Aquila Resources Inc

Progressing Towards Production

Impact: Mildly Positive

Aquila released a positive permitting update, as one of the legal challenges for its permits was dismissed. While the legal challenge of permits is normal course in the U.S., this result acts as another positive step to advancing Back Forty towards production. We view Aquila as an undervalued take-out candidate on the verge of a re-rating through the development of the high-margin Back-Forty polymetallic project; the backdrop of a tightening commodities market should underpin the strategic value.


  • Back Forty prevails. The Federal Lawsuit against Aquila’s Wetland Permit was dismissed putting the company one step closer to being able to start construction at its Back Forty project in Michigan. The company is currently fully permitted for construction and commencement of operations and is waiting on the resolution of two other contested permit cases, both of which we expect to be resolved in 2019.  
  • Pre-construction work continues. Backed by a recent US$7.4M streaming payment (an advance on the total US$55M agreement) from Osisko Gold Royalties and with a total US$10.5M in cash, the company is funded to continue advancing the Back Forty Project. Besides permitting updates, the next key catalyst is likely to be an update on project financing (likely a combination of debt, stream and equity).  
  • Adding value with Wisconsin assets. Aquila has two 100% owned exploration projects in Wisconsin and with mining moratorium recently removed in this state, these projects could add some exploration sizzle to Aquila. The Reef project (Au) is the nearest at 85 km west from Back Forty and Bend is a Cu-Au project also located in Wisconsin 135km away from Back Forty. Both projects provide significant exploration potential and Aquila has a first mover advantage in a good jurisdiction.  
Further de-risking and the roll-out of Wisconsin should drive the share price higher. Aquila currently trades at 0.41x consensus NAV, a slight premium to developer peers at 0.40x (Figure 1). We believe that as Aquila progresses down the path to production it should re-rate with Wisconsin likely providing additional value. Upcoming Catalysts include 1) Permitting Updates (2019), 2) PEA Update (2019) and 3) Surfacing Wisconsin assets (Q1/19). 



Novo Resources Corp

Building Momentum for a Busy 2019

Impact: Mildly Positive

Results from Novo’s ongoing efforts at Egina and Karratha continue to advance these projects and demonstrate each projects potential. We believe the market is undervaluing the company’s other assets, and steady news flow in 2019 should change this. Despite a significant share price increase today, we believe the market is continuing to undervalue the company’s Karratha, Egina and wider Pilbara projects, with much of the current value underpinned by an improving Beatons Creek project.

  • Bulk sample results from Egina – the first of many. This first sample (152 tonnes) returned an average grade of 0.71 g/t Au, above typically economic grades for alluvial mines (typically need >0.30 g/t Au). This is expected to be the first of many as company pursues a systematic approach across the project, ahead of a larger scale program planned for Q2 2019. While capital markets typically ascribe little value for alluvial gold projects, a stream of steady results with good grades may alter that view.
  • Ore sorting appears to work, economics for Karratha likely to materially improve. While there is more data to come, the results to date suggest ore sorting is likely to work at Karratha (Comet Well & Purdy’s Reward). Given the nuggety nature of this deposit, this provides a situation where only a fraction of the ore mined may need to be processed (average to date ~0.28%). In our view, this would materially improve project economics making this likely +2 g/t Au open-pit project even more viable.
  • Steady news-flow expected from multiple projects in 2019. This news is the first in a series of many updates from multiple projects in 2019. At Karratha, besides the completion of ore sorting testwork, look for the mineralization report to be filed in Q1/19 and a native title agreement to be completed ahead of larger scale sampling in H2 2019. At Egina we expect a steady flow of bulk sample results and for Talga Talga, we expect additional surface sampling results ahead of initial drill results. Finally, a series of bulk samples are expected from Beatons Creek and are expected to lead to a resource update in Q1/19 which is expected to deliver a material grade improvement.
Novo is now a “show-me” story and is expected to do just that with steady newsflow. Our preliminary valuation of C$2.40-4.80/sh, excludes Egina and Talga Talga as well as the expected upside at Beatons Creek (currently C$1.10-1.40/sh). In our view, 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).



Seabridge Gold Inc

Is Iskut a Fifth Deposit at KSM?

Impact: Mildly Positive

Seabridge’s summer drill program at it's Iskut Property has identified another porphyry target close to surface. Iskut is only 30 km east of Seabridge’s KSM Project which hosts four porphyry deposits with P&P Reserves of 39Moz of gold + 10Blbs of copper. These latest results support our view that Seabridge is positioning itself as a gold-copper developer to watch in a premier jurisdiction - we believe majors are taking notice.

  • Another porphyry on the way? While still early days, the Iskut Property shares similarities to the large porphyries identified at Seabridge’s core KSM asset, 30km to the east. KSM hosts substantial reserves totaling 39Moz Au, 10Blbs Cu, 183 Moz Ag and 207 Mlbs Mo. Given the company’s track record of drilling and defining large porphyry systems, we look forward to the 2019 drilling program at Iskut which will be testing this new porphyry target.  
  • Porphyry-style mineralization overlying a large IP anomaly. Holes QR-18-14 and QR-18-17 drilled at Iskut intercepted chalcopyrite-pyrite-magnetite bearing porphyritic diorite clasts within a hydrothermal breccia. These breccias are understood to be diatreme(s) venting from an intrusive source. Importantly, they occur over a large IP chargeability anomaly within 500m of surface. This combination of factors suggests to us that a sulphide-rich porphyry intrusion may exist at depth. 
  • Better logistics for drilling, suggests we should quickly learn Iskut’s potential. Initially, Seabridge was targeting an epithermal system beneath the Quartz Rise Lithocap near the peak of Johnny Mountain. Results from this year’s program are pointing to a source porphyry target to the south and southwest, on the slopes of the mountain, at considerably lower elevation. This will simplify logistics and mean Seabridge can forego helicopters for drill moves and allow for a longer drilling season in 2019.
Seabridge is actively growing the size and quality of its already substantial resources. With KSM reserves alone, Seabridge is trading at US$12/oz AuEq compared to peers at US$45/oz AuEq on a total resource basis. Given the scale of KSM, and the fact that it is permitted, we believe the company should trade closer to peers. Upcoming catalysts: 1) Iron Cap resource update (H1/19), 2) Iskut exploration results (H2/19) and 3) Updated project economics (H2/19)



NxGold Ltd

Discounted Valuation Does Not Reflect Assets

Impact: Mildly Positive

NxGold’s exploration efforts at Mt. Roe, continue to highlight the potential for this company to make both hardrock and conglomerate gold discoveries. While recent results continue to suggest the project has value, the current enterprise value (EV) implies shell value. With funding in-place to advance this project through initial drilling, we believe the market is providing investors an opportunity, as this is the type of company that should see a strong rally, in January.  

    • Systematically closing in on hardrock targets. Work to date has been focused on identifying target areas for potential drilling at the Mt. Roe Project. Expanded soil lines in the next field program will help to better understand the mineralization controls at the Prinsep, Eagle, Hawk, Crow and Swan where the company has identified several unconstrained trends (Figure 1). Results from Crow returned good Au, Ag and Cu grades of 1.29 g/t, 26.8 g/t and 2.52% respectively adding a potential base-metal target to the mix.  
    • More news to come. Our understanding is that additional sample results remain from this year’s work program which we expect to be released in early Q1 2019. Some of these results are expected to come from conglomerate and hard rock targets on the recently granted tenements that expand the Mt Roe Property (Figure 1). In our view, these results are expected to lead to a maiden drill program in H1 2019, which the company is funded for.
    • Market giving minimal value for developing exploration assets. During a difficult market, NxGold’s share price has fallen victim to the same downturn as many of its peers. In our view, the work done to date improves potential for the discovery of both hardrock and conglomerate gold deposits at Mt. Roe. The company has enough money to fund Mt. Roe through a maiden drill program as they continue work to restore surface access rights at Kuulu.  
    Trading at a steep discount to exploration peers or a slight premium to public shells. Early stage exploration companies typically have EV’s between C$5-10M, while publicly listed shells normally have EV’s between C$1-2M. Considering NxGold has C$4.2M in cash and securities and is continuing to move what we view as a prospective project forward, the current valuation is unwarranted. This does not account, for what we view as a free option on Kuulu, as we expect the restoration of surface access rights to drive a significant re-rating.  Upcoming catalysts include 1) Ongoing Surface sample results from Mt. Roe, 2) Scout drilling at Mt. Roe (H1 2019) and 3) Surface access update at Kuulu.


SolGold Plc

Newcrest Takes Down More Shares

Impact: Positive

Newcrest has again increased its interest in SolGold by purchasing 27.87M shares from two third parties. Newcrest now owns 15.3% of SolGold, cementing its position as the largest strategic shareholder ahead of BHP at 11.1% ownership. This update aligns with our thesis that SolGold is in possession of a world-class copper project that is continuing to grow and receive increasing interest from major miners looking to bolster future production.

    • Newcrest buys a little bit more. Newcrest Mining has agreed to acquire 27.87 M shares at £0.40/sh (C$0.68/sh) bringing its total ownership of SolGold up to 15.33%. This follows its most recent purchase at £0.37/sh (C$0.63/sh), and BHP’s recent purchases at £0.45/sh (C$0.76/sh) and £0.27/sh (C$0.46/sh). These two major miners now collectively control 26.4% of the company and are likely to provide competitive tension should a bidding process for the asset or company occur (Figure 1). 
    • Newcrest bought pre-resource update and now buys pre-PEA. Newcrest’s prior purchase of occurred ahead of the most recent resource update , and now this purchase comes ahead of the pending PEA (due Q1/19). In our view, these continued purchases ahead of major news, speaks to Newcrest’s confidence in the project. We also highlight that Newcrest has proposed and operating block-caves at Wafi-Golpu & Cadia East (Figure 2), implying strong technical knowledge for this type of project. 
    • Likelihood of a premium takeout increasing. We believe that SolGold is a highly prospective target warranting a takeout premium. Historic multiples at 0.75x NAV or US$0.08/lb CuEq (Figure 3) come to mind through comparable transactions including the recent acquisition of Nevsun by Zijin Mining for their Timok project. That transaction was done at 1.25x NAV, implying a value of C$1.84/sh based on our estimates suggesting 192% from the last close of C$0.63/sh.
    Newcrest continues to bring attention to Alpala. SolGold trades at 0.43x NAV, a slight premium to peers at 0.35x. Given the world class nature of the deposit, and the demonstrated interest of multiple 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 (Q1/19).

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