Author: admin

We’re currently in the first correction stage of this new gold bull market. When will we exit the correction? It’s hard to say, maybe it’s happening now. What I do know, is that we need to take advantage of this weakness in the gold price and the junior market to buy quality companies that will set us up for profits when the market turns up.

With regards to catalysts for a market turn around in the juniors, one thought I have is that it may be brought about by discovery. Over the first 5 months of 2017, we have seen a few hundred million dollars fed into the junior market via financing, setting us up for discovery possibilities as soon as right now, in some explorations camps.

Whether it be in the Urban Barry Camp in Quebec’s Abitibi Greenstone Belt or a company in BC’s Golden Triangle, discovery excitement is contagious and something that I believe could set the next leg of the bull market on fire.

Today, I have for you a company which is set to bring short term PUSH with a 7500 m drill program on their 30,000 hectare KSP property in BC’s Golden Triangle. This company is Colorado Resources – let’s take a look!

 

 

Colorado Resources (CXO:TSXV)

MCAP – 26.9 million (At the time of writing)

Shares – 94,820,386 (as of April 2, 2017)

Fully Diluted Shares – 112,362,482

• Warrants – see corporate presentation or SEDAR for most accurate information. The warrants range from a low of $0.13 to $0.60, with around 2 million expiring in 2017, more than half in 2018, and the remaining 4.4 million in 2019.

Cash – Around $6.5 million, of which $4.3 million is flow-through

Management Ownership – Approximately 6 million shares or roughly 6%

 

Colorado’s People

Colorado Resources is led by President and CEO, Adam Travis. Travis is a geologist by trade and gained his work experience with Keewatin Engineering, the Ron Netolitzky group of companies, and Hunter Dickinson group of companies. This work experience is especially pertinent to Travis’ current pursuit, exploration in BC’s Golden Triangle.

For those who aren’t aware, Ron Netolitzky and his associated companies have a history of success in the mining industry, in particular, within the Golden Triangle. A few of the highlights of his great career are the discovery of the Snip gold deposit and the massive Eskay Creek deposit.

With Travis and Colorado’s KSP property in the Golden Triangle, I’m not sure you could ask for better experience than working with Netolitzky.

Also, Travis started his own private company, Cazador Resources. Cazador was focused on the purchase of highly prospective properties which were later optioned by other prominent junior mining companies, such as Skeena Resources and Ascot Resources. This entrepreneurial attitude will translate well in Colorado, as a CEO must have this attribute to be successful.

The strength of a junior company, especially those focused on exploration, is highly correlated to the strength of the team doing the exploring. In Colorado’s case, I think this may be the aspect that stands out the most for me, as Travis has surrounded himself with a group of people that have extensive exploration experience in the Golden Triangle, which, most importantly, was successful, and as an added bonus, have worked together in different capacities over the past 20 years.

Beginning with Dr. Jim Oliver, who is Colorado’s chief geoscientist. Oliver has over 25 years of experience within the mining industry, having worked for both junior and major mining companies over the course of his career. Most recently, Oliver was VP of geology for the Hunter Dickinson Group of Companies before joining the Colorado team.

Also, Colorado has an extensive technical team which bring an added dimension to this junior exploration company. Here is a comment by Blanchard on the Technical Advisory Committee,

“Our technical advisory team are recognized experts in their respective fields and provide additional expertise in geophysics and geology with projects in this area of BC and these types of deposits.  Adam has been lucky to work with some very accomplished mining people throughout his career.  He spent the early years of his career with Keewatin Engineering (Ron Netolitzky and Larry Nagy) and also spent 5 years with Hunter Dickinson working with some of the best exploration geos in the business.  The relationships he developed and the support of our advisory board has been very valuable to Colorado.  It is always good to get 2^nd and 3^rd opinions and interpretations of your data.  Our team is as good as you get in this business and they all work very well together.”

 

Technical Advisory Committee:

• Mark Rebagliati is a geological engineer with a good portion of his career spent with the Hunter Dickinson Group of Companies. Rebagliati is a Canadian Mining Hall of Fame member.
• Charlie Grieg is a geologist who specializes in geological mapping. His career has spanned over 35 years, bringing him around the world to work numerous projects with Agnico Eagle, Yukon Zinc and Nevsun.
• David Rhys is a geologist with over 25 years of experience in the mining industry. His expertise is mainly with the interpretation of mine site ore controls and applications of mine geology to local and district scale exploration activities.
• Alex Walcott is a geophysicist with 20 years of experience in geophysical surveying and consulting around the world.

 

 

BC Politics

For those who don’t know, there was a provincial election in BC on May 9^th, which the Liberals won, edging out the NDP.  A Liberal win should result in a status quo for the miners, as the party appears to be set on promoting and supporting mining.

In a letter to the honourable Bill Bennett, the Minister of Energy and Mines, BC Premier, Christy Clark, stated,

“Work with the Ministry of Finance and Geoscience BC to establish long-term, predictable funding to foster oil, gas and mineral exploration and development in BC” ~Minister Letter

Further, BC Hydro completed the $716 million Northwest Transmission Line Project (NTLP), which was provided by the province to supply power to potential industrial developments in northern BC. The new line runs from Skeena Substation north to a new substation near Bob Quinn Lake, a stretch of nearly 344 kilometres (BC Hydro) (Power Line Geography ).

Typically, energy and accessibility are major sticking points for companies that explore in some of the more remote parts of the world. In BC’s case, they are trying to remedy this sticking point by providing the infrastructure needed for junior companies to become producers or, more importantly for the provincial government, to become large employers.

 

Tahltan Territory

On January 26^th, 2017 Colorado announced a communications agreement with the Tahltan Central Government (TCG).  The TCG is the governing body of the Tahltan Nation, which works to protect the Aboriginal rights and title, ecosystem and natural resources of the Tahltan community.

Tahltan territory encompasses 93,500 square kilometres in northwestern BC, running parallel to the Alaskan/Canadian border. Their three main communities are Telegraph Creek, Dease Lake and Iskut.

I was able to connect with VP of Corporate Development, Alex Blanchard, and asked him a few questions, one of which was in regards to the TCG. This was his response,

“We have a very good relationship with the TCG and signed a communications agreement with them in January.  Pretivm has worked closely with the TCG through mine development and they have a good working relationship.  I see a strong working relationship between Colorado and the Tahltan in the future.”

The engagement of the TCG well before the development of a mine in the area is a smart move by Colorado management, as a relationship started early on with full disclosure should build trust and, therefore, in my mind, has a higher probability of success in the future.

 

Colorado’s Properties

For this article, I will concentrate on what I think are Colorado’s primary projects, KSP, North ROK and Green Springs. Colorado does own 4 other projects in BC, which are Kinaskan, Kingpin, Hit and Heart Peaks.

KSP Property

• The KSP property is located in BC’s northwest region, referred to by most as the Golden Triangle. The property is made up of 59 claims covering 30,504 ha and is located approximately 15 km along strike to the southeast of the past producing Snip Mine, which produced over 1 million high grade gold ounces over its mine life.
• Colorado has the ability to gain an 80% interest in the property with Seabridge Gold, who purchased SnipGold Corp last summer.
  • In a December 20, 2013 news release, Colorado announced they had entered into the agreement with SnipGold for the KSP property. The option agreement included aggregate payments by Colorado of $500,000 and exploration work of $6,000,000 over a 4 year time period for a 51% interest.

The KSP property is large and diverse as Colorado is targeting both high grade gold veins within the Inel Khyber Pass and A-J zones, and bulk tonnage copper-gold mineralization within Sericite Ridge, Josh and Black Bluff zones.

 

There’s a good amount of historical data that’s presented in the May 7^th, 2014 news release, outlining the important data that had been compiled by the former explorers of the property.  I will list the data presented for the two most explored zones, Inel and Khyber Pass:

• Khyber – 1100 soil samples over a 400m x 1200m open ended area averaging 0.810 g/t Au – great grade for a soil sample
• Khyber – drill testing over a small portion of this soil anomaly returning drill intervals of up to 74.7 m of 2.2 g/t

• Inel – 1,240 m historical underground development, 192 holes with drill intercepts up to 15.5 m of 13.2 g/t Au. High grade intercepts – S116 (1989) with 7.3m of 20.93 g/t Au; U171 (1990) with 7.4m of 41.1 g/t Au and IS130 (1989) with 3.5m of 423.81 g/t

• Inel Ridge (500m east of Inel) – veins traced for over 1000 m with drill results up to 29.8 g/t Au over 1.25 m

Check out the KSP page of the Colorado website for further examples of historical drills on the properties’ other zones: Tami, Pins, Sericite Ridge, Josh, Black Buff and A-J.  Also, see SEDAR for further details on historical data.

KSP work completed by Colorado can be found in the following news releases (See SEDAR for the most comprehensive list of news releases):

• Colorado Resources’ KSP Property Update – September 24^th, 2014
• Colorado Drills 34 m @ 3 g/t Gold and Discovers New Zones at KSP Property – November 5th, 2014
• KSP Property Update- Colorado Acquires 3 More Gold Showings and Confirms KSP Joint Venture – January 19, 2015
• Colorado Announces Second New Porphyry Discovery At KSP – October 8th, 2015
• Colorado Resources Plans 5,000 m Drill Program at KSP Property Inel Area – February 29th, 2016
• Colorado Resources Announces KSP- Inel Zone Drilling Progress – June 30th, 2016
• Colorado Resources Reports Assay Results of First 8 of 37 Drill holes Completed to Date at the KSP-Inel Zone – July 19th, 2016
• Colorado Resources Drills 25.7 m of 9.24 g/t Au at Inel and Expands Drill Program – August 8th, 2016
• Colorado Continues to Return High Grade Gold from Inel Drilling at KSP District in the Golden Triangle, BC – September 21, 2016
• Colorado Drills 64 metres of 2.63 g/t Au and Outlines Several New High Grade Trends with > 1 oz/t Gold Intercepts at KSP Project – October 5th, 2016

 

Through the analyzing of historical data and completing their own geophysics and soil sampling, the Colorado team developed targets for their drill programs. In the summer of 2016, 59 holes were drilled for a total of 8,861.8 metres between the Inel, Tami and Khyber Pass zones.

• 53 holes were drilled at Inel, with hole INDDH16-029 delivering a hit of 1.0m of 165.5 g/t Au and broad low grades which included, hole INDDH16-025 with 99.0m of 2.11 g/t Au.

On May 11^th, Colorado released their plan for the KSP’s 2017 summer drill program and have confirmed that they will be drilling 7,500 m which will result in them spending the remaining $4 million dollars on the property to gain an 80% interest. I believe this is a big milestone in Colorado’s history, as the KSP property has a ton of potential, potential which I believe a major will have interest in, especially now that Colorado looks to control 80% of the property.  I would speculate that you could see a major buy a position just under 20%, like so many have been doing in this market cycle, but time will tell.

From the news release,

“A review of the 2016 geochemical data when referenced to last year’s drill program has shown that there are at least 10 soil geochemical anomalies of similar size and strength in the Inel –Khyber area (see News Release dated December 19, 2016 and Table 1) of which only one was tested by our 2016 drill program to shallow depths of approximately 125 m. Reviews of geological and geochemical data along with new geophysical Induced Polarization (I.P.) and Magnetic data have recently been completed and are showing some very compelling targets at depth and along strike of our 2016 drilling.”

Travis comments further in the news release about the mineralization,

“Our 2016 drilling also demonstrated that gold mineralization is not only restricted to the volcanic-sediment contact as previously thought, but is also found within the underlying sedimentary rocks, thus opening up a considerably larger target area. The current geological, geochemical data and geophysical models are also suggesting that the known mineralization outlined over a 400 m x 600 m area in our 2016 drilling is perhaps only a small portion of a much larger system.”

PUSH: This summer’s drill program, if successful, will provide some PUSH to the company’s share price, and for good reason – bigger is better.  The IP and magnetic data are showing some great prospects, especially when compared to where they drilled in 2016, see image below.

 

North ROK

• The North ROK property, like KSP, is located approximately 190 km north of Stewart in the Golden Triangle, in BC’s northwest. The property consists of 45 claims and is 21,179.89 hectares. Colorado owns 100% of the property, however, some of the claims are subject to a 2% NSR (see SEDAR for further info).
  • Travis’ past at Brett Resources is tied to the North ROK property, because in 2009, while working for Brett Resources, he staked the claim that covers the current Mabon showing. Brett Resources proceeded to carry out initial exploration of the claim, which consisted of silt sampling, prospecting and contour line controlled rock chip sampling.
• The property is underlain by volcanic and sedimentary rocks of the Upper Triassic, Stuhini Group to Lower Jurassic, Hazelton Group.
• Accessibility to the property is outlined in the NI 43-101 Technical Report,

“Access to the North ROK property is usually gained by taking Highway 37, commonly referred to as the Stewart-Cassiar Highway, north from Smithers or by taking a scheduled air flight from Smithers to Dease Lake. Property access to lower elevations is obtainable by truck or car from Highway 37 which passes through the western portion of the property. The extreme southeastern part of the property can be accessed by truck or car from the gravel, Ealue Lake road which passes along the north-shore of Ealue Lake in a north-easterly direction. The upper portions of the property are most easily accessed by helicopter.” ~Technical Report – pg.8

 

Targeting Porphyry Copper-Gold

Colorado is targeting porphyry copper-gold on this property and has an inferred resource, which currently sits at 142.3 million tonnes, averaging 0.22% Cu and 0.26 g/t Au. The NI 43-101 report can be found here.

“Based on the results of the 2013 exploration program at North ROK, a two phase 15,000 m success-contingent drilling program is recommended. It is also recommended that a downhole IP program be completed prior to the initiation of Phase 1 drilling. Phase 1 is divided into two non-contingent components. One 7000 m drilling component to focus on delineating the full extent of the North ROK deposit and another 3000 m drilling component to test other geological, geochemical and geophysical features including the West Mabon, Edon, Lower Mabon and North Mabon zones. A proposed Phase I budget of C$3,250,000 inclusive of all auxiliary, technical and support costs is recommended. The Phase II 5,000 m drilling program is contingent upon success at either or both of the two Phase 1 components and is budgeted at C$ 1,625,000 and will be guided by the results of the preceding drilling programs.” ~ Technical Report – page 3

• In 2014, Colorado followed these recommendations and succeeded in:
  • Intersecting new mineralization at the West Mabon Zone
  • Establishing significant depth potential and continuity of gold-copper mineralization over 250m below mineralization in DDH NR13-001
  • Defining the broad, deposit scale geometries and controls on mineralized zones
  • Extending mineralization southwest of DDH NR13-013
  • Testing of other Areas

 

BC Copper Grades

BC has a history of producing copper, with 13 Mt being produced between 1894 and 2014. 90% of that production came from 15 deposits, which were calcalkalic porphyries, alkali porphyries and VMS deposits.  Today, 0.3 to 0.4% copper is widely held as a gauge for an economic grade, however, when examining BC’s producing mines, you will see that the grades are lower yet still economical.  Mines which have grades in the 0.2 to 0.3% copper, typically have additional help from moly, gold or silver credits, which can make or break a mine. This is a point that needs to be considered when examining deposits that depend on credits from secondary metals, as base metal prices and precious metals prices don’t always coincide with upwards trends or generally high prices.

Source: BC Ministry of Energy and Mines

Examining the table, you can see that the grades of Colorado’s inferred resource are pretty good, the biggest difference right now is the size.   North ROK won’t see any drilling as it stands right now, as the main focus in the Golden Triangle this summer will be KSP.

 

 

ROK-Coyote Property Acquisition

On March 13, 2017 Colorado announced the purchase of the ROK-Coyote property from Firesteel Resources. The property lies south and east of North ROK, greatly expanding Colorado’s prospective land size. Firesteel received 1.5 million units of Colorado, with consist of both 1 common share and 1 common share purchase warrant at a price of $0.45 for a period of 24 months. There is a 2% NSR on the property, see news release for further details.

The property has been explored since the late ’60s, with geological mapping, geochemical surveys, grid-based geophysics, surface trenching and some drilling (see news release for more detailed information).  I believe Travis and his team are in a great position to explore and advance the ROK-Coyote effectively, as their experience not only in the Golden Triangle, but specifically on the North ROK property, has set them up well for being as efficient as possible in choosing the right targets to find mineralization.

As you can see in the image above, North ROK’s existing mineralization is found right on the border of the two properties, and it’s thought that it may continue into the ROK-Coyote property. If the mineralization does continue and it’s of a similar grade, this could be game changing because an increase in the size of this porphyry system would really bring attention to this deposit.

 

 

Nevada

Nevada has a long history of being a mining friendly state and ranks 4^th in the world according to the Frasier Institute’s ranking of the most attractive jurisdictions for mining investment. Some quick facts from the Nevada Mining Association:

• Nevada’s production accounted for 77.6% of the United States’ total and 5.4% of the World total gold production.
• 2015 Gold Production Totalled 5,339,663 Troy ounces
• 119 mines in Nevada
• Nevada Mining Gross Domestic Product – $4.6 Billion

Nevada is a hot bed for gold production – and for good reason. The state is home to Carlin Trend gold, which is characterized as typically hosting large oxidized ore bodies, which can be open pit mined and with low gold cut-off grade (<0.2 g/t). All of these attributes spell cheap gold production for the lucky company that finds it, which is key to making money in both a bull and a bear market.

One final thing on Nevada, Green Springs diversifies Colorado’s property portfolio out of BC, which, prior to knowing the outcome of this provincial election, was a great move in my mind, and shows that management is cognizant of jurisdictional risk.

 

Green Springs

The Green Springs Property consists of 193 unpatented claims covering 1,416 hectares, and sits approximately 50 miles south of Kinross’ Blad Mountain/Alligator Ridge Mine.  Colorado announced the optioning of the property last December from Ely Gold and Minerals. The option terms can be found in the news release.

Green Springs is a past producing property, having produced 1.1 million tons @ 2.1 g/t gold, which was heap leachable at an over 80% recovery.  Following USMX’s operation of the mine, it was further controlled by Palladon Ventures, which produced a 43-101 report in 2005, and then Ely Gold and Minerals, which has owned the property since 2013.

 

Colorado’s Work

Colorado was able to outline 8 exploration targets based on historical data, and completed a drill program in the first part of this year, 2017. Drill results were released on April 4, 2017 and were highlighted by intercepts of 135 ft of 3.23 g/t gold, 25 feet of 9.75 g/t gold in the E Zone.  From the news release in reference to the E Zone,

“These results confirm our concept that high grade feeder structures may exist to the south of the old pits and that mineralization can extend into the underlying Joana limestone.”

 

Further, the company highlighted work in the A zone to which they say, in reference to the drill results,

“These results confirm our premise that rocks mapped as the underlying and un-mined Pilot Shale have the potential to host significant gold mineralized zones at relatively shallow depths.”

In my discussion with Travis, he mentioned that they were sending their geological team to Green Springs for further work and preparation for further exploration this fall. The Green Springs property will bring Colorado year-round news flow and presents great speculative upside given the nature of the Nevada geology.

 

 

Colorado Resources’ Company Valuation

At the time of writing this report, Colorado had a MCAP of around $25 million.  Is that over-valued, under-valued or fair valued? Valuing companies at this stage in development isn’t easy, in my opinion, as we will be assigning value to a property’s potential rather than with an actual measurable resource, excluding North ROK, which does have an inferred resource.

A base value for a company can be found by looking at the liquidation value of their properties. Meaning, if the company were to stop exploring and sell their properties at this moment in time, how much money could they get? This isn’t an exact science, as all of the properties aren’t exactly alike and their selling price has a lot to do with where in the market cycle they are being sold.

For comparison purposes, let’s take a look at Seabridge Gold’s purchase of SnipGold in early 2016.  From Seabridge’s Annual Report 2016,

“SnipGold common shares received 1/63rd of a common share of the Company in exchange for 1 SnipGold common share held. 695,277 common shares of the Company were issued to existing SnipGold shareholders. The Company also issued 54,968 stock options and 1,587 warrants to existing SnipGold holders of similar securities. The fair value of the shares, stock options and warrants was $13.1 million. The Company also incurred $1.7 million of acquisition costs. The total purchase price of $14.8 million has been allocated to the assets acquired and the liabilities assumed based on the fair value of the total consideration at the closing date of the acquisition.” ~ Annual Report 2016 – pg.43

The acquisition by Seabridge was aided by the bottom of the bear market cycle, which made it hard for SnipGold to find financing. SnipGold isn’t a perfect comparison, but is a stone’s throw from Colorado’s properties and has similar geology, IE speculative upside.  Fast forward a year into the new bull market cycle and SnipGold is probably financed easily on its own, or is sold for more than the $15 million in this transaction.

If we assign this value to Colorado’s properties, which I think is really under selling what they have, and add their $6.5 million in cash, you have $21.5 million which is just below their current MCAP. Therefore, without even getting into where we are in the bull market cycle and the speculative upside of their properties, you are basically buying Colorado for the liquidation value right now – not many companies can say this.

While, for me, the liquidation value comparison is solid and enough for me to make a decision, for those who want a little more, let’s take a look at one more comparison; neighbouring Skeena Resources, which is a great comparison from a geological sense.

To begin the comparison, I’ll start with the copper-gold porphyry deposits’ Spectrum and GJ, which have resource estimates. Referring to the Spectrum Technical Report, page.8,

“NSR AuEq Cut-off (g/t) – 0.5, tonnes – 8,590,000, Au – 1.04 g/t, Ag – 6.58 g/t, Cu – 0.11%, AuEq – 0.87 g/t – Therefore contained metal – Au – 290,000 oz, Ag – 1,820,000, Cu – 20,835,000 lbs – Indicated Resource… NSR AuEq Cut-off (g/t) – 0.5, tonnes – 22,630,000, Au – 1.03 g/t, Ag – 3.85 g/t, Cu – 0.11%, AuEq – 0.85 g/t – Therefore contained metal – Au –750,000 oz, Ag – 2,800,000, Cu – 54,889,000 lbs – Inferred Resource”

Referring to the GJ Technical Report, page.5,

“Cut-off Cu % – 0.2, tonnes – 133,670,000, Cu – 0.32 %, Au – 0.36 g/t – Therefore the contained metal Cu – 940.23 million lbs, Au – 1.56 Moz – Measured plus Indicated Resource…Cut-off Cu % – 0.2, tonnes – 53,690,000, Cu – 0.26%, Au – 0.33 g/t – Therefore the contained metal – Cu – 312.54 million lbs, Au – 0.57 Moz – Inferred Resource”

 

How does Colorado’s North ROK compare? Here is a look at the 43-101 resource estimate. Referring to the Technical Report, page.2,

“Cut-off CuEq % – 0.20, Tonnes – 142,300,000, Cu – 0.22%, Au – 0.26 g/t, CuEq – 0.37% – Therefore contained metal Cu – 690,297,300 lbs and Au – 1,189,512 oz – Inferred Resource”

As you can see from the Technical Report data, Skeena’s resource estimates are more developed and larger than that of Colorado’s North ROK.  Skeena’s current MCAP, at the time of writing this report, is around $35 million, this valuation isn’t just based off of their resource estimate, but also the speculative value of their other properties.

Is Skeena worth more than Colorado? It’s up for debate, but I would say that from this perspective, Colorado is at least fair value. Personally, I think they’re both on the undervalued side in comparison to other junior companies, given what they have and their speculative upside potential and the management teams that are leading them. With the BC provincial election behind us, I think these companies will see their share prices rise as their value becomes more apparent.

 

 

In conclusion, like any exploration company, there are a lot of questions that need to be answered, and answered with good results. As we all know, in mining, the odds are stacked against us in terms of finding economic mineralization. However, I believe that Colorado Resources is a company which strengthens your odds of success because they possess the most important aspects of a junior miner.

They have:

• CASH – roughly $6.5 million
• A management team which has the knowledge and  X-Factor experience for exploration within the Golden Triangle
• Multiple district scale land packages with speculative potential – similar geology as some of the area’s most prolific mines and deposits: Eskay Creek mine, Snip mine, Pretium’s Brucejack Deposit and Seabridge’s KSM Deposit.
• Short term PUSH from a 7500 m drill program at their highly prospective KSP property

You be the judge as to whether Colorado Resources fits your individual investment criteria. For me, they’re a welcome addition to my speculative portfolio!

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please do your own due diligence. I have NOT been compensated to write this article and do NOT have a business relationship with Colorado Resources. However, I do own shares in Colorado Resources. Please check SEDAR for the most accurate data regarding Colorado Resources information and analytics.

 

For those who read my report on lithium, you know that I think the future is bright. Due to the attention that lithium has received, however, many moose pasture projects have entered the market and pose a real threat for those who don’t perform their due diligence and dig into the real story behind a prospective investment.

Today, I’m excited to share with you a lithium company whose project has the 3^rd best lithium grades in the world, the lowest concentrations of impurities in the business, and the cash to PUSH it all the way to a feasibility study, which is currently set for Q3 or Q4 of 2018.

This company is Neo Lithium. At PDAC this year, I had the chance to speak to Carlos Vicens, Neo’s CFO and just recently I exchange emails with CEO Waldo Perez. This report is a culmination of the notes I took from the conversations as well as my due diligence.

Let’s take a look:

 

Neo Lithium (NLC:TSXV)

MCAP – $124 million (at the time of writing this report)

Shares Outstanding – 88.6 million

Fully Diluted Shares – 109.6 million

• $25 million bought deal Private Placement closed on February 22, 2017
  • 7 million shares at $1.10 and a full warrant at $1.40 for a period of 18 months

Cash Position – $39 million as of September 30, 2016

Insider Ownership – 20%

• Refer to SEDAR and SEDI for the most accurate information

 

 

Neo Lithium’s People:

• Neo is led by President and CEO, Waldo Perez. Perez has 28 years combined experience in academia and within the mining industry. He has held senior positions with Barrick Gold, IAMGOLD, Latin America Minerals and Lithium Americas Corporation. Perez is highly respected by his peers for his geological knowledge and experience in lithium brine exploration. His intellectual acumen is further demonstrated by the proprietary lithium extraction process that he and Neo Lithium Technical Advisory Team member, Dr. Claudio Suarez-Authievre, co-developed for Cauchari Salar.

• Neo Lithium’s Technical Advisory Team is made up of three members who have worked with Perez at previous companies and, most importantly, have lithium brine work experience in South America’s Lithium Triangle.
  • Project Manager, Martin Erroz, brings 15 years of experience to Neo, having worked for a number of different companies over the course of his career, including: Lithium Americas Corp. and Latin America Minerals.
  • Mark King is a hydro geologist by trade and has 25 years of experience in academia and the mining industry. King specializes in ground water flow and migration of constituents dissolved in groundwater, making him a welcome addition to any lithium brine team.
  • Last but not least, Dr. Claudio Suarez-Authievre, whom I mentioned earlier, brings 17 years of experience in academia and the mining industry. Suarez-Authievre has worked for SQM and Lithium Americas Corp., and is now Process Engineer Manager at Neo.
• Neo’s CFO is Carlos Vicens, and the Board of Directors includes: Constantine Karayannopoulos (Chairman), Thomas Pladsen, Gabriel Pindar and Paul Fornazzari.

 

Jurisdiction Argentina:

• President – Mauricio Macri
• Macri has outlined a pro-business agenda for his government, which he has started to execute since his inauguration. His pro-business agenda is headlined with:
  • Filling his cabinet with former business executives.
  • Eliminated currency and trade controls and cut government spending

• • Cutting export taxes, most importantly on mineral products.

• Attracting foreign investment, most importantly, repairing the relationship with the United States. As reported by Reuters on March 24, 2016, Barrack Obama stated, “Argentina is re-assuming its traditional leadership role in the region and around the world.” From the same article,Reuters reports, “The American Chamber of Commerce in Argentina said U.S. firms would invest $2.3 billion in Argentina over the 18 months, including more than $100 million each from General Motors Co., Dow Chemical Co., AES Corp. and Ford Motor Co.”
• These are great signs for there being a change in global perspective, one that will only help future investment in the country and make it safer for our investment dollars.
• Argentina was the host of the World Economic Forum on Latin America, April 5-7, 2017. The event brought clashes between protestors and police, and was said to be provoked by Macri’s cuts to government spending.
  • The Euronews reports, “Protesters in Argentina have clashed with police during demonstrations against government austerity measures…Left-wing politician Alejandro Bodart said: ‘Macri will open the World Economic Forum and economists from around the world will come— they are all neo-liberal. There will also be business leaders who will come to discuss how to continue stealing the riches of our people, how to continue with plans to exclude one section of society so as to enrich the same old ones.’ ” ~ Euronews

It isn’t all rosy in Argentina, but many, including Neo CEO, Waldo Perez, believe that Argentina’s future is bright. In response to my question regarding Argentina’s outlook for the future, Perez responded,

“The outlook is very positive, favourable to foreign investors and pro-business.”

NOTE: The 3Q project is subject to a 3% royalty as outlined in the 3Q Technical Report,

“Article 6th of Provincial Law # 4757, establishes a mining royalty of 3% over the mineral value at mine mouth (Boca Mina). According to the National Law for the reordering on the Mining sector, the law applies for coordinating and organizing the payment of royalties to the Provincial Tax Collectors, therefore LIEX S.A. is required to pay the aforementioned 3% Boca Mina royalty to the provincial government of Catamarca.” ~ Technical Report – page.19

I think that the risk to reward potential of Neo Lithium, from a jurisdictional perspective, is worth the speculation, because assets like the 3Q property don’t come along very often.

 

 

Neo Lithium’s Property:

Tres Quebradas (3Q) Lithium Project

• 100% owned by Neo Lithium
• Located in northern Argentina, 25 km from Chilean border, in the southwest portion of the Catamarca Province.
• Within approximately 200 km of the Chilean Pacific coast – Port of Caldera (Copiapo)
• Closet city is the town of Fiambala, which is approximately 100 km east of the project.
• The 3Q property is accessible via a road which stretches up to the Northern Target area. In my conversation with Perez, I asked him about the property’s accessibility for trucks that would be transporting the lithium concentrate now and in the winter. He responded,

“Trucks with 15t [of] brine are already operating, transporting brine to the ponds. The [3Q] area is cold in winter but [there] is no snow near the salar, the salt precludes snow accumulation. We will operate all winter.”

• Total property size is 350 square kilometers.
• Exploration has been concentrated in, but not limited to, the Northern portion of the salar and brine complex, where very high grade targets have been found.
  • Northern Target area measures 20 km by 5 km
  • The latest drill results, release on March 20th, show that the project has a lot of potential to expand outside of the Northern Target.  The southern target results have lithium and potassium grades that are lower than those those in the Northern Target, but are still high in comparison to others found in the lithium triangle. Check out the news release for more detail.
• A geophysical survey of the Northern Target reservoir supports the 20 km by 5 km area and that the reservoir extends down 100m.
  • Brine Reservoir average lithium concentration, thus far, is 895 mg/L, making it the 3^rd highest grade lithium project in the world and 1^st in Argentina.
  • Brine Reservoir average Potassium grade is 7,694 mg/L.
  • Salar samples contain an average lithium concentration of 784 mg/L and an average potassium concentration of 6,796 mg/L.
  • Very low magnesium and sulphate impurities, in fact, they are the lowest combined impurity content of any known salar. This is a HUGE plus for Neo, as high grades of lithium can lose their lustre when mixed with high magnesium and sulphate contents, as they affect the cost of brine processing.
  • The average magnesium/lithium ratio is 1.58 in the brine reservoir and 1.87 in the salar.
  • The average sulphate/lithium ratio is 0.67 in the brine reservoir and 0.46 in the salar.
• Last year, the company, along with two engineering firms, Novigi Ltd. and Celimin, conducted a lithium processing test on a 0.5 tonne sample from the Northern Target area. The test concluded that the brine will not require any additives for lithium extraction and will be able to rely on solar evaporation for lithium concentrating.
  • In my discussion with Vicens at PDAC, he stated that the evaporation ponds will be located close to the northern target, yet still in range of an existing dirt road for trucks to pick up the concentrate and ship to the refineries.
  • Brine can be concentrated up to 4.6% Li with minimal reagent consumption, and up to 7% with further evaporation.
  • Pond recoveries are estimated at 25 tonnes of lithium carbonate per hectare of pond constructed.
    • Example – The area needed to extract 20,000 tonnes of lithium carbonate per year, 800 ha. This is less than a quarter of the flat property that they own.

 

Potential Fatal Flaw

The Preliminary Economic Assessment (PEA) should provide us with the best gauge as to what the upside potential is for the 3Q project.  The PEA is scheduled for Q3 of 2017, giving us very important insight in the near future.

Poor economics could leave this project to collect dust, but given what we have seen in Neo’s drill results, Li and K concentrations are impeccable and impurities are low. The biggest questions may lie in the actual size of the lithium resource and whether or not it can be concentrated.

• A resource estimate is due in the very immediate future, Q2 2017, and should give a good indication of the PEA potential.
• On-site evaporation testing will need to confirm that the engineering firm test results are reliable.

 

UPDATE – April 25, 2017

This update is to address a couple of potential issues that weren’t included in my original write- up for Neo Lithium.  I contacted CEO, Waldo Perez, and Investor Relations representative, Ali Mahdavi, and asked them questions that should help shed some light on these potential issues.

Question #1

Brian: Is the 3Q Project property considered a Ramsar site? If so, how do you plan to deal with permitting?

 Waldo: THE PERMIT HAS ALREADY BEEN OBTAINED. THE COMPANY IS FULLY PERMITED TO DRILL, BUILD PILOT PONDS, LABS, ROADS,  AND PERMANENT CONSTRUCTIONS AT THE SITE. A RAMSAR SITE DOES NOT IMPOSE LIMITATIONS FOR MINING, FORESTRY, INDUSTRIES OR ANY OTHER ACTIVITY. A RAMSAR SITE ONLY CONTEMPLATES WETLANDS. THE SALAR IS NOT A WETLAND AND THE TARGET AREA IS NOT LOCATED IN A WETLAND. THERE IS A WETLAND 50 KM SOUTH OF THE PROJECT.

Brian: As you describe, the permit that Neo attained was for preliminary work on the project, exploration, pilot ponds, etc. My concern is more with regards to bringing the project to production in the future; could the Ramsar designation hinder your attempts to attain a permit to extract the brine in a commercial scenario? Secondly, my concern is with the extraction of the water/brine from the salar affecting the wetlands south of the project. Is that a viable concern?

Waldo: NO, ONCE THE EXPLORATION AND DEVEOLOPMENT PERMIT IS OBTAINED, THE GOVERNMENT CANNOT DENY THE NEXT STAGE PERMIT. IT NEVER HAPPENED IN THE PAST. THERE IS MINING OPERATIONS IN RAMSAR SITES AND THERE ARE 1 MILLION PEOPLE LIVING IN ANOTHER RAMSAR SITE IN ARGENTINA. ARGENTINA HAS 5 MILLON SQUARE KILOMETERS OF RAMSAR SITES. THEY HAVE NO LEGAL PROTECTION STATUS OF ANY KIND. SO THERE IS NO LIMITATIONS ON WHAT CAN BE DONE, BUT OBVIOUSLY THE WETLAND ASPECTS OF THE SITES (AND PARTICULARLY NESTING SITES) MUST BE PROTECTED. WITHIN THE LITHIUM PROJECT THERE IS NO NESTING SITES. THE SITES IN THE SOUTH WITH NESTING SITES ARE ACTUALLY HIGHER THAN THE SALAR, SO WHATEVER IS DONE IN THE SALAR WILL HAVE NO IMPACT IN THE NESTING SITE.

 

Question #2

Brian: Will Neo’s evaporation ponds encroach upon flamingo nesting grounds?

Waldo: NO. FLAMINGO NESTING AREAS ARE 50 KM AWAY.

 

Question #3

Brian: Why is it primarily the Northern Target that sees the high lithium grades? Why isn’t the grade more uniform across the entire system?

Waldo: MOST LIKELY BECAUSE THE INFLOW OF HOT SPRINGS WITH LITHIUM IS FROM THE NORTH, CREATING A LITHIUM GRADIENT. ALSO THE LAKE IS A NATURAL EVAPORATION POND, INCREASING LITHIUM GRADE IN THE NORTH

 

Question #4

Brian: Will high iron levels brought into the salar by the hot springs and 3Q river prevent the brine from being concentrated into battery grade lithium carbonate?

Waldo: THERE IS NO IRON IN THE BRINE. IRON PRECIPITATES OUT OF THE SALAR. THE RED COLOUR YOU SEE IN THE HOT SPRING IS MOSTLY A BACTERIAL EFFECT.

Brian: My reference to high iron levels is from what I read in the Technical Report, page 38;

“High levels of dissolved iron and manganese are present in the discharge of the Tres Quebradas River, and widespread rust-coloured precipitate of iron hydroxide can be seen in the diffuse flow issuing from the alluvial fan (Photo 6.1). The thick occurrence of this material throughout the discharge zone indicates the flow is anoxic (strongly reducing) prior to discharge. Elevated levels of manganese in this discharge may be the source of the dark colouration noted for Laguna Tres Quebradas.”

Since it is a closed system, will these high levels of dissolved iron impact the brine ability to be concentrated into battery grade lithium carbonate?

Waldo: THE HIGH LEVELS REFER TO GEOCHEMICAL ANOMALIES FOR FRESH WATER COMPARISON. THERE IS BARELY ANY IRON IF YOU COMPARE THIS TO THE IRON CONTENTS OF PEGMATITES. THIS IRON AND THE MANGANESE DISSOLVED IN BRINE HAS NO SIGNIFICANT IMPACT IN THE PROCESS, ACTUALLY, ALL PRECIPITATES IN THE FIRST STAGES OF EVAPORATION.

 

Environmental issues can quickly become costly or even prevent a mining project from getting started. In Neo’s case, CEO, Waldo Perez, gives a very direct answer to my questions regarding the Ramsar site designation and its possible future ramifications.

You be the judge. Neo has a ton of positive characteristics, many of which I believe make it a world-class lithium deposit. That said, these potential environmental issues could have an impact on Neo’s future if they don’t play out as Perez suggests.

 

Despite these potential flaws, I’m extremely encouraged by what I see in Neo Lithium:

• A management and technical team led by Waldo Perez, which has been together for a number of years but, most importantly, have done it before with Lithium Americas.
• 3^rd highest lithium concentrations in the world.
• Lowest Impurities of any known salar– Magnesium and Sulphate.
• Short term PUSH from a resource estimate in Q2 of 2017 and a PEA in Q3 of 2017.

 

I believe that in the not-too-distant future, the 3Q Project will be considered lithium’s equivalent to uranium’s world-class Arrow Deposit. I’m a buyer and am optimistic about lithium’s future but, even if I wasn’t, I would still believe that Neo Lithium’s 3Q project is world-class, making it a great addition to anyone’s portfolio. I look forward to the news that’s to come in the remainder of 2017.

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please do your own due diligence. I have NOT been compensated to write this article and do NOT have a business relationship with Neo Lithium. However, I do own shares in Neo Lithium. Please check SEDAR for the most accurate data regarding Neo Lithium information and analytics.

Quebec’s Abitibi Greenstone Belt is one of the top ranked regions in the world for mining investment attractiveness – and for good reason. Currently, there is one region in particular in the Abitibi which has attracted a lot of attention; the Urban-Barry Greenstone Belt, which sits 170 km northeast of Val d’Or and 125 km southwest of Chibougamau.

The Urban-Barry belt is located in the Abitibi sub-province of Superior. This area is underlain by Archean Volcano-Sedimentary, which mainly contains gold mineralization in quartz-carbonate veins mineralized with sulphides. Although a few of the companies in the area possess a NI 43-101 resource, the area hasn’t seen a lot of exploration, in relative terms. The area will, however, see thousands of metres of drilling over the course of 2017, which should provide insight into the value of the mineralization in the area.

What’s the source of the excitement for this region of the Abitibi? In my opinion, it’s because of the great results that Osisko Mining (OSK:TSX) has been releasing over the last few months. Their Windfall Lake Gold Deposit has had some stellar drill holes and appears to possess all of the makings of the region’s next mine.

Windfall is in close proximity to Beaufield Resources (BFD:TSXV), Bonterra Resources (BTR:TSXV), Metanor Resources (MTO:TSXV) and Urbana Corporation (URB:TSX). Each of these juniors own prospective land packages around Windfall and are fully financed to explore for the next economic gold deposit in the area.

Today, I would like to introduce you to the Beaufield Resources story.  Beaufield owns property in the heart of the Urban-Barry Belt, where it shares its border with Osisko’s Windfall Gold Deposit. I believe the company has a ton of potential, especially in the near term with its Urban property. Let’s take a look:

 

Beaufield Resources (BFD:TSXV)

• MCAP – $28 million (at the time of writing this report)
• Shares Outstanding – 195 million
• Fully Diluted Shares – 215 million
  • Options – 6 million
  • Warrants – 14 million
• Osisko owns 16.4% of the company – a sign of the potential value in the properties that Beaufield owns.
• Closed a $6 million financing on Feb 9, 2017
  • Issuing a total of 40 million common shares at $0.10 and 13.3 million flow-through shares at $0.15.
  • O3 investments a wholly owned subsidiary of Osisko Mining subscribed to 31.7 million of these shares.
• $8 million in working capital

 

Beaufield’s People

• Beaufield has seen some changes in management as of late, with long time President and CEO, Jens Hansen, and Board of Directors member, Bernard Deluce, resigning.
  • Ron Stewart, a Professional Geologist with over 30 years experience within the mining industry has been appointed interim President and CEO. Stewart has experience on both sides of the table, having worked in both capital markets and as an Executive on a few junior resource companies. He has held positions with Dundee Capital Markets, Macquarie Capital Markets, Clarus Securities, Verena Minerals (now Belo Sun Mining), and Kinross Gold Corp. Presently, Stewart is also the President and CEO of Eros Resource Corporation. Stewart has a well rounded background and will be able to bridge the gap between the exiting Jen Hansen and a new, permanent CEO.
  • Robert Wares was appointed Chairman of Beaufield’s Board of Directors. Wares has over 35 years of experience in the mining industry, with a long history of success. He is credited with the discovery of the Canadian Malartic gold deposit and was a co-founder of Osisko. Wares is a fantastic edition to the Beaufield team, one that I suspect will prove to be instrumental in their success in the months ahead.
  • Mathieu Stephens is a Professional Geologist and VP of exploration and has been with Beaufield since 2008. I had the chance to speak to Stephens at PDAC this year and was very pleased with what I heard for this year’s upcoming drill program.
• In February of this year, a press release was issued by Jim Deluce (Former BFD Director) and Shanghai Huaxin Group Limited, expressing their displeasure with the progress the company has made over the last few years, as well as with the recent financing terms, which they believe were too favourable to the financing parties (which included O3 Investments, a subsidiary of Osisko). In all, this group of concerned shareholders represents around 21.5 million shares or 11% of the company.
  • Beaufield has responded to the complaints in a news release, which can be found here. In my opinion, Beaufield has done a great job with their response and I feel comfortable as a shareholder that the situation will not affect their progress moving forward. The Beaufield shareholder’s meeting has been rescheduled for April 11, 2017.
  • Beaufield responded to my question, via email, pertaining to the concerned shareholder with, “The new Board has been endorsed by the concerned shareholders.  The Annual Meeting of Shareholders will be held onApril 11, 2017 and the shareholders will receive over the next week the proxy material. We are confident this matter is settled and that the company will be able to focus its efforts on exploration and create value for its shareholders.”

 

 

Beaufield’s Properties

• Urban Property, located within the Urban-Barry Belt, consisting of 3 blocks of property: Rouleau Block, Golden Retriever Block and Macho Block
  • Urban Property Historic Resource (not 43-101) – 540,000 tons @ 7.2 g/t, which is roughly 125,000 oz Au
  • The Rouleau Phase 1 drill results
  • Rouleau Phase 2 drilling has begun and is focusing on deeper drilling and a series of exploration targets just beyond the known Rouleau zone. Results should be released in the next 2 to 3 weeks.
  • 1500 m from Windfall’s Caribou zone lies the ET zone of the Rouleau Block. This area is of particular interest because it shares a similar geophysical signature,
    • “A linear magnetic depression that is interpreted to be related to a magnetite destructive silica-sericite alteration corridor associated with the Windfall intrusive system.” ~ Beaufield Corporate Presentation
    • The geophysics and geology clearly indicate the presence of a fold in this area, meaning that the host lithological units of the Windfall deposit may be present within Beaufield’s ET zone.
    • Two holes will be drilled before winter is over, so we will stay tuned for those results.
  • The Golden Retriever Block is currently priority, as the Beaufield team believe that this area, which is partially covered by swamp, may be a continuation of the mineralization found in the 1980s on Osisko’s Black Dog Property. An induced polarization survey was executed on this target area and did indicate a strong chargeability anomaly.
  • The Macho Block drill program is still under consideration. If it happens it will be in the summer as Beaufield has prioritized its drilling for the immediate future.

The Urban property is the focus of my speculation, as I believe there is a ton of potential in drill results that we will see over the course of this year.  Urban, however, is just one of 5 properties that Beaufield owns; here is a hyperlinked list of Beaufield’s other 4 properties:

• Eleonore-Opinaca Property, located adjacent to Goldcorp’s Eleonore gold mine
• Trolilus-Tortigny Property, possesses a 43-101 resource estimate Measured and Indicated (Au, Ag, Cu and Zn)
• Hemlo Property, located adjacent to Barrick’s Hemlo gold mine
• Launay Property, located in northwest Quebec, near the Ontario border with near surface mineralization

 

The Beaufield story is not without its potential detractors:

• Management changes – the issues and changes within the management structure that have arisen over the last couple of months may be concerning for some. In my opinion, Beaufield has dealt with the situation well and has appointed some quality people to help add value to shareholders in the immediate future.
• Exploration blunders – bad drill results are always a risk with mineral exploration companies, however, given the Beaufield property locations and their due diligence in preparing for their drill programs, I believe the odds of good results are closer to being in our favour.
• Share structure – there are a lot of shares out, which is all too common for an exploration company of this age and size, however, I am willing to accept this, due to the upside potential I see with this year’s drill program results.

 

There are always detractors or potential pitfalls in every junior company’s story, but now I would like to review the reasons I believe Beaufield has such great upside potential.

• Great land package – Not only is the Urban-Barry Belt arguably the hottest exploration area in Canada right now, but Beaufield owns some great properties in some other highly prospective areas, such as the area around Goldcorp’s Eleonore gold mine or its Trolilus-Tortigny Property, which possesses a 43-101 resource estimate (Au, Ag, Cu and Zn). There is a lot of potential in Beaufield’s properties.
• PUSH – we should have a good idea of Beaufield’s potential in the next 6 months, giving us great short term PUSH for upside in the stock price. Plus, I wouldn’t hang my hat on this, but good results from the neighbouring Osisko, Bonterra Resouces or Metanor Resources could see a spike in all of their share prices.
• $8 million in working capital – it is one thing to have great properties, but you need money to explore them and $8 million gives Beaufield the working capital it needs to add value for shareholders.
• Osisko’s ownership and involvement – Osisko has a great management team and, for me, their interest in a company goes a long way. Osisko owns 16.4% of Beaufield and has one of their own, Robert Wares, on the Board of Directors. For me, this is a good indication of Beaufield’s potential.

 

You be the judge. Great properties, short term PUSH, $8 million in working capital and keen interest from one of the best junior mining teams in the mining industry. I’m biased because I bought shares within the last two weeks. Do your own due diligence and decide for yourself.

Stay tuned for a look at the other main juniors in the Urban-Barry Belt, Bonterra Resources and Metanor Resources.

 

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

 

Until Next time,

 

Brian Leni  P.Eng

 

Founder – Junior Stock Review

 

 

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please due your own due diligence. I have NOT been compensated to write this article and do not have a business relationship with Beaufield Resources. However, I do own shares in Beaufield Resources.