De Grey Mining Ltd

Ore Sorting Could Improve Economics

Impact: Mildly Positive

De Grey has announced successful initial ore sorting results at its Toweranna deposit which demonstrate the technology’s amenability to sort ore, lower operating costs and increase production. This news reinforces our fair value estimate of A$0.35/sh (unchanged) and we believe a re-rating is likely in the near to medium term.

  • Initial results show a net benefit on multiple fronts. Initial test-work successfully sorted quartz from granitoid host rock at 20-100mm feed size using laser optical sorting technology. Implementation of sorting in the company’s flowsheet could improve costs by rendering the deposit amenable to bulk mining as opposed to selective open pit mining. We would expect this to reduce the strip ratio, drive the pit deeper and expand the number of in-pit ounces. Additionally, the technology could result in reduced mining losses as the highly selectivity technology should identify gold bearing material, outside the main veins.
  • Ore sorting could positively impact production. The technology is expected to effectively pre-concentrate mined rock at the mining site, resulting in less material being shipped to the mill (lower shipping costs) at higher grades. The impact is that the company could increase the mining rate and gold production without materially increasing the plant size. However, it remains early days and more test work is needed to determine the full benefit.
  • Plenty of news flow expected from De Grey. Alongside the next set of ore sorting tests (including larger samples and assaying the concentrate and tail) the company continues to be actively drilling and we expect the resource could grow to 2Moz by year-end, primarily from the expansion of Toweranna and Withnell Underground. Additionally, drill results are pending from Mallina.
Pending payment results in a steeply discounted stock
. We maintain our fair value to A$0.35/sh (unchanged) based on 0.70x our NAVPS8% estimate of A$0.50 (unchanged). The company trades at a substantial discount to peers (0.16x vs. peers 0.63x) as the market appears focused on the A$9.7M payment that is due to the property vendors in July 2019. We believe the company is able to finance this and expect a substantial re-rating when this happens as the market should then price in the recent exploration success. Upcoming catalysts: 1) Ongoing exploration results, 2) Project development updates and 3) Final project payment (July 2019).



Mako Mining Corp & Sailfish Royalty Corp

One Project Poised to Re-Rate Two Companies

Our view is that the San Albino project is poised to re-rate both the operator, Mako Mining (TSXV:MKO) and the royalty holder, Sailfish Royalty (TSXV:FISH), when it comes online next year. We recently had the opportunity to visit Mako Mining’s San Albino project in Nicaragua where construction is underway. Additionally, the company has ramped up exploration on what we believe is a prospective land package and our visit combined with recent results suggests to us that this resource is likely to grow materially. Our preliminary view of valuation implies that both Mako and Sailfish are undervalued, and we expect that as San Albino approaches production, both stocks should re-rate.


Aquila Resources Inc

Michigan Upholds Mining Permit

Impact: Mildly Positive

Aquila has announced a positive decision regarding the appeal of its Mining Permit. This update reinforces our view that the company is well positioned to transition from developer to producer and we expect that that with continued de-risking, particularly with respect to permits, Aquila is a likely takeout target. We continue to believe Aquila is worth C$0.36/sh and we expect the company to re-rate as it progresses towards production.

  • Mining Permit upheld. As per our expectation, the Michigan Department of Environment, Great Lakes and Energy has reached a final decision to uphold Aquila’s mining permit, with the judge stating as part of the ruling “that the proposed mining operation will not pollute, impair, or destroy the air, water and other natural resources, or the public trust in those resources.”
  • One permit still under appeal, process should be expedited. The Wetlands Permit is still being contested, and the evidentiary hearing is expected to start in Q2. We highlight that the judge that upheld the Mining Permit is also hearing the case against the Wetland’s Permit. This familiarity could expedite the process. We do not include the potential for an expedited ruling in our estimates, which are based on all permitting appeals are completed by yearend allowing the company to start constructing the Back Forty Mine mid-2020.
  • Not just a permitting story. While permitting has been a near-term focus for Aquila, the company continues to advance the project. In Q3 2019 we are expecting an updated PEA, which should demonstrate the underground potential of the project, and extend the mine-life beyond the 7.25 years considered in our model. Additionally, we expect the company to demonstrate the value of its Wisconsin assets this year.
Progressive de-risking should re-rate Aquila. We are maintaining our fair value estimate of C$0.36/sh, based on 0.60x our NAVPS10% estimate of C$0.60. The company currently trades at 0.33x our NAVPS10% estimate versus peers at 0.40x; an unwarranted discount because of the de-risked, high-margin nature of the project. We believe that as the company continues to de-risk the project, including resolving the current permit appeal, it should re-rate towards our fair value estimate. Upcoming catalysts include: 1) Further permitting updates 2) PEA Update (Q3/2019) and 3) Surfacing value of Wisconsin assets (2019).

Coro Mining Corp

What Bigger Could Look Like

Impact: Positive

After a recent deep dive with management regarding the Marimaca Project, we believe Phase II drilling to date suggests Marimaca could grow significantly beyond our assumed resource doubling in our Base Case valuation. A larger 200Mt oxide resource at Marimaca could support a 40Ktpd stand-alone mine, producing ~100Mlbs of copper annually. Our preliminary model for a project of this scope implies a fair market value of C$0.26/sh; however, we maintain our base case of C$0.21 until we get more information.

  • Valuation impact – bigger is better. A larger mining operation at Marimaca yields a valuation of C$0.27/share, based on an increased NAVPS estimate of C$0.06/share. This is underpinned by a much larger 200Mt deposit grading 0.5% CuT, supporting a standalone 40Ktpd open pit mine, with annual copper production of ≈100Mlbs. Despite higher capital costs (~US$350M), our model predicts rapid payback (≈2.5 years) and annual cash flows of US$290M in years 1 to 4 and US$98M thereafter (Figure 1).
  • What does bigger look like? Phase II drilling has expanded Marimaca’s footprint ~2.5x to a strike of 1,400m and width of 500m. Importantly, this drilling has extended the high-grade zone (>0.6% CuT) east of the Main Dacitic Dyke (“MDD”) some 500m northward, which should enhance economics of our Base Case scenario. But this enlarged footprint also includes zones of lower grade material west of the MDD, some of which may be marginal (See Figure 2).
  • What we need to see to get there? The path to 200Mt likely includes lowering cut-off grade. However, based on drilling to date, we believe that more tonnes at +0.40% CuT are needed to make a larger, stand-alone scenario economic and to support its inclusion as the new base case model. This material could be added by deepening of oxides or by improved definition of high-grade feeders in zones with marginal grades.
Estimates unchanged but high-grade domains would push our estimates higher.
We are maintaining our fair value estimate of C$0.21/sh, 0.8x times our base case NAVPS estimate of C$0.26/sh. As we receive guidance on an expanded Marimaca resource we may push our estimates higher to reflect the bigger scenario. Coro trades at a discount to peers (0.38x NAV, peers 0.53x); we think it should trade at a premium given Marimaca’s exploration potential, jurisdiction and compelling economics. Upcoming Catalysts include: 1) Resource Update (Q3/19), 2) Phase II and Phase III drill results (ongoing).



RNC Minerals

Resource Update Q2/19, Exploration Ongoing

Impact: Mildly Positive

RNC has released another set of results from its resource drilling program which continues to demonstrate strong grades and could be accretive in the coming resource update. This news provides positive resource momentum for the company as it readies to resume production in H2/19. We note that the next phase of drilling could provide exciting catalysts for the stock; however, the market remains fixated on the acquisition funding gap in the short-term.


  • Further high-grades at Western Flanks and A Zone. Step out holes from Western Flanks extended the mineralization by 150m to the north. In the A Zone, drilling continues to define zones with higher-grades and widths than the current resource. Results from both areas are expected help expand the resource (447koz at ~3 g/t Au resource) by roughly 30-40% and could improve costs as grades continue to come in above historic mining grades of ~2.5-3 g/t. 
  • Resource update to be followed by exploration drilling. Today’s results are the second last batch of resource drilling to be completed at Beta Hunt before the company issues an updated resource (Q2/19). A next phase of drilling will focus on exploration as the company tests targets along the 4 shear zones with +4km of strike.
  • Higginsville acquisition progressing. RNC announced an LOI to acquire of the Higginsville mill and associated Mine on March 26 and is currently completing due diligence and looking at funding options. RNC has completed an initial option payment of A$4M in shares with a further A$21M in shares and A$25M in cash expected in Q2/19. The acquisition would generate synergies with Beta Hunt as the company estimates a ~35% per tonne decrease in costs, plus a second mining operation (1.7Moz Au). We currently do not include Higginsville in our fair value estimate for RNC but plan to re-evaluate as the likelihood of completion increases.
Ongoing drilling success continues to support our base case (C$0.93/sh, was C$0.97/sh) and provides early indications that our upside case (C$1.20/sh, was C$1.32/sh) could be achievable.
We expect ongoing drill results and progress on the Higginsville mill acquisition to be important catalysts for the company going forward and should drive the share price towards our fair value estimate. We note that the recent financing and share issue for the mill acquisition has modestly decreased our fair value estimate. Upcoming Catalysts include 1) Ongoing drill results 2) Resource update (Q2/19) 3) Completion (including funding of Higginsville acquisition (Q2/19) 4) Restart mining (H2/19)

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