Novo Resources Corp

Sumitomo Likely to Provide Funding for Next Steps

Impact: Positive

The now extended and expanded MOU between Novo and Sumitomo Corporation (TYO:8053) proposes an agreement which could bring the needed cash, confidence and expertise for furthering the company’s Australian projects. We believe the market continues to undervalue the com pany’s Karratha, Egina and wider Pilbara projects, with much of the current value underpinned by an improving Beatons Creek project.

  • Agreement should add confidence and provide some future funding. In the near-term the continued interest from Sumitomo should provide investors confidence with respect to the merits of Novo’s Australian projects. As well, adding Sumitomo’s expertise and capital, should help this small company move its projects from the development to production stage. Consequently, we view the expansion of this agreement positively, particularly as the company is likely to be conducting large scale bulk sampling later this year at its Karratha project and we expect the next resource update from Beatons Creek to drive an updated economic study followed by a likely production decision.
  • Provides technical expertise and cash. Following the establishment of project development plans and a potential transaction structure, the current MOU stipulates that Sumitomo could commit up to ~C$61.4M (¥ 5.0B) through an option to purchase interest. Sumitomo would then be offered a right of first refusal (ROFR) providing it with security for maintaining its interest in the company. A successful agreement would bring significant technical support and a major piece of the equity funding needed to a bring one of Novo’s projects into production.  
  • A vote of confidence ahead of a busy 2019. Novo is advancing multiple projects in 2019, with bulk sample results expected from Egina, Beatons Creek and Karratha. Additionally, a resource update demonstrating higher grades is expected in Q1/19 from Beatons Creek. As well, the company continues to advance Karratha to a larger sale bulk sampling with a Native title agreement and mineralization report expected in H1/19.
Steady newsflow from Novo in 2019 should provide lift. Our preliminary DCF valuation for Beatons Creek alone underpins an estimated value of C$1.10-1.40/sh and a combined value of C$2.40-4.80/sh for Karratha and Beatons Creek. A valuation gap is evident as Novo currently trades at C$2.75/sh and we believe steady newsflow from all projects should drive the stock towards the top-end of our valuation range. Upcoming catalysts include, 1) Bulk sampling at Karratha (H2/19), 2) Systematic bulk sampling work at Egina (Q1/19) and 3) Beatons Creek resource update (Q1/19).



FireFox Gold Corp

High Grades Near Surface at Mustajärvi

Impact: Mildly Positive

Sampling at FireFox’s Mustajärvi project has successfully increased both the size and grade potential of the company’s drill targets for 2019. FireFox benefits from being in one of the best mining jurisdictions in the world and is strategically positioned as a significant land holder in the Central Lapland Greenstone Belt (CLGB). We expect positive drill results to generate the momentum needed for a re-rating of this newly public company. 

  • High-grade mineralization near surface. Sample results point to expanding the near surface zones of the mineralization at Mustajärvi. Grab samples highlighted gold grades of >1g/t in 16 of the 66 samples across the property. The company also completed 42 chip channel samples successfully identifying two potential structures. The primary structure of was found to extend for 45m along strike at an average grade of 21.6 g/t Au (ranging from 0.66 to 140.5 g/t Au). The second northwest striking structure was identified for its potential to significantly increase the size of the target.
  • Advancing historical prospects in ready to drill targets. The company is following-up on drillholes completed by Outokompu from 1991 to 1992 (Figure 2) and is rapidly expanding its range of possible near-surface drill targets at Mustajärvi. Results from its 2017 and 2018 field seasons have succeeded in increasing the company’s understanding of the controls of the high-grade mineralization and diamond core drilling is currently underway.
  • Drill results and coming catalysts to shed light on potential. As its most advanced target, we expect drill results from Mustajärvi to be an important catalyst in the near-term (Q1/19). The company also recently provided an update on its Jeesiö project (Figure 1) where it is following up on five new gold targets.

As FireFox moves closer to a potential discovery it should close the material valuation gap to peers. At $0.29, the company has an EV of C$6M with $2M in cash and a significant land package in the CLGB. Despite this, the company is currently significantly discounted relative to peers. Upcoming Catalysts include 1) Drill results from Mustajärvi Q1/19 2) Further exploration and commencement of drilling at Jeesiö.



Red Pine Exploration Inc

Moving Forward at Wawa

Impact: Mildly Positive

Following its maiden resource of 100 koz at 6.8 g/t at its Minto South project, Red Pine is now filling in the gaps at its larger Surluga project alongside high grade discoveries at Minto South demonstrating its potential for future growth across its projects. The results support our view that the Wawa corridor hosts a large gold system which may encompass multiple gold deposits.

  • Continued success of Surluga infill drilling bodes well. RPX announced 2.9m at 32 g/t Au and 1.9m at 6.5 g/t Au from ongoing infill drill program at Surluga targeting gaps within the existing Surluga resource envelope (Figure 1). The results validate Red Pine's structural model and suggest drilling is increasingly becoming more predictive. This should bode well for future drilling results and may cause incremental expansion of the Surluga deposit.
  • Surluga's future increasingly underground.
    As new drill data is incorporated, it looks increasingly like the Surluga deposit may be amenable to bulk underground mining given vein thicknesses of 3m to 30m and grades above 3 g/t Au. We note that the Surluga deposit occurs in the vicinity to historic underground workings, which could lessen capital costs for future mining operations.
  • Plenty of Upside left. Drilling within the Minto Stockwork at Minto South has led to discovery of two high grade quartz veins returning 1.0m at 16.5 g/t Au and 1.1m at 14.1 g/t Au. We note that Red Pine announced a maiden resource at Minto South in Q4 2018 (Figure 2) which only covered 20% of the Minto South structure. These results highlight the potential for expansion of the Minto South resource and potential for discovery of new zones at Minto South and on the numerous other structures within the Wawa Gold Corridor which have seen limited drilling.
Red Pine continues to trade at a discount to peers (US$8/oz versus peers at US$33/oz) due to ongoing uncertainty regarding ownership structure. We note that the company is well funded with over C$5M in cash and continues to drill. Upcoming catalysts include (i) Results from ongoing drilling program in addition to results expected for 23 holes drilled at Surluga (ii) Updated Surluga Resource estimate in Q2 2019 



SolGold Plc

Beyond Alpala

Impact: Positive

Sampling results from SolGold’s Porvenir porphyry targets in Southern Ecuador provide exciting new prospects for SolGold as it continues to demonstrate its copper-gold expertise in Ecuador. These results support our thesis that SolGold may be in possession of not one but multiple world class copper discoveries in an emerging mining jurisdiction (Figure 1).

  • High-grade discovery. Results from initial rock-saw channel sampling across the exposed outcrops at Porvenir include an open intersection of 62m grading 1.16% CuEq at Target 15 (Figure 2). The outcrop appears to be well-preserved and thus could be the top of a vertically extensive system. The intersection discovered within an 800m wide by 1200m long mineralized corridor is part of a greater 1km by 6km zone which has been identified to host at least two porphyry centres. While it is early days, this reflects the size potential we see at Porvenir.
  • Systematically demonstrating exploration potential. Target 15 is similar in age, mineralization style and may prove to be similar in size to the company’s world-class Alpala deposit where the company has defined a resource of 2.95Bt grading 0.52% CuEq (0.2% cut-off). These results highlight the benefits of the company’s first mover advantage into Ecuador back starting in 2014 and reflect the fact that while Cascabel is the most advanced, there is much more potential to the company’s wider portfolio of highly prospective assets. 
  • A significant portfolio with news to come. SolGold is rapidly establishing itself as an important player in Ecuador with 11 priority projects and 42 geologists in regional exploration. The company’s other important regional projects include La Hueca and Blanca, which, alongside Porvenir and other regional projects, we expect are likely to bring exciting catalysts following drilling this year.
The market does not account for the potential beyond Alpala. SolGold trades at 0.44x NAV, a slight discount to peers at 0.46x. Given the world class nature of the Alpala deposit and the interest from majors, we believe a 0.90x NAV multiple applied to our C$1.47 NAVPS estimate would be appropriate implying a value of C$1.32/share. Upcoming catalysts: 1) Ongoing exploration and 2) Maiden PEA for Alpala (Q1/19).



FireFox Gold Corp

Poised for Discovery in 2019

Impact: Mildly Positive

Results from FireFox’s 2018 fieldwork has surfaced several new gold targets allowing the company to close-in on potential drill prospects for 2019. We believe FireFox is a mispriced gold explorer, advancing multiple targets over a significant land package in one of the best mining jurisdictions in the world.

  • Multiple targets - just the beginning. The company has consolidated a database of 2751 samples at Jeesiö resulting in the identification of five new targets including: Utsamo, Utsamovaara, Homelampi, Jeesiö West, and Kokko (Figure 1). While early stage, these targets continue to highlight the prospectivity of the Central Lapland Greenstone Belt (CLGB) and FireFox’s 98,000-hectare land package within it (Figure 2) which has never been systematically explored for gold. 
  • Equally prospective, yet undervalued. FireFox has the second largest land package within the CLGB and several prospective targets; however, it trades at steep discount to other CLGB explorers. While both Aurion Resources (C$75M Market Cap) and Rupert Resources (C$122M Market Cap) have more advanced projects, the valuation gap between these two companies and FireFox appears excessive.
  • Near-term catalysts should close valuation gap. The company and its Finnish management team have actively been exploring in the region with combined exploration experience of more than 100 years. While the company has just come public, it has been actively exploring throughout 2018, as evidenced by these results. In the near-term (Q1/19), we expect drill results from the companies most advanced project, Mustajärvi. At Mustajärvi, the company is following up on historic near-surface drilling, which was highlighted by 2.7m at 14.6 g/t Au. 
On the path to discovery, discounted valuation likely to change as exploration ramps up. At $0.29, the company has an EV of C$6M with $2M in cash. This company has a number a prospective projects in the CLGB, and has the funding to advance them towards a discovery in 2019. Upcoming Catalysts include 1) Drill results from Mustajärvi Q1/19 2) Further exploration and commencement of drilling at Jeesiö.


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