and (ii) to expand resources at Surluga as down-plunge extensions are drilled.
  • Wawa Corridor coming together. Consistent ore grade drill intercepts reported for Minto South and Surluga suggest the company is on track to deliver its maiden Minto Mine South Zone resource estimate in Q4/18 and updated Surluga Deposit resource estimate in H1/19. We note that a number of other zones and structures have been identified within the Wawa Corridor and that resources are likely to continue to grow.
Valuation:
Discounted valuation reflects ownership structure and not the significant exploration potential that we see.  Red Pine trades at a steep discount to peers (US$14/oz vs. peers at US$41/oz), due to uncertainty surrounding its ownership structure. It would appear that the market fails to recognize the exploration upside and we believe the pending resource updates could provide the company renewed momentum. Upcoming Catalysts include 1) Minto South maiden resource (Q4/18) and 2) Surluga resource update (H1/19).
30-Oct-2018

Brixton Metals Corp.

Is Atlin the Next Barkerville-Like Gold Discovery?

Impact: Positive

Brixton’s Atlin project has the potential to deliver a major discovery and we are pricing that possibility into our numbers. Based on some exceptional historic results, this district scale land package has the potential to deliver a major gold discovery. Similar to the Barkerville gold project, it is a historic placer mining camp and Brixton has already started the work to unlock its hard rock potential. We believe it is important to highlight that Brixton has now started to focus on Atlin to assess its discovery potential.

Highlights: 
    • Large placer mining camp but limited hard rock work done to-date. Atlin is British Columbia’s second largest placer mining camp but has never undergone meaningful hard rock exploration. This is very similar to Barkerville (Caribou Gold Camp) to the south, where a consolidation of the district, followed by systematic work has lead to an impressive gold discovery which gives Barkerville Gold Mines (TSXV:BGM) its C$190M market cap.
    • Not starting from scratch on this district scale land package. Over the last two years, Brixton has quietly consolidated this district scale land package (1,004 sq. km), which includes a mining lease and a permitted 200 tpd mill at its Yellowjacket target. Work from previous operators is highlighted by numerous high-grade intercepts, including 5.57m at 509.96 g/t Au within an 80m wide shear zone.
    • Atlin is now the focus, with work ramping up in 2019. Brixton has completed compilation and surface work (soil sampling and rock chips) and plans to conduct some additional surface work and geophysics in early 2019 before drilling next spring.
Valuation:
Our probability-weighted valuation method estimates Brixton’s current share price should double (Blended Valuation Estimate of C$0.28/share  – see Figure 1). Our methodology considers three possible scenarios: 1) upside-case (a Barkerville type discovery), 2) a middle case (small high-grade resource) and 3) a downside case (status quo after exploration spend). It is important to highlight that we believe there is limited downside from current levels as Brixton’s three other 100% owned projects underpin the company’s current market cap. Upcoming catalysts: 1) Additional drill results from the Cobalt camp, 2) Surface work results from Atlin and 3) Ramp-up of exploration efforts at Atlin.
26-Oct-2018

Novo Resources Corp.

Time to get Mining

Impact: Mildly Negative

Bulk sample results provide enough information to move the project to the next stage, despite coming in below expectations. The lower grades materially reduce our expected deposit size; however, the results are expected to provide enough information for a mineral inventory. We believe this updated data should allow the company to convert Comet Well into a Mining Lease and result in large scale bulk sampling in H2/19. While these results suggest the likely mineral endowment at Comet Well & Purdy’s Reward is smaller than previously thought, we continue to believe that Pilbara is likely to yield multiple significant conglomerate gold deposits.

Highlights: 
    • Enough information to move to go mining. A mineral inventory is one of the items required to convert Comet Well into a mining lease. We believe these results, along with the diamond drilling for structure should be sufficient. We expect it will take 6-12 months to convert it to a mining lease, likely resulting in bulk sampling starting in H2/19.
    • Our resource guess is now, 3-5Moz, smaller but still represents a major discovery. Using similar parameters to our previous estimates (Figure 2), but assuming narrow widths and lower grades we get to our new estimate. We are planning to visit the project before the end of the year and are likely to evaluate project economics with that visit.
Valuation:
Preliminary valuation reduced to C$2.40-4.80/sh (was C$4.80-18/sh); number to be refined following upcoming site visit. We now believe Karratha is worth between C$0.90-3.00/sh (was C$3.25-16.25/sh) based on our lower potential resource estimate. In our view the next major catalyst for Novo and the Pilbara is larger scale bulk sampling, which is expected to start in H2/19. Upcoming catalysts include, 1) Larger scale bulk sampling (H2/19) and 2) Ramp-up of exploration work at Egina.

25-Oct-2018

Anaconda Mining Inc.

Higher Grades = Higher Estimates

Impact: Positive

Positive Resource Surprise Drives NAVPS Increase. Positive resource update materially improves our NAVPS estimate by 24%. This improvement was driven by material improvement in the overall grade of the project and goes along with recent positive Q3 operating results. In addition, the company confirmed that the PEA, assumed too large a provincial NSR, (was 2%, now 1%) has also benefited our estimates.  
Highlights: 

  • Agressive exploration at Goldboro pays off; drills still turning. Ongoing successful exploration at Goldboro has proven to be fruitful with an overall 27% increase in grade from 4.4g/t Au to 5.6g/t Au and a 21% increase in gold ounces to 1.06Moz Au from 0.87Moz Au (Figure 1). We expect that the ongoing drill program could have a similar positive impact on the next resource update. 
  • Game-changing grades. We believe the material increase in grades is likely to benefit the underground operation (post year 3 of the mine-life) and in our view, this grade improvement should materially improve costs (now US$448/oz, was US$554/oz) and project economics (pre-tax NAV now C$196M, was C$122M). We note that despite the increase in overall tonnes, we have not added additional mineable tonnes suggesting there may be further upside to our estimates. 
  • Bulk sample results key for next steps. The company is currently completing a bulk sample at Goldboro. In our view, this work is key for confirming the underground resource grades and allowing the company to complete the next de-risking step of a Feasibility study (expected in 2019). Bulk sample results are expected in H1/19.
Valuation:  As result of the tax changes and increased grade, our NAVPS estimate as increased 24%. Our NAVPS estimate for Anaconda has increased to C$1.35/sh (was C$1.02/sh). Anaconda continues to trade at a substantial discount to peers (0.20x NAV vs. peers at 0.55x) despite record production in Q3, improved financial performance and a clear improvement at Goldboro. We expect the company to steadily re-rate, with each successive quarter of improved operations and continued de-risking of Goldboro. Upcoming catalysts include: 1) Q3/18 financial results, 2) 10kt bulk sample at Goldboro, 3) ongoing exploration and 4) debt financing for Goldboro.

 

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