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Integra Resources – A Premier M&A Candidate in the Making

Florida-MTN-Geochem

NOTE: This article was originally published on June 23rd, 2020 for subscribers. Subsequently, the share price has risen 40%.

As I mentioned in last week’s Market Update commentary, M&A is on my mind.

This new bull cycle in gold will bring fourth many new deals and with them a chance for investors to make a very good profit – if you choose right.

Picking the right company will be a reflection of the criteria you use.

Being picky and setting the bar high not only protects your downside risk, but also forces you to think like a major mining company, which is looking to add economic resources to their books.

Today, I have for you one company which I believe will be at the forefront of M&A activity in the not-so-distant future.

The company is Integra Resources (ITR:TSXV) and they are developing their flagship Delamar project in Idaho.

Let’s take a closer look.

Integra Resources (ITR:TSXV)

MCAP – $190.1M (at the time of writing)

Shares – 119.6M

FD – 130.7M

Cash – roughly $27M

People

Integra is led by CEO George Salamis, who has over 30 years experience in the resource sector and is a geologist by trade.

Salamis has a very good reputation in the sector and the resume to support it.

He has been involved in over $2B inM&A transactions over his career, with his most recent success coming from the acquisition of Integra Gold by Eldorado Gold Corporation for C$590M.

Salamis is supported by a strong team with CFO Andree St-Germain, VP Exploration Max Baker, and COO Tim Arnold.

Further, Integra has a great Board of Directors; Chairman Steve de Jong, David Awram (Co-Founder of Sandstorm Gold), Timo Jauristo (Former Executive VP with Goldcorp), Anna Ladd-Kruger, and C.L. “Butch” Otter.

Finally, and although not a Director, Strategic Advisor Randall Oliphant (Former CEO of Barrick Gold) brings 30 years of experience to the table.

Clearly, Salamis and his supporting cast have a history of developing projects into premier M&A candidates.

I fully expect to see the same story play out with Delamar, as the team works to improve Delamar’s economics and this gold bull market progresses.

Delamar Project

The Delamar project encompasses roughly 8,100 hectares in southwestern Idaho, about 80 km southwest of Boise.

Idaho is a premier mining jurisdiction and, while it may not have as deep a history and fanfare as its neighbour to the south, Nevada, it does rank very high in mining investment attractiveness.

In fact, the Fraser Institute agrees and ranks Idaho 8th in the world in mining investment attractiveness with a score of 82.78.

Delamar is a past producing mine and, prior to its acquisition by Integra in 2017, it was owned by Kinross.

The Delamar and Florida Mountain deposits have produced an estimated 1.3 million ounces of gold and 70 million ounces of silver over the course of their 100 year history.

Since its acquisition, Integra has converted 90% of its inferred resources to M&I between 2018 and2019, it has completed extensive metallurgical studies on both the oxide and sulfide portions of the deposits, and completed a PEA last fall.

The PEA reveals robust economics at US$1350/oz gold and US$16.90 silver. Let’s take a look at some of the highlights.

2019 Delamar PEA Highlights:

After-tax NPV@5% – C$472M

After-tax IRR – 43%

Upfront CAPEX – US$161.0M

Sustaining CAPEX – US$93.4M

AISC – US$742/oz AuEq

Production Capacity – 124 Koz/year AuEq

Life of Mine – 10 years

M&I Resources – 1.8 Moz AuEq

These are great numbers, as the project has good size, comparatively low upfront capital costs, and the gold and silver price assumptions are well under today’s prices.

How does the project’s economics look at today’s metal prices?

Great question; while it’s imperative to understand our downside risk in-terms of the metal prices, we need to understand the value of the project today.

In Integra’s corporate presentation, there’s a great sensitivity table which reflects Delamar’s  NPV and IRR and varying metal prices.

Highlighted in red is a snap shot of today’s metal prices. I will note that the silver price isn’t anywhere near US$21.28, yet, but silver’s impact on the project is much lower than gold’s given the metallurgical recoveries at this point.

The other thing to consider is that this sensitivity analysis only changes the metal price, it doesn’t account for the other positives that are derived from higher gold and silver prices.

Most notably in this base case scenario, is the increase in the pit shell and the possibility of mining underground, which is a very good possibility given the mineralization which Integra has encountered.

What was once waste in the low metal price environment is now ore.

In the US$1350/oz gold and $17.47/oz silver scenario, the Delamar pit would process 46,734,000 tonnes at 0.34 g/t gold and 19.14 g/t silver and have a strip ratio of 0.67.

Additionally, the Florida Mountain pit would process 53,142,000 tonnes at 0.47 g/t gold and 11.83 g/t silver and have a strip ratio of 1.25.

Conversely, if you consider today’s metal prices, US$1700/oz gold and $22.00/oz silver, the tonnage at the Delamar pit increases to 51,474,000 tonnes at 0.33 g/t gold and 19.76 g/t silver and have a strip ratio of 0.92.

Florida Mountain’s tonnage increases to 59,396,000 tonnes at 0.46 g/t gold and 11.69 g/t silver and have a strip ratio of 1.39.

NOTE: These figures can be found on pages 177 and 179 of the 2019 PEA.

In total, the higher metal prices, in terms of ounces, account for a further 35Koz of gold + 4Moz of silver from the Delamar pit, and 77Koz of gold + 2.1Moz of silver, bringing the grand total to 112Koz of gold and 6.1 Moz of silver.

Those aren’t earth-shattering numbers, but still contribute to the bottom line of the project.

Putting it altogether, I like the base case scenario for the project and, outside of exploration upside, which we have yet to discuss, I like how the project responds over a variety of metal prices.

Exploration Upside

#1 – Expansion of the Florida Mountain Deposit

As I explained in my thoughts on M&A, size matters.

While comparatively, the Delamar project is already large, an expansion of the resource would be highly advantageous for its economics and appeal to major mining companies.

As you can see in the image below, there’s a large gold in soil geochemical anomaly which surrounds the existing deposit.

Integra will be targeting oxide/transitional mineralization in this area.

As investors, we should be looking for assay grades around that which we have seen on the existing deposit resource, so roughly 0.5 g/t.

While this isn’t the flashy high grade stuff Integra will be exploring for at other targets, remember that it’s oxide/transitional mineralization which is the backbone of the future operation.

The drilling of this anomaly will occur this year and, in my view, represents a tremendous opportunity to add value to the project.

#2 – Underground Resource

As I mentioned in the project introduction, the Delamar project was a past producing mine, both open pit and underground workings.

The underground workings at Florida Mountain are extensive, stretching over 2km, and will be the focus of high grade exploration this year.

In my discussion with management, these workings were encountered during the metallurgical drilling last year and returned some great intervals.

For example:

  • IFM 19-054 – 9.70 g/t gold and 12.85 g/t silver over 1.52m
  • IFM 19-062 – 2.12 g/t gold and 181.96 g/t silver over 37.95m, including 7.68 g/t gold and 623.86 g/t silver over 4.88m
  • IFM 19-058 – 18.50 g/t gold and 850.70 g/t silver over 1.52m

Although this high grade mineralization is underground, it appears as though it’s easily accessible and, of course, is in close proximity to the future mill site.

Outlining a high grade underground resource at Florida Mountain, therefore, represents a tremendous opportunity to add value to Delamar’s NPV, especially if the high grade material can be mined early on in the production schedule.

#3 – War Eagle

In Q4 of 2019, Integra drilled their War Eagle target, which sits roughly 3km southeast of Florida Mountain.

As you can see in the image below, they hit some very nice high grade intervals.

Given its proximity to the main project, it’s reasonable to think that at some point, depending on a number of factors, War Eagle could become a high grade production source for the mill.

A feed of high grade ore from this potential satellite deposit would be gravy on top of what already looks like a profitable operation.

Drilling at War Eagle will commence within the next 2 to 3 weeks.

#4 – Black Sheep

Finally, there is the Black Sheep target area, which sits to the northwest of Florida Mountain.

At Black Sheep, Integra has a 25 square kilometre target area, with multiple geochemical and geophysical anomalies to follow up on.

Integra plans to drill 3,000m in this area later this year.

Risks to Investment

Exploration – The Delamar project has tremendous exploration potential across its 4 main target areas: the oxide/transitional geochem anomaly at Florida Mountain, the high grade underground target at Florida Mountain, War Eagle and, finally, Black Sheep.

 With that said, with exploration comes risk.

If mineralization is intersected, what is the grade?  At what depth was it discovered? Is there enough of it? All these questions need to be answered before any discovery can be deemed economic and, therefore, a positive addition to a future mine plan.

Covid-19 – The contagion of the Covid-19 virus remains a risk to every junior mining company. Any future lock down could put Integra’s action plan in neutral and, therefore, delay Delamar’s development.  With a high burn rate, G&A + development/exploration costs, time not spent developing the project comes at a high cost to investors.

Gold Price – At this point, the gold price is arguably the biggest risk to company valuations, as a fall back to US$1350/oz, I believe, would result in a massive sell off and, thus, dramatic drops in company valuations.

Much like Covid-19, however, downside risk associated with the gold price is an ubiquitous risk across the sector.

With gold holding, more or less, at US$1700/oz for many weeks now, I believe it’s less and less likely that we see US$1350/oz gold any time soon.

Time will tell.

Concluding Remarks

Integra’s Delamar project is excellent, it has robust economics at US$1350/oz gold and, more importantly, its sensitivity to the metal prices allows it to respond very positively to the rising gold and silver price environments that we see today.

Protecting your downside risk is integral to success in the junior resource market.

With that said, in terms of company valuation, Integra is well known within the sector and, therefore, with reference to Delamar’s base case valuation, doesn’t present a huge discount to value, in my view.

However, when you consider the exploration potential and, if successful, the impact it will have on the economics of the project, I believe this is where the true upside potential lies.

In my opinion, Integra’s story is as much about exploration as it is about development.

To add, Integra is run by a stellar group of people, who have a history of success in developing companies into premier M&A candidates.

I’m very confident that Salamis and team will continue to make the right decisions as the Delamar project continues to grow and take shape in this very important exploration season.

A PFS is expected in the second half of 2021; the discovery of further high grade mineralization could further separate Integra from the other gold development companies in Tier #1 jurisdictions.

Get the e-book Junior Resource Sector Investing Success: The Risks, Rules & Strategies You Need to Know today, when you become a FREE Junior Stock Review VIP .

Until next time,

Brian Leni P.Eng

Founder – Junior Stock Review Premium

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company and sector that is best suited for your personal investment criteria. I have NO business relationship with Integra Resources (ITR:TSXV). I do own shares in Integra Resources.

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Update on FPX Nickel Corp. (FPX:TSXV)

NOTE: This update article was first published for Junior Stock Review Premium readers on May 22nd, 2020. Subsequently, FPX’s share price has appreciated roughly 30% since. Become a  today and get my best investment ideas, market commentary and interviews first.

The attention of the market right now is rightfully focused on gold and silver, as the thesis for owning the metals has never been clearer.

Conversely, base metal prices have fallen off and are at multi-year lows. The downside risk, at least in the short term, is clearly evident.

While many base metal operations have been shut down due to the Covid-19 lockdown, it’s the demand side of the equation which I think poses the most risk to the short-term future of base metals’ prices.

In my view, much of the next 3 to 6 months is still murky, as it’s unclear to me if all the quantitative easing (QE) and low interest rates will be able to stave off the impact of the Covid-19 pandemic.

To add, even if a depression-like scenario is averted, it’s my view that this global shutdown will come at a price.

That price could come in a number of forms, but the one that I think is most likely is one of stagflation.

Stagflation is defined as,

“persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.”

Although a stagflation environment paints an ugly picture for the economy and by extension base metals, I’m still very bullish on their long-term future.

I, therefore, believe any potential weakness in share prices as great buying opportunities for those who have an investment horizon of at least 1 to 2 years down the road.

Conversely, if you can handle the risk and are able to find a well-financed junior base metal explorer, discovery can pay no matter where you are in the cycle.

Today, I would like to give you an update on FPX Nickel Corp. (FPX:TSXV).

As the name suggests, FPX is a junior nickel company that is developing their Decar Nickel District in Central British Columbia, Canada.

FPX Nickel Corp. (FPX:TSXV)

MCAP – $24.5M

Shares – 163.3M

FD – 178.9M

Cash – $1.9M as of May 1st, 2020

Currently, FPX is focused on an updated PEA, which I believe should be dramatically different from the one released in 2013.

What’s changed over the last 7 years? A lot.

Let me take you through what I see as the major positive differences between the old and the new.

  • Lower Exchange Rate – In 2013, the CAD to USD exchange was almost at par – $0.97 – while today, the exchange rate has changed dramatically, especially in the last couple of months – $0.72
  • Metallurgical Recoveries – Last year, FPX conducted extensive metallurgical work and improved their metallurgical recoveries from 82% to 85%.
  • End Product Flexibility – While it may not have a direct economic benefit, the fact that the metallurgical work completed in 2019 revealed Decar’s high grade nickel concentrate was easily converted into nickel sulphate, via leaching, was a major accomplishment.  Nickel sulphate is important, as it’s the chemical which battery makers need, thus, it gives FPX the flexibility to potentially feed battery makers and/or steel producers.
  • Payability – In my view, the payability of an operations end product is often overlooked by investors. The fact is, depending on the grade of the primary metal, in this case nickel, and the level of deleterious elements, the payability of a concentrate can vary greatly. Along with the improvement to metal recoveries, FPX expects to produce a high grade 63 to 65% Ni concentrate. The 2013 PEA considered a 13.5% Ni concentrate, which translates into a significant difference in payability, moving from 75% with the 13.5% Ni concentrate to 90-95% with the high grade 63-65% Ni concentrate.
  • Starter Pit – In 2017, FPX completed an 8 hole step out drill program on the Baptiste deposit.  The program was successful, extending the strike length by roughly 500m or roughly 25% and, given the high grade nature of the mineralization of the extension, appears to give the company a great spot for a starter pit.  Mining high grade mineralization first should increase early profits and, therefore, increase the NPV of the project. Remember, that’s a discounted model, profits are discounted in the future, making profits early on that much more impactful to the overall NPV of the project.

Economic Improvements to Come

  • Carbon Neutral –Currently, UBC and Trent University are collaborating on a research program which is investigating carbon capture and storage at mining sites. FPX’s Decar Nickel District is at the centre of this research as the study looks to maximize the reaction between carbon dioxide and magnesium silicate mine tailings. As FPX states in their most current Corporate Presentation, the Decar mine waste is high in Brucite, which makes it a prime candidate for carbon sequestration. It is, therefore, possible that a future mine at Decar could be carbon neutral and would benefit under the current BC carbon tax.
  • Iron Ore By-Product – To note, there are little to no sulphides present in Decar’s host rock and tailings and, most advantageous, the flotation tailings appear as though they will be saleable. In FPX’s case, the tailings are actually a magnetite iron ore concentrate, which has a grade range of 60 to 62%, and may be a good candidate for sale to steel mills in the western portion of Canada and the United States. This may not be included in the updated PEA, but could prove as a great revenue source, depending on the iron ore price, for a future mining operation.

Risks to Investment

Covid-19 Crisis – While I’m citing Covid-19 as a risk, it’s really only a catalyst for supply and demand destruction and ties into the stagflation theme which I explained in the introduction.  Longer term, though, FPX is at the top of my list in terms of junior nickel companies, and is currently the only one I’m invested in.

Nickel Price – It’s my guess that FPX will target a nickel price of around US$7.50/lb in their updated PEA, which means that the nickel price has to increase by almost 50% from its current price. Without an increase in price, the value of Decar is very speculative. To contrast that, take a look at the majority of undeveloped nickel projects worldwide. You will soon see that they are uneconomic at US$5.60/lbs. In fact, many require much more than US$8/lb to be economic, making FPX’s Decar very attractive.

CAPEX – There’s no getting around the fact that this will be a multi-billion dollar development project. To some, they won’t be able to see passed this, but I would point out, there aren’t many 30+ year mining projects that don’t require large upfront capital costs.

Debt – FPX does have a good chunk of debt, roughly $7.9M, however, it isn’t due for a few years and it is all held by 2 of the company’s largest shareholders. My guess, if FPX hasn’t been bought out before the loans’ maturity, FPX’s CEO Martin Turenne will find a way to eliminate it or extend the debt into the future.

Concluding Remarks

In my opinion, FPX Nickel is the best junior nickel company in the market. Putting it all together, the investment thesis is as follows:

  • Good Management – CEO Martin Turenne is top notch, as good as they come in the sector.
  • Access to Cash – FPX has been able to continually raise money without warrants and continually at higher prices over the last 4 years.
  • Economics – As I covered, the upcoming updated PEA should show the market that Decar is an economic project at around US$7.50/lbs nickel, putting them near the top of the undeveloped nickel projects worldwide.
    • While the grade isn’t world class, the size and metallurgical aspects of the deposit are and that mixed with its location make it, in my view, highly desirable to potential buyers.

Investment in FPX isn’t without risk, but at its current MCAP, it’s trading at a fraction of its value. I continue to hold my shares of FPX and will continue to add to my position moving forward.

Further reading and watching on nickel and FPX Nickel Corp.:

2019 Cambridgehouse VRIC Presentation – https://www.juniorstockreview.com/nickel-a-short-and-long-term-outlook/

2019 Cambridgehouse VRIC Panel – https://www.juniorstockreview.com/junior-stock-review-nickel-panel/

Mining Stock Education – https://www.youtube.com/watch?v=AxgbpO0vebk

Original Investment Thesis Article January 2018 – https://www.juniorstockreview.com/fpx-nickel-corp-undervalued-pure-nickel-play/

FPX Metallurgical Improvements Update – https://www.juniorstockreview.com/fpx-nickel-corp-update-on-the-baptiste-deposit-metallurgy/

Get the e-book Junior Resource Sector Investing Success: The Risks, Rules & Strategies You Need to Know today, when you become a FREE Junior Stock Review VIP .

Until next time,

Brian Leni P.Eng

Founder – Junior Stock Review Premium

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company and sector that is best suited for your personal investment criteria. I have NO business relationship with FPX Nickel Corp., I do own shares in FPX Nickel Corp and am therefore bias.

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A Conversation with Mark O’Dea – Words of Wisdom from One of the Sector’s Best

Whether it’s a black swan or a white rhino, the Covid-19 Pandemic will go down as one of the major events in world history.

In my mind, the question that remains is whether Covid-19 is remembered more for the deaths it has caused or the financial and social chaos which could follow?

Personally, if I had to choose, my guess would be that history will look back at the Covid-19 crisis as the precipice of something much bigger.

Clearly, the world financial system has been pushed to its limits, as the U.S. Federal Reserve’s pledge of QE Unlimited really makes you wonder where this is all headed.

On the social side of things, there have been many troubling developments, from the Canadian government’s attack on free speech to India’s Aarogya Setu tracking app, which allows the Indian government to track its users.

It’s a brave new world.

With that said, the case for higher gold prices has literally never been better than it is today.

Although higher gold prices spur thoughts of grandeur among many gold bugs, higher gold prices do come with the caveat of chaos.

The late Richard Russell said, and I’m paraphrasing,

“In the next crisis, it isn’t who makes the most, but who loses the least.”

Given the circumstances, he may very well be right – a sobering thought.

Today, I have for you an interview with one of the resource sector’s best, Mark O’Dea, who is the Founder and CEO of Oxygen Capital.

In the interview, we cover a number of topics, including the investment thesis for PureGold, which is in the midst of constructing its PureGold Red Lake mine in Northern Ontario.

Enjoy!

Brian: The Covid-19 crisis has swept over the world the last few months, shutting down economies and forcing us into uncharted territory both economically and socially. Governments have pledged unprecedented amounts of money to repair the damage, but uncertainty about the future still remains.

In a 1959 speech, John F. Kennedy said,

“The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In crisis, be aware of danger – but recognize the opportunity.”

In your opinion, today, what danger should people be aware of and, secondly, where is the opportunity?

Mark: Well, thanks Brian. I think the danger is already baked into the reality that we’re all living right now. Stocks have been crushed, economies are struggling, danger levels remain high and people are on high alert. Whether stocks fall lower, testing the lows of a few weeks ago or not, remains to be seen. It kind of feels like that’s not the case, but who knows? I think throughout this, what’s emerged as an opportunity, a sort of counterpoint to all that risk and crises, is that gold is looking really constructive and is in a very good place right now. So, it’s done what it’s meant to have done in the sense that it’s behaved really well. If you look at its chart, it’s up 33% over the past year and it’s up 13% year to date in the face of this massive financial crisis, and it’s trading at or above US$1700 an ounce.

As governments continue to print trillions of dollars to stabilize the economy with interest rates near zero and debt levels through the roof, gold has reacted to that and has adjusted upwards very nicely. Printing all this new money inevitably leads to serious reduction in the future purchasing power of a dollar.   Owning gold, which is rare and intrinsically valuable, as opposed to a paper dollar, is a way to preserve the purchasing power of your money.  So, in my experience, having gold as an allocation in your portfolio is a sensible thing to do. 

There are great opportunities that exist in the gold equities right now, and what’s compelling from an investment thesis is that we’re seeing operating margins increase dramatically with this rise in gold price. So, if a company, for example, was making $300 an ounce in margin a year ago, they’re now making $600 or $700 an ounce and that bump in profitability goes straight to their bottom line. That massive margin expansion isn’t yet priced into the equity valuation in my opinion. So, I think there’s a pretty interesting opportunity to capture there. It gets even more pronounced for Canadian gold mining companies like Pure Gold Mining (PGM:TSXV), for example.  Because the Canadian dollar has weakened relative to the US dollar, gold is now trading at all time highs in Canadian dollar terms. Gold is hovering around $2,400 Canadian dollars per ounce.  It really is incredible. 

So, for a near term Canadian producer like Pure Gold, where your costs are in Canadian dollars but you’re selling a product in US dollars, it translates into huge margin expansions at the operation, so profitability goes way up.

Brian: Recently, Barrick Gold announced that the Government of Papua New Guinea would not be extending Barrick’s Special Mining Lease on their Porgera gold mine.

The nationalisation of assets is a risk which miners in the developing world always have to consider.

My question for you is do you believe there is more political risk in the developing world today, given the economic calamity we are facing globally? Please explain.

Mark: I think it’s inevitable that risks in developing countries have gone up. The economies of developing countries are at risk of being completely wiped out or at least pushed back 20 or 30 years because of this crisis.  I firmly believe that this inevitably leads to increased chances of expropriation of mining projects.   It becomes a matter of survival. 

In contrast, in countries like Canada and the United States for example, things are quite a bit different.   Big mining and development projects become a key part of the engine for re-stimulating the economy through all the direct and indirect benefits and the increased tax base created.  Getting people back to work in high paying jobs goes a long way to helping a nation recover.  So my prediction and hope is that we’re going to see big resource development projects multiply and come online quicker as a stimulant for recovery in developed countries. 

Brian: A quick binary question for you, will gold be trading above US$2,000 per ounce by the end of 2020, yes or no?

Mark: I rarely make predictions around commodity price because I’m always wrong.  But given the macro environment that we are in for gold, it feels like a perfect storm.  So, I wouldn’t be at all surprised to see gold reach US$2,000 an ounce this year.

Brian: Without a doubt, the case for gold has never be stronger than it is today. Given this, I personally see tremendous upside potential in owning gold equities, especially the best of the best juniors. Oxygen Capital has a great stable of companies, all of which have varying degrees of exposure to precious metals.

To me, PureGold (PGM:TSXV) stands out from the rest given its stage of development, as it has commenced detailed engineering, procurement and construction of its PureGold Red Lake mine.

First, could you give us an overview of the Red Lake Gold Camp and why is having property within the Red Lake Gold Camp so valuable?

Mark: There are 30 million reasons to like Red Lake, and by that I mean there have been 30 million ounces of high grade gold produced in the camp over the past +80 years. It’s become world famous for some of the highest grade gold ever produced – anywhere.  It’s a place where Tier one companies are born and bred. For example, it turned Goldcorp into what it became after the discovery of the famous High Grade Zone in the late 1990s. It was Placer Dome’s bread and butter and jewelry box for decades.  Red Lake exists as a place because of mining, so as a location, you couldn’t ask for any better. Many of us at Pure Gold cut our teeth in Red Lake. And frankly I think that is a key attribute of our Company.  If you are building Canada’s next gold mine in Red Lake, you want a team with significant Red Lake experience.  For example, Darin Labrenz, our President and CEO worked in Red Lake for 10 years and was Chief Geologist at Placer Dome’s Campbell Mine.  Phil Smerchanski, VP Exploration and Chris Lee, Chief Geoscientist, both worked extensively in the Red Lake camp for Goldcorp and other companies.  I consulted for Goldcorp in Red Lake, early in my career and started my first Company called Fronteer Gold with an initial focus on Red Lake, backed by Placer Dome and Rob McEwen.  Rob Pease, one of our directors, was General Manager Exploration for Placer Dome where he was responsible for Canadian exploration, including Red Lake.  Finally, Maryse Belanger, also a Director, was a Senior VP Technical Services for Goldcorp, whose responsibilities included the Red Lake Mine Complex. 

So, we have all spent years working at, and figuring out other people’s mines in Red Lake, and have more on the ground experience in the camp than any other group in the world.  It feels so exciting to now be on the cusp of running our own mine and being the next chapter in the evolution of this incredible place.  It feels like coming home. 

What I have also learned is that not all geology is created equally in Red Lake.  And we control (100%) of a continuous ten kilometre long stretch of some of the most fertile gold rich geology in the camp.  We feel strongly that despite having already defined well over 2 million ounces of gold, and being the 5th highest grade gold mine in Canada, we have just barely scratched the surface. 

Brian: Secondly, could you give us an overview of the current investment thesis for PureGold?

Mark: The first investment thesis really revolves around near-term production and cash flow into a rising gold market.  The second, and equally important theme is grade, resource growth and the scalability of the mine itself.  So let’s start with the first one, the near-term cash flow.  We are coming out of what’s traditionally viewed as a fairly dull period in any company’s evolution. That is the construction phase of a mine.  We are nearing completion of construction now and there is clear visibility to first gold production.  We can see the finish line and we anticipate pouring gold before the end of this year.  What typically happens during this period is a Company’s valuation begins to re-rate upwards from a developer to a producer.  For example, when you look at what junior producers are trading at today, they are valued at roughly one times their Net Asset Value (1 x NAV).  Currently, Pure Gold is trading at much lower than that.  So, as we get our Phase 1 mine plan into production and in turn demonstrate that we can quickly scale up to even higher production rates, I really believe there is a valuation gap that is going to get filled.  Layer onto that the strong operating margins that come from gold being at roughly $2,400 CAD per ounce, and you have a project that generates an additional $C680M of cash flow compared to our feasibility study just 12 months ago.  This type of margin expansion isn’t factored into our equity valuation at all. 

Brian: Finally, where is the upside potential – Is the deposit open at depth? Is there potential for discovery on other targets within the project’s land package?

Mark: What’s really unique about these types of deposits is that they pack a huge punch in a relatively small footprint and they’ve got very, very deep roots; they continue for kilometers at depth.  The perfect example of this is the Red Lake Mine Complex up the road.  It has produced 20 million ounces and has been mined down to 2.5 km depth.  We have exactly the same geology and potential at Pure Gold, with the same opportunity for growth.  Our orebody is about 7 km long currently and has only been drilled off in places to about 1km depth.  It is literally open in all direction.  And I feel we’ve barely scratched the surface.  The real prize is still yet to be found.  We have already defined two and a half million ounces of gold at ~9 g/t from 1.3 million meters of drilling.  So it is exceptionally well understood geologically.  We know mineralization continues at depth because we have intersected it in drill holes down to 2.1 km depth.  We know It keeps going.  So in my opinion, by extending the deposit down to the depths that they’re mining at the Red Lake complex up the road, you can see the potential for at least another five million ounces here.  It is important to me that when investors look at Pure Gold they don’t just see the current reserves and resources.  But rather, they see this as a multi-generational asset that is going to keep growing in size with ongoing drilling.  Pure Gold is a big part of the future of Red Lake and we are on the cusp of starting a whole new chapter in this world class mining region.

Brian: Formal and informal mentors have made a tremendous impact on my life. I can honestly say that without their influence I wouldn’t be where I am today.

What is the best piece of advice a formal or informal mentor has given you?

Mark:   One piece of advice would be to stick to your knitting and trust that value will come. It’s easy to get distracted in this business. But I do believe that sticking to your knitting and playing the long game is the way to go.  Especially if you are lucky enough to be sitting on a project as special as the one we have at Pure Gold.  And that’s advice that was given to me by some wise mentors, and it’s certainly served me well.  There are no overnight successes in this business.  It might look that way from the outside looking in, because values crystallize in an instant in a takeover or in an exciting discovery.  But preceding that moment, there are usually 5 or 10 years of incredibly hard work.  A second piece of advice would be that you can’t do it all yourself and you need a team you can trust.  Surround yourself with people who are smarter than you.  Let your talent run and trust them.  

Brian: If you could offer a piece of advice to your 20-year-old self, what would it be?

Mark: I was 34 years old when I became CEO of my first company, Fronteer Gold.  So I will give my 34 year old self some advice.  And that is “comparison is the thief of joy”. I think it’s a useful piece of advice because there’s always a stock or a company that’s higher or lower than yours  for reasons that don’t make any sense at all.  And they may never make any sense.  Don’t obsess about it.  You can let it motivate you and learn from it, but you must keep your eyes focused on what you can actually control and focus on doing everything to the best of your ability to create fundamental value. 

Next would be, raise more money than you think you’ll need because the companies that do the best in this business do not do it by raising half a million dollars at a time. That gets you nowhere.  You want to raise enough money to get meaningful work done and take a project from one milestone to the next so you can unlock value.  The companies that have the best valuations are the ones with a healthy treasury giving them enough working capital to make real progress.

Brian: Finally, at the end of our last interview, you left us with a very timely quote from Miles Davis.

“Time is not the main thing. It’s the only thing.”

Do you have any words of inspiration for today’s investors?

Mark: I would say do your homework. It’s easy to jump on the momentum train. Do your homework, look for transparency in companies.  Look for companies that are going to take you along with them through the steps in their evolution, from resource to economic studies to permitting and so on, rather than companies who lack that transparency.

To take a quote from Abe Lincoln,

“If I had 6 hours to chop down a tree, I would spend 4 hours sharpening my axe.”

Spend 4 hours sharpening your axe and do your homework on the companies that you are going to invest in. Make sure they are backed by good people, with a solid track record, who have skin in the game and who have good projects in good places.

Until next time,

Brian Leni  P.Eng

Founder – Junior Stock Review Premium

Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company and sector that is best suited for your personal investment criteria.