RCKS Talk

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.

 

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). 

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