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Otis Gold Corp. (TSXV:OOO) announced it has reached an agreement to bring its interest in the Oakley gold project in Idaho to 100%. Otis expects to acquire the remaining 20% stake in the Blue Hill Creek and Matrix Creek properties, which together with the Cold Creek property, comprise the Oakley project. In addition, the agreement entails a reduction of a NSR royalty on Blue Hill Creek and Matrix Creek from 2.5% to 2.0%. The total consideration of the transaction consists of 380k Otis shares, implying a total value of C$112.1k based on Otis’ close price on March 14, 2017 (C$0.295/sh). Blue Hill Creek has a 163k oz Au (11Mt at 0.51 g/t Au) inferred resource that is hosted in a shallow epithermal system which remains open in several directions. Previous drill results have intersected gold mineralization over +100m wide intervals. Limited exploration has taken place on the adjacent Matrix Creek property which hosts a mineralization distinctive from that of Blue Hill Creek. In our view, the consolidation of Oakley, a secondary project, is mildly positive and may help accelerate exploration on this project. At C$37/oz, Otis currently trades at a discount to peers (C$50/oz). We believe the market does not appear to fully account for the potential resource growth at the company’s flagship Kilgore project which is located in Idaho, a stable jurisdiction, and in the vicinity of infrastructure. Coupled with the recent strategic ~C$5.05 million investment by Agnico Eagle Mines Ltd (TSX:AEM, NYSE:AEM), we expect the pending resource update (Q2 2017) and PEA (Q3 2017) for Kilgore to be important catalysts for the company, allowing it to close the valuation gap to peers.
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