RCKS Talk

25-Oct-2018

Standard Lithium Ltd.

Breaking down the Brine; Rapid Rerate on the Horizon

Impact: Positive

Commissioning of the prototype pilot plant has started and is an important step before a commercial production decision (2020). We believe the commissioning of the prototype pilot plant is an important step towards securing an offtake agreement. This in turn would help fund the construction of a full-scale operation. We continue to believe that Standard Lithium is one of the best ways gain exposure to the space as it already has access to a producing brine field (permits in-a-hand, no exploration work required).

Highlights:
    • Another step towards commercial production. The completion of the prototype pilot plant is important, as it will determine the final process design for the pilot plant. A pilot scale plant is needed to generate enough material for battery manufacturers to test the product leading to an offtake agreement, which is the precursor to full-scale production. Operations of the prototype is expected to run for 2-3 months at which point, the company is expected initiate the construction of a pilot plant.
    • A high-quality and quick to market product is likely. Previous lab test work on the Arkansas brines yields high purity (>99.5%) of crystallized lithium product. The brines at Smackover are currently the world’s largest source of bromine, which contain elevated levels of lithium in the range of 150-500 mg/L. Standard Lithium plans to tap into the existing brine stream to harvest the lithium, and build its production facilities within already permitted areas, making this a quick to market project.
    • Finalizing off-take agreements are key, expected in Q4. We believe that once the company completes its offtake agreement with the underlying lease holder, Lanxess (ETR:LSX), we would expect it to publish a sizeable lithium resource, likely re-rating the stock and catching the attention of larger producers.
Valuation:
Re-rating expected when Smackover resource released in Q4. Standard Lithium’s unique ability to quickly generate a resource (once the off-take agreement is complete) and rapidly advance towards production make it one of the best junior mining companies in the lithium space. Upcoming Catalysts include 1) Positive results from prototype test-work (Q1/19) and 2) Completing the offtake agreement (Q4/18)

24-Oct-2018

RNC Minerals Corp.

Gold Discovery Delivers Record Q3

Impact: Positive

RNC has announced record gold production from Beta Hunt. Production increased 135% QoQ and 199% YoY to 31.4koz Au. As expected, Q3 production materially benefited from the specimen grade gold processed in September. The company’s Father’s Day Vein discovery has resulted in a transformation of its balance sheet, enabling it to properly explore and develop Beta Hunt to demonstrate the potential of the pyritic sediment structures to host high-grade coarse gold. If the company is successful in demonstrating a repeat of this structure, we believe it could provide the next leg up on the stock. 

Highlights: 
  • Father’s Day vein behind higher Q3 gold production. Production from the first nine months of 2018 totalled 58,460 oz, a robust increase from the first three quarters of 2017 which produced 24,305 oz (Figure 1). As expected, higher grades and gold production this past quarter are a result of specimen grade material found in September from the Father’s Day vein.
  • Aggressive exploration still underway. Crews at Beta hunt are mobilizing the company’s diamond drill rig underground in an effort to better understanding of the depositional model and test the 540m of identified pyritic sediment structures responsible for generating the high-grade coarse gold. Management has indicated that it expects to regularly produce coarse gold (Figure 2) and intends to pursue measures to better estimate resulting gold production and cash flow.
  • World class specimens. Results to date point to something special. Based on the structure defined to date, we continue to believe that these high-grade structure shoots could yield significant deposits. More drilling and development work, particularly on grade continuity is needed to define the project’s potential. We expect drilling results to start coming in 8-10 weeks.
Valuation:
The market is currently pricing in a deposit of ~1.8M oz. Our rough estimates suggest the deposit could be materially larger than what the market is pricing in. With additional information on size and grade continuity RNC’s share price could continue to move higher.
Upcoming catalysts include: 1) Drilling and development results from Beta Hunt and 2) Balance sheet update.

24-Oct-2018

Red Pine Exploration Inc.

Wawa Wows with Grade and Thickness

Impact: Positive

Red Pine Exploration announced wide high-grade intercepts from the Surluga Deposit, which follows recent positive results from the nearby Minto South Zone . These results continue to support our thesis that the Wawa corridor (Figure 1) hosts a large gold system which may encompass multiple gold deposits. We continue to believe that the market fails to appreciate the potential size, scope and strategic value of this land package.

Highlights:
  • Mind the gaps. Red Pine drilled 3.5 g/t over 32.8m (true width), including 4.99 g/t over 17.6m (SD-18-228) and 27.3m (true width) over 1.0 g/t (SD-18-230). These holes targeted gaps within the existing resource model that were previously untested and assigned zero grade. These results should have a material positive impact on the upcoming resource estimate for Surluga, as waste blocks are converted to ore. 
  • Drilling validates Red Pine’s structural model at Surluga. While previous operators were focused on down-dip extensions of stacked shear zones at Surluga, Red Pine has shifted focus to high grade shoots plunging to the southeast within the shears. These most recent results at Surluga validate Red Pine’s structural model and demonstrate potential (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 slowly 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 demonstrated by ongoing drill results. We believe that 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). 

22-Oct-2018

Brixton Metals Corp.

Big Grades from Hudson Bay

Impact: Positive

News from the 11 drill holes at Brixton’s Hudson Bay project comes as an exciting step forward, compounding on the ongoing exploration success at the nearby Langis mine. The Hudson Bay project is located in the Cobalt Camp, where ~500 Moz Ag and ~50 Mlb Co have historically been produced. Results support our thesis that Brixton remains an undervalued explorer with multiple prospective assets in North America.

 Highlights:
  • Impressive Ag-Co results. The company released 11 drill holes, highlighted by HB18-31, which intersected 1m grading 3,290 g/t Ag, 0.14% Co and 0.29% Ni (2.53% CoEq, equivalent to ~25% CuEq) and HB-18-34 which intersected 1.96% Co and 16.2 g/t Ag (1.97% CoEq, equivalent to ~19.7% CuEq). The results give the company additional leverage to cobalt and nickel, two battery metals with positive long-term supply and demand fundamentals.
  • Being a step ahead has Brixton delivering some of the best results in the Cobalt camp. The company started work in the Cobalt camp ~1 year ahead of the cobalt rush, putting it ahead of its peers in understanding, as evidenced by the company’s ongoing exploration success. However, these results have not translated into the share price, suggesting Brixton is significantly undervalued based on its Cobalt assets alone.
  • Other assets have high-potential but ascribed little value. The company has 3 other quality assets - Atlin, Thorn and Hog Heaven. In particular, we believe that Atlin has the potential to yield a high-grade gold discovery in the next 18 months. Historic results at Atlin include: 5.57m at 509.96 g/t Au and 6.00m at 21.07 g/t Au. We expect the company to ramp-up exploration at Atlin in 2019.
Valuation:
Undervalued based on Cobalt assets alone, investors getting Atlin and the other projects for free. Based on peers in the Cobalt Camp, we believe Brixton remains undervalued based on these assets alone. In our view, continued exploration success, including the ramp-up of exploration efforts at the company’s Atlin project in British Columbia, should benefit shareholders. 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.

22-Oct-2018

Pacton Gold Inc.

More Nuggets from the Egina

Impact: Mildly Positive

Pacton Gold continues to discover gold nuggets on its properties in the Egina region; specifically at the Golden Palms property (Figures 1 & 2). The news is another step in the right direction for the company as it ramps up its exploration efforts in Western Australia and transitions from land-acquirer to explorer. In our view, Pacton has multiple projects that could yield a significant conglomerate gold discovery, as demonstrated by its early stage success.

Highlights:
    • Nuggets from Golden Palms imply significant scale potential at the company’s Egina tenements. The discoveries were made within a 300m by 300m area located approximately 2.5km northwest of the company’s previously announced discovery of gold nuggets at Friendly Creek (Figure 1) and associated with the same 10km stretch of ultramafic and komatitic basalt rocks. While very early days, the scale potential is similar to that of Novo Resources (TSXV:NVO) Comet Well/Purdy’s Reward project.
    • Significant underexplored strike length. The Golden Palm, Friendly Creek and Hong Kong tenements are all located in South Egina, along a large underexplored 8km thick volcano-sedimentary system, which extends for ~10km along strike (Figure 1). The combined land package is adjacent to Novo’s recently acquired Egina tenements, which Novo highlighted as prospective.
    • More exploration catalysts expected shortly. The company has started to ramp up exploration, specifically at the Egina properties. We believe that exploration success from its own projects, along with positive news from Novo, should provide additional momentum for the share price.
Valuation:

Pacton is the third largest conglomerate landholder and its recent exploration success could be repeated at its other projects. With an excess of 2,500 km2 in the Pilbara and work underway on multiple projects, we believe that exploration success at one or more of its projects could drive Pacton’s 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 and 2) Novo bulk sample results (Oct).

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