Chalice Gold Mines Ltd

Recon Drilling Smoke A Good Sign

Impact: Mildly Positive

Chalice has released encouraging results from its Pyramid Hill project where it just completed a 19,500m air-core and reverse-circulation (AC/RC) reconnaissance drill program. Chalice is on the hunt for quality deposits at Pyramid Hill in the prolific Victorian Goldfields of Australia while also advancing East Cadillac, within the Abitibi of Quebec, where exploration work is ticking the boxes for another Canadian Malartic. Chalice’s discounted EV doesn’t reflect that this is a cashed-up junior on the hunt in two major gold camps. 

  • AC/RC recon drilling fleshes out targets. Chalice reported the first batch of results from widely spaced reconnaissance holes drilled within its Muckleford Property. From the East Target, Chalice reported 6m at 6857 ppm As (PA 136) and 4m at 0.25 g/t Au (PA 149). From the West Target, PA 073 returned 4m at 0.39 g/t Au and PA 078 returned 4m at 0.29 g/t Au. We note that the high-grade gold deposits in the southern exposed portion of the Bendigo camp have footprints measured in kilometers and feature extensive geochemical halos. Today’s results will help enable Chalice to vector to a potential gold discovery at depth.
  • Catalyst Metals, Proof of Concept. Chalice’s neighbor, Catalyst Metals (A$180M Market Cap), has had great drilling success exploring under cover at their Four Eagles and Tandarra projects. Geochemical anomalies identified in AC holes within overburden led to headline grabbing diamond drill results including 16m at 63 g/t Au at the Boyd’s Dam Zone (June 25, 2018). Catalyst’s current market cap is based on a 50% and 51% interest in pre-resource exploration at Four Eagles and Tandarra, respectively.
  • More reconnaissance drilling underway. Chalice will be following up with an additional 15,500m of AC/RC drilling at Muckelford given that their multi-purpose AC/RC rig configuration is proving itself as an effective geochemical sampling tool. In addition, Chalice will be launching a 4000m reconnaissance AC/RC drill program at its Mt William property (Figure 3), north of Kirkland Lake Gold’s (TSX,NYSE:KL, ASX:KLA) high-grade Fosterville mine.
Chalice is an inexpensive option on a major discovery. With A$21M in cash, Chalice is well positioned to advance its exploration programs while avoiding dilution, effectively providing investors a low-cost option on any exploration success, with a major discovery providing significant upside. Upcoming Catalysts 1) Ongoing exploration results from both the Pyramid Hill and East Cadillac projects 

Aurion Resources Ltd

Aamurusko Expands and Early Hits at Notches

Impact: Mildly Positive

Aurion’s recent drilling results were successful in growing a coherent high-grade mineralized zone at its Aamurusko Main Zone and in uncovering sandstone and conglomerate hosted mineralization through first pass drilling at its Notches target. These positive results continue to support our fair value estimate C$2.29/sh with upside potential to C$5.57/sh and we expect ongoing exploration to continue to demonstrate this potential.

  • Growing shallow high-grade zones at Aamurusko. Results from the now complete 12km drill program at Aamurusko expand the mineralized strike of the Aamursko Main Zone to 100m with hits including 23.40g/t Au over 0.5m (AM19080). While drilling is currently focused on the 250m wide gabbro intrusive- sedimentary contact zone in the eastern portion of the property, boulder fields have been found to extend up to 1km west where step out drilling points to further shallow high-grade zones. These results support our Medium case view of ~2Moz at +5g/t Au, worth ~C$1.92/sh.
  • First pass drilling identifies new targets at Notches. The company identified a new target at its less advanced Notches prospect where it intersected mineralized conglomerate coincident with geophysical targets. Leading results from preliminary drilling at Notches came from sandstone-hosted quartz veining with highlights of 20.30g/t Au over 0.65m (NT18006). However, as seen in Figure 4, veins in polymictic conglomerate where discovered beneath an existing trench and add an interesting new target to the company’s inventory. These positive drill results support our Upside Case view of ~5Moz (multiple deposits) at +5 g/t Au, worth C$5.57/sh.
  • Extensive follow-up planned for the spring. With its most recent drill program now complete the company, has identified several targets which it will pursue in the spring. Given recent results, we expect the company will continue to demonstrate what we see as camp scale potential across the entire Risti project.
Drilling success continues to drive Aurion’s share price towards our fair value estimate. We continue to believe that Aurion’s shares are currently worth C$2.29/share (unchanged) with upside potential to C$5.57/sh (unchanged). While these results support our Medium and Upside case estimates, we wait additional drilling data prior to updating the weightings of our probability-based valuation method that incorporates three possible scenarios adjusted for the time and capital to achieve each scenario (Figure 1). Upcoming Catalysts include 1) Ongoing exploration results



Seabridge Gold Inc

Iron Cap Continues to Grow

Impact: Mildly Positive

Seabridge has announced an upgraded resource at Iron Cap, one of its four large Au-Cu porphyry deposits that make up the KSM project in BC. As a result, the slight increase higher-grade resources have positively impacted our estimates. As Seabridge continues to improve the size and quality of its resources, this news continues to highlight the company’s undervalued potential as it seeks a suitable JV partner.

  • Update grows resource tonnes. At a C$16 NSR cut-off for a block cave at Iron Cap, the updated resource saw an increase in tonnes by 39%, a slight decrease in grade of 3% and an overall 35% increase in ounces. The primary impact of this news is positive given the favourable logistics resulting from Iron Cap’s proximity to the proposed Mitchell Treaty Tunnel which will be used to transport ore to processing facilities.  
  • Higher-grades at Iron Cap improve our estimates. The company outlined an updated high-grade resource of 681Mt at 1.44 g/t AuEq (31,527koz AuEq) at a higher NSR cut-off of C$36 (was C$32/t). The higher cut-off results in a slight grade increase to 1.44g/t AuEq (was 1.39g/t AuEq). Our current mine plan follows the 2016 PEA with open pit operations beginning at Mitchell and Sulphurets followed by block caves at Iron Cap, Deep Kerr and Mitchell. With Iron Cap now larger and slightly higher grade, our NAVPS estimate has modestly increased to C$41.81 (was C$41.44). Our estimates reflect what we expect to be in the updated mine-plan, which is expected later this year.  
  • Ongoing work should improve KSM economics as company continues to seek JV partner. We expect Seabridge will continue improving resources at KSM to delineate the best 2.4B tonnes for which it is permitted based on current tailing facility permits. We expect the company will continue to issue exploration updates as it optimizes the project plan for mining KSM.  
Current pricing does not reflect likely JV potential. We are maintaining our C$29/sh fair value estimate for Seabridge based on on 0.70x our C$41.81 NAVPS 5% estimate (was C$41.44). Seabridge is trading at 0.43x NAV, which is a slight discount to peers (trading 0.47x); however, in our view this valuation does not reflect what we believe to be an impending JV agreement, whi ch our estimates suggest should materially re-rate the stock. Upcoming catalysts include 1) Updated mine plan, 2) Drilling at Snowstorm, Iskut and KSM and 3) JV agreement to fund construction.



De Grey Mining Ltd

Toweranna Results Push Pilbara Gold Towards 2Moz

Impact: Mildly Positive

De Grey continues to pursue aggressive resource expansion with recent drilling suggesting material resource growth is likely at Toweranna. We believe De Grey is worth A$0.30/sh and these drill results are another step in demonstrating the exploration potential of the Pilbara Gold Project. 

    • Initial drilling returns high grades suggesting resource growth. De Grey conducted drilling in the Eastern and Western zones of Toweranna both to expand resources, and for metallurgical testing. Positive results were highlighted by 5.8m at 5.76 g/t Au (TD002) and 10.4m at 4.93 g/t Au (TD007) in the East and West respectively demonstrating the potential for higher grades beyond the current 2.2g/t Au 143,900 oz resource.
    • Toweranna exploration target appears very achievable. The Toweranna resource is largely constrained by a shallow depth of <120m. The company is planning a +5000m RC drilling program to be followed by diamond drilling to depths of up to 800m. The coming program will target both the Eastern zone, where mineralized lodes appear to dip to the east, and deeper zones beneath the deposit. Based on its current knowledge, De Grey has outlined a total exploration target of 680,000-800,000oz at a new depth of 400m. Our estimates account for the upper portion of Toweranna exploration target only, and any additional expansion could provide upside to our current estimates. 
    • Ore sorting could prove transformative for Toweranna. The company
      is conducting initial test work with Tomra Sorting Pty Ltd to evaluate the potential of implementing ore sorting at Toweranna. While still early days, the technology could expand the mineable resource and introduce a higher-grade concentrate to the mill (vs. whole ore). In our view this could positively impact project economics, the magnitude of which will depend on pending test results. 
    De Grey continues to make itself more attractive to potential acquirers. We estimate De Grey’s hard rock assets are worth at least A$0.30/sh based on 0.70x our NAVPS8% estimate of A$0.44 and we anticipate a progressive re-rating as the company de-risks its +100koz/year production potential and demonstrates the project’s exploration upside. Upcoming catalysts: 1) Ongoing exploration results and 2) Project development updates.

De Grey Mining Ltd

More Drilling Success Points to Resource Expansion

Impact: Mildly Positive

Drill results out of De Grey’s Wingina and Amanda deposits extend both targets beyond their current resource shells and highlight the largely untested discovery potential of the >60km thrust zone in which both deposits occur. We recently published our initial estimates and we expect the company to gradually re-rate as it turns out the scale and discovery potential see at its Pilbara Gold Project. 

    • Wingina expected to grow. Wingina’s current deposit shell extends over 1km of strike to roughly 200m of depth. These drill results demonstrate a potential step out 150m east with highlight intercepts returning 6.35m at 3.37 g/t Au (WDH015). Furthermore, the company successfully tested new depths of up to ~300m where it intersected significant mineralization including 2.84m at 1.22 g/t Au 323.8m down (WDH016).
    • Amanda hints at potential of wider mineralized corridor. At Amanda,
      RC drilling from 25 holes shows the strike and depth potential of the largely underexplored deposit (50,800oz at 1.3 g/t Au) which remains unconstrained along strike and at depth. Banner intercepts returned 14m at 1.06 g/t Au (AMRC042).  
    • Growing resources would positively impact our estimates. Based
      on these, as well as recent results from Towerana, Malina and Withnell Underground, De Grey is well positioned to deliver a 2M oz resource by year-end. We note that a 10% increase in mineable open-pit tonnes at current grades (1.81 g/t) would increase our NAVPS estimate by 4%. We also note that ounces added at Wingina and Amanda would have larger impact on our estimates, as these deposits are expected to have higher recoveries and lower processing costs (free milling at depth).

    We believe that De Grey could position itself as an attractive target to mid tier producers as it continues to deliver exploration success at the Pilbara Gold Project. Our preliminary estimate for De Grey’s hard rock assets are worth at least A$0.30/sh
    based on 0.70x our NAVPS8% estimate of A$0.44. We expect the company to progressively re-rate as it de-risks the +100koz/year production scenario and continues with its ongoing exploration success. Upcoming catalysts: 1) Ongoing exploration results and 2) Project development updates.

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