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.
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.
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)
- 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.
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.
Mawson Resources Ltd
Gold-Cobalt and Plenty of Potential
Mawson’s newly released maiden mineral resource estimate at its Rajapalot Project in northern Finland provides a
good start to the project’s lifecycle and leaves plenty of room for growth. This maiden resource underpins Mawson’s value but does not account for the significant growth potential that we see at Rajapalot.
Market pricing in the maiden resource but does not account for exploration potential that we expect to be demonstrated in early 2019. We continue to believe that the Rompas-Rajapalot project hosts a large high-grade mineralized system. Based on the maiden resource, the company is trading at US$38/oz AuEq, peers US$47/oz AuEq (Figure 6). In our view, this does not properly account for the exploration upside that we expect to be demonstrated with the winter 2019 drill program.
Upcoming catalysts include 1) Results from WUSA drilling (Q1/19), 2) Drill permits for winter Rajapalot program (Q1/19) and 3) 15,000m drill program at Rajapalot (Q1/19).
- Maiden Resource confirms high-grade potential. The unconstrained inferred maiden resource contains 482koz at 2.4g/t AuEq (1.7g/t
Au and 0.041% Co) at a 0.4g/t cut-off grade (Figure 1 & 2). We view this resource as a positive first step for a project that we believe
has significant exploration upside. The company has tested only 20% (or 800m) of the 4km known mineralized trend (Figure 3) and the deposits
remain open down-dip (Figure 4 and 5).
- Strength in grade and tonnage. The resource is supported by high open pit and underground grades at 2.8 g/t AuEq and 5.2 g/t AuEq,
respectively. The unconstrained inferred mineral inventory at various cut-off grades is shown in Figure 2, which we believe demonstrates a
robust resource, particularly at underground only cut-off grades. Additionally, 28% of the unconstrained resources are provided from a cobalt
by-product strategically positioning Mawson as the only source of cobalt in Finland close to one of the world’s largest cobalt refineries.
- Resource expected to grow with 2019 drilling. Based on our recent site visit, we believe this project has transitioned from exploration
to resource development. As a result, we expect 2019 drilling has a high likelihood of doubling the existing resource. Additionally, we believe
that recent geophysics point to the potential for a subsequent doubling just from these two deposits. We note that balance of Rompas-Rajapalot
project has prospective areas where follow-up testing could provide further upside potential.
GT Gold Corp
Saddle North Extends to Surface
GT Gold has announced additional drill results from Saddle North, extending the mineralized envelope to surface. Results continue to demonstrate the size and grade potential of Saddle North and support our view that the company has made a significant porphyry discovery that is not reflected in the share price.
Market is not pricing in this sizeable discovery. Based on the drilling to date, our rough estimate for Saddle South is ~750k-1M oz AuEq, based on C$50-75/oz for peers, this implies a value of C$37.5-75M. This suggests a value of C$0-9.5M for the Saddle North porphyry target. We believe that if future results match what we have seen to date, this implied valuation materially undervalues this targets potential.
Upcoming catalysts include 1) Assays from drill hole TTD109 (Q1/19) and 2) Saddle South exploration update (Q1/19).
- Potentially open-pitable deposit. Highlight holes include 0.93g/t AuEq over 324m from 4m depth (Hole TTD108 – Figure 3), which suggest
that the mineralization extends to surface. Given that these are ore grades near surface with good continuity, we now see some open pit potential
to the northeast.
- Grades improve at depth, looking forward to hole TTD109. While the mineralization at surface has now been demonstrated to be ore grade,
drilling to date (9 holes) suggests that the grade of the mineralization at Saddle North also increases at depth, highlighting further underground
block cave potential. We await assays from hole TTD109 (expected in January) but the results from the surrounding holes, suggests that good results
are likely. We highlight that with so few holes completed to date, additional results at better grades, would positively impact our estimates.
- Rough estimate points to significant scale potential. Using the data released to date we estimate the total mineralized envelope could
be ~1.47Bt at 0.75 g/t AuEq (~35 Moz AuEq - Figure 1) with the higher-grade core at ~290Mt at 1.25 g/t AuEq (~11Moz AuEq – Figure 2). This is approaching
the size of Red Chris when it was put into production (1.82Bt @ 0.84g/t AuEq) and is of similar grade/scale of other block cave operations (Figure
3). We highlight that with only 9 holes complete, Saddle North is at a very early stage and our estimates are very preliminary.
Callinex Mines Inc
Results Validate Thesis, More Drilling Needed
Impact: Mildly Positive
Assay results from two widely spaced holes testing an IP anomaly 1.2km to the east of the Nash Creek deposit returned
massive sulphides, supporting the theory of a potential mineralized eastern limb to the Nash Creek syncline. While not ore grades, we look forward
to follow-up holes in 2019 to vector into higher grade zones in this ~1900m by 400m “Central Zone” target area. Results support our view that the company is on track for significant resource growth in a prolific VMS mining camp (Figure 1).
- Technical success in the Central Zone. The company announced assays from two drill holes targeting an IP anomaly
situated 1km to the east of the current resource, which may represent the mineralized eastern limb of the Nash Creek stratigraphy. While
ore grades were not returned, holes NC17-301 and NC17-302 intersected semi-massive sulphides similar to Nash Creek’s Hickey Zone thus supporting
this thesis. We look forward to follow-up drilling aimed at vectoring into higher-grade zones in the Central Zone target area, which currently
spans ~1900m by 400m as defined by the 2018 IP Survey.
- On the verge of demonstrating district-scale potential. Initial results from follow-up drilling on the IP anomalies validate
our theory of synclinal repetition of the Nash Creek deposit to the east in addition to validating IP surveying as an effective geophysical
exploration method for targeting near-surface sulphides on the property. With the knowledge that VMS deposits often occur in clusters,
we are awaiting IP survey results (Q1 2019) from the remaining 18km of the underexplored 20km trend to identify additional targets in the
- Incremental resource expansion potential at Nash Creek. The drilling campaign successfully returned encouraging results in
step outs to the east and west of the current mineralized footprint, highlighting the potential for incremental expansion of the current
Nash Creek deposit with further drilling.
The market fails to realize the potential of Callinex’s growing asset portfolio in the Bathurst Mining District.
Callinex currently trades at a significant discount to peers ($0.001/lb vs. peers at $0.003/lb ZnEq). Considering our expectation for further resource
growth at Nash Creek beyond the recent update, we expect the upcoming drill results in addition to the IP survey could close the valuation gap
to peers. Upcoming catalysts: 1) District scale IP results 2) Exploration update for Pine Bay Project in Flin Flon.
Novo Resources Corp
Bulk Samples Coming to Town
Impact: Mildly Positive
Novo provided an update on multiple projects, suggesting steady news flow through year-end and into 2019. The news
is expected to include bulk sample results from Egina, Karratha and Beatons Creek, the mineralization report from Karratha, a resource update at Beatons
Creek and additional exploration results from the new Talga Talga prospect. In our view the share price, does not reflect value the potential of the company’s Karratha, Egina or wider Pilbara projects and is mostly underpinned by Beatons Creek.
- Egina – heading in to systematic bulk sampling. Novo has completed initial bulk sampling as it prepares to begin much larger sampling
across the Egina gravels in 2019. The company completed a 170t bulk sample which is being processed with results expected before year-end. Detailed
metallurgical test-work is being completed on smaller samples to develop a processing scheme for the Egina gravels.
- Karratha – approaching a mining lease. While more bulk sample results are pending, the next key catalyst is the creation of a
mineralization report for Comet Well and Purdy’s Reward (Karratha project), which is a key element needed to convert these exploration leases into
mining leases. The report is expected to be delivered in Q1 2019.
- Beatons Creek – resource update expected to add significant value.
We expect the pending exploration results could result in a material grade increase (25-50%) which could make Beaton’s Creek a stand-alone project.
The resource update is expected in Q1/19 and we highlight that our current value estimate of C$1.10-1.40/sh does not include higher grades at Beaton’s
- Talga Talga – a new hardrock target. Located 110 km north of Beatons Creek, this project adds a hard-rock exploration
target to the company’s portfolio. Rock chip sampling and detailed mapping have defined a 3km long mineralized corridor (Figure 1). The company
expects to pursue diamond drilling in 2019 following further geological interpretation.
Adding Egina to our estimates would be accretive to our preliminary valuation of C$2.40-4.80/sh.
We currently ascribe no value for Egina or Talga Talga in our estimate; however pending exploration results may alter our view, in particular the pending
bulk sample results from Egina. With Karratha likely 6-12 months away from larger scale bulk samples, news flow from the company’s other projects is
expected to be key. Upcoming catalysts include, 1) Larger scale bulk sampling (H2/19), 2) Ramp-up of exploration work at Egina (Q1/19) and 3) Beatons Creek resource update (Q1/19).
Seabridge Gold Inc
Iron Cap Success Should Improve Mine Economics
Impact: Mildly Positive
Seabridge has announced that it has once again extended the Iron Cap mineralization down plunge to the northwest, which is already defined a 49Moz AuEq deposit within the wider KSM property in BC.
Results align with our thesis that Seabridge is in possession of a major-scale gold-copper project in a premier jurisdiction that we expect to attract
Improving grade and major scale should see this project trade closer to peers. Based on KSM reserves alone, Seabridge is trading at US$11/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 (Q1/19), and 3) Updated project economics (H2/19)
- Seabridge delivers on 2018 exploration objectives. The 2018 exploration program that was focused on the Iron Cap Deposit has successfully
extended the mineralization down-plunge from the high-grade core and tested the southern limits of the Iron Cap Deposit, as defined by a 2018 resource update.
Highlights include 548m grading 1.30g/t AuEq (0.63g/t Au and 0.44% Cu) in hole IC-18-83, which exceeded the average KSM reserve grade of 0.89g/t
AuEq and average Iron Cap resource grade of 0.83g/t AuEq.
- Expansion of high-grade core should improve project economics. With permits in-hand, that allow the company to mine +2B tonnes of
ore, the objective is mine the most profitable tonnes first. We would expect that Iron Cap’s growing higher-grade core may play is likely to be
mined sooner and for longer than was outlined in the 2016 PEA, which we think would improve project economics, particular since it is so close
to the planned Mitchell-Treaty Tunnel.
- Another resource update for Iron Cap is now underway. We view the growth of Iron Cap as a game-changing addition to the KSM Project
as increased grades in early years with minimal development capital required allows for enhanced project economics. With a high-grade core of 635Mt
grading 1.34g/t AuEq at Iron Cap already defined earlier this year, we expect that the resource update currently underway is likely to enhance
the already exceptional size and grade of the deposit.
Standard Lithium Ltd
First Lithium Carbonate Another Step Forward
On the heels of Standard Lithium’s recent announcement of a maiden resource of 3.1Mt LCE in the brine fields of southern Arkansas, the company has faster than expected successfully commissioned a Crystallisation Pilot Plant for transforming brines into high purity (>99.1%) lithium carbonate. This news aligns with our thesis that the company is quickly surpassing the normally lengthy milestones required to get in to production and remains a low-risk lithium developer in North America.
The market is missing the fundamental value of Standard Lithium’s potential. Standard Lithium has access to 150,000 acres of brine fields and with existing permitted infrastructure, a well underway prototype Pilot Pant and permits in hand, we believe the market is currently undervaluing the potential of this update. The company currently trades at US$15/t LCE in contrast to brine exploration and development peers at US$39/t LCE.
Upcoming Catalysts include 1) Further results from ongoing test-work (Q1/19), 2) Completion of definitive agreement with LANXESS (H1/19), 3) Pilot plant commissioning (mid-2019) and 4) PEA expected in H1 2019.
- High purity lithium has been produced. The Lithium Carbonate Crystallisation Pilot Plant in BC has been fully commissioned ahead
of our expected schedule. The current prototype has already been successful in transforming impure feed solution composed of lithium, sodium,
alkali and non-metallic contaminants, in to highly pure lithium carbonate at a purity greater than 99.1%. Upon refining operating parameters
and addition of process cycles, the prototype is expected be ready shortly for full scale design.
- Two halves make a whole. The company is simultaneously developing both halves of its pilot plant with a Lithium Extraction Pilot
Plant being designed and built in Burlington, Ontario. We expect the two parts to be combined and constructed in Arkansas in late Q1/19, with
commissioning starting in late Q2/19.
- Well into the pilot plant development phase - accelerating pace to production. Brines at the company’s flagship project in Arkansas
are currently in production for bromine extraction by likely JV partner LANXESS. Once proof of concept is achieved in 2020E, with permits in-hand,
significant infrastructure in-place and full-scale production and funding likely coming from its partner, Standard Lithium is on a shortened
path to production.
Rockcliff Metalls Corp
Ready to Rock
We are publishing our initial estimates on Rockcliff Metals with a valuation of C$0.32 per RCLF share, a 190% premium to the current share price. The company has consolidated a massive ≈200,000 ha portfolio of base metal and gold assets in the Snow Lake Mining Camp in Manitoba. We like Rockcliff’s balanced risk/reward profile with high probability that 2019 drilling is likely to expand resources combined with exciting “Blue Sky” potential at the Snow Lake South (SLS) #1&2 projects.
- Snow Lake Mining Camp, Rich Copper-Zinc endowment in a great jurisdiction. Rockcliff’s portfolio of assets are all located in the
Snow Lake Camp, a close neighbor to Flin Flon, which is among the world’s most prolific volcanogenic massive sulphide (VMS) districts and home
for Hudbay Minerals (TSX:HBM). As the focus for Hudbay shifts from Flin Flon to Snow Lake, we expect smaller satellite VMS deposits in the camp
to receive more attention. This bodes well for Rockcliff, currently the junior with the largest land package in the camp and ownership of several
small VMS deposits which remain open for growth.
- Mix of lower risk extension drilling at Rail and Bur + District Scale Blue Sky in Snow Lake South. We expect resource expansion at
Rail and Bur with drilling in 2019 given that VMS deposits in the Snow Lake camp typically display good continuity at depth, often extending to
1,000m below surface. As well, we like the “Blue Sky” exploration potential of SLS#1&2, two very large exploration licenses recently staked
in the underexplored Snow Lake South Emerging Mining Camp.
- Added Sweetener, Spin-out of Goldpath Resources + emerging royalty portfolio. We believe a spin-out of Rockcliff’s gold assets would
help daylight the value we see at SLG and Laguna. In addition, the company holds a 2% NSR on the Tower project being advanced Norvista Capital
Valuation: Rockcliff trades at a significant discount to our estimates plus plenty of “Blue Sky” potential.
Based on Rockcliff’s portfolio of deposits and royalties, we have arrived at a conservative fair value estimate of C$0.32/sh, which does not account for
the “Blue Sky” exploration potential. We’re expecting a progressive re-rating as the company pursues expansion drilling at Rail and Bur and advances
its other properties in the camp. Upcoming catalysts include 1) 2019 Drilling Results at Bur and Rail 2) Ongoing news flow from Kinross Gold (TSX:K) drilling at Laguna.
Mawson Resources Ltd
Initial Results from New Asset Promising
Mawson released drill results from both its Finnish and US assets. Results from the US look promising and while drilling was unsuccessful at the company’s secondary Finnish targets where further work is needed. Our thesis that the Rompas-Rajapalot project hosts a sizeable high-grade mineralized system remains unchanged and we are awaiting assay result from the US assets to understand that project’s potential.
- First look at WUSA looks promising. The company wrapped-up its fall drilling season on the Western USA project (WUSA) in Oregon with
three drill holes into the Scorpion and one at the Huckleberry project. Geochemisty points to intense silification and argillic alteration. Iron
oxides were associated with brecciation and stockwork fractures and disseminated pyrite was present in the less-altered hosts. Initial results
look encouraging, assays for the holes are expected in January.
- More work needed on secondary Rajapalot targets. The company drilled 11 holes (1,660m) at the Hirvimaa and Korkiakoivikko prospects
2.6-4.3km from the high-grade Palakos and Raja areas, from where most of the drilling has been done to-date. Drilling confirmed previous base of
till anomalies and VTEM data at the targets but only intersected the desired stratigraphy in 3 holes with only one ore grade intercept of 2m grading
0.11% Co (PAL0157). In our view more work is needed on this prospect.
Maiden resource appears to be partially priced in, upside excluded. The current enterprise value implies a maiden resource of ~440k oz (using US$40/oz). We expect the maiden high-grade resource to be roughly in line to slightly larger than the implied size; however, the deposit appears to be much larger based on our recent site visit.
We believe Mawson is well positioned to deliver a sizeable high-grade resource from Rajapolot. Upcoming catalysts
include 1) Results from WUSA drilling 2) Drill permits for winter Rajapalot program and 3) Maiden Resource estimate on Rompas-Rajapalot (Q4 2019).
- Maiden Resource on high-grade Palokas expected before year-end. The company expects release a maiden high-grade Au-Co resource for
the Palakos target for year-end and plans to keep aggressively drilling the area with 15km of drilling planned for 2019 (permits pending). Our
recent site visit suggests the potential exists for 1Moz on this area, and recent
geophysical results suggest it could be double that.
Bonterra Resources Inc
Fattening Up Gladiator
Bonterra’s recent drill results indicate that the mineralization at Gladiator has a much wider footprint than initially thought and is likely to continue to grow to the north beyond the upcoming mineral resource estimate.
Results support our theory of a large high-grade system at Gladiator with expansion potential beyond the pending resource update, which underpins the company’s ~190koz/year production potential by 2020E, with the addition of the nearby Moroy and Barry deposits.
- Results suggest Gladiator could be twice as wide. Today’s results from the New North Extension and hole BA-18-88 point to the potential
for the mineralized zone to double in width over the current strike length of ~1.3km (Figure 1). While early days, our view is that this increased
width could double the resource beyond the pending estimate. We note that increasing width, is likely to increase the ounces per vertical meter,
reducing the rate of vertical development which should lower development and operating costs.
- Ongoing results suggest a more than a doubling along strike as well. Drilling to date has suggested a significantly larger strike
length (4.5km, up from 1.3km) than the pending resource is expected to define. Results included in this update, and recent results
suggests there is significant upside. Our understanding is that company is focused on the extending the deposit east and we expect the next Gladiator
results to focus on a strike extension.
- Pending resource updates on Barry and Gladiator to underpin development plans. The pending resource update from Gladiator, is now
also expected to include Barry, while this may delay the update slightly, it is important first step in the company’s path to producing 185koz/year
by 2020. We note that 85koz/year are expected to come from Gladiator and 100koz/year from Barry and Moroy. Importantly, this should be an important
catalyst for investors to understand and properly value the path forward.
Near-term resource growth, with a clear path to production should drive a re-rating.
Based on currently reported resources for Gladiator, Barry and Bachelor, Bonterra trades at US$63/oz, but once we factor in our estimate of ~C$50M for
the Bachelor mill, and what we expect may eventually be a ~2M oz Au deposit at Gladiator, Bonterra would trade at a discount to peers at US$24/oz (peers
US$30/oz). Upcoming catalysts include 1) Gladiator & Barry resource update, 2) Barry drill results (Q4/18) and 3) Gladiator drill results (Q1/19).
Monarques Gold Corp
A Low-Cost >100koz/yr Project in the Abitibi
Monarques acquired the Wasamac Project for cheap from Richmont Mines (now Alamos Gold) in 2017 and by applying advanced mining designs, has transformed the project into an economic 142koz/yr project.
We believe Monarques has transitioned from a small-scale producer to a mid-tier developer in world-class mining camp and is a likely target for producers looking to bolster declining production profiles.
Relative valuation does not reflect Wasamac’s new economics. At US$13/oz, Monarques currently trades at a steep discount to peers (US$30/oz) on a resource basis and an even steeper discount on a reserve basis (US$29/oz vs peers at US$100/oz). We believe that as development advances, this valuation gap should close.
Upcoming Catalysts include 1) Advancing the Toll milling option, 2) Project de-risking (permits, engineering, financing) and 3) pending drill results from the company’s other projects.
- Now an economic project. As indicated in Figure 1, project economics have materially improved (693% increase to pre-tax NPV)
through lower capital and operating costs primarily driven by the integration of a Rail-Veyor system versus a costlier shaft. In our view,
the project parameters now tics a lot of boxes for producers looking to grow (low capex, tier 1 jurisdiction, +100koz/year scale, solid
returns). As well, the improved economics also carry significant confidence because of the stricter requirements for feasibility studies.
- Toll milling could provide additional upside. While the study incorporates the construction of a stand-alone mill, mine infrastructure
is located ~200m from the railway.
Based on the numbers provided, toll milling would reduce initial capital by C$230M, further improving project economics, while partially
offset by higher milling and transportation costs. We expect the company to rigorously explore this option in the coming months.
- Moving up 2019 shopping lists. The project is located close to multiple major and mid-tier gold producers, such as IAMGOLD
(Westwood), Agnico Eagle (LaRonde) and Kirkland Lake (Macassa), all of whom could leverage existing infrastructure to improve project economics.
In our view, the project’s scale (>100koz/yr) and economics are likely to attract the interest of both local producers and those looking
to enter the region. The last significant development project in this area to be taken out, was Integra Gold, which was acquired for C$507M.
Using those takeout metrics (US$118/oz), the implied value of Monarques would be C$263M for Wasamac alone.
RNC Minerals Corp
Site Visit: Beta Hunt Has High Grade Gold!
Impact: Mildly Positive
We recently had the opportunity to visit Beta Hunt in West Australia and our overall impression was positive, as the company shifts focus to defining higher grade resources (both bulk and selectively mineable). Importantly, the company has a credible thesis as to why higher grades zones of both types occur and where they should occur, so the next step is drilling to prove it out.
With the balance sheet repaired, we expect ongoing exploration and development work to be the key catalysts for demonstrating the potential that we see at Beta Hunt.
- More specimens to come; working thesis points to a likely repeat. The company has identified
a combination of factors that have late porphyry mineralization in the main shear plus the sedimentary unit intersecting tensional
veins that lead to specimen gold (Figure 5).
- Bulk mining resource expected to underpin the operation. Historically, Beta Hunt’s bulk mining
targets have delivered grades between 2.5-3.5 g/t Au; however, recent operating results and development work, point to bulk mining
grades materially improving. In our view, an improvement to +4 g/t (very possible) would make this a profitable mine, especially if
“specimen zones” can be added into the mix.
- Taking the “Time” and having the “Money” to figure it out. The gold mine at Beta Hunt has never
had the proper time and money put into it to prove out and develop its potential. With +C$18M in cash in hand and management’s decision
to temporarily cease bulk mining, this company is well positioned to demonstrate this potential.
We believe RNC’s shares should be worth C$0.94/sh. Our fair value estimate is based on our probability-based valuation method for Beta Hunt (C$0.89/sh), plus the company’s other assets (C$0.05/sh). In our view, the key re-rating catalysts, relate to ongoing exploration and development work at Beta Hunt, demonstrating the potential for additional “specimen zones” and its potential to be a +100k oz/year mine, with decent mine-life.
Upcoming catalysts include: 1) Drilling and development results from Beta Hunt and 2) Balance sheet update.