Gran Colombia Gold Corp

Record Q1 Reflected In Financial Results

Impact: Positive

Gran Colombia has released positive Q1/19 financial results, which highlight record quarterly gold production and revenue. We believe the company is positioned to meet and potentially exceed 2019E guidance. We maintain our fair value estimate of C$6.00/sh and expect operating execution, exploration updates from Segovia and the Marmato PEA to drive a progressive re-rating towards our fair value estimate.

  • Record quarterly gold production bodes well for guidance. Production for Q1/19 yielded 60,601 ounces, a 10% over the previous quarter, which was driven by higher head grades (18.8g/t Au versus 17.1g/t Au) at Segovia. This allowed the company to achieve record quarterly revenue of US$77.5M, up 14% QoQ. Higher grades at Segovia also led to a historically low cash cost of US$570/oz, bringing the company’s total cash cost for the quarter down to US$621/oz.
  • Strong start suggests guidance could be conservative. Gran Colombia reaffirmed 2019 guidance of 210-225koz Au at total cash costs below US$720/oz; however, the first four months of production (81.1koz) implies the company is on pace to produce more than 240koz. We note that the elevated production, is due to a positive grade surprise. Consequently, we now model 227koz (was 225koz) at cash costs of US$679/oz (was US$690/oz) for 2019.
  • Exploration at Segovia ramping up. Gran Colombia is ramping up exploration efforts at Segovia with a 20km drill campaign already underway. We believe a new high-grade zone, likely El Silencio deep, would expand production as ongoing efficiency improvements are not likely to be offset by the expected reduction in grade.
Strong Q1 should be another step towards closing the valuation gap to peers. Our fair value estimate of C$6.00/sh is based on 4.0x our one-year forward, NTM EBITDA estimate of C$111M. Gran Colombia trades at 1.5x 2019E EBTIDA and 0.56x NAV versus peers at 6.0x and 0.69x, respectively. We believe that continued operating and financial success should drive a re-rating. Upcoming Catalysts include 1) Exploration results (ongoing) 2) Q2/19 financial results and 3) Marmato PEA H2/19.



Rockcliff Metals Corp

Laguna Sweetens the Deal

Impact: Mildly Positive

Rockcliff announced positive drill results from its Laguna property, optioned to Kinross Gold Corp (TSX:K). We highlight that Rockcliff remains focussed on the planned 100,000m drilling program focussed on its base metal deposits and the largely untested Snow Lake South Emerging Mining Camp.

  • Laguna shows potential. Rockcliff announced results from six widely spaced holes testing a 2km segment of a wider 6km gold trend identified at the Laguna project. Four of six holes intersected anomalous to ore grade gold intervals with banner intercept of 1.62m at 9.62 g/t Au (LG18-003). We are encouraged that Kinross has elected to spend another C$1M at Laguna starting in May 2019 - Kinross has an option to earn up to 70% at Laguna.
  • Thesis unchanged – base metals are the focus. Rockcliff recently completed a major restructuring with Greenstone Resources II LP and Norvista Capital Corp, securing C$29M in funding primarily to advance its massive base metal portfolio in Manitoba’s Snow Lake camp. While focus remains on its base metal assets, we view Laguna and Rockcliff’s other gold assets in the Snow Lake Camp, held under wholly owned subsidiary, Goldpath Resources, as an added sweetener to its base metal portfolio. We note that a potential spin-out of Goldpath could daylight some of this value. We currently ascribe a C$4M (C$0.01/sh) value to Goldpath.
  • Important catalysts coming. As mentioned in our recent update on Rockcliff, the company plans to undertake a 100,000m program over the following 20 months. In the near-term we are expecting the first phase of exploration to focus on advancing the Tower and Talbot projects in addition to infill and expansion drilling at a number of the company’s other base metal deposits.
Restructured and cashed-up Rockcliff continues to offer tremendous base metal option value. With funding now in place to commence an aggressive 100,000m drill program across its extensive asset base in the world class Snow Lake base metal camp, we maintain our valuation of C$0.40/share (unchanged). This reflects potential both to grow resources and to make a significant discovery in the SLSEMC. Upcoming catalysts: 1) Infill and Expansion drilling from Talbot/Tower (Q3/19) and 2) Expansion drilling at Rail, Bur, Lon and Morgan (Q4/19) and 3) Drilling the SLSEMC (H2/20). 4) Additional results from Laguna



Brixton Metals Corp

Swinging for the Fences at Thorn

Impact: Positive

Brixton has announced its intention to kick-off its 2019 exploration program with a 1,000m hole at its Thorn Project before shifting focus to Atlin. Our fair value estimate is C$0.28/share, underpinned by our belief that Atlin has the potential to deliver a significant gold discovery. We currently ascribe zero value for Thorn in our estimates, but work to date suggests the project could yield a copper-gold discovery.

  • Drilling for a giant porphyry at Thorn. Phase I of the company’s summer drill program is set to commence in early June and is targeting the Oban diatreme with a single 1,000m hole. The drill hole is to be directed down the centre of a breccia pipe with the aim of intersecting an interpreted porphyry source at depth (Figure 2). A porphyry discovery could catapult Brixton’s stock price.
  • But there could be more at Thorn. A Phase II drilling program is contemplated to test the Chivas target, which features a compelling 5km2 geochemical anomaly (Au, Cu and Mo), centered on feldspar porphyry intrusive with ‘classic’ concentric porphyry alteration halo. Drilling in 2017 returned ore grade gold-copper values and encountered porphyry style B-type veining. Conditional on funding, Brixton may drill 2,500m (five x 500m diamond drill holes), to test Chivas later this summer at Thorn.
  • Atlin remains the focus with drilling commencing in late Q2/19. Upon completing its 1,000m hole at Oban, Brixton plans to launch a 3,000-4,000m drill program at Atlin in late June. We continue to believe that Atlin has the potential for a major discovery like Barkerville, based on historic drill results, previous placer mining and a district scale land package (1,004 km2). We expect this program to generate news flow throughout the summer.
Our probability-weighted valuation estimates Brixton’s current share price could be C$0.28/share (See Figure 1). This valuation is exclusively based on a discovery at Atlin and ascribes zero value to Thorn or Brixton’s other assets. As we receive more guidance on results from Thorn we may update valuation to reflect potential for a porphyry copper-gold discovery. Due to a calculation error, we mistakenly reduced our fair value estimate in our January 8, 2019 comment, we are correcting it with this update. Upcoming catalysts: 1) Surface work from Atlin (Q2/19) 2) Drill results from Thorn and Atlin (Q3/19) and 3) Kimberlite analysis results from Langis (H2/19).



Coro Mining Corp

Coro Adds Land

Impact: Mildly Positive

Coro has announced the acquisition of two new property claim areas, contiguous to and around Marimaca, significantly expanding their property to the northwest and northeast. We note that ongoing exploration work continues to demonstrate Coro’s potential as a viable copper heap leach story, and we expect that ongoing drilling could materially expand the company’s current resource.

  • Marimaca Project area grows 34%. Coro has announced an option to acquire the Mercedes and Llanos claims, which comprise a package of ground which is contiguous to and around the Marimaca project area, expanding their holdings by 6.7 km2 to the northwest and northeast (see Figure 1 and 2). Total consideration for the deal is US$2M, comprising staged payments escalating over 48 months, in addition to a 1% NSR with a US$500,000 buy-back option valid for 24 months following the commencement of commercial production.
  • Llanos and Mercedes show initial signs of further mineralization. First-pass geological mapping and sampling and the presence of artisanal workings suggest the properties are prospective given presence of key indicators (i.e. dyke swarms, feeder structures and banded fracturing) associated with copper at Marimaca. Coro plans to test these areas by following-up on potential extensions to the north from Athahualpa towards Mercedes and east-west from Olimpo towards Llanos (Figure 2).
  • Resource and more drilling coming. Work is underway to issue an updated resource in Q3/19 for Marimaca. We highlighted in a recent note that out fair value estimate C$0.21/sh could increase C$0.05/sh should the company delineate a 200Mt oxide resource. Ongoing Phase III drilling could contribute to demonstrating this potential as could further exploration success on the recently acquired Llanos and Mercedes claims in addition to benefits of scale as any potential operation increases in size.
Added property a good addition ahead of resource update. We are maintaining our fair value estimate of C$0.21/sh is based on 0.80x time our base case NAVPS estimate of C$0.26/sh. Coro trades at a discount to peers (0.38x NAV, peers 0.54x). As we receive guidance on an expanded Marimaca resource we may push our estimates higher to reflect the bigger scenario. Upcoming Catalysts include: 1) Resource Estimate Update (Q3/19), 2) Phase II and Phase III drill results (ongoing).



Novo Resources Corp

Beatons Creek and Karratha Moving Ahead

Impact: Mildly Positive

Novo has announced the receipt of mining leases and approvals for its Beatons Creek project which significantly de-risk the project. The Company is now evaluating development options. We continue to believe that as the company advances multiple projects in 2019, Beatons Creek, Karratha and Egina, it should re-rate towards our fair value range of C$2.70-5.10/sh.

  • Important permitting progress at Beaton’s Creek. Novo has been granted a Mining lease which covers 99% of all ounces contained in the updated Beaton’s Creek resource and a Native Title agreement. The permit covers oxide mineralization only (60% of indicated ounces – Figure 1) and allows the project to quickly move ahead once a milling option is defined. The company continues to evaluate processing options, and we expect in a stand-alone scenario, Novo is likely to process ore at its Blue Spec mine, approximately 30km away.
  • Permits moving forward at Karratha. Novo has provided an additional update on its Karratha project where it is in the final stages of reviewing its mineralization report. The company’s next step would be to obtain its mine permits following the submission and approval of the mineralization report. We continue to expect a significant bulk sample at Karratha to commence later this year.
  • Positive catalysts coming. In order for bulk sampling to begin at Karratha, the company must obtain a Native Title agreement and mineralization report which we continue to expect this quarter. Additionally, the company is expected to resume bulk sampling at Egina where it is also testing and refining ore sorting technology.
Expecting a busy season to provide important catalysts. We use a DCF valuation for Beatons Creek of C$1.40-1.70/sh plus Karratha valuation of $1.30-3.40/sh for a total valuation range of C$2.70-5.10/sh. This does not attribute any value for Egina despite some positive early results. We believe that continued de-risking and exploration success should close the valuation gap to our estimates. Upcoming catalysts include, 1) Bulk sampling and permitting update at Karratha (H2/19), 2) Systematic bulk sampling work at Egina (Q2/19)


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