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Maria Smirnova – Silver, Jurisdictional Risk, and the Current Market

Maria Smirnova

The junior resource sector is fraught with risk, and in the midst of a bear market, it becomes even more evident as the market continues to trend downward. For those who choose to participate in bear markets, it truly is where the ‘wheat is separated from the chaff.’

Being diligent and researching the companies in detail, understanding their catalysts and not being afraid to take profits is, in my opinion, of the utmost importance for giving yourself the best odds of success in the current market.

Fortunes are made in the resource sector by buying when others are selling and vice versa; it just takes time and fortitude to ride out the bumps along the way.

Today, I’m sharing my recent interview with Maria Smirnova, Senior Portfolio Manager at Sprott Asset Management LP. Smirnova has over 16 years of experience in the financial services industry, and is currently part of the precious metals team and manages Sprott Silver Equities Class, Sprott Gold and Precious Minerals Fund, as well as the Sprott Hedge LP and LP II Funds.

Without further ado, a conversation with Maria Smirnova:

 

 

Brian: Lately, I’ve spent significant time debating the criteria I use and the level of risk I’m willing to take when evaluating jurisdiction. The topic is very interesting because ― although there are quantifiable aspects to jurisdiction ― I believe many of the general opinions about jurisdictional risk are based on qualitative observations or anecdotal themes that are proliferated through the mainstream media.

Broadly speaking, how do you approach investing in so-called “risky” jurisdictions? Secondly, are there any jurisdictions that you would not invest in, even if they presented a good price to value proposition? Please explain.

Maria:  In evaluating mining companies, we are constantly assessing jurisdictional risk. I break our findings into two broad categories; one group clearly has either good or bad investment attributes, and the other group is more characterized by shades of grey.

In the first category, a country’s attributes, such as its policies toward mining titles or its taxation regime, are easily examined and can be deemed to be either good or bad. Two of the best jurisdictions we invest in are Canada and Australia. Conversely, there are other jurisdictions, such as Russia or the Central African Republic, which we avoid. The biggest reason is that in either of these countries we cannot be confident that a mining title is secure. In other words, it might be possible that the government could intervene and nationalize the mining claim. We avoid situations with this level of uncertainty.

The second, “shades of grey,” category involves other issues surrounding a country’s mining investment attractiveness which are more complicated to assess. Mexico is a good example, even though the country is highly prospective and rich in gold, silver and other metals. Mexico is comprised of 31 separate administrative states, each with differing politics. Some Mexican states are much more conducive to mining investment than others and, therefore, it is critical to conduct your due diligence, and to meet with the management teams on the ground within those states.

Outside of doing a site visit ― which is the best approach to understanding the dynamics of a specific locale ― company representatives working in the field can provide key insights into what is happening at the local level. I was in Mexico a few months back, and it was incredibly informative. I visited three different Mexican states during my week-long visit, and this trip greatly enhanced my overall understanding of the country and its varying approaches to mining.

 

 

 

 

Brian: Personally, I have enjoyed the most success in the resources sector when I have been (correctly) contrarian to market sentiment. It’s one thing to understand the concept of being contrarian, and it’s another to put into practice, and be successful.

One of the biggest hurdles to being a successful contrarian is figuring out the best time to buy. For example, over the last 23 months, many precious metals companies have seen their share prices move downward or sideways.

Therefore, given the resistance to ‘catching a falling knife,’ is there a strategy you can share for taking a position in a company, in a falling market?

Maria: We take a longer-term view. The market has become very short-term focused, and we try to remain medium to long-term focused. Of course, the old saying goes, “Buy low, sell high.”  We’re at a pricing point right now where some mining companies represent incredible value from a cash flow perspective. Additionally, you can analyze other valuation metrics, such as price-to-cash flow or free cash flow, which also reveal that some mining names are very undervalued.

We track all this information daily and will buy strong, healthy companies which have sold off.  Now, there may be names that have been declining for a reason associated with a fundamental issue within the company or political risk within the jurisdiction, and in those cases, we stay away.

From a strict valuation point of view, now is a very good time to add to mining positions to investment portfolios. You don’t need to buy everything in one day; you dollar-cost average over time. Certainly, right now is a good time to buy given that both gold and silver have sold off significantly.

Sentiment is really at a low for miners right now. There has been significant cash flow out of the sector. Vanguard just announced that it is moving its mandate away from sub-advisor M&G Investment and renaming its precious metals and mining fund. This type of capitulation is not helping stock prices. But at the end of the day, it also means that even though the business has not changed, the company is selling for less ― a great opportunity for investors.

 

 

 

 

 

Brian: As you mention in your recently published Sprott Silver Report, the silver price has been range bound trading between $16 and $18 USD per ounce for the last 18 months.

In your opinion, what are the factors currently affecting the price of silver?

Maria: Silver is a fascinating subject. I am a big fan of silver and do like the fundamentals of the metal from an investment perspective. Right now, the price has come off, but I don’t think it’s the fundamentals are the reason.

Silver has been in fundamental deficit for the last three or four years and production has started to decline. Yet, silver’s uses are growing, many of which are exciting new industries such as electric vehicles and solar panels.

I believe that market forces have been pushing silver’s price down. Silver shorts on the COMEX are at record highs. You have to look back to the 1990s to find a time when the volume of short positions was this high.

We have also experienced a significant drop off in silver coin sales, which began in late 2016 shortly after the Trump election in the U.S.  When that marginal coin buyer is not there, it definitely hurts the silver market. Much of the market’s attention has been drawn or focused on marijuana stocks and crypto-currencies. I believe that when that marginal buyer returns, silver is likely to have a significant run.

 

Brian: Strong demand mixed with constrained supply can be the perfect storm for metal price appreciation. In my opinion, one source of demand which will have a profound effect on the metals markets, on a whole, is the adoption of electric vehicles.

While lithium, cobalt and nickel have garnered much of the press surrounding the EV revolution, can you tell us why silver is set to play a critical role in the EV revolution in the years ahead?

 Maria: That’s a great question; I’ve written about the importance of silver in electric vehicles. It is a topic that is not getting much attention. People generally don’t think of silver as being used in electric vehicles, because the amounts used are small; rather they focus on the the cobalt and lithium used in EV batteries because the quantities are more significant.

Silver has high electric conductivity and, therefore, is often used in electrical based machines. Cars are a perfect example. Silver is already used in many automotive components, such as air conditioners and mirrors. Basically, for anything electric, silver can be used, but typically in small amounts, so it gets little attention.

In saying this, however, electric vehicles will use more silver than older gas- or diesel-fueled cars. Autonomous vehicles will use more silver than electric vehicles and so on.  By the way, the main reason for an increase in silver usage in autonomous vehicles is the need for multiple redundant or backup systems in case of failure.

We’re excited to see the growth of both electric and autonomous vehicles, and it is only a matter of how fast these new technologies get adopted. It is the way of our future and silver will play a very significant role.

 

 

 

Concluding Remarks

There’s a lot of actionable information that can be gleaned from this interview with Smirnova. For those of you looking to hear more from Smirnova and the rest of the world-class investment professionals and subject matter experts at Sprott, I suggest subscribing to Sprott’s Insights, where their views on precious metals and real assets can be delivered right to your inbox.

Conferences are a fantastic way to meet like-minded investors, as well as the people who run the companies in which you’re investing. In my opinion, this year’s Sprott Natural Resource Symposium was the best yet, as it had a roster of All-Star speakers and some of the best companies in the junior resource sector. The Symposium continues to be one of my favourite conferences, and I highly suggest that you attend. I hope to see you there!

Additionally, for those who couldn’t make the 2018 edition of the Symposium, Sprott is currently offering a discount on the MP3 Recording Package, which includes all of the power point presentations  from the Symposium.

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer – The following is not an investment recommendation. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence.

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Anaconda Mining – Takeover Candidate Criteria, Goldboro Update and Point Rousse Exploration

Anaconda Mining

I have been keenly watching the progress of Anaconda Mining over the last 6 months; they have made some significant strides toward growing the company organically and through acquisition, as they were very close to executing a takeover of Maritime Resources. In my opinion, the merger would have been a terrific deal for both sets of shareholders and the people who live in and around Baie Verte, Newfoundland & Labrador.

With two drill programs set to commence in the 2nd half of 2018, I was eager to catch up with Dustin Angelo, CEO of Anaconda Mining, to review the Goldboro Gold Project, how or if the withdrawal of their Maritime Resources takeover offer has affected their growth strategy, some of the criteria for future takeover targets, and finally, an update and overview of the Point Rousse Project – production changes and exploration targets.

Let’s take a look at what Angelo had to say.

Enjoy!

 

 

Brian: Recently, you released some great drill results from your Goldboro Project in Nova Scotia. Could you give us an overview of some of the highlights and where you are headed with the Project over the final 5 months of the year?

Dustin: The Goldboro results are the final results of roughly a 12,000-meter program that we’ve been doing since we acquired the project back last year. Overall, it was a highly successful program. We demonstrated the fact that the deposit does continue down plunge, along strike, and down the dip of the limbs of the fold structure. We had some very good intersections, and then some of the top intersections were 151 grams over 2.6 meters. Some wide intersections like 21 grams over 11.5 meters; 4 grams over 20 meters; 17 grams over 7.5 meters. We were very successful in finding some new target areas within the deposit. We had 130 new visible gold occurrences.

We’re extending the Boston Richardson system down plunge and East Goldbrook, as well. We found new mineralized zones. Everything was what you would expect. It was pretty typical for the Goldboro deposit so we were pretty pleased with that. We worked on in-filling the areas where the inferred resources were a part of our PEA. We think that we will be increasing the confidence level of some of those, moving them into measured and indicated. Overall, the program was highly successful.

We’re now embarking on our second major program, which we just announced, and is a 10,000-meter program that we’ll be doing through the fall. That one will be very similar in that we will be looking at areas for expansion. We will still be looking at areas for in-fill related to the PEA. The one new area that we are going to be going to is the West Goldbrook system. We focused on Boston Richardson and East Goldbrook in the first 12,000 meters. Now, we’re going to open up and go over to the West Goldbrook area. We’re anticipating continuing to find more mineralization, continuing to extend the deposit down plunge and along strike. I’m confident we will have similar or better results than what we’ve had in the past.

 

Brian: Over the last 3 months, I received many questions from readers pertaining to Anaconda’s takeover bid of Maritime Resources. For those who are unaware, Anaconda formally commenced a takeover bid for Maritime in April of this year, but withdrew the offer on July 12th and are pursuing other opportunities in Atlantic Canada.

How has the outcome of this takeover bid changed Anaconda’s plans for growth in the future?

 

Dustin: It hasn’t changed our plans. We are still focused on growing by acquisition. Maritime doesn’t discourage us from doing that. However, any acquisitions we look at down the road will hopefully be friendly deals.

That’s what we were looking for with Maritime, but, unfortunately, we weren’t able to achieve that. There just wasn’t much of a response from the board and management going back to January/February. That’s why we had to take the bid to shareholders. In spite of the end result, the acquisition strategy continues on. There are other opportunities within Atlantic Canada and we’ll pursue those instead. Maybe, Maritime will come back at some point down the road, in which case we’d be interested in trying to get a transaction done under the right circumstances.

As we said from the beginning, bringing together the two asset bases on the Baie Verte Peninsula makes a lot of sense. We’ve got the operating infrastructure. We’ve got a very profitable operation. Our second quarter results just came out and it shows that we continue to make money and that the operation is pretty steady. If we can add higher grade ore, it can only make it better. We’ve got all the infrastructure, the workforce, the tailings capacity, and our own ore feed. They’ve got an underground resource and it makes sense to put the two together, because each side can benefit from what the other side has. Eventually, they might come back around.

We’ll continue on our two-pronged approach which includes organic growth through exploration of our current properties as well as acquisitions. On the exploration side, we are kicking off again, using the $4.5 million that we recently raised in a flow-through financing. We will continue the organic path and grow through more exploration at Goldboro and Point Rousse. We see many opportunities to grow our mineral resources at these projects. Furthermore, we have now started our bulk sample at Goldboro and we filed the environmental assessment document so that we can begin the environmental review process. We are moving the project along from a development standpoint as well as an exploration standpoint, with the goal of production by 2020 / 2021. We believe we can extend the production life at Point Rousse while bringing Goldboro into production, ultimately reaching about 50,000 to 60,000 ounces per year of gold.

 

Brian: Secondly, if Anaconda will continue to pursue takeovers as a source of growth in the future, can you give us an idea of what you are looking for in a potential takeover target?

 

Dustin: What we’re looking for, primarily, are assets that have 43-101 resources already established on them. When you’re talking about Atlantic Canada, the only two gold producers, really, that are in commercial production are ourselves and Atlantic Gold, so all the other projects in the region are essentially pre-production. We would be looking at projects that we can put into production in the near term; properties that are ready to transition from an exploration asset or an idle asset into a development asset because it comes underneath our infrastructure, our management and our ability to raise capital. We’re looking for projects that would have anywhere from a couple hundred thousand ounces of gold to up to a million ounces, and you can find those types of projects in Atlantic Canada. It would be ideal if we can utilize some of our existing infrastructure with a project, but we’ll also evaluate it on a standalone basis.

 

Brian: As I confirmed during my site visit last fall, the Point Rousse Project will play a critical role in Anaconda’s future as you transition from the Pine Cove Open Pit Mine to the Stog’er Tight Open Pit Mine.

Stog'er Tight Deposit

Stog’er Tight Deposit Area – Taken Fall 2017 During My Site Visit

Can you give us an update on the transition?

Dustin: We were in development on Stog’er Tight during the spring and we made the official transition into commercial production in May. In May/June, we produced almost 30,000 tons of ore from Stog’er Tight. We’ve still been processing ore from Pine Cove, ore that’s been stockpiled, and the transition has been smooth. You’re talking about another open pit mine. We have all the necessary infrastructure in place. We’re just trucking ore back to the mill. We’ve got the tailings capacity there. We’re using the same contract miners, so we’re just moving equipment over.

It’s our second pit and we have a tremendous amount of experience from Pine Cove, which we operated for about eight years. A lot of the knowledge base and the experience we gained there, the use of blast movement monitoring, GPS on the shovels, all the technology, the new processes and procedures that we implemented at the Pine Cove pit. We transitioned those over to Stog’er Tight. I think it’s been a fairly smooth transition, because of the experience.

 

Brian: Continuing with the Point Rousse Project, you have announced a 5,000 metre drill program.

What are you targeting with this drill program and what’s the timeline for its completion?

Dustin: The 5,000-meter drill program at Point Rousse has three main targets. It has Argyle, which is our new deposit. We’re looking to expand that deposit, essentially going north east of the known mineral resource. The other area that we’re looking at is a discovery called Anoroc. It’s roughly 600 meters southwest of the Pine Cove pit. We’re going to target the entire area between the southwest part of that pit all the way down to the discovery. So, along that 600-meter strike length, we’re going to be poking holes in there.

At the northern end of our property package, there’s an area we call Deer Cove. We did some drilling a while ago at Deer Cove, but in a really concentrated area where there is an old adit and a vein system that was discovered prior to Anaconda’s involvement in the area. Our program was very narrowly focused, but the Deer Cove area is situated just north of a thrust fault, similar to Pine Cove. We’re going to more broadly explore along the thrust fault and look for another Pine Cove. Those are the three main exploration areas for Point Rousse.

Right now, we are doing some ground IP and soil sampling around the areas that we’re going to drill, ultimately, at Argyle. We’re waiting on a permit at Anoroc, and then we’ll finish up at Deer Cove. It’ll take us most of the fall.

Scrape Trend

Scrape Trend – Target #1 in the Image above is Anoroc

 

 

 

Concluding Remarks

From an organic growth perspective, Anaconda appears to be set to add ounces to its production profile in the coming years. As Angelo outlines in the interview, Goldboro is showing tremendous progress toward its development, and with a new 10,000-meter drill program initiated and a planned / permitted bulk sample in the 2nd half of 2018, we should see a lot of news flow.

Additionally, the progress in production out of the new Stog’er Tight Open Pit Mine, the development of the Argyle Deposit and the further exploration of the Scrape and Deer Cove Trends, Anaconda’s organic growth plans look to be very healthy.

In terms of valuation, with Anaconda’s MCAP roughly sitting at $36 million, I personally see tremendous value in buying Anaconda shares at this price point. Consider these 3 thoughts:

  • First, the updated PEA on the Goldboro Gold Project, released just a couple of months ago, presents a low case scenario of gold at $1450 CAD/oz (roughly $1160 USD/oz), which gives the Project an estimated after-tax NPV at a 7% discount rate of $44 million CAD.  Not only do I believe the gold price will be higher than $1450 CAD/oz in the future, I believe this deposit is going to get bigger, which could mean better project economics and, thus, a higher NPV.
  • Second, Anaconda has a two-pronged approach to growing the business; first, through the organic growth of existing assets and, second, through acquisition. With the steps taken over the last year, it is clear to me that the Anaconda management team is putting their money where their mouth is, so to speak.
  • Third, with Anaconda’s current MCAP (at the time of writing) at roughly $36 million CAD, which I believe only roughly values the assets found within the Point Rousse Project with its in-situ ounces (Stog’er Tight Deposit and Argyle Deposit) and infrastructure (Pine Cove Mill, Port and Tailings Facilities).  In my opinion, no value is given to the Goldboro Gold Project and its estimated after-tax NPV, which is cited above. Additionally, I don’t see any value given to The Great Northern Project (Rattling Brook and Viking) which contain ~600,000 ounces of combined Inferred and Indicated gold resources.

 

Good management teams are what make companies successful in the junior resource sector, and in saying this, I believe the Anaconda team is one of those good teams that will execute on their plans to create value for their shareholders.

I’m a buyer of Anaconda Mining and look forward to plenty of news flow the rest of the summer and into the fall.

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

Until next time,

 

Brian Leni   P.Eng

Founder – Junior Stock Review

 

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(s) and sector that is best suited for your personal investment criteria. Junior Stock Review does not guarantee the accuracy of any of the analytics used in this report. I do own Anaconda Mining Inc. shares. Anaconda Mining Inc. is a Sponsor of Junior Stock Review.

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Yukon – Canada’s Mining Future

Brian Leni

In June, I had the pleasure of visiting the Yukon, Canada’s most westerly Territory and the land of the midnight sun. The point of my visit was to partake in the 2018 Yukon Property Tour, which, this year, brought together 3 large groups of investors, analysts and media to see a few of the Yukon’s most promising projects and to participate in a full-day investment conference.

The tour took me to 6 different projects in 4 days, giving me a great perspective of the Yukon’s mineral potential and the people who are exploring and developing within it. In all, I came away very impressed and believe that it’s just a matter of when for most of the projects in terms of their development into Canada’s next mines.

Here’s a look at the Yukon by the numbers and a few specific things that I, personally, look at when gauging the opportunity for investment within a jurisdiction.

Enjoy!

 

 

Yukon – By the Numbers

Population – 38,630 (December 2017) –23% of the Yukon’s population is Aboriginal.

Capital City– Whitehorse (has an International Airport) – Population 29,962 or 78% of the Yukon’s total population.

Demographics – 0 to 19 years of age: 8,217, 20 to 64 years of age: 25,627, 65+: 4,784 – This is a great distribution of demographics for a developing Territory.

Unemployment – 2.7% (May 2018) – This is a great statistic; essentially, those who are able and want a job can find employment. The issue may be, and this is a great issue to have, finding enough workers in what I see as a bright future for growth, especially in the mining industry.

Largest Cities by population, outside of Whitehorse – Dawson City: 2,200, Watson Lake: 1,441, Haines Junction: 911, Carmacks: 549

Real GDP – $2,345.3 million (2016)

GDP by Industry (in terms of NAICS – 2016) – Public administration: 23.1%, Real estate and rental and leasing: 14.2%, Mining, quarrying and oil and gas extraction: 12.8%, Health care and social assistance: 8.4%, Construction: 7.7%

  • With higher precious and base metals prices in the future, a lot of prospective projects have a very good chance of re-starting production (i.e. Alexco Resources), or developing their deposit into a mine, (i.e. Western Copper and Gold). Given the relatively small size of the Yukon economy, major projects such as Western Copper and Gold’s Casino Project will have a tremendous effect on the overall Yukon economy.
  • The Government of the Yukon and the Federal Government make up a major portion of the Yukon economy, as you can clearly see from the GDP break down. For the success of the Territory, this has to change in the future.

Fraser Institute Ranking for Mining Investment Attractiveness 2018 – 13th in the world

  • The Yukon is a premier jurisdiction for mining and attained a score of 79.67, or 13th in the world, for mining investment attractiveness, according to the Fraser Institute’s 2018 rankings. The Fraser Institute uses a number of criteria for evaluating a jurisdiction, such as political stability, mining law, taxation and, arguably the most important, mineral potential.

NOTE: All statistics taken from the Government of the Yukon Statistics

 

 Aboriginal Land Claims and Self-Government

11 of the Yukon’s 14 First Nations have comprehensive land claim (Final Agreements) and Self-Government Agreements. It was in 1993 that the template, the Umbrella Final Agreement (UFA), was signed and used toward the negotiation of individual land claim agreements.

First Nations Map

Source: The Government of the Yukon

 

With the settling of their land claims, each First Nation has the power to control and direct their own affairs. Most importantly for the subject of this article, they have direct control over the exploration and development of the mineral projects on their property.

The following First Nations have settled their land claims and are now self-governing:

 

For most investors, First Nations involvement in mining projects is typically met with skepticism; given the history of some of the dealings around the world, this isn’t unfounded. However, each situation should be examined for its individual merits, as well as the history of the specific First Nations where the prospective investment may occur.

The Yukon’s First Nations are no different and, given the immediate history with mine development, such as Victoria Gold Corp.’s development of the Eagle Gold Project within the traditional territory of the Na-Cho Nyäk Dun First Nation, it would appear to me that mutual benefit from mining is the driving force behind the cooperation agreement.

Another great example of a mutually beneficial cooperation is the synergy that has been found between the Kluane First Nation and Nickel Creek Platinum. The Kluane First Nation provides many of the key non-technical services to the Nickel Shaw Project camp, such as a great cafeteria service, which I had the pleasure of trying!

Nickel Shaw

Looking up at the Nickel Shaw Project Deposit

I think the bottom line is companies that begin their relationship early in the project’s life, work to maintain that relationship, and can prove that they are as concerned about the environment and the people who inhabit that environment will, ultimately, be successful in moving toward the end goal of developing an operating mine. When researching a company, these can be key things to look for and to ask about when interviewing management. Of course, nothing matches doing a site visit and seeing it first-hand.

 

 

 

 

Yukon’s Political Landscape

Currently, the Government of the Yukon is controlled by the Yukon Liberal Party, which is led by Premier Sandy Silver.  Generally speaking, the Liberal Party’s business philosophy is typically thought to be somewhat in the middle of the left-leaning New Democratic Party (NDP) and the right-leaning Conservatives.

In November 2016, the Yukon Liberal Party defeated the Yukon Party (conservatives), which was in power for many of the terms dating back to 2000. With a very low unemployment level and 80% of the population located in Whitehorse, politics in the Yukon are somewhat unique. Much like the rest of the country, however, issues surrounding the environment – carbon tax, power generation and housing – price and availability seem to be hot topics in the land of the midnight sun.

From an investment perspective, I’m always most concerned with left-leaning government power. Although, NDP governments have been in power in the past, the conservatives have dominated the leadership of the Territory for much of the last 20 years. Given this fact, I believe that past will be prologue in terms of the Yukoners’ general political philosophy, but it’s always something that should be watched.

 

Yukon Mining Alliance

Uniquely, to my knowledge, many of the junior and major mining companies with projects in the Yukon have formed the Yukon Mining Alliance (YMA) with the Government of the Yukon and the Canadian Northern Economic Development Agency.

The YMA’s mandate is to,

“promote Yukon’s competitive advantages as a top mineral investment jurisdiction and its member companies and their Yukon-based project.†~ YMA

In my opinion, this is a huge advantage of investing in companies with projects in the Yukon, because clearly the marketing and promotion of mining within the Territory’s borders is a major priority. Bottom line, narrative plays a big role in the success of junior mining companies, and with the added help of the YMA, Yukon-based companies have a distinct advantage working together to promote the Yukon mining jurisdiction narrative.

Personally, I have seen the YMA presence at a couple of the top mining conferences in Canada, such as PDAC and Cambridge’s Vancouver Resource Investment Conference (VRIC). The YMA is putting the Yukon on the map for interested resource investors, which, I believe, will pay off in spades as we move into the next leg of the bull market.

 

 

 

 

Infrastructure

In my opinion, the biggest knock against the Yukon in terms of risk to investment is the lack of infrastructure. With close to 80% of the Yukon population concentrated in Whitehorse, the need for roads, telecommunications and power infrastructure to the remote or uninhabited portions of the Territory hasn’t been a high priority or practical, given the cost. However, this is rapidly changing as it’s now abundantly clear that access to power, telecommunications and roads have become the major sticking points for a few of the Yukon’s most advanced mineral development projects.

Yukon / Northwest Territories Fibre Optic Line

As you can see in the image below, the thick black line represents the existing fibre optic line which feeds the Yukon with its high-speed internet access. With only one fibre optic line feeding the Yukon’s internet demand, the system was highly susceptible to disruptions due to the fibre cable being cut along the Alaska Highway.

 

Yukon Fibre Optics

Source: CBC News

To improve the reliability of the internet access, the Government of the Yukon initiated the$50 to $70 million North Canada Fibre Loop Project, which would connect the Yukon to the Northwest Territories’ (NWT) fibre network via fibre optic lines running north from Dawson City to Inuvik, NWT.

During my site visit tour, it was announced that this project was successfully completed and, thus, has brought a new age of reliability to the Yukon’s internet access. This project is a major milestone for the Territory and should provide a reliable base from which to build, moving forward.

 

LNG Power Generation

In 2017, 97% of the Yukon’s electricity was produced from 3 hydro-electric power generation plants. For a number of years, these hydro-electric operations were backed up by diesel generators, which kicked in during peak demand scenarios.

With carbon emissions and the overall price of power generation becoming bigger constraints to development, in 2014, the Government of the Yukon made the decision to green-light Yukon Energy’s plan to move to a liquefied natural gas (LNG) as a fuel for generating backup power for the grid.

The fracking revolution dramatically changed the supply to demand balance in the oil and gas world, causing a major swing upward in the availability of natural gas for the market. Thus, natural gas prices have hovered around their multiple decade lows for a while, now.

While natural gas is one of the cheapest and cleanest burning fossil fuels available, the issue has been economic transportation. To allow for a meaningful amount of natural gas to be transported over a significant distance, it’s currently converted into LNG.

The natural gas is extracted from the ground and then refrigerated to minus 162 degrees Celsius, turning it into a liquid and, thus, more amenable to economic bulk transportation.

Yukon LNG

Source: Yukon Energy

LNG Storage

A big step toward making LNG a viable option for developing mines in the Yukon could be the construction of an LNG storage facility. Currently, Ferus Natural Gas Fuels Inc., the LNG supplier to the Yukon, is working with Yukon Energy to gauge the potential of such a facility.

If the LNG storage facility were to be built in Whitehorse, it could not only feed the backup generators, but also act as a depot for future mines that incorporate LNG into their long-term energy plan.

Having a reliable power infrastructure is paramount to the success of large-scale mining operations. With a number of sizable development projects waiting for their opportunity to be developed into mines, in my opinion, the Yukon is headed in the right direction by pursuing an LNG storage facility.

 

 

Yukon Resource Gateway Project

On September 2, 2017, the Yukon received a major commitment toward its development when it was announced that the Canadian Federal Government would contribute $247 million to the Yukon Resource Gateway Project.  The $247 million represents just over half of the $469 million needed to construct a road from Carmacks to Dawson City.

In my opinion, the main reason for this major undertaking was Goldcorp’s Coffee Project, which sits roughly half way between Carmacks and Dawson City, and is in the process of being developed into Canada’s next producing gold mine. Additionally, Western Copper and Gold’s Casino Project sits in the permitting stage of development and looks to benefit greatly from this announcement, as the road will give access to what is now a remote location.

Further, the Government of the Yukon will contribute $113 million to the Gateway Project, leaving the remaining $109 million to the mining companies to fulfill. The construction of the road has begun and, given the comments from Western Copper and Gold representatives, should take roughly 3 years to reach their property from Carmacks.

I think there’s no doubt that this road will be a major turning point for the Yukon and its development into a destination for mining, because I believe it and possibly slightly higher metal prices are the only things keeping this area of the Yukon from being developed, right now.

Mineral Potential

In my opinion, one of the most compelling reasons for investment in the Yukon is its mineral potential. With a good portion of the Yukon still not accessible by road, much of the Territory is still yet to be explored and, therefore, presents a blue sky type of opportunity for those who are willing to go off the beaten path.

Yukon Geological Survey

Both the Federal and Territorial Governments clearly recognize both the potential and the large expense associated with mineral exploration and development and are, therefore, directing funding accordingly. One such Territorial organization at the forefront of this PUSH is the Yukon Geological Survey (YGS).

The YGS’s mandate is to ‘provide the geosciences information required for resource and land management for the benefit of Yukoners, by acquiring and disseminating geological and geo-hazard knowledge to support exploration, inform resource and land management planning, and engage communities, schools and the public.’

Additionally, it manages the Yukon Mineral Exploration Program (YMEP), which has been set up to promote mineral prospecting and exploration activities in the Yukon. The YMEP has a $1,600,000 funding level for the 2018-19 fiscal year and is accepting applications for prospective projects.

It’s initiatives such as this that are keeping the pipeline of prospective geological targets full and, therefore, of keen interest to investors.

Tintina Gold Province

One of the most prospective regions for mineral exploration in the north-western portion of North America is the 150,000 square kilometre Tintina Gold Province (TGP). TGP runs east-west across the middle portion of the Yukon and Alaska, and is roughly 200 kilometres wide in its entirety. The TGP is essentially bound by the Kaltag-Tintina fault system to the north and the Farewell-Denali fault system to the south.

TGP encompasses arguably the Yukon’s most famous geological region, the Klondike gold fields which lay just south of Dawson City.  As stated earlier, the Resource Gateway Project will open this region up to development and exploration. Companies such as Klondike Gold, Trifecta Gold, Goldcorp, White Gold and Western Copper and Gold will greatly benefit from the road access to theirprojects.

White Gold Property

View from the helicopter while flying over White Gold’s Property

Visible Gold

White Gold Core Shack – red circle signifies visible gold

 

 

Klondike Gold Rush

The Klondike Gold Rush began in August of 1896, as three prospectors, George Carmack, Jim Mason and Dawson Charlie, discovered gold in what they referred to as ‘Rabbit’ Creek, or what is now referred to as Bonanza Creek. With the discovery and the rush to stake their claim, word quickly spread of their discovery, and so spurred an historic gold rush in Canada’s Yukon Territory and the United States’ Alaska.

 

Historic Dawson City Map

Source: Yukon Government Archive

It’s estimated that the Klondike Gold Rush attracted 100,000 people from all walks of life, testing their luck against the odds to find their fortune.  Many of the new American prospectors found their way north via ships boarded in Seattle.  Former ports, such as Dyea, Alaska, were accessible at high tide and allowed prospectors to begin the lengthy trip north toward the centre of the Gold Rush, Dawson City, which is roughly 700km north.

Seattle Boats

Source: Yukon Government Archive

Unfortunately, for the vast majority of newly minted prospectors, their dream of discovering a fortune never came to fruition; if it wasn’t the weather and the long trip to the prospective gold claims, it was the exorbitant costs that came with exploring and living in the north. In many of the articles I read while researching the Klondike Gold Rush, many estimated that costs were 10 times higher than what most of the people would have experienced in their former lives, living in Toronto, New York or Chicago.

Dawson City klondike gold rush

Source: Yukon Government Archive

The Klondike Gold Rush is estimated to have produced $29 million in gold over its 3-year span. Additionally, the Yukon Geological Survey estimates that a total of 20 million ounces of gold has been extracted from the Klondike goldfields since 1896. Gold mining can be credited with spurring the development of much of Canada and America’s northern most territories and states. In my opinion, the Yukon holds tremendous mineral potential and will only increase its prestige within the mining community.

 

 

Selwyn Basin

Moving to the eastern portion of the TGP within the Yukon, you enter the Selwyn Basin, host to the famously rich, Keno Silver District, which has 214 Moz of historic silver production and is located north-east of Mayo. It’s also in the immediate vicinity of Keno City, one of the Yukon’s smallest communities with just 24 residents.

For those who may not know, Alexco Resource’s Bellekeno silver mine is located in the Keno Silver District, which began operation in 2011 and produced until its suspension in 2013. The Keno Silver District is not only famous for its past production, but its high silver grades, which range up to 1,000 grams per tonne, putting them near the top in the world.

Alexco Resources

Standing in Alexco’s Flame & Moth decline

ATAC Resource’s Rackla Gold Project, also in the Selwyn basin, is a standout, in my mind, given the Carlin Style gold mineralization which has been found on the property. With its typically cheap mining and recovery methods, Carlin Style gold mineralization has made Nevada one of the premier gold producing jurisdictions in the world. In recent news, ATAC released their maiden resource on their Osiris Project, which has an inferred resource of 1.685 Moz at an average grade of 4.23 g/t.

 

 

Rackla Gold Project

ATAC Resources – Rackla Gold Property

 

Finally, the Selwyn Basin is home to sedimentary exhalative (SEDEX) deposits (Pb-Zn-Ag), which, in terms of Fireweed Zinc’s Macmillian Pass Zinc Project, rank near the top of the world’s largest in terms of zinc and overall mineral content.

In my opinion, world-class mineralization potential awaits those exploring in the Yukon. As the infrastructure quality improves and cash begins to pour back into the mining sector on a whole, I have no doubt that the Yukon will play a major role in Canada’s mining future.

 

 

 

Concluding Remarks

No investment is without risk, and for many companies within the junior resource sector, jurisdiction is the greatest risk. Personally, having researched the Yukon and now visited, I have to agree with the Fraser Institute rankings and believe the Yukon is a premier jurisdiction for mining investment.

In terms of the risk that I see with the Yukon, it’s mainly related to infrastructure and the time required to build it. In terms of investment, however, I like that the risk is associated with what I believe is a ‘when’ and not an ‘if’ question – it’s just a matter of time before the necessary roads, power and telecommunications are in place to move many of these projects forward.

I must note that there’s a good portion of projects in the Yukon that sit in close proximity to everything that is needed and, therefore, I caution anyone from painting all of the projects with the same brush.

The Yukon has world-class mineral potential and it’s attracting the world’s major mining companies, which, over the last few years, have taken either portions of a few of the juniors or have acquired the entire project for development into a mine.

With what looks to be a politically stable government and a good relationship with its self-governing First Nations, the Yukon is ready for investment, and I will be looking to invest in a couple of the companies that I believe present the greatest price to value propositions.

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

Until next time,

 

Brian Leni  P.Eng

Founder –Junior Stock Review

 

 

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, sector or jurisdiction that is best suited for your personal investment criteria. Brian Leni does not own any shares of the companies mentioned in this article at this time.

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Interview with Georgia Williams of the Investors News Network (INN)

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On June 14th I presented and was apart of a panel during the first day of the Mining Investment North America Conference. While at the show I had the chance to speak with Georgia Williams from the Investor News Network (INN). In the interview we discuss the upside potential and risks associated with investing in junior nickel companies and also a few points on how I think you can be more successful in the market. Enjoy!

 

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 do own shares in FPX Nickel Corporation. Junior Stock Review and/or Brian Leni has NO business relationship with FPX Nickel Corp. or any other company mentioned within this interview.

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A Conversation with Whitney George, Chief Investment Officer at Sprott and Chairman of Sprott U.S. Holdings

In a recent interview with Whitney George, Chief Investment Officer at Sprott and Chairman of Sprott U.S. Holdings, we covered a number of different subjects including his background, gold’s role in a portfolio, the importance of remaining open minded, Sprott Focus Trust (FUND: Nasdaq) and, finally, the upcoming Sprott Natural Resource Symposium in July.

George is a generalist investor who seeks out quality companies that are selling at a discount to their underlying value. He has been very successful throughout his 30+ years in the investment business.  There are many valuable insights to be gleaned from his responses in this interview.

Enjoy!

 

Brian: What brought you to where you are today, or more specifically, how has your career led you to Sprott?

Whitney: Early on in my career, I figured out that I should listen to my mother who recommended that I pay attention to what Warren Buffett was doing. I started off as a retail stockbroker in resource stocks in the very early ’80s, after their big run in the ’70s. In 1991, I joined my best customer, an investment manager named Chuck Royce, who was somewhat legendary in investing in small- and micro-cap stocks, using a value discipline, which was very nicely aligned with what I was doing. I had a wonderful 23.5-year career at Royce & Associates, managing portfolios and mentoring portfolio managers and building what was, at that time, the premier thought leader in the investment management of small-cap value.

Starting around 2013-14, our discipline at Royce was not working as effectively. The QE programs, or zero interest rate programs, resulted in suspending capitalism for about five years because the discount mechanism behind markets started to malfunction as an unintended consequence of the Federal Reserve’s money printing. Our jobs became very difficult. I found myself making excuses for not keeping up with benchmarks in the mutual funds that I managed, to the point that I thought I could be having more fun going back to building businesses and investing in businesses.

I had a tremendous experience that I reflected on in the late ’90s when everybody wanted large-cap stocks, growth stocks and, ultimately, dot-com stocks. While at Royce, I took a contrarian approach and hired many small-cap value managers that were being dismissed because of the lack of interest in that segment of the market. Of course, when things turned around in 2000-2001 we had all the talent, were very well positioned, and benefited mightily in the next 11 or 12 years from a resurgence in small-cap value investing.

When I began looking around for other opportunities, I was familiar with Sprott. In 2014, Sprott was in the midst of a bear market in precious metals. I knew Eric Sprott quite well. Peter Grosskopf, the CEO, and I got to know Rick Rule very well. Sprott appeared to provide an exciting opportunity for me to repeat what I had done in the late ’90s at Royce, i.e., to lean against the tide, stayed committed to a sector that was very much out of favor, maintain and build a team and product offerings so that when the inevitable recovery in precious metals and mining shares occurs, Sprott could be the leading resource available for investors.

Although when I first joined Sprott in 2015 it was trying to diversify away from precious metals, last year, we decided to part ways with the general mutual fund managers, who are now known as Ninepoint. Sprott is now focused principally on precious metals, mining, and hard assets themes as an alternative investment manager. I think we reasserted our new focus by assuming the management contract of the Central Fund of Canada at the beginning of this year, which we relaunched as Sprott Physical Gold and Silver Trust (NYSE: CEF). We are very committed to our space and our sectors, and we are patiently awaiting the next inevitable recovery.

 

Brian: A qualitative narrative regarding the macro view of the world is constantly being broadcasted by the media. In North America, it was the impending doom related to war with North Korea or, recently, the talk of trade wars due to NAFTA negotiations. 

There are elements of these topics that have quantitative components, but in my opinion, most people concentrate on the qualitative framing that is presented.  I, myself, have struggled with how to properly deal with the qualitative narrative.

Does the qualitative narrative, in a macro sense, affect how you invest in the market? If so, how?

Whitney: I think there is one very long-term theme that became apparent to me back in the 1998-2000 period, which is the debasement of currencies. I am typically optimistic about things. I’m a business value investor. I look for companies that I can buy and theoretically hold forever because they’re well managed, they allocate capital well, and they have strong positions, strong balance sheets.

However, aside from the unprecedented day to day noise created by the current administration, one long-term macro theme that I have every conviction is that when countries get themselves into the kind of financial positions that they’re currently in, there’s only one viable option. Countries do not like to default on their obligations, and certainly austerity measures that try to reign in spending have a very limited and finite life before the population decides they’d like new leadership. I think we are seeing a lot of this around the world right now.

The ultimate solution to resolving too many claims on existing assets is to debase the currency. So printing Dollars, printing Euros, printing Yen has become the norm. I trace the beginnings of this kind of approach back to the Greenspan era, which first started with the Long-Term Capital Management hedge fund crisis and the Russian debt crisis that occurred in the fall of 1998. Certainly, it was repeated after 9/11, and then again after the most recent financial crisis in 2009. I just don’t see any other way out of the current situation other than debasement.

When a currency becomes infinite in quantity, investors should turn their attention to those things that are finite. Precious metals are finite in quantity, as are other hard assets categories like farmland and energy. And, so, an overlying theme to all the investing I’ve been doing for the past 20 years has been an awareness of those investments that will not be debased by what central banks around the world are trying to engineer.

Brian: What utility does gold bring to a portfolio?

Whitney: Gold is a currency that is nobody’s obligation. I view gold as a mandatory allocation in my own portfolio and recommend it to others in its physical form, or some derivative of that.  Gold is the original alternative asset, and it is not correlated to other markets. It provides a bit of insurance in times of high stress. Gold has, in the 18 years since the beginning of this millennium, posted superior returns to U.S. stocks as measured by the S&P 500 Index, including the reinvestment of dividends.

Of course, one can hand pick any time period to make their case. But I find that by having a 10% allocation to precious metals, I’m more comfortable being more aggressive with the other 90% of my portfolio because I have a bit of an insurance policy if things go poorly. Gold gives me another bite at the apple because it provides diversification.

 

Brian: We live in a society of paradigms or bias that lock us into thought patterns that make many of us blind to other alternatives that may be more efficient or beneficial.

Whether it be financial, political or social, in your opinion, how does one keep an open mind and see through paradigms and their own inherent bias?

Whitney: Keeping an open mind to changes is very important. As investors, we all have to learn about new technologies, to try and understand where the opportunities are and where the disruptions will occur. Being diversified and keeping a balanced investment portfolio is critical because we’re not always going to get it right. What happens in society as well as in investing is that after a prolonged period of something being successful, it becomes viewed as somewhat permanent, and people lose sight of the fact that things do change.

I would say that a good example of that now is investing in an S&P 500 Index nine years into a bull market. It has become almost a permanent default, a self-reinforcing phenomenon that is likely to one day not work out. Like any kind of momentum investing, one never knows when the momentum is gone until it is too late. Having a discipline, keeping an open mind, and then sticking to that discipline has worked very well for me, and for many other successful long-term investors. This gives you a strong foundation with which to filter out much of the political and social noise that we’re all being overly bombarded with every day.

 

Brian: While paradigms and bias give us the basis for how we view the world, emotion is the fuel that causes us to act without logic. The biggest lesson I have learned in my speculating career, thus far, is to act against the crowd and buy when everyone else is selling – and vice versa.

How do you control your emotions when speculating in the risky and volatile junior resource sector?

Whitney: My investment hero is Warren Buffett. He has said that as an investor it is wise to be “fearful when others are greedy and greedy when others are fearful.”  Human nature has not changed, and so having tools to deal with one’s own emotions is very important. That gets back to having a discipline and laying out a plan, and then executing on that plan when markets call for it, irrespective of how it feels.

In my case, I spend significant time researching companies and assessing what those companies are worth. What is the fair value of the business? What would another company pay to own all of that business? At what price does that business generate free cash and investor returns to me that are appropriate, and maintain that consistent return/demand throughout the market cycle?

I often think in terms of “cap rates”, which is a real estate term, and which is basically the earnings yield that I get on my investment. What I do is I set out target prices, both buys and sells, where I think a sell price would be a full valuation for a business, and a target price would be that which I would get the kind of return I would like, i.e., the double digits over time, if it should achieve the sell price.

Then, it is a matter of sitting back and waiting, and letting the market do whatever it is going to do on any given day. By having a plan in advance, one can execute on that plan in a fairly unemotional way by buying when the markets are selling off and your companies are approaching your buy targets, and conversely, by liquidating or selling as companies start to approach your sell valuations. For me, it’s a two-step process. First, do the research and understand the business. Second, execute based on what kind of opportunities the market is giving you or taking away.

Brian: Along with being Sprott’s Chief Investment Officer and Chairman of Sprott U.S. Holdings, you are also a Senior Portfolio Manager at Sprott Asset Management USA, where you manage the Sprott Focus Trust (FUND: Nasdaq), which is a closed-end equity investment fund.

Can you give my readers an overview of the Fund’s goal, and the process you employ to achieve that goal?

Whitney: One of my goals when I joined Sprott was to be more closely aligned with the people that I’m working for, i.e., the investors. I brought to Sprott two funds; a hedge fund and the closed-end fund, FUND, that you mentioned, where my extended family and I control about 30% of the shares, which means I am eating my own cooking. For me, the value proposition for FUND is absolute returns. Net of fees, net of taxes, net of inflation. You can’t eat relative performance.

I employ the same discipline I’ve been using since I was co-managing the Fund starting in 1996. I invest in high-quality companies with strong balance sheets, high returns on capital and good management; these are companies that are good at allocating capital. I try to buy them when they are out of favor, and at that attractive cap rate I mentioned earlier, and to hold them until they become fully valued. FUND represents a diversified portfolio of 40-50 stocks. No one stock is allowed to represent more than 5% of the portfolio. FUND is somewhat blind to market cap, although, generally, it has been invested in smaller and mid-cap companies where I have been able to find better valuations.

Since the financial crisis in ’09, FUND has been populated by some mega-cap stocks, including Apple, because its valuation metrics were as appealing as anything I could find by digging down into the micro-cap sector. My approach is a low turnover strategy, buying and holding positions with a 3- to 5-year investment horizon, buying companies when they are out of favor and that I know will survive because of the strength of their balance sheets and their core businesses. I like to hold these companies for as long as it takes the market to recognize its value. FUND is managed for a long-term capital gain objective with a mind to being tax efficient and generating absolute returns. I have maintained an allocation in resource stocks or mining companies in the neighborhood of 10-15%  for many years, somewhat as a hedge. Although I cannot invest in commodities directly, I have found some interesting companies to own in the mining sector. The Fund also owns about 15 percent in energy. My biggest areas of interest right now are in technology, particularly on the hardware side. That is where the market has been concerned about cyclicality recently, and in my mind, misplaced some very high-quality companies.

 

Brian: For me, I get a great deal of value from attending resource investment conferences. In particular, I’m looking forward to attending, what I think is a must attend, the Sprott Natural Resources Symposium in Vancouver next month.

In your opinion, what is the greatest benefit that the Sprott Natural Resources Symposium has to offer investors?

Whitney: I have always found it interesting and important to meet with company management. But being a contrarian, and somewhat of a skeptic, management is always going to tell you the best case story and what it wants you to hear. One of the interesting things that you can learn from conferences is what the peer group of various companies has to say about them, their prospects and their stories, so you get a much more balanced comparison than you might from a one-on-one management presentation.

The views and commentary of other participants at conferences, whether they are investors or competing companies, are often very insightful, if not colorful. Going to a conference and immersing oneself in a sector for four or five days allows you to do some deep thinking without the daily distractions of all that’s going on back at your office.

Brian: Whitney, thank you so much for answering my questions. I appreciate it.

Whitney: You’re welcome.

 

Consistently making money in the market isn’t done without proper due diligence and the personal discipline to see your investment thesis reach its potential.  It’s easy to get caught up in some of the qualitative narrative that surrounds both the market and the world in general. However, as George mentions in the interview, buying quality companies that are selling for less than their value and then holding them as long as you can, until you reach your target price, is an absolute KEY to success.

For those who don’t want to manage their entire portfolio, I highly suggest checking out Whitney George’s Sprott Focus Trust (FUND: Nasdaq), where your money can be managed by a man who has a very good track record for success and, as he says, where he “eats his own cooking,” by being a major shareholder of the fund.

Also, personally, I’m really looking forward to attending the Sprott Natural Resource Symposium in July, and think that it is a MUST-attend event for anyone who invests in the junior resource sector.  Being at the conference gives you the chance to see and listen to a fantastic group of speakers, which includes Rick Rule, Doug Casey, and James Grant, just to name a few. I hope to see you there!

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

 

Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

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(s) and sector that is best suited for your personal investment criteria. Junior Stock Review does not guarantee the accuracy of any of the analytics used in this report.

 

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Ecuador – A Renaissance in Mining Investment Attractiveness?

Lately, I’ve spent a lot of time debating the criteria I use and the level of risk I’m willing to take with regards to jurisdiction. I find the topic of jurisdictional risk very interesting because, although, there’s a quantifiable aspect to jurisdiction, I believe many of the general opinions regarding jurisdictional risk are based on qualitative observations or anecdotal themes that are proliferated through the mainstream media.

A good example is Russia. Many jump to the conclusion that it’s a VERY risky country and, therefore, not a place to invest. I don’t necessarily disagree; most of the propaganda about Russia, today, is ‘negative.’

Let’s, however, take a look at one of the criteria listed by the Fraser Institute in its examination of jurisdictional risk; political stability. Relative to its peers, Russia scored low, which too many translate into ‘stay away.’ While political stability is a complex factor, I was taken aback when a friend, whose company does business in Russia, said he finds this scoring comical; “does anyone really think there’s going to be some serious political upheaval while Putin is in charge?” Given the complexity of evaluating political stability, his answer isn’t complete, but it still reveals the contrast in views – those who have experience in these ‘risky’ jurisdictions, and those who rely solely on narrative to form their opinions.

Last year, one of the mining industry’s best, Rick Rule, gave me some sage advice regarding jurisdictional risk;

“My own experience is that most investors equate political risk to their emotion rather than to reality, and you tend to react more strongly to political risk that you haven’t experienced or don’t understand. My own belief is that money that is stolen from me by white people in English, according to the rule of law, is just as gone as money that is extorted from me in some third world kleptocracy.

My experience, further, by doing business internationally, and this is going to sound like a generality, which it is, but it is also true, countries that can’t get any worse don’t, and countries that can’t get any better don’t, either.  This plays out over time, not immediately, but the truth is, the countries that have rewarded me the best are countries that have been coming off low bottoms. An example would be Chile, with a superb exploration endowment coming off, first, the idiocy of socialism under Allende, and then, the murderous regime of Pinochet. The response of the geology in Chile to stability and the sort of social sense that they had had enough of rightist and leftist autocracy was spectacularly good for me. I made money in hard places like Russia, Sudan, Congo. The truth is that most of the great, easy to find, tier one deposits that exist in countries that have been able to be explored efficiently in the last 40 years have been made. The big tier 1 discoveries that have yet to be made are going to be made in places where there have been problems with access or problems with cost of capital. Places like the Tethyan metalagentic belt, running through Turkey, Pakistan, Kazakhstan, Afghanistan, Uzbekistan, Kyrgyzstan, Mongolia, those types of places. The easy deposits in safe places have mostly been found.” ~ A Conversation with Rick Rule, CEO of Sprott US Holdings

With this in mind, and through my process of due diligence, I believe Ecuador is a country which is coming off a bottom in terms of mining investment attractiveness. I’m a buyer of what I believe are the highest quality junior mining companies exploring and developing projects in Ecuador, and believe that money invested now, near the bottom, gives the investor a great risk to reward opportunity.

 

 

Ecuador

  • Capital City – Quito
  • Population – 16.529 million
  • Currency – U.S. Dollar
  • 2017 GDP – $70.955 billion USD
  • 2017 Unemployment Rate – 4.34%
  • Main Industries – Petroleum (more than 40% of exports), food processing, textiles, wood products and chemicals
  • Main Export Partners – United States, Chile, Peru, Colombia, Japan and Russia

*All Figures taken from IMF website

 

Ecuador’s economy is the 8th largest in South America and is driven by the oil industry, where petroleum makes up almost half of the country’s exports. The agriculture sector is a distant second with a little more than 10% of exports.

NOTE: Ecuador is the largest banana producer and exporter in the world.

Ecuador’s oil production began in the early 1970s and is clearly the main driver of the economy. In the years before oil production, Ecuador was a country whose people identified with an agrarian social philosophy, meaning they valued rural society as superior to urban society. With the influx of cash into the country, this has slowly started to change and, in my opinion, is a key point in understanding the Ecuadorian culture.

 

Social Unrest – Taxes and the Environment

Looking into Ecuador’s past, it’s evident that its people are not afraid to protest, especially when it comes to the environment or a number of social issues. Ultimately, moving forward, the government will have to choose how they deal with future protests but, either way, social unrest surrounding a potential mine site could have a major impact on the success of the project.

 

Environment

If I were to pick the most likely point of contention regarding mining’s future in Ecuador, it would be related to the environment. Ecuador is near the top of the world list of biodiversity hotspots in terms of vertebrate species, endemic vertebrates and plants. Specifically, the Intag region, named for the river that runs through it, spans two of the world’s 34 most biologically important areas.

This biodiversity is highly coveted by many who live within Ecuador and many of the environmental NGOs around the world.  Doing a quick search of environmental organizations with propaganda referencing Ecuador reveals a long list of interested parties including, The Ecologist and Fund My Planet.

While there is the potential for turmoil regarding the environment, I think that the probability of there being issues can be reduced if handled correctly by the mining companies. By ‘handled correctly,’ I think it’s really important to educate and support the local communities in the region with which you’re developing or exploring. Educate on the benefits of mining and how the company intends to protect the environment in which it’s working.

Additionally, an X-Factor in this type of relationship are ties with Ecuadorian companies that have operated within the country for many years. I think the companies that leverage their relationships within Ecuador are miles ahead of those who try to navigate the culture and government from the ground floor.

There’s one such relationship which I think has a ton of potential to bring shareholders value through their expertise and recognition within the local communities.  Adventus Zinc Corporation and Salazar Resources (SRL:TSXV) have this type of agreement, and I had the opportunity to ask Sam Leung, Adventus’ VP Corporate Development, about it.

 

Adventus Zinc Corp

Adventus Zinc Corp. (ADZN:TSXV)

MCAP – $45.5 million (at the time of writing)

 

 

Brian: In your opinion, why was it important to have a partner, such as Salazar, in Ecuador?

Sam: Local know-how is often invaluable, particularly in the mining sector and developing jurisdictions such as Ecuador. Many foreign companies and corporate personnel often fail to recognize what they do not know about a project jurisdiction and its normal business and community practices, so a trusted local partner can add significant value with operational experience and local networks. For Adventus’ Curipamba Project and the Ecuador country-wide alliance, a strong partnership has been formed with Fredy Salazar and his local Salazar Resources team, who are pioneers in Ecuadorean mineral exploration with over 30 years in their home country. The Salazar team work closely with Adventus to help expedite and complete tasks in country with minimal complications, and share important business insights from domestic developments.

 

Brian: What do you see as the biggest risk for mining investment in Ecuador?

Sam: We perceive community relations and integration to be the biggest risk not just for mining investment in Ecuador but most other developing countries. Each project has different stakeholders and dynamics, so investors need to be aware of management teams’ capabilities and limits in addressing social needs in project development. For the Curipamba Project, the Salazar team are well-respected members of the project communities, while Adventus brings additional resources and international best-practices to address social needs.

 

 

 

Left-Leaning Socialism

The political philosophy which I’m most apprehensive about, especially from an economic standpoint, is left-leaning socialism. Throughout history, political structures rooted within these frameworks have been bad for business.

I believe, however, that given the obvious PUSH toward reducing taxes and attracting mining investment dollars, at least in the short-term, the risk associated with this form of political philosophy is reduced, but never too far away.

For me, when a political philosophy is so ingrained in the culture of a country, it’s only a matter of time before the cycle shifts and once again reflects the country’s history during Correa’s rein. I’m very optimistic that the next few years will remain positive for mining investment, but will remain open-minded about the subtleties that may be indicating a reversion back to the mean!

 

 

The Last 10 Years

A major turning point in Ecuador’s history, in terms of how it relates to mining, occurred in November 2006 with the election of Rafael Correa as President.  Interestingly, Correa’s 10 years as President was unusual given the fact that there had been 7 different Presidents in the previous decade.

Correa’s appeal to the Ecuadorian people appears to have been rooted within socialist or left-leaning political philosophy, which saw a major portion of tax dollars diverted into social causes, such as healthcare, education and agricultural subsidies. Additionally, and more to the point of this article, Correa focused his attention on extracting more cash from the mining business.

In April of 2008, Correa’s government adopted a new mining mandate which restricted companies to holding a maximum of three concessions and instilled a 180-day suspension of activities for almost all mining concessions in Ecuador while a new mining law was put together. This controversial move did not go over well with investors, and most of the mining companies which held property in Ecuador, as they saw their share prices fall in response to the news.

Months after, still under the guise of the new mining mandate, Aurelian Resources sold their multi-million gold ounce deposit, Fruta del Norte, to Kinross Gold Corporation for $1.2 billion.  I believe this deal single-handedly marked the height of ‘doom,’ so-to-speak, of the hard-rock mining industry within Ecuador.  Over the coming years, Kinross participated in negotiations with the government over terms to develop Fruta del Norte into a mine but, ultimately, couldn’t come to an agreement.

As cited in many articles relating to the negotiations, the Ecuadorian Government insisted on a 70% windfall profits tax, which, in essence, would limit the profitability of the mine in a rising gold price environment. Ultimately, this led to negotiations falling apart in 2013. Within a year, Kinross formally stepped away from Fruta del Norte with its sale to Lundin gold for $240 million – a whopping 80% loss!

As I stated, I believe this marked the low point for hard-rock mining in Ecuador; outside of nationalizing Fruta del Norte, selling it for a fraction of the purchase price because of negotiations with the government had a major effect on how the mining industry viewed investment within Ecuador’s borders.

The failure of these negotiations is clearly visible in the popular Fraser Institute Rankings, as Ecuador’s score for mining investment attractiveness fell to a low of 38.1, ranking it 80th out of the 122 countries that were covered by the 2013 report. In the years since, Ecuador has slowly improved its ranking with a score of 45.9 in 2014, 45.36 in 2015, 50.38 in 2016, and 52.09 in 2017. While this is a marginal improvement year over year, the score is headed in the right direction, and one which, I believe, will improve again in 2018.

 

2018

Why do I believe that Ecuador’s mining investment attractiveness score is going to continue to improve in 2018? Great question and one that needs to be explained in further detail, as Ecuador’s past needs to be kept in perspective when making prognostications.

 

Goal of Attracting $4.6 Billion Investment Dollars Over the Next 4 Years (2021)

In May 2017, Lenin Moreno replaced Correa as President of Ecuador.  While much of what I have read describes Moreno as having a socialist or leftist political philosophy that’s very similar to Correa’s, Moreno has publicly stated a desire to attract close to $5 billion for Ecuador’s mining sector. This is a lofty goal because, in my opinion, they will have to make great strides with regards to changing their image in the mining sector in order to accomplish this.

At this year’s PDAC, Ecuador may have made a crucial step in improving their image, as they were the headline country sponsor for the event and had a large booth at the show. While advertising is great and a step in the right direction, if they don’t take action to improve the country’s mining investment attractiveness, it may be all for not.

Even before this advertising PUSH, however, Ecuador has shown that it’s poised to change. The biggest change, in my mind, comes with hiring Wood Mackenzie as a consultant to assist in changing Ecuador’s mining tax regime, making it competitive with the rest of the world.

Here’s a list of some of the positive fiscal and financial reforms made over the last few years:

  • Value Added Tax (VAT) Recovery – Starting in 2018, VAT will be recoverable for mineral exports
  • Windfall Tax – A bill has been expedite to remove the windfall tax, and should be approved in the next 30 days.
  • Sovereign Adjustment
  • Currency Transaction Tax – exemption on tax relating to currency outflows
  • Accelerated Depreciation – Investors’ choice of 5-10 years (locked in fiscal stability contract)
  • Fiscal Burden – For example, the fiscal burden on a large scale copper project has dropped from 30% to 23% with the changes to the tax regime

NOTE: Review Wood Mackenzie “Ecuador Tax Regime”

 

Brian: Of the positive fiscal and financial reforms made by the Ecuadorian government to date, which do you feel will be the most effective in changing perception of the mining community?

Sam: We believe the significant reduction in the Windfall Tax terms over the past few years has been integral to changing the investment perception. Due to the negative connotations, we also believe the government of Ecuador could go further and remove the Windfall Tax outright, but that remains to be seen. Please refer to our corporate presentation on the Adventus website for more details on the Windfall Tax.

 

Brian: In your opinion, is there anything else that needs to occur to change the perception of the mining and investment communities?

Sam: With regards to exploration investment jurisdictions globally, Ecuador has been arguably the hottest over the past 12 months and this momentum continues. Longer term, we believe a significant milestone for Ecuador will be the completion and successful commercial operation of the first large mines which are currently in construction. Once these foreign companies demonstrate returns on their investments, many more deep-pocketed investors will be drawn into Ecuador.

 

 

Cash Flow Back Into Ecuador

As Ecuador’s actions align with the statements they’ve made about bringing mining investment dollars to the country, cash has begun to flow back into the country’s hard-rock mining sector. Arguably the best example of this comes from Lundin Gold and their push toward the development of Fruta del Norte.

Fruta del Norte

On January 14th, 2016, Lundin Gold announced that they had completed the negotiation of the definitive form of the Exploitation Agreement for the Fruta del Norte Project with the Government of Ecuador.  The completion of this Agreement is a huge milestone given the controversy associated with its history. For those interested in reviewing the details of the Agreement, please follow the link to the news release.

The completion of the Agreement was very important, but most important is Lundin’s ability to take the Agreement and put it into action via financing for the development of the Fruta del Norte Project. On March 26, 2018, Lundin Gold took a major step forward by announcing that they would be closing their $400 million USD equity private placement.  In my opinion, while the risk to reward ratio is very much in favour of Lundin Gold, considering the upfront capital cost versus upside potential related to expected gold production, the raising of this amount of cash for a gold project located in Ecuador speaks volumes about how the market is changing its view of the country, and Lundin’s level of influence within the industry.

 

Collaboration – Chile and Ecuador

On March 10th, 2018 Codelco, the world’s largest copper miner, announced that Chile’s Minister of Mining, Aurora Williams, and her counterpart in Ecuador, Rebecca Illescas, signed a joint declaration that strengthens the agreements of the Codelco-Enami EP alliance, and expedites the execution of the Llurimagua bi-national copper project, located in northeast Ecuador.

To date, there has been $34 million USD spent on the Llurimagua Project. It’s expected that the total will be upwards of $50 million USD by the end of the advanced exploration phase. The signing of the agreement and the money being spent by Codelco on the Llurimagua Project is another example of the changing tides in Ecuador.

 

Cascabel

One of the hottest stories in the junior mining sector in 2017 was about Sol Gold, which is developing Cascabel, its porphyry copper-gold deposit, located in the Imbabura province in the northwest region of Ecuador.

Cascabel is a great example of the mineral potential that exists within Ecuador. Clearly, investors are attracted to Sol Gold with their high-grade copper over wide intervals, such as that which was found in Cascabel Hole 12 and produced an interval of 1560 meters at 0.93% CuEq, or Hole 9, which produced an interval of 1197.4 meters at 1.16% CuEq.

Are mining investors avoiding Ecuador? Glancing at Sol Gold’s stock chart, I think the answer is no. With Ecuador’s push toward change in its hard-rock mining policy, and what looks to be world-class mineral potential, investors are clearly interested in the risk to reward potential.

 

 

 

Ecuador’s Potential

In my opinion, the top reason for investing in junior mining companies that are exploring or developing projects in Ecuador is the mineral potential that exists within its under explored borders.  Also, more with regards to the projects that are in development, Ecuador produces 90% of its internal energy requirements via hydro electric dams, giving Ecuador some of the cheapest electricity in the world.

Mineral Potential

Ecuador is located on the northwest coast of South America and is host to the northern portion of the Andes Mountain chain. The Andes are famous for their mineral endowment, as a couple of South America’s most prolific mining countries, Chile and Peru, have produced some of the richest deposits in the world.

In a presentation entitled, Geological and Mining Potential in Ecuador, John Efrain Bolanos cites,

“the spatial-time distribution of the Cu porphyries and related epithermal mineralizations of the Peru metallogenic belts are very similar to those ones in Ecuador.”

Source: John Efrain Bolanos Presentation – Geological and Mining Potential of Ecuador

 

From Bolanos’ presentation, Ecuador can be broken down into 6 geo-structural domains, which showcase Ecuador’s geological potential:

  1. The Fore Arc Basin of the Coast
  • Cretaceous to Cenozoic basin underlain by aloctonous basaltic ocean crust
  1. Western Cordilera
  • Formed by an accretionary prism mainly of ocean crust composition, continental crust and accreted Late Mesozoic to Cenozoic ocean terrains
  1. Interandean Graven
  • Formed by thick and large Oligocene to Miocene volcano-sedimentary sequences
  1. Real of Central Cordilera
  • Formed by several litho-tectonic divisions of Andean bearing and separated by regional faults. Guamote division, Alao division, Loja division, Salado division and Zamora division
  1. Eastern Subandean Zone
  • Formed by forearc belt of the basement covered by volcano-sedimentary sequences
  1. Back Arc Basin of Iquitos
  • Comprises of Oriente or Amazonian basin mainly formed by sedimentary and volcano-sedimentary sequences

 

Given Ecuador’s favourable geography, similarities to a couple of the world’s most prolific mining countries and lack of modern exploration activity, Ecuador may be one of the world’s last frontiers for potential world-class deposit discoveries.

 

Brian: Was Ecuador’s mineral potential a factor, first, in choosing  the Curipamba Project, and second, in expanding upon the exploration and development deal with Salazar?

Sam: In our global hunt for zinc-related projects in 2017, the quality of the Curipamba Project with respect to its high grade El Domo deposit and the additional exploration potential over its 22,000 hectare area stood out when compared with other known projects and operations globally. During our due diligence process, we also recognized the scale of potential discoveries within under-explored Ecuador and how a well-aligned partnership with Salazar would provide us with first-mover advantages during Ecuador’s adolescence as a mining jurisdiction. Ecuador’s mineral potential, located between Peru and Colombia, is at the heart of the investment thesis.

 

 

Concluding Remarks

It’s my contention that Ecuador is in the midst of a renaissance toward perceived mining investment attractiveness. While there’s a conscious effort being made by the Ecuadorian government to attract investment from the global mining industry, I believe investors and mining companies are rightly skeptical about placing their money in a place where so much destruction to capital has occurred in the past.

In my opinion, the risks that pose the largest threat to investment dollars still exist and will not cease to exist at any point in the future. I believe the Ecuadorian people have a culture which is rooted in left-leaning socialism. Currently, the pendulum, while still hanging under the socialist umbrella, has pushed further right and will remain there for the next few years, but will revert back to the mean at some point in the future – to that I think it’s inevitable.

Additionally, given the biodiversity of Ecuador and the global push toward environmental diligence, mining within Ecuador’s borders will always ‘walk the line’ between being accepted and being protested. Companies that do not make an effort to explain how they will protect the environment and the other benefits of mining to the communities will not be successful.

While the risk associated with investing in Ecuador is very real, I believe there’s tremendous opportunity in Ecuador right now. This is based on the following:

  • Current President, Lenin Moreno, has stated that it’s his goal to attract close to $5 billion in mining investment dollars over the course of his 4 years as President. Lundin Gold’s $400 million financing for the development of Fruta del Norte speaks to the market beginning to turn in favour of investment within Ecuador.
  • Adventus Zinc, Lundin Gold, Codelco, BHP and Sol Gold are all examples of companies that have started putting investment dollars to work within Ecuador. It’s my opinion that smart money begins to flow into the smart contrarian markets first.
  • Wood Mackenzie’s influence in Ecuador’s mining taxes is a major step toward becoming a world-class destination for mining exploration and development. Reductions in VAT and the company’s fiscal burden, along with the proposed elimination of the windfall tax, are all integral steps in attracting further investment dollars.
  • Immense mineral potential – Much of Ecuador has not been explored with modern exploration techniques. Given Ecuador’s geographical location, I believe it’s safe to say that Ecuador may be one of the world’s last remaining jurisdictions with tier 1 deposit type discovery upside potential.

 

I’m investing my money in Ecuador and believe it’s just a matter of time before the market recognizes the changes that have been made and will follow suit.

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

 

 

Until next time,

 

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

 

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 do own shares in Adventus Zinc Corporation. Junior Stock Review and/or Brian Leni has NO business relationship with Adventus Zinc or any other company mentioned within this article.

 

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Northern Empire – The Sterling Gold Project Site Visit

Northern Empire's secret pass pit

On April 6th, I had the opportunity to visit Northern Empire’s Sterling Gold Project, located north-west of Las Vegas, Nevada.  My visit was great and really gave me a good perspective of the Sterling Gold Project’s scale and its potential for further resource expansion.

In particular, the Crown Block stood out as having great exploration potential, as not only is this area a focus for Northern Empire, but also has drawn a lot of attention from Corvus Gold, whose Mother Lode Open Pit is completely surrounded by Northern Empire.

In all, I left the site visit very optimistic that Northern Empire’s 2018 drill program should shed a lot of light onto the Sterling Gold Project’s potential and am eagerly awaiting news flow!

 

Las Vegas

After landing in Vegas, I hopped in an Uber to get to my hotel. As this was my first visit to the area, I was mesmerized by the bright lights, massive celebrity advertisements and sheer size of the Las Vegas Strip.

View from the bridge connecting the Bellagio and Ballys

View from the bridge connecting the Bellagio and Ballys

Las Vegas truly is the center of the universe when it comes to marketing, because the corporations that reside here clearly understand human behaviour and how to manipulate it. Everything about the strip is designed to put a smile on your face while simultaneously extracting the maximum amount of money from your wallet.

Along the strip, a Starbuck’s tall Americano is $5.50 USD, a tall can (493ml) of domestic beer $10.00 USD, and a ‘big gulp’ slushy with rum or tequila will run you $30 USD. These prices remind me of those typically reserved for sporting events or concerts, which may be a good comparison for the confines of the Vegas Strip.

A view of New York New York from my hotel parking lot

A view of New York New York from my hotel parking lot

While my comments here may seem negative to some, they aren’t meant to be. I have a high regard for the marketing expertise that has created this ‘wonderland.’

View of the Bellagio

View of the Bellagio

Bottom-line, even if you aren’t a gambler, Las Vegas is a place that everyone should visit at some point in their lives. It truly is unique in terms of what it has to offer.

 

Sterling Gold Project

The day of the site visit started early, as we met in the lobby of the hotel at about 6:30 am. I, however, hadn’t adjusted to the 3 hour time change and was up some time before. One thing about starting your day at 4 am in Vegas is that you aren’t alone. That said, I’m sure most of the people I encountered at that time of the morning had yet to go to bed!

From our hotel, it was about a 2 hour drive up the I95 to the Sterling Gold Project. Given the size of our group, we split up into 3 vehicles. In the SUV with me was Executive Chairman, Doug Hurst, and The National Investor newsletter Editor/Publisher, Chris Temple. Both men are very experienced in the mining and investment worlds and shared several, great anecdotal stories about their experiences and lessons they’ve learned from the sector.

Drones and Area 51

Roughly half way to our destination, we drove past a U.S. Air Force base which, famously or infamously, is the site of at least a portion of the U.S. drone fleet.

drone

A drone flying in the Sterling Gold Project Vicinity

One of the most intriguing, yet mysterious, sites along the way was Area 51. Of course, you can’t actually see Area 51, but many of the businesses along the highway have names inspired by this mysterious U.S. Air Force base. I’m by no means an expert on the lore surrounding Area 51, but after spending the day at the Sterling Gold Project, you very quickly become aware of a U.S. military presence.

helicopter

2 (small) Helicopters in the distance

 

Walker Lane Trend

The Walker Lane Trend extends north-west from Las Vegas to Reno, running parallel to the Nevada and California state borders. While not as famous as the Carlin or Battle Mountain-Eureka Trends in the northern portion of the state, the Walker Lane Trend has a very rich gold mining history.

Walker Lane Trend

 

It’s estimated that 50 million ounces of gold have been discovered within the Walker Lane Trend, with the Comstock Lode Mine located near Reno being, arguably, the most famous.  Additionally, the Round Mountain and Bullfrog Mines are other examples of gold producing mines within the trend.

Interestingly, Barrick’s past producing 2.3 million ounce Bullfrog Open Pit Gold Mine can be seen from Northern Empire’s Crown Block. I was able to snap a photo, while standing at the top of the Secret Pass Open Pit – see below.

View from Northern Empire's Secret Pass Open Pit

View from the Secret Pass Open Pit – Barrick’s Bullfrog Mine

 

Crown Block - detachment fault

Satellite Image of the Crown Block

As you can see in the satellite image above, the Bullfrog Detachment Fault and the Fluorspar Canyon Detachment Fault run in a similar east-west fashion, and lay host to the past producing open pit mines. Also, the Faults divide the tertiary volcanic rocks in the north and the sedimentary rocks in the south.

 

 

Sterling Mine

The site visit began at Northern Empire’s permitted Sterling Mine, which is in the southern region of the property. After completing our site safety orientation and collecting our PPE, we hit the road, making our first stop at the heap leach pads.

Sterling’s Main Entrance Road, Looking Away from the Sterling Mine

Sterling’s Main Entrance Road, Looking away from the Sterling Mine

Sterling’s Main Entrance Road, Looking at the Sterling Mine

Sterling’s Main Entrance Road, Looking at the Sterling Mine

Currently, there’s one active leach pad; at the time of our visit, it was being turned over by the bulldozer featured in the photo below. The ore is mixed on the pad to help oxygenate the pile and break up any fluid channels that formed over the last cycle. Ultimately, this leads to higher recoveries in the processing plant. These are simple smart things that the Company does to improve efficiency show the respect that they treat shareholder capital. Also to note, the existing facilities and processing plant appear to be in great shape, which is a real plus when it comes time to begin production.

Active Leach Pad

Active Leach Pad

 

We then moved into the Sterling Mine open pit area, more specifically up onto the Water Tank Hill, which gives a great vantage point for viewing all three open pits.

CEO Mike Allen

Northern Empire CEO, Mike Allen, on Top of Water Tank Hill

 

While standing on Water Tank Hill, CEO, Mike Allen, took the opportunity to explain how they will attempt to expand the Sterling Mine resource. As explained in my introductory article, the company will follow up on recent high-grade drill holes that sit on the pit shell edge, as seen in the satellite photo below.

Sterling Mine aerial photo

 

 

 

 

Sterling Gold Project Mineralization – Core Shack

Core box

Next, we headed back to the main offices for lunch and a look at the core shack. As with all Carlin-Style gold, the core doesn’t possess any eye-catching visible flakes or nuggets, but instead it is the orange oxidized material (the more broken up the better) which should catch your eye, as it is gold bearing. The samples, however, were still very interesting as the fluorite and calcite mineralization found on the property can be seen in the core samples. In the photo below, for instance, the purple mineral is fluorite.

core sample with florite

Core Sample with Purple Mineral Fluorite

 

In fact, the Sterling property boundaries not only surround Corvus Gold’s Mother Lode Project, but also historic fluorite and mercury mines, which can be seen in the property map below.  Interestingly, it was mentioned during the visit that the fluorite mine was hampered by gold contamination, what a wonderful issue to have!

Sterling Gold Project - All mines

Sterling Gold Project

 

Sterling Mine Site Manager Chuck Stevens , who worked previously in the Sterling underground mine, showed me a few excellent calcite samples in his office and, additionally, pointed out the massive calcite sample sitting outside the geologist’s office trailer. Also, Executive Chairman, Doug Hurst, pointed out a couple of cinder cones which lie just east of the property; another example of the geological diversity of the property and its surrounding area. The immediate area around Northern Empire’s Sterling Project features fluorite, decorative rock, precious metals and marble mines demonstrating both the endowment of the area, the impact of mining on the local economy, and the ability to permit both large and small mines effectively.

Cinder Cone Edited

NOTE: A Cinder Cone is formed by volcanic eruptions of mafic / intermediate lavas, which collect to build a cone around a volcanic vent. On the east side of I95, on your way up to the Sterling Gold Project from Las Vegas, a cinder cone is currently being mined for decorative stone used in landscaping.

 

The Crown Block

Brian Leni

Yours truly with the Secret Pass Open Pit in the background

Heading back out onto the I95, we then headed north toward the town of Beatty, to the Crown Block.  As you will remember from my introductory article, the Crown Block is made up of 4 main targets: Daisy, Secret Pass, Shear Zone and SNA, all of which are located along the Fluorspar Canyon Detachment Fault.

Daisy

Our first two stops were at Daisy and Secret Pass deposits, where Senior Geologist, Ron Kieckbusch, and Exploration Manager, Rich Histed, discussed the geology of the area, the work they completed in 2017, and where they were headed in 2018.

Geology of Crown Block

South of the fluorspar detachment fault, mapping has defined an asymmetric fold-thrust belt in the sediment package, with a northwest vergence and northeast plunge likely of Mississippian age (327-290 Ma).

It’s my understanding that the folding of the sediment package generated perpendicular faults, which were later made larger during a caldera collapse. For those who aren’t familiar, a caldera is a large volcanic crater, which can be formed by either an explosive volcanic eruption or the collapse of surface rock into an empty magma chamber. The now larger faults become easier conduits for fluid flow, thus explaining the mineralizing event.

 

Geological Mapping and Geochemical Sampling

Currently, 30% of the 141 square-kilometer property package has been geologically mapped and geochemically sampled, with the Crown Block being the primary focus. Mapping and sampling is a very efficient and cheap way of acquiring drill targets. In total, 580 rock chip samples have been taken, returning grades within a range of undetectable to a high of 13.85 g/t gold, and 34 samples returned greater than a 1.0 g/t gold.

Crown Block new targets

As stated, the mapping and sampling within the Crown Block has identified new exploration targets, which were noted in the April 25th news release and can be found in the image above.

  1. Road Zone – located north of the Daisy Deposit and features several up-dip surface samples of greater than 1.0 g/t gold, which indicates potential for shallow mineralization.
  2. Gold Ace Fault – located south and up-dip of the Daisy Deposit and features a large undrilled area of high-grade surface samples, including a high of 13.85 g/t gold.
  3. Crowell Extension – located east of the Daisy Deposit and features reported gold grades of up to 7.0 g/t from the historic Crowell fluorite mine. The Crowell Extension target has a strike length of roughly 800 meters.
  4. Radio Tower – Anomalous surface geochemistry to the south of the Secret Pass pit indicate a possible target at depth.
  5. Secret Pass East – As the name suggests, this target lays on the under-explored eastern portion of the large Secret Pass Deposit. Surface sampling has returned up to 5.0 g/t gold and represents a potential strike length of roughly 1200 meters.
  6. Ronko Jasperoids – Located south of the SNA, undrilled Jasperoids returned sample values of up to 2.0 g/t at surface. Jasperoids are excellent host rocks for mineralization and represent a strike length of roughly 500 meters.
  7. Range Front Fault Zone – Range front fault systems have, historically, laid host to many of the largest Carlin-Style gold deposits in Nevada. The range front fault, which runs along the eastern portion of the land package, is sizeable and untested, which has the potential to host a large deposit. Historic sampling returned values upwards of 5.0 g/t gold at surface on secondary structures. It should be noted that range front structures host 3 deposits on the eastern side of the Bare Mountain Range; Motherlode, SNA and the 144 Zone.

In my opinion, there is a TON of potential here, as Northern Empire begins to expand and fill the gaps between these historic deposits. As seen in the image above, it looks like one big shallow gold system, with good grade. In the gold mining world, it doesn’t get much better!

With the identification of these high prospective targets, Northern Empire is expanding their current drill program to 18,000 meters and have already begun the permitting process for a larger 50,000 meter program, which will focus on expanding the Crown Block resource and testing these new regional targets.

 

Exploration Drill Results – Daisy and Secret Pass

Step-out drill results from the Daisy and Secret Pass, released May 2nd, not only returned good grades and widths, but confirm that both deposits are open for expansion. The results are highlighted by,

  • Daisy Deposit –D18-001 step-out hole returned 108.2 meters grading 0.80 g/t gold.
  • Secret Pass Deposit – SP18-017 step-out hole returned 38.1 meters grading 0.95 g/t gold.

 

Daisy Drilling

Daisy Drilling

The highlighted D18-001 step-out hole encountered mineralization 53.35 meters down the hole, which was shallower than expected. Additionally, mineralization was encountered at the base of the Cararra formation, which suggests that there is a possibility for further mineralization to be discovered lower in the stratigraphic sequence.  In all, the drill results confirm that the Daisy Deposit remains open up-dip for further expansion. Please see the news release for complete details.

Daisy_SP_NR_18-05-01

Secret Pass Drilling

18-05-01_SecretPassDDH_NR

The highlighted SP18-017 drill hole stepped out 200m west from the known Secret Pass Deposit and 196.9 meters deep encountered mineralization grading 0.95 g/t gold over 38.1 meters. To note, this hole was terminated before losing mineralization. Northern Empire states within the news release that they intend on re-drilling the hole to better understand the full extent of what has been discovered.  This step-out is a great result as it confirms that the Secret Pass Deposit mineralization is open to the west.

 

 

 

Corvus Gold

The last stop of the day was at the SNA Deposit, in the north-east corner of the property. As we approached the SNA Deposit, we first drove past Corvus Gold’s Mother Lode Open Pit, which is completely encompassed by Northern Empire’s Crown Block.

Mother Lode Open Pit

Corvus Gold’s Mother Lode Open Pit

For those who are not familiar, the Mother Lode Deposit has been a major focus for Corvus over the last year, with 10,000m of drilling in 2017 and another 13,000m of drilling planned for the first half of 2018. For those that may not be familiar, Corvus has a MCAP around $300 million, which is largely based on the drilling success at Mother Lode.  I find this interesting as a Northern Empire shareholder, because I’m intrigued by the amount of drilling that’s occurring around the existing open pit and, specifically, how that mineralization may extend out toward, or connecting to, the SNA Deposit.

Examining the satellite image below, you can see the concentration of Corvus drill holes not only in the vicinity of the open pit but, more importantly, along the claim boundary.

SNA Mother Lode

This is a fairly obvious observation, one that didn’t get past Northern Empire management; while viewing the SNA Deposit during our visit, drilling was taking place along the Corvus claim boundary.  In news released April 17th, Northern Empire confirmed that the Mother Lode mineralization does extend south towards the SNA deposit and have drilled significant gold grades from structures which cut favourable host rock for Carlin-type gold mineralization beneath the historic Telluride Mercury Mine.

Northern Empire Drilling beside Mother Lode Open Pit

Northern Empire Drilling beside Mother Lode Open Pit

 

 

 

Concluding Remarks

As I’ve said in the past, site visits are an excellent way for you to bring your due diligence to the next level, and nothing beats seeing the property and interacting with the people in person. My visit to the Sterling Gold Project was no different, as it gave me a better view of the upside potential of the property and the type of people managing the company.

Just to recap, here’s a list of what I see as the strengths for Northern Empire:

  • Good management team with extensive experience exploring and developing gold projects in Nevada.
  • The Fraser Institute ranks Nevada 3rd in the world for Mining Investment Attractiveness.
  • Northern Empire is in possession of all the necessary production permits to restart the Sterling Mine.
  • The Sterling Mine potential production scenario should be low-cost, as the Carlin Style gold mineralization will be mined from an open pit and is amenable to heap-leaching.
  • Exploration Potential – The Crown Block, especially, holds a lot of resource expansion potential as it appears all of the existing deposits have the potential to be larger; potentially, one large, shallow and good grade gold system.
    • 18,000 meter drill program underway and a larger 50,000 meter drill program on the horizon as it is currently being permitted!
  • Existing inferred global resource of 985,000 ounces of gold at 1.29 g/t.
  • CASH – $16 million!!

 

 

I believe there’s a lot of upside potential for Northern Empire if they’re able to execute their plan of expanding the resource at both the Sterling Mine and the Crown Block. I look forward to good news flow over the coming months as this story really begins to come together on the back of their 18,000m drill program.

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

Until next time,

 

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

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 do own shares in Northern Empire Resources. All Northern Empire Resources’ analytics were taken from their website and press release. Northern Empire Resources is a Sponsor of Junior Stock Review.

 

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Anaconda Mining – An Update on Goldboro and Thoughts on the Proposed Maritime Resources Takeover

Anaconda Mining Inc--Anaconda Mining Intersects Multiple Wide- H

As an investor, I believe it’s very important for the leader of a company to have a vision for where the company is headed and how they will get there. While the formation and expression of a vision is important, the execution of the actions that lead to the realization of that vision is even more important – it’s where the reasoning for your investment is rooted.

Anaconda Mining’s CEO, Dustin Angelo, is a great example of where the rubber hits the road, as his vision is in line with the execution of the company’s actions. Angelo’s goal of achieving 100,000 ounces of gold production per year is well on its way to becoming a reality with the advancement of the Goldboro Gold Project, and Anaconda’s latest PUSH toward adding 43-101 compliant gold ounces to their books – the formal offer to acquire Maritime Resources.

Regardless of whether they are successful in each acquisition offer, I’m very confident that management will keep moving forward toward their goal, which will, ultimately, add tremendous value for its shareholders.

Today, I have for you an update on the Goldboro Gold Project diamond drill program, and a few thoughts on the proposed acquisition of Maritime Resources and what it could mean for both sets of shareholders.

Enjoy!

 

Goldboro Gold Project

For new readers who may not be familiar, Anaconda’s Goldboro Gold Project is located on the northeast coast of Nova Scotia, roughly 250 km east of Halifax. The Goldboro Gold Project has a NI 43-101 Measured and Indicated Resource of 3,645,000 tonnes at 4.48 g/t for 525,400 oz Au, and an Inferred Resource of 2,542,000 tonnes at 4.25 g/t for 347,300 oz Au.

Last October, Anaconda began a 7,200 meter diamond drill program at Goldboro focusing on the Boston Richardson and East Goldbrook gold systems, with the aim of expanding the mineral resource along strike and down plunge, and to infill specific portions of the deposit to upgrade the Inferred Resources to the Indicated category.

Anaconda Mining Inc--Anaconda Mining Intersects Multiple Wide- H

In news released on April 19, 2018, Anaconda provided an update on 5 of the 30 holes planned in the 7,200m drill program.  The news release reveals the successful extension of the Boston Richardson Gold System mineralization down-dip roughly 100m and extended the East Goldbrook system mineralization westward by 50m.

A few of the highlights of the 5 holes are as follows:

  • 11.27 grams per tonne (“g/t”) gold over 13.5 metres (201.0 to 214.5 metres) in hole BR-18-22, including 15.63 g/t gold over 1.4 metres and 44.33 g/t gold over 2.5 metres;
  • 4.13 g/t gold over 20.5 metres (324.5 to 345.0 metres) in hole BR-18-23, including 9.93 g/t gold over 7.5 metres and 79.34 g/t gold over 0.5 metres;
  • 10.55 g/t gold over 6.1 metres (223.0 to 229.1 metres) in hole BR-18-22, including 18.78 g/t gold over 3.1 metres;
  • 5.10 g/t gold over 9.6 metres (116.0 to 125.6 metres) in hole BR-18-22, including 25.82 g/t gold over 1.5 metres;
  • 7.22 g/t gold over 6.5 metres (310.5 to 317.0 metres) in hole BR-18-23, including 16.00 g/t gold over 2.0 metres; and
  • 9.29 g/t gold over 2.1 metres (420.6 to 422.7 metres) in hole BR-18-21.

Anaconda Mining Inc--Anaconda Mining Intersects Multiple Wide- H

Take a look at the cross-section above. I want to draw your attention to the legend located in the bottom right; in particular, take a look at the new mineralization colour and contrast that against what you see in the image.

Stepping out along strike and down-dip, Anaconda is hitting new mineralization, which confirms that they’re getting closer to understanding the controls of mineralization within the Deposit. I had the opportunity to review the latest drill results from Goldboro with Anaconda’s VP of Exploration, Paul McNeill.

We reviewed some of the highlights of the drill program, but what stood out for me was McNeill’s excitement and interest in the fault system they encountered in this portion of drilling. As McNeill explained to me, an analogue to the Goldboro Project mineralization can be found in the Victorian Goldfields of Australia. Faults within these kinds of deposits are common and are can host high-grade gold.

With this in mind, McNeill and the rest of the Anaconda Exploration team will test the theory that the fault system is somehow a controlling structure for the deposit’s high-grade mineralization. A better understanding of it and how it has or hasn’t influenced the mineralizing fluids is a priority for them moving into the next round of drilling.

CEO, Dustin Angelo, affirms McNeill’s comments in the news release,

“We continue to prove that mineralization extends in all directions in both the EG and BR Gold Systems. We are encountering typical grade and thickness in most of the newly discovered mineralized areas and then we’re uncovering sweet spots that contain broader, higher grade intersections that are among the best results reported from Goldboro to date. The presence of a fault in the areas around holes BR-18-21 to -23 is an important feature that may control the localization of high gold grades and we plan to further test this potential for thicker high-grade intersections within the coming months.”

PUSH: Watch for the drill results from the next round of drilling expected within a few months,following more planned drilling in and around drill section 9100E.

 

Anaconda Mining Formally Offers to Acquire Maritime Resources

On April 13th 2018, Anaconda Mining made a formal offer to acquire all of the issued and outstanding common shares of Maritime Resources Corporation. The proposed deal would see each Maritime shareholder receive 0.39 of a common share of Anaconda for every common share held of Maritime. At the time of the deal, the offer represented a premium of 64% above the 20-day volume weighted average prices (VWAP) of the Maritime shares on the TSX Venture Exchange, and the Anaconda shares of the Toronto Stock Exchange.

In my opinion, this is a great deal for both Anaconda and Maritime shareholders because I believe there’s great synergy between the two companies. Firstly, let’s look at Anaconda’s contribution to Maritime shareholders:

  • Infrastructure, in my opinion, is Anaconda’s largest contribution to the deal. With the existing Pine Cove Mill and newly transitioning Pine Cove Pit to tailings facility, Anaconda brings the much needed infrastructure to process the gold ore mined on Maritime’s Green Bay Property in a timely manner. This point can’t be under stated as infrastructure construction not only requires permitting and access to capital, but it also takes time to develop. While there are other scenarios that exist for processing the Green Bar Property ore, I believe Anaconda’s is the best because, for Anaconda, it’s a matter of “when” the ore is processed, not “if” we get the permit, and “if” we raise the capital to fund construction.
  • Milling Cost – As cited in Anaconda’s conference call on April 16 2018, the Pine Cove Milling cost has averaged roughly $20 per tonne, which is approximately 40% lower than the processing cost of $32.89 per tonne which was used in the Green Bay Property Technical Report.  Anaconda stated in their conference call on April 16th,

“we would bypass flotation and employ a similar whole ore leach process at the Pine Cove Mill that was done at Nugget Pond. Flotation accounts for a large portion of our losses when processing Point Rousse ore. When you take that out of the equation for Hammerdown ore, we should have similar recovery rates as experienced historically.”

  • 64% premium to the 20-day VWAP or a Maritime share price of $0.16 – this is a nice premium on the Maritime shares, and when mixed with what I believe is great upside potential in Anaconda, the risk to reward potential here, I believe, is very good.

 

What does Maritime Resources contribute to Anaconda as an acquisition target?

  • 43-101 estimated resources which are in close proximity to the Pine Cove Mill. The Hammerdown Deposit has an existing Measured and Indicated Resource of 727,500 tonnes at 11.59 g/t for 271,000 ounces of gold and an Inferred Resource of 1,767,000 at 7.68 g/t for 436,000 ounces of gold. The Orion Deposit has an existing Measured and Indicated Resource of 1,096,500 tonnes at 4.47 g/t for 157,500 ounces of gold and an Inferred Resource of 1,288,000 at 5.44 g/t for 225,100 ounces of gold.
  • Further exploration potential on the 12,775 acre Green Bay Property

 

Green bay project

Source: Maritime Resources

 

Simply, a takeover by Anaconda gives Maritime shareholders a premium on the current share price and, most importantly, in my opinion, moves it from an “if” investment to a “when” investment with the added upside potential of Anaconda’s existing exploration and development projects. The cumulative effect of these points is, in my opinion, a major de-risking of investment for Maritime Resource shareholders, and a great addition of 43-101 estimate resources for Anaconda Mining Shareholders.

PUSH: A successful conclusion to this takeover offer of Maritime Resources would be a major plus for Anaconda Mining.

 

 

Concluding Remarks

In my opinion, Anaconda Mining continues to present a great risk to reward investment proposition and a lot of value at its current price. Here are a couple of reasons why I think this:

  • First, the updated PEA on the Goldboro Gold Project, released just a couple of months ago, presents a low case scenario of gold at $1450 CAD/oz (roughly $1160 USD/oz), which gives the Project an estimated after-tax NPV at a 7% discount rate of $44 million CAD.  Not only do I believe the gold price will be higher than $1450 CAD/oz in the future, given the drill results just released from Anaconda, I believe this deposit is getting bigger and possibly higher grade. This would mean a higher probability of better project economics and, thus, a higher NPV.
  • Second, Anaconda is growing through acquisition and, with the latest bid for Maritime Resources, has taken great strides toward their goal of becoming a 100,000 oz of gold per year producer.
  • Third, Anaconda’s current MCAP (at the time of writing) is roughly $41 million CAD, which, in my mind, only roughly values the assets found within the Point Rousse Project – with its in-situ ounces (Stog’er Tight Deposit and Argyle Deposit) and infrastructure (Pine Cove Mill, Port and Tailings Facilities).  In my opinion, no value is given to the Goldboro Gold Project and its estimated after-tax NPVm, which is cited above. Additionally, I don’t see any value given to The Great Northern Project (Rattling Brook and Viking) which contain ~600,000 ounces of combined Inferred and Indicated gold resources.

I’m long Anaconda Mining and am eagerly awaiting upcoming news flow on the Maritime Resources acquisition and further Goldboro drill results.

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

 

Until next time,

 

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

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 do own Anaconda Mining stock. All Anaconda Mining analytics were taken from their website and press release. Anaconda Mining is a Sponsor of Junior Stock Review.

 

 

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Northern Empire Resources – Multi-Million Ounce Potential in the World Class Jurisdiction of Nevada

Northern Empire

What’s going to be the catalyst for the junior gold stocks to escape this sideways to downward movement? To me, the key to a momentum change is discovery. Although the market on a whole seems to be stuck in neutral, money has been injected into the best junior gold exploration teams, and because of this, I think it’s only a matter of time before we get a stellar drill hole, which will bring eyes and cash back to the sector.

Supply and demand fundamentals control the direction of markets over the long term, and when looking ahead at almost any metal’s supply fundamentals, I think it’s clear that we’re in for a metal supply crunch in the years ahead. Bull markets driven by supply destruction are very strong, mainly because it requires not only the discovery of new deposits, but those discoveries also have to be permitted developed, and that takes time.

It’s my contention that the next bull market in metals will be discovery driven, as the world’s major mining companies look to fill the supply gaps that are developing in most of their reserve and resource inventories.

In my opinion, buying the highest quality companies gives you the best possible odds of being right when the market turns. The company I’m going to share with you today, Northern Empire Resources Corporation, is, in my opinion, one of those high-quality companies, and they’re poised to discover and expand their resources at the Sterling Gold Project in Nevada.

Let’s take a look.

 

Northern Empire Resources Corp. (NM:TSXV, PSPGF:OTC Pink)

  • DTC Eligibility for its common shares listed on the OTC market in the United States

 

MCAP: $86.4 million (at the time of writing)

Shares: 66,586,700

Fully Diluted: 77,139,302

CASH: $16 million

 

Management/Insiders: 7.9%

Institutional Ownership: 32.7%

Coeur Mining: 11.6%

Imperial Metals: 3.7%

 

Northern Empire’s People

Northern Empire is led by President and CEO, Michael Allen, who is a professional geologist by trade and has 20 years of experience in the mining industry. Allen has worked in various senior roles over the course of his career with Redcorp Ventures, Silver Standard Resources and, most recently, West Kirkland Mining. For those who are not familiar, West Kirkland Mining’s gold project is located in Nevada, giving Allen 8 years of jurisdictional experience, and should prove to be an X-Factor when it comes to developing and exploring for gold on Northern Empire’s Sterling Gold Project.

Additionally, Northern Empire has a strong Board of Directors, made up of individuals with extensive experience in the mining industry. The Board is led by Executive Chairman, Douglas Hurst. Hurst, a geologist by trade, has a great track record for developing mining companies into premier takeover candidates. Hurst was a founding executive of both International Royalty Corporation and Newmarket Gold Inc. Both companies were taken over, first International Royalty Corporation by Royal Gold for $700 million, and most recently, Newmarket Gold by Kirkland Lake Gold for $1 billion.

The Board is rounded out by people whose careers share a common characteristic – successful company building. Each member has been involved in at least one development success in their career, and to me, it’s clear that this is the main goal for Northern Empire; to develop their Sterling Gold Project into a premier takeover candidate.

The other Board members are as follows:

  • Raymond Threlkeld has more than 32 years of experience within the mining industry. Threlkeld was Chairman of Newmarket Gold which, as previously stated, was purchased by Kirkland Lake Gold. He was also involved with Western Goldfields which was purchased by New Gold in 2009.
  • John Robins, a professional geologist by trade with 30 years of mining experience. He was a founder and Chairman of Kaminak Gold, which was purchased by Goldcorp for $520 million in 2016.
  • Adrian Fleming, a geologist by trade with over 30 years of experience in the mining industry. Fleming was President and Director of Underworld Resource Inc which was acquired by Kinross in 2010.  Fleming was an early mentor in Michael Allen’s career when they both worked on the Hope Bay Gold Project.
  • Jim Paterson with 20 years of experience on the financial side of the mining business, and the founder, CEO and Director of Corsa Capital Ltd.
  • Darryl Cardey and Jeff Sundar both have several years of experience within the mining industry and were a part of the successful development and sale of Underworld Resources.

 

 

Nevada, United States

Northern Empire’s 100% owned Sterling Gold Project is situated roughly 160 km northwest of Las Vegas, Nevada and encompasses a total of 14,109 acres over 4 contiguous claim blocks.  Nevada is situated in the western United States and has a long history of mining dating back to the 1840s. Although mining began over a 150 years ago, Nevada’s real fame in the gold mining industry didn’t come until the 1960s when ‘Carlin Style’ or sediment-hosted disseminated gold deposits started being mined.

Nevada Map - Sterling Gold Project

 

Why did Carlin Style gold deposits take so long to be mined? Simply, nobody saw them. Unlike the outcropping gold bearing epithermal veins that were discovered by early prospectors, Carlin Style gold is very fine grained and not visible to the naked eye.  Since the 1960s, Nevada has produced around 20 million ounces of gold, making it truly a world-class destination for gold mining.

2018 Fraser Rankings

Given this, it comes as no surprise to me that the Fraser Institute issued a mining investment attractiveness score of 85.45, ranking Nevada 3rd in the world. The Fraser Institute’s score is based on a mixture of criteria, which includes, but is not limited to, the jurisdiction’s legal system, taxation regime, quality of infrastructure, political stability, and arguably most importantly, the jurisdiction’s geological potential. In my opinion, in terms of mining investment, it doesn’t get much better than Nevada.

 

Sterling Gold Project

The Sterling Gold Project has a Global Resource of 23,811,800 tonnes at 1.29 g/t for 985,000 ounces of gold and can be broken down into two key areas; the Sterling Mine, which is in the southern portion of the property, and the Crown Block, which resides in the north.

 

 

Sterling Mine

The Sterling Mine is a past gold producer with the surrounding area having historical ties that extend back to 1906, with the Panama Mine operating until 1940. The region then saw limited exploration until 1980 when the Sterling Mine began production. The Sterling Mine consists of 3 separate open pits and 2 underground mines, which produced 194,996 troy ounces from 853,984 tonnes of ore for an average grade of 7.44 g/t, over its 20 years in operation.

The Sterling Mine’s deposit mineralization is Carlin Style and is amenable to heap leaching. In the past, the open pit and underground mined ore was placed onto heap leach pads and, without crushing, gold recoveries averaged 88%.

The Sterling Mine does have an existing pit constrained inferred resource of 3,081,000 tonnes at 2.57 g/t for 254,000 ounces of gold. The ‘pit constrained inferred resource’ refers to the estimated economic surface resources found within a 45-degree constant slope pit shell.

Additionally, there’s a non-pit constrained inferred resource of 350,000 tonnes at 3.38 g/t (1.7 g/t cut-off) for a total of 38,000 ounces of gold. The non-pit inferred resource represents mineralization that could potentially be of economic interest, if selective underground mining of the mineralized zone, below the projected pit shell limits, was carried out.

NOTE: The Sterling Mine pit constrained inferred resource grade of 2.57 g/t is fantastic, especially if you consider that it’s amenable to heap leaching for the extraction of its gold. This is a great example of the upside potential at the Sterling Gold Project, as Carlin Style gold mineralization that’s mined in an open pit and has good grades can be very profitable!

 

Gold Production at the Sterling Mine

A major advantage to the past producing Sterling Mine is that its infrastructure is in place and ready for operation. In the photo below, you can see the layout of the processing areas: The active leach pad, the permitted leach pad, processing ponds and processing facility.

Sterling Mine leaching

Additionally, from the satellite photo below, you can see the layout of the permitted open pits, Burro, Sterling and Ambrose. In the top right of the image is the processing area, as shown above. Finally, the 144 Zone portal, in the bottom right, gives access to the historical underground workings.

 

With the necessary permits in hand, Northern Empire has greater control over their production start date, which is an enviable position for most gold exploration and development companies. Moreover, as an investor, the fact that Northern Empire has the necessary production permits in hand is a huge plus, because it reduces the overall risk associated with the Project.

 

Sterling Mine Exploration Potential

While having the production permits and an inferred resource are the basis for what looks to be a promising future for Northern Empire, the most exciting part of their story, in my opinion, is the exploration potential of the property.

Exploration and infill drilling on the Sterling Mine will focus on the 2017 high grade drill holes that sit on the pit shell edge, as can be seen in the satellite photo below.

Sterling Mine aerial photo

 

As well, in the computer-generated Sterling Mine model image, you can gain a better perspective on the 3 dimensional open pit shell and the location and orientation of the Burro Fault, which is thought to be one of the most important structures for the deposit.  Other minor faults in the area trend north to north-northeast and are important in terms of the future exploration of the Sterling Mine area. As the Technical Report states,

“they are significant because they are intimately associated with mineralization, and were almost certainly conduits for hydrothermal fluids.” ~ Technical Report – pg.7-8

Sterling Mine computer generated model

 

 

PUSH: Watch for drill results from the Sterling Mine. Further proof of continuity in the existing inferred resource and successful step out drilling will be major gains for the company.

 

The Crown of Northern Empire

Crown Block

The Sterling Gold Project’s north end is occupied by the Crown Block, which is further broken down into 4 main targets: Daisy Deposit, Secret Pass Deposit, SNA Deposit and Shear Zone. The target mineralization which is found in the Crown Block is concentrated around the same detachment fault structure that hosted Barrick Gold’s past producing, roughly 2.3 million ounce Bullfrog gold mine.

The gold within the Daisy and SNA Deposits are carbonate-hosted and classified as Carlin-Style, while the Secret Pass is volcanic-hosted and classified as epithermal.

 

 

 

Daisy

The Crown Block’s Daisy Deposit is a past producing open pit gold mine (Glamis/Rayrock), having produced 104,000 ounces of gold between 1997 and 2001. As listed in the Sterling Gold Project’s inferred resource table, Daisy has an inferred resource of 5,362,000 tonnes at 1.34 g/t for 222,000 ounces of gold.

High grade surface samples, up to 15 g/t gold, and 2017 drilling suggest there is potential for expansion of the Daisy Deposit resource. Examining the satellite photo below, you can see the highlighted 2017 drill intercepts – holes D17-002, D17-001 and the 2018 drill intercept from hole D18-003C – and the location of high-grade surface samples which are represented by the purple squares.

 

PUSH: 10 holes are planned for Daisy Deposit in the 2018 drill program. As mentioned above, one stellar drill intercept has already been released, assaying 1.41 g/t over 123.93m, a great result. Watch for more drill results from Daisy in the weeks ahead, as Northern Empire looks to expand the Daisy Resource down dip.

Crown Block - daisy cross section

Daisy Deposit Cross-Section – Open Down Dip to the north

 

 

Secret Pass

The Secret Pass deposit, like Mother Lode, is volcanic-hosted with disseminated gold mineralization and has a current inferred resource of 11,143,000 tonnes at 0.93 g/t for 335,000 ounces of gold. 2017 drilling on the Secret Pass Deposit was highlighted by SP17-001: 82m @1.26 g/t Au and SP17-002: 30.48m @0.55 g/t Au. Additionally released on March 20th 2018 – SP18-003C: 70.0m @1.79 g/t.

All three drill holes can be found on the satellite photo of Secret Pass below, including the location of pending and proposed drill holes for 2018. With the purchase of additional claims south of the deposit, Northern Empire will be able to pursue hole D-164, which returned a huge intercept of 56.39m at 3.13 g/t.

PUSH: 15 holes are planned for the Secret Pass deposit in 2018. Watch for drill results in the weeks ahead, as Northern Empire looks to expand the resource both laterally and at depth.

Secret Pass

 

SNA Deposit

The SNA Deposit is a past producing mine and was formerly referred to as Sunday Night Anomaly from 1991 to 1995. The SNA Deposit hosts Carlin Style gold mineralization and has an inferred resource of 3,875,000 tonnes at 1.03 g/t for 126,000 ounces of gold.

Interestingly, the SNA Deposit lies in close proximity to Corvus Gold’s Claim boundary, and more importantly, their Mother Lode open pit. In the satellite image below, you can see Corvus Gold’s claim boundary outlined in orange, along with Northern Empire’s SNA Deposit toward the bottom right.

Crown Block - SNA

In Corvus Gold’s 2017 drill program, they hit 51.8m of 1.86 g/t gold which included an interval of 19.8m of 3.43 g/t. The reason I mention this is because the hole was located roughly 8 meters from the claim boundary with Northern Empire. As you can see in the satellite image, Northern Empire’s property completely surrounds Corvus Gold’s Mother Lode deposit and needless to say, makes this is a very intriguing target area with a lot of potential for Northern Empire!

PUSH: +16 holes are planned for the SNA Deposit in the 2018 drill program. Watch for drill results as Northern Empire attempts to expand upon the SNA deposit resource.

 

Concluding Remarks

As I mentioned in my introduction, I believe that placing yourself in quality companies is the way to succeed in a business where the odds of success are typically stacked against you. That said, quality doesn’t mean they’re free of risk.

In terms of Northern Empire, I believe the biggest risk is an unsuccessful drill program in 2018, which would result in minimal to no improvement in their existing inferred resource. In this worst case scenario, I don’t see much upside from today’s current market cap.

While there’s always a chance of coming up empty handed when exploring, I think there’s a far better chance that their resource will increase, and with permits in-hand, Northern Empire’s Sterling Mine is ready to go.

Recapping Northern Empire’s strengths:

  • Good management team with extensive experience exploring and developing gold projects in Nevada.
  • The Fraser Institute ranks Nevada 3rd in the world for Mining Investment Attractiveness.
  • Northern Empire is in possession of all the necessary production permits to restart the Sterling Mine.
  • The Sterling Mine potential production scenario should be low cost, as the Carlin Style gold mineralization will be mined from an open pit and is amenable to heap-leaching.
  • Great exploration potential within the Sterling Mine and the Crown Block’s 4 main target areas: Daisy Deposit, Secret Pass Deposit, SNA Deposit and Shear Zone.  15,000m of drilling planned for 2018.
  • Existing inferred global resource of 985,000 ounces of gold at 1.29 g/t.
  • CASH – $16 million!!

I am invested in Northern Empire and am looking forward to news flow over the coming months.

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

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 do own shares in Northern Empire Resources. All Northern Empire Resources’ analytics were taken from their website and press release. Northern Empire Resources is a Sponsor of Junior Stock Review.