Category: Stock

What is the significance of surpassing $1400 USD per ounces of gold?

Personally, I view the price of gold as a bell weather for the global economy, essentially signalling the health of markets. Without a doubt in my mind, the complexity of the global marketplace is only increasing and because of this, I can’t help but think that any of these attempts to control it will fail and only add to the damage that has already been done.

Ultimately, I believe, we are headed to some sort of reset of the global monetary system and breaking $1400 USD per ounce, a price we haven’t seen since 2013, signals we are getting closer.

So what does this mean for the junior gold companies? Great question.

As many of you will know, I think a bullish outlook for a metal price is a poor reason to invest within the junior resource sector, however, while this is my view, it seems that the vast majority of investors think differently.

Therefore, I suspect, given the rise in the gold price, we may be entering a new bull market in gold stocks.

Today, I have for you an update on Genesis Metals Corp., a junior gold company which is exploring and developing their flagship Chevrier Gold Project, in the world famous Abitibi Greenstone Belt in Quebec.

Let’s take a look.

Genesis Metals Corporation

MCAP – $7.4 million (at the time of writing)

Shares – 109.2 million

FD – 132.1 million

Management and Advisors – 16%

Other Major Shareholders – Osisko Mining, Eric Sprott, Gold 2000, Delbrook Capital, US Global Investors, SIDEX/SDBJ and Medalist Capital – 34%

Retail – 50%

Chevrier Gold Project – 2019 Exploration

2019 marks a reboot in Genesis’ approach to developing its flagship Chevrier Gold Project.

What do I mean by this? Well, the last few years, much of the exploration and development dollars have been spent on expanding and delineating the project’s Main Zone.

In all, the money has been well spent, as the updated resource estimate, released earlier this year, reveals the Main Zone has an indicated resource of 395,000 ounces at 1.45 g/t and an inferred resource of 297,000 ounces att 1.33 g/t, using a 0.5 g/t cut-off.

This field season at Chevrier will be different, as the company looks to generate new high-grade gold targets, as they have expanded their land package along the Fancamp Deformation Corridor and, more importantly, have enlisted Dr. Rob Carpenter and the highly accomplished team at Vector Geological Solutions to lead a modern exploration program across the entire property.

The Vector team is made up of Dan MacNeil and Dr. Alan Wainwright, each which has had extensive exploration experience and successes within the sector.

Exploration will begin with property-wide till sampling. For those who aren’t familiar, till sampling is used to identify target metals, such as gold, in areas which have been glaciated.

In these regions, glaciers have eroded the target metals from the underlying rock and transported them away from their source. Therefore, today, by digging down to the till layer which sits right above the bedrock, exploration teams can better sample for gold.

Till sampling is a highly effective tool in an exploration company’s arsenal and will reveal where they should focus their attention with localized geological mapping, trenching and geophysics.

It is key, that while the existence of gold within the till samples is obviously paramount, the Vector team isn’t necessarily as concerned with the grade of gold, but more on the gold grain morphology.

MacNeil explained to me that the grain morphology is vital in understanding the source of gold, as the shape and surface texture of the gold grain is an indicator of how far away the gold may have travelled from its source.

Source: Research Gate – Grain Morphology Example

Chevrier has been expanded to 275 square kilometers along one of the most famous gold corridors within the Abitibi. With this methodical approach to exploration, I think that there is a high probability that they will identify a few great high-grade gold targets for the next drill program.

Secondly, we have to keep in mind that the Main Zone is still open at depth, which, in my mind, shows great promise for further expansion of the deposit. The Abitibi is famous for its deep, steeply dipping high-grade gold deposits and, therefore, the next drill program should be chock full of high potential targets.

Changes in Leadership

On June 24^th, Genesis announced the resignation of Chairman and CEO, Brian Groves, and the appointment of Adrian Fleming as Chairman of the Board, and Jeff Sundar as interim CEO.

To refresh your memory, Fleming is a geologist by trade with over 40 years of experience in both technical and executive roles. Some highlights include being a founding director at Northern Empire and Underworld Resources, both of which were acquired by majors.

Additionally, Sundar has been a driving force behind Genesis as its President over the last few years and, I think, will do well in his new role. Sundar has over 20 years of experience in the mining industry, and is a former Director of Northern Empire, which was sold to Coeur Mining for $117 million in October of 2018. Also, he was a VP/Director of Underworld Resources, which was acquired by Kinross for $140 million in the last cycle.

The Genesis team is rounded out by Exploration Manager, Andre Liboiron; Director, John Florek; Independent Director, Keenan Hohol; Independent Director, Robert Scott and Steve Williams.

A Discovery Group Company

Genesis Metals Corp. is a part of the Discovery Group of Companies, which is led by John Robins and Jim Paterson. Discovery Group has churned out some of the best stories the sector has seen over the last few years.

A few of the M&A successes have been Kaminak Gold Corp., which was sold to Goldcorp for $520 million, and Northern Empire Resources Corp. which, as my readers, you are very familiar with; they were sold this past summer to Coeur Mining for $117 million.

Additionally, you have other high-quality resource projects, such as Bluestone Resources Inc., Fireweed Zinc Ltd. and Great Bear Resources, all of which have had success over the last year, as they move their projects forward.

In short, Genesis’ entry into Discovery Group speaks to the potential of the company and to its management team, a group in which Robins and Paterson must have confidence, as their reputations are now linked.

Strategic Advisors

While not being a part of the company’s main team, strategic advisors can play key roles in the development of a project. In particular, Genesis has done a great job assembling a cast of advisors that have resumes filled with success, particularly in exploration, resource expansion, capital markets and, arguably most important to the Genesis story, M&A.

Being a Discovery Group Company comes with not only the notoriety of being a part of the group, but also means, in this case, that both Robins and Paterson will play strategic advisor roles for the company.

John Robins is a professional geologist by trade with a wide variety of experience over the course of his more than 30 years within the industry. Robins was both a founder and Chairman of Kaminak and, in 2008, was recognized for his achievements in mining exploration by the Association for Mineral Exploration British Columbia with the H.H. “Spud” Huestis Award.

Jim Paterson has more than 22 years within the mining industry with experience in raising capital, M&A, joint-ventures, spin-outs, RTOs and IPOs. Currently, he is Chairman and CEO of Valore Metals Corp and was a founding Director of Northern Empire Resources Corp.

Genesis will benefit greatly from having these two men as strategic advisors, as they move their flagship Chevrier Gold Project forward.

New Additions

In November of 2018, Genesis announced that Dr. Rob Carpenter, Dr. Andrew Ramcharan and Garrett Ainsworth would be joining their list of strategic advisors.

Dr. Carpenter is a professional geoscientist with over 25 years of experience in the resource sector. He is best known as co-founder, President and CEO of Kaminak Gold Corporation (2005 to 2013) and its multi-million ounce Coffee Gold Project, where he is credited with the initial discovery and leading the company to it maiden resource estimate. Kaminak was sold to Goldcorp in 2016 for $520 million.

Dr. Ramcharan is a professional engineer with over 18 years of experience in operations, project evaluation, M&A, finance and investor relations. Most recently, he was a managing Director of Project Evaluation for both debt and equity financings at Sprott Inc.

Last but not least, Garrett Ainsworth is a geologist by trade and former VP Exploration for NexGen Energy, which discovered the world-class Arrow Uranium Deposit in Canada’s Athabasca Basin.

4th Best Jurisdiction for Mining Investment in the World

From a jurisdictional standpoint, it doesn’t get much better than Quebec when it comes to mining investment attractiveness. The Fraser Institute (FI) gives Quebec an index score of 88.38, ranking it 2nd in Canada and 4th in the world. FI’s mining investment attractiveness index score is reflective of both the mineral potential and the government policy perception of the region.

Quebec’s Mineral Potential

Quebec is home to 25 producing mines and over 350 surface mineral mining operations, putting the value of Quebec’s mineral shipments at $8.7 billion in 2014 (Investissement Quebec). Quebec is Canada’s 2nd largest producer of gold, largest producer of iron and zinc, and the only North American producer of niobium. The mineral wealth is evident and is a big reason why FI ranks Quebec among the world’s top ten in mining investment attractiveness.

Highlighting Quebec’s world-class mineralization is the Abitibi Greenstone Belt (AGB), which is 150 km wide and stretches 650 km from roughly Wawa, Ontario to Val d’Or, Quebec. The belt has produced millions of ounces of gold over its history, with the Cadillac Gold Camp, Virginiatown, Rouyn-Noranda Gold Camp, and Val d’Or Gold Camp being just a few of its largest contributors.

Quebec Politics and Infrastructure

The government of Quebec supports mineral exploration within its borders with a tax credit system that refunds 25% of eligible exploration expenses for non-operating corporations, and 10% of eligible exploration expenses for operating corporations (Financial Incentives). So, roughly, for every $1 of non-flow through raised capital spent by a Quebec based mineral explorer, 25 cents will come back to the company, which can effectively be rolled right back into further exploration work. This is not only a huge plus for the company and its shareholders, but an ingenious way for the province to promote mineral exploration.

The long history of mining in the AGB means that most regions of the belt are accessible or near infrastructure such as highways, rail, power, and deep water ports along the St. Lawrence Seaway. Also, Quebec boasts some of the most competitive electricity rates in Canada, as its hydroelectric dams constitute a major portion of its electricity production.

Finally, Quebec takes great pride in a transparent mining system, which is built around three key pillars:

“Open access to resources is ensured on the largest possible portion of territory, Mineral rights are granted on a first-come, first-served basis and if a discovery is made, the title holder can be reasonably sure of obtaining the right to develop the resource.” ~ Investissement Quebec

NOTE: Quebec provincial funds, SIDEX, SDBJ and FTQ, have participated in past private placements in Genesis and now own a good portion of stock. In my mind, it’s a great indication of the potential value that the Chevrier Gold Project may have moving forward.

Favourable politics and world-class geology – for me, it doesn’t get much better than Quebec, as far as your investment buck goes!

 Chevrier Gold Project

Genesis’ 100% owned Chevrier Gold Project encompasses 275 square km and is located 35 km south of Chibougamau, Quebec, in the heart of the Abitibi Greenstone Belt. Chevrier straddles 15 km of the Fancamp deformation zone, and is 15 km northeast of IAMGOLD’s high-grade Monster Lake gold deposit.

NOTE: The IAMGOLD and Toma Gold Monster Lake JV released their maiden inferred resource of 433,300 ounces of gold at 12.14 g/t at a 3.5 g/t cut-off.

Chevrier Gold Project History

Prior to Genesis, the area in which the Chevrier deposit is located was owned and explored by Inmet Mining Inc. (Minnova), which, in 1989, was the first to drill the now Main Zone of Chevrier, where they intersected gold grading 5.4 g/t. The property was then purchased by Geonova Explorations, which outlined Chevrier’s Main Zone.

In 2007, the property changed owners once again, with Tawsho taking the reins. They went on to complete a 2,792 km aeromagnetic survey, a ground EM Time Domain survey, 24 diamond drill holes, an independent NI 43-101 resource estimate (by Met-Chem Canada Inc.), and a 5,000 ton bulk sample.

Since Genesis acquired Chevrier in Q2 of 2016, it has completed a long list of work which includes the inventory of more than 70,000 m of drill core, the re-sampling and re-assaying of selected mineralized intervals, re-sampling of 4 trenches, 3D modelling of Main, South and East Zones, 50+ km of IP surveying, and executed a 10,000 m drill program, which focused on confirming historical Geonova drill holes, exploration step out holes on the Main Zone Deposit and the exploration of other IP and geological targets. Results from this program can be found on Sedar.

New Geological Model

Over its 29 year history, Chevrier has seen 213 drill holes, totalling over 87,000 meters. However, the Genesis team is the first to consolidate, re-evaluate and form a comprehensive geological model regarding the Main Zone’s gold mineralization.

Below is an image of the mineralization within the Main Zone, using a 0.3 g/t Au grade shell.

Chevrier Gold Project – Plain View of the Main Zone Deposit

Chevrier Gold Project Resource Update

Using the new geological model and the compiled data from the most recent drill program, Genesis has released an updated resource for the Chevrier Gold Project. The updated resource includes the Main and East Zones and, as described in the previous section of the report, envisions a mining scenario in which there is both an open pit and underground workings.

Indicated Gold Resource – 395,000 ounces averaging 1.45 g/t

Inferred Gold Resource – 297,000 ounces averaging 1.33 g/t

NOTE: With a combined indicated and inferred resource of 692,000 ounces of gold, and with Genesis’ MCAP sitting below $10 million, this presents an interesting value proposition. Keep in mind, not all ounces are of equal value, but nonetheless, this is a good high-level indicator of value.

This is a great start for the Genesis team as, collectively, – indicated and inferred – they sit very close to 1 million ounces of gold in an area of the Abitibi which looks poised for development in the coming years. Clearly, the next move for the Genesis team is to expand this new resource, which will be aided by their newly formed strategic advisors team.

2019 and beyond should be very interesting for investors as they move forward.

Chevrier Resource Expansion

In terms of expanding the deposit, one of the best possibilities comes with drilling deeper, as the Principal Zones remain open at depth.

Chevrier Gold Project – Long Section of the Main Zone Deposit

To date, I believe there have only been a handful of holes drilled below 400m, each of which hit mineralization. Given the nature of many of the Abitibi gold deposits, such as Osisko Mining’s Windfall Lake Gold Project, there is certainly the potential for more ounces to be found at depth.

I look forward to the next drill program which will test the extent of the mineralization at depth, and will most certainly tackle the other high priority targets on the property.

Concluding Remarks

The new gold bull market may be upon us, owning undervalued junior gold companies, such as Genesis, could be highly advantageous in the weeks and months ahead.

Investing in junior resource companies is risky and, therefore, in my opinion, you need to seek out companies that are led by strong management teams, who can navigate the risk and propel the company forward.

Genesis Metals Corporation is a company which I am invested in and believe has the horsepower, in terms of the management team, to move the Chevrier Gold Project forward. Clearly, the company must focus on expanding the resource by drilling deeper and exploring the property’s high priority targets.

As outlined in my report, there is a strong list of advisors who have “been there and done that” within the resource sector, and I am confident will have a great influence on the direction of Genesis moving forward.

Summarizing my thesis for investment, here are what I think are a few of Genesis’ most compelling strengths:

• A proven management team: Sundar, Fleming, Florek and Liboiron
• Strategic Advisors: Discovery Group’s John Robbins and James Paterson, Dr. Robert Carpenter, Dr. Andrew Ramcharan, and Garrett Ainsworth.
• Strategic Shareholders List Headlined by: Osisko Mining, Eric Sprott, Delbrook Capital, Gold 2000, US Global Investors, SIDEX/SDBJ/FTQ and Medalist Capital
• Located in the 4th best jurisdiction in the world, Quebec
• Systematic 2019 exploration program led by Vector Geological Solutions – high-grade gold targeting
• Expanded land package with high exploration potential, Chevrier Gold Project and October Gold Project
• Great bang for their drilling buck, as their all-in drill costs, thus far, have roughly averaged $220 per metre

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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. Currently, I do not own Genesis Metals Corporation stock. All Genesis Metals Corporation analytics were taken from their website and press release. Genesis Metals Corporation is a Sponsor of Junior Stock Review.

For those who didn’t catch my last newsletter, I have been travelling in Asia, specifically Singapore and Hong Kong. In Singapore, I attended and spoke at Mining Investment Asia and, in Hong Kong, I attend Mines and Money Asia.

The trip was fantastic, I’m eagerly awaiting my next trip to east Asia!

More specifics on my trip in the coming weeks, but for now, some thoughts on the market and what I am buying at the moment.

Enjoy!

Thoughts on the Market

Over the last month, readers have continued to ask me where I think the junior resource market is headed and if I think that the adage, “sell in May and go away,” is the mantra that investors should use in 2019.

Firstly, where do I think the junior resource market is headed? Simply, I don’t know, no one does. The stock market is a complex beast with many factors affecting its direction. However, I know that isn’t necessarily the answer most of you are looking for, so I will add some colour, purely for fun and entertainment.

I continue to believe that gold is a must-have insurance policy, because it appears to me that things are only becoming more complex within the global economy. In my opinion, gold remains the best way to protect your wealth as we head toward major monetary changes in the future.

I will add to this; I view a rising gold price with trepidation because, to me, this is signalling a growing uncertainty within the world, pushing us closer to this major change. I believe you must ask yourself, ‘what does the world look like if the gold price is US$10,000 per ounce?’ My guess is, ‘not good.’

In terms of the base metals, I continue to be long-term bullish on their demand as the human race continues to consume goods at an ever-increasing rate. Further increases in demand, however, don’t necessarily mean that the price of the base metals will go up.

If I were to pick a metal that I believe has a good chance of going up in price, it’s nickel. There are a number of reasons why I believe this could happen and, if you want to hear them, please check out my presentation from this year’s VRIC. If you have more in-depth questions, let me know.

Now, for the junior resource companies; for those who have listened to or read my work previously, you will know that I don’t invest in junior companies because the price of the underlying commodity with which the company is exploring is going higher.

By following a mantra like this, it forces you to stick with the best of the best companies and, thus, protects your downside risk. If your stock picks rely on a rising metal price, I assure you it’s only a matter of time until you lose money, because no one can predict where metal prices are headed with any consistency.

Sell in May and go away? Personally, I don’t put much stock into seasonality type theories like this and stick to fundamental analysis to determine my buys and sells in the market. In the long term, I think the vast majority of investors would be much more successful if they ignored market commentary such as this, as again, who can predict the future with any consistency?

Second to that, while many of the junior resource company share prices have fallen over the last year or so, there are many which have stock charts that reflect a much brighter story. The companies which have bucked the trend in most cases are exploration companies, because discovery pays no matter where you are in the cycle.

Additionally, there are some stories which are run by some very talented management teams, and the cream always rises to the top!

Companies I am Buying

Irving Resources (IRV:CSE)

I mentioned Irving in my tax loss buying / 2018 year in review article in December. Irving is 1 of 2 junior companies exploring for gold in Japan and, at the moment, have the drills turning at their highly prospective Omu Gold Project in Hokkaido.

The stock price has doubled since December as a function of the build up for drill results and with the newly announced strategic financing by Newmont. Additionally, Irving has released pictures of the drill core from their first 2 holes.

Along with the pictures they have provided some explanations of what they are seeing in terms of alteration in the drill core, thus far. Check out their webpage for more details.

Personally, I’m really encouraged by what I have seen, especially the results from hole #2, which appears to have hit the top portion of the boiling zone of this low sulphidation epithermal target.

Is it a buy here? I think it depends on your risk tolerance.  Currently, the MCAP is sitting around $100 million, with a portion of that value being derived by the gold they have in the ground in the form of the past producing underground mine within the Omu property.

Besides that, the valuation, from what I can tell, is solely based on the speculative upside potential in this low sulphidation target they are drilling at Omu which, I think, at this point, is warranted.

I bought more stock around $1.70 when I saw the news release with the core photos because I thought they looked very similar to the Hisikari core photos which I had looked at months ago.

For perspective, Newmont bought in at $2.20 a share, but given the size of Newmont and their outlook for what Omu might mean to them in the future, the entry share price isn’t necessarily their primary concern.

For individual investors, however, it can mean a lot, as a miss on the first drill results and the share price will likely be cut in half, especially in this market. In saying this, I believe Irving will give me multiple kicks at the can, even if these first assays don’t return good results.

For those with a healthy appetite for risk, therefore, the current price really isn’t that bad given what the upside potential may be. I, however, would be more comfortable looking for an entry price below $1.90.

Drill core has to be sent offshore for assay, therefore, we are still 4 to 6 weeks away from results, and with this in mind, there may be a chance of weakness in the share price.

FPX Nickel Corp. (FPX:TSXV)

The best bang for your buck in terms of nickel juniors out there. Current share price is at $0.12, and considering the metallurgical optimization on the project and a fantastic solution to their debt issue, there is deep value here.

Check out my articles and presentations to see why I believe the future is bright for FPX.

https://www.juniorstockreview.com/2019/03/18/fpx-nickel-corp-update-on-the-baptiste-deposit-metallurgy/

https://www.juniorstockreview.com/2019/02/08/nickel-a-short-and-long-term-outlook/

https://www.juniorstockreview.com/2018/01/08/fpx-nickel-corp-undervalued-pure-nickel-play/

Maritime Resources (MAE:TSXV)

I was an investor in Anaconda Mining for a long time and believed that the proposed merger of the 2 companies last year would have been fantastic for both sets of investors. That, however, didn’t happen for a number of reasons.

Today, Maritime is under new management and appears to be progressing in the right direction in terms of moving its Hammerdown project toward production.

Recently, they raised more than $6 million dollars at $0.10 toward the development of Hammerdown, with both infill and exploration drilling in the plans.

In October 2017, I was able to visit Rambler Mining’s Nugget Pond mill, which, in Hammerdown’s PFS, is the site for processing its ore (under a tolling agreement). Having seen Nugget Pond’s gold circuit, I can attest to it not being a turn-key operation. Money will need to be spent to bring the gold processing equipment back up to operational condition.

Personally, and this is complete speculation on my part, I think it’s more likely that we will see another attempt at the merging of Anaconda and Maritime.

Appreciation in the share price of Maritime could be a major catalyst for talks, as a merger of roughly equals may be an easier sell to Maritime shareholders this time around.

I was a buyer at $0.09 and see a lot of expansion potential at Hammerdown, with the added bonus, in my mind, that there could be a strategic merger in the future.

Commander Resources (CMD:TSXV)

In my decision to invest in Maritime, I came across the fact that Commander owns a royalty on Hammerdown, which, in my estimation, is worth a few multiples of Commander’s currently paltry MCAP.  Keep in mind that without Hammerdown going to production, the royalty is worth nothing.

In addition, if you dig further into Commander, you will see that they have equity positions in both Maritime Resource and Aston Bay. Collectively, these positions, last I checked, were worth around $800K.

Last spring, Commander completed a $2.5 million financing, which has been burned down to $1.5 million as of PDAC.

At the moment, therefore, you can almost buy Commander for the value of their cash and equity positions, mix in the potential of the Maritime royalty and your downside potential is minimal, in my opinion.

I was a buyer at $0.095.

Aethon Minerals (AET:TSXV)

Currently, Aethon’s MCAP is roughly around their cash value. With news on the horizon, I think there are good things to come for Aethon.

Concluding Remarks

While the majority of investors might decide that they know where the market is headed and sell in May, I’m happily buying companies that are selling for less than their value, and have catalysts towards price appreciation.

A few good articles are coming your way in the coming weeks, stay tuned!

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 FPX Nickel Corp., Irving Resources, Maritime Resources, Commander Resources, and Aethon Minerals stock. I have NO business relationship with of the companies mentioned in this article.

What has been the best performing metal in 2019 YTD? Nickel is up roughly 20% from the beginning of the year, which makes it one of the best performing metals, if not the best, thus far. I could write a whole report regarding the fundamentals of nickel and why I’m so bullish, but instead, I’ll direct your attention to my presentation at the Vancouver Resource Investment Conference (VRIC), where I covered the subject in detail.

With global nickel inventories falling rapidly and the nickel price responding positively, I thought it was a great opportunity to give an update on one of my favourite junior resource companies in the sector, FPX Nickel Corp.  

My update is two-fold; first, I want to review the newly released metallurgical test work, and finally, I want to touch on one of my most asked questions regarding FPX, “what’s the deal with the debt?”

Let’s take a look.

Metallurgical Test Work

I’ve been eagerly awaiting FPX’s update on their metallurgical test work which began last summer. For many, the Baptiste deposit’s metallurgy was a big question mark because awaruite isn’t exactly the most common primary nickel mineral being mined these days.

For those who aren’t familiar with awaruite, it’s a dense and highly magnetic nickel-iron alloy, Ni₃Fe, which is commonly referred to as a ‘naturally occurring stainless steel.’

FPX appointed ALS Metallurgy, operating out of Kamloops, BC, with the goal of improving the previous metallurgical results from the 2013 PEA, which demonstrated nickel recoveries of 82%.  

The recovery and concentrate grade assumptions in the 2013 PEA were based on a two-stage process, which consisted of a primary coarse grind to P80 600 microns, followed by a rougher magnetic separation, then a re-grind of that fraction to P80 70 microns, followed by Knelson gravity concentration to produce a concentrate grading 13.5% nickel, 45-50% iron and 1-2% chromium.

While this concentrate would have been a highly marketable product within the nickel market, improvement in recoverable nickel and the subsequent reduction in the amount of gangue present in the concentrate could be very advantageous to Decar’s NPV and, of course, increase the demand for the improved contents of the concentrate.

Testing

To complete the metallurgical test work, ALS was given 400 kg of core sample reject material from 4 drill holes completed in 2012 and 2017.  The material was then used in a two-phase program, focused on 3 goals: (1) improving nickel recovery, (2) increasing nickel grade in the final product; and (3) producing a saleable iron ore concentrate by-product.

Phase 1 testing provided proof of the recovery of nickel and iron using magnetic separation and the upgrading of these minerals into a bulk Ni-Fe concentrate using re-grinding and magnetic cleaning.

Phase 2 focused on the flotation of the concentrate created in Phase 1, separating the awaruite from magnetite. This process was very successful, as the floatation separated the 2 minerals, recovering 80 to 90% of the nickel and allowed for the creation of a high grade nickel concentrate – 55 to 72% Ni, which compositionally is almost pure awaruite (75% Ni / 25% Fe).

For most nickel companies, the tailings of their final upgrading circuit is waste, or in many cases, where sulphides are present, often leaves them with a potential environmental liability in terms of its acid generating capability.

FPX is in an enviable position, as there are little to no sulphides present in the host rock and tailings and, most advantageous, the flotation tailings appear as though they will be saleable. In FPX’s case, the tailings are actually a magnetite iron ore concentrate, which has a grade range of 58 to 64%, and may be a good candidate for sale to steel mills in the western portion of Canada and the United States.

Saleability of the Magnetite Iron Ore Concentrate?

For those who aren’t familiar, I spent 10 years within the steel manufacturing business.  While my work experience was within the rolling mill, as an engineer and manager, I do have an understanding of the steel making process within a mini-mill.

A mini-mill derives its in-feed primarily from recycled steel products, such as cars. As such, many mills have their own recycling facilities that purchase scrap steel from the public. The scrap is then shredded and brought to the scrap bay, where it is piled with many other types of scrap.

Other potential scrap can include (but is not limited to) busheling, heavy melt, turnings (lathe or mill) or pig iron.

Depending on the grade of steel to be produced and the cost of the various input scrap sources, an algorithm is used to optimize the scrap mixture so that the highest potential profit is achieved. From there, a crane with a huge grapple begins to fill a charge bucket with the correct amounts of the various scrap sources. Not only is the amount of scrap from each source important, but so is the order in which it is placed into the bucket.

Why? The mini-mill process uses an electric arc furnace (EAF) to melt the steel and, therefore, the density of the material which will be charged into the EAF is very important, as the more densely packed the scrap is, the more efficient the application of electrical energy to the steel to melt it.

The reason I’m explaining this is because I think it’s vitality important for judging the likelihood of FPX being able to sell their magnetite iron ore concentrate to a steel mill.

Personally, I think it’s very realistic that there will be a mill that is interested in the product, but it’s going to come down to price and possibly the consistency of the end product.

Firstly, the price question. Further metallurgical analysis should give FPX a better indication of the cost profile of this process and, subsequently, allow them to conduct market research on a possible buyer of both the high-grade nickel concentrate and the magnetite iron ore concentrate.

Secondly, the steel manufacturer may require the powder like magnetite iron ore concentrate to be agglomerated before they can use it.  I’m not sure which would be preferred, but it’s something that I intend to do my own research on with the contacts I still have within the steel business.

FPX’s Debt

Beside the questions I have received regarding the Baptiste deposit metallurgy, questions regarding FPX’s debt is the next most popular. So, what’s the deal with the debt and should I be concerned?

This is a great question and one that certainly deserves contemplation before investing. If you examine FPX’s most current financial statement, you will see under the line item, Loan payable (note 10), there’s an amount for $7,296,794 CAD.

This isn’t a small amount of cash, especially given current market dynamics; however, I think the back story on this loan needs to be discussed.

In 2015, FPX was given the opportunity, by their former joint venture partner Cliffs Natural Resources (NYSE: CLF), to purchase their 60% stake in the Decar nickel project for US$4.75 million. The purchase would give FPX 100% ownership of the property at a cost which, I believe, is a STEAL, especially considering the amount of money (US$22 million) which Cliffs spent developing the property.

It was here that FPX and a large individual shareholder of the company came to an arm’s-length agreement on a loan (details can be found here), which would be used to make the purchase from Cliffs. The term of the loan was 5 years, which makes it due in fall of 2020.

I recently posed the question regarding the debt to FPX’s CEO, Martin Turenne, and here’s what he had to say,

“The debt was initially provided to us on very favourable terms, with a low interest rate, by one of our major shareholders in order to fund the re-acquisition of a 60% interest in Decar from Cliffs. Since advancing this loan to us in 2015, this shareholder has significantly increased their equity position in the company. The shareholder continues to be very supportive of our efforts, and we are working on a plan to deal with the impending maturity of the debt in a way that will be beneficial to all shareholders.”

Situations such as this require some trust as the identity of the large shareholder isn’t known to me and, therefore, I have no way of verifying what Turenne says. However, I do know Turenne and, without a doubt in my mind, believe that what he’s saying is true and, therefore, am not personally concerned with the debt at this point.

 Concluding Remarks

As I’ve mentioned many times before, a bullish outlook on a metal is not a good reason to invest in a junior resource company. Junior resource companies are businesses whose value is primarily driven by the people who run them. Therefore, in my opinion, it’s of the utmost importance that you understand who you’re giving your money to, what their plan is to move the company forward, and if their interests are aligned with the shareholders (i.e. cost of capital in the company).

In terms of nickel, as I mentioned, I’m very bullish and it just so happens that FPX Nickel Corp. fits the bill in terms of price-to-value proposition. The company has a greatt management team that has ticked all the boxes in terms of keeping its promises to shareholders as they progress the company forward, into what looks to be a tremendous nickel bull market on the horizon.

In summary, FPX’s metallurgical test work results are great and should validate any of the concerns from those who were skeptical about the refinement of the Baptiste deposit ore. While the results from the met work are great, in my mind, it does create a few new questions, such as the saleability of the magnetite iron ore concentrate or what is the cost profile for the new process. These, however, are great progressive questions to have, and I personally believe FPX is headed in the right direction.

Finally, for the questions regarding the debt, it’s a valid concern, however, given the background of the debt holder and my trust in Turenne, I’m inclined not to be concerned with it at this point.

I continue to hold FPX and look to increase my position with any weakness in the share price.

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 FPX Nickel Corp. stock. I have NO business relationship with FPX Nickel Corp.

A couple of weeks ago, I had the opportunity to visit Fremont Gold’s Gold Bar Project in Nevada. The Gold Bar Project is located within Eureka County, which is home to the famous Battle Mountain-Eureka-Cortez gold trend, and lies in close proximity to McEwen Mining’s Gold Bar mine.

I’ve put together a few of my notes from the trip and a little colour on Nevada’s history.

Nevada: A Premier Jurisdiction for Mining

Nevada is situated in the western United States and has a long history of mining dating back to the 1840s. Although mining began over 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.

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.

Small Lessons Learned on Site Visits

In my opinion, one of the best parts of doing a site visit is the unexpected things you learn during the trip. These things can vary from learning about the summer housing issues in Dawson City, Yukon, or the Swedish influence on Millertown, Newfoundland.

While some of these ‘lessons’ might not seem like they have much value or significance, I, personally, view them as priceless. The fact is, I’m not sure I would have come across these tidbits of information if I hadn’t made the trip.

The reason they are important has less to do with the actual company and more to do with the culture of the jurisdiction in which the company operates. Taking in information like this prompts more questions and, with more questions, comes deeper thinking and, in my opinion, a fuller understanding of what and where exactly you are putting your money.

Basque Culture

On my latest site visit to Fremont Gold’s Gold Bar Project, there was one tidbit of information that I ignorantly stumbled upon, oddly, by asking, “what is Basque food?”

Star Hotel in Elko, Nevada

After visiting the Gold Bar Project during the day, we headed back to Elko and specifically to the Star Hotel for what was referred to as ‘Basque style’ dining. While I’ve travelled to a large number of European countries, they’ve been predominantly in the eastern part of the continent and I, therefore, knew nothing about the Basque region, which is located along the border of Spain and France.

Officially, the Basque region is comprised of 7 provinces; 4 in Spain and 3 in France.

So, the obvious question is how did a region located in western Europe influence Nevada, a state located in the western United States?

I was very surprised to learn that the roots of Basque influence in Nevada are rooted in the mid 1800s, specifically with the California Gold Rush. The allure of gold and the riches which could follow drew in people from all over the world and, in the process, resulted in many of the gold seekers setting down roots in the regions in which they were searching.

For the Basque people, they recognized the potential for raising sheep in California and started setting up their operations. Fast-forwarding to the 1870s and this became a popular vocation for many of the Basque people, and with the crowding in California, many made the move into Nevada.

What’s my point? Personally, I’m always interested in getting a better understanding of the cultural influences within a jurisdiction. In my mind, without a doubt, Basque culture has had an effect on Nevada and the people who reside there.

From the moment you walk into the Elko airport, you know you’re in a mining town. Now, the Basque influence isn’t necessarily direct for mining, but more the entrepreneurial spirit that the immigrants brought with them; they came chasing gold and stayed to farm.

In my opinion, the future of mining is very bright in Nevada and this is only enhanced by a local population which embraces it and looks to grow with it.

NOTE: An interesting fact regarding Nevada politics; former Nevada Governor and U.S. senator Paul Laxalt was the son of Basque immigrants. Laxalt came from humble beginnings in Reno, Nevada where he assisted his parents in the operation of their restaurant/hotel. Also, Laxalt is known for his close relationship with former U.S. President, Ronald Regan.

Fremont’s Gold Bar Project

Fremont Gold (FRE:TSXV)

MCAP – $7.49 million (at the time of writing)

Shares – 53.0 million

FD – 67.2 million

NOTE – Leading the site visit was CEO, Blaine Monaghan; President, Dennis Moore; and VP Exploration, Clay Newton.

Fremont has a number of gold exploration projects throughout the Battle Mountain-Eureka-Cortez and Carlin trends. Gold Bar, however, is particularly interesting given its production history and its proximity to McEwen Mining’s Gold Bar Mine.

Also, it should be mentioned that Fremont owns the Gold Canyon project, a claim block which directly borders McEwen’s Gold Bar Mine. Although we were in close proximity during the site visit, we were unable to get up there due to weather (snow drifts), and access is a little complicated given the fact that you must enter through McEwen’s active mine site.

During our visit, Fremont had just started a 1,000m RC drill program on the Gold Bar Project, where they are targeting a possible extension of the previously producing Gold Bar mine. Key to this drill program is the involvement of long-time Nevada geologist, Clay Newton, who has interpreted data collected on the property to theorize that a possible extension of the gold bar pit sits to the southeast, or offset. This contrasts the prior owners’ premise, which was to test for extensions in-line with the existing deposit – they came up empty handed.

I’m interested to see the results of the RC program, which has recently been completed and samples sent to the lab for assay.

It’s clear that any discovery here or at Gold Canyon could be very tempting for McEwen Mining to acquire. In this case, proximity or ‘close-ology’ makes a lot of sense; the key being that Fremont does discover an extension and, secondly, adds enough value that it’s recognized and desired by McEwen to purchase in the short term.

One final note, Fremont had planned on a 500 m diamond core drill program at Gold Canyon to follow the 1,000 m RC meters at Gold Bar. These plans, however, have been put on hold due to extreme weather conditions in northern Nevada. The company will reschedule in the weeks to come.

Concluding Remarks

Fremont has an experienced management team with a great track record in gold exploration, and it’s my thinking that this will continue as they progress with their portfolio of Nevada based projects in 2019.

The day I spent on site was very insightful and I’ve learned a great deal more about the company and its management team.

I believe Fremont Gold is a company to watch as we move into a gold bull market, and it may be a company that fits your investment criteria. If you’re in Toronto for PDAC or the Metals Investor Forum, be sure to check them out.

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 not own Fremont Gold stock. I have NO business relationship with Fremont Gold, however, Fremont did pay for my travel and expenses to conduct the site visit.

2018 did not turn out like I thought it would – and that’s okay. As many of you already know, I don’t put much stock in trying to predict where metal prices are headed. Instead, I focus on the quantitative and qualitative aspects of each company that I invest in to determine whether the price to value ratio is adequate enough for the risk I’m going to take. If the metals rise in the meantime, that’s a huge bonus.

Here are a few thoughts on the metals in 2018 and what they may do in 2019.

 

Enjoy!

 

 

2018 Resource Market

Arguably the biggest headline affecting global markets in 2018 was the trade war between United States and China. However, I don’t think the trade war is solely to blame for where we are in terms of the resource market today. In my opinion, the rapid ascension of interest rates by the Fed might have had the biggest effect on the course of the global market.

To put it into perspective, interest rates were not only raised over the course of the last 12 months, but they were raised at almost double the frequency of years previous. In my opinion, this put a lot of stress on the global economy and, therefore, set up a “perfect storm,” so to speak, when the U.S. and China trade war took centre stage.

To give context to a prediction on where the market is headed in 2019, I think you must first decide the direction of interest rates and the U.S. and China trade war.

For interest sake, I will say that the Fed will not continue raising interest rates in 2019. I believe the short-term fear of a market crash will outweigh the long-term consequences of not continuing to raise interest rates.

Additionally, while I can’t reference any evidence that would point to a resolution to the trade war, it is my feeling that both governments will see a need to stimulate their economies, and as a result, will find a resolution to the trade war in 2019.

With these two issues taken care of, I believe that although the broader market is overdue for correction by historical standards, a pause or a reduction in interest rates and a resolution with China will lead to new highs.

In terms of the resource sector, I believe we will see a precious and base metal resurgence, with spot prices increasing and the equities following suit.

 

 

Copper

I’m bullish on the long-term supply and demand fundamentals for copper. In 2019, I see copper maintaining an average price of around US$ 3.00/lbs for the year.

Copper Exploration

On the copper exploration side of things, my attention has been drawn to South America, specifically the north end of the Andean copper belt, which is located in Ecuador. In June of this year, I wrote an article entitled, “Ecuador – A Renaissance in Mining Investment Attractiveness?” For those interested in Ecuador as a jurisdiction for mining investment, I believe it’s a very valuable read.

For those who have been following resource companies with projects in Ecuador over the last year, they would have been pleasantly surprised to see mining behemoth, BHP, take a major position in Ecuadorian copper developer, SolGold (SOLG:TSX).

In my opinion, this is both a nod to the quality of Cascabel and to the level of comfort that a major mining company has with investment in Ecuador.

The fact is, much of Ecuador has been untouched by modern exploration techniques, and rightfully so, as the political environment prior to 2014 made it much too risky for major investment. I believe that times are changing, however, and while there is still risk, Ecuador has great mineral potential.

The company in which I’m investing, and which is exploring in Ecuador, is Adventus Zinc Corporation. They will be conducting a major exploration program on their Santiago Project, which, I believe, holds great potential for a copper porphyry discovery. I just wrote an article on their 2019 exploration program – check it out here.

Also exploring for copper in the Andean Copper Belt is Aethon Minerals. For those who aren’t familiar, Aethon is a spin-out of Altius Minerals and IPOed early this year. The company has gone through some growing pains since its IPO and is in the midst of a CEO change, but I’m confident, especially given their cash position of roughly $5.0 million and their project portfolio, things will turn around quickly in 2019. Also to note, they are currently trading for less than their cash value!

 

Companies I own, looking to add to or take a position in: Adventus Zinc Corp. (ADZN:TSXV), Aethon Minerals (AET:TSXV), Mundoro Capital (MUN:TSXV), Kutcho Copper (KC:TSXV)

 

 

Zinc

Zinc’s fall from its 5-year high of around US$1.60/lbs to almost US$1.00/lbs was drastic. The fall from grace is a mixture of some new production coming online, hidden inventories feeding the market and, finally, the U.S. and China trade war, which, I believe, was enough to send the price back down to levels we haven’t seen since the fall of 2016.

However, LME zinc inventories remain very low and, in my opinion, still give upside potential to the zinc price. While I do believe there’s potential for a nice spike in the price, especially upon news of a resolution in the U.S. and China trade war, I don’t think it will be sustainable over the long term.

In my opinion, barring a crash in the global markets, today’s zinc price, between $1.10 and $1.20, is probably a good gauge for an average price in 2019, with proviso that there’s definitely room for a nice spike due to the very low visible LME inventories.

Zinc Air Batteries

Zinc air batteries are not new, as the technology started to be developed in labs in the early to mid 2000s. What is new is their growing commercial use, which I have been increasingly hearing and reading about this year.

Unlike the narrative-heavy vanadium redox battery storylines, zinc air batteries are legit and I believe could be an emerging major demand source for zinc in the future.

 

Companies I own, looking to add to or take a position in: Adventus Zinc Corp. (ADZN:TSXV), Tinka Resources (TK:TSXV)

 

 

Nickel

LME Nickel inventory levels have been falling steadily since mid 2017 and have been continually reaching new 5-year lows this year. In my opinion, this has been driven by strong consumption in the stainless steel industry and, of course, the burgeoning battery market.

Given this fact, I think it’s apparent that there’s a mine supply deficit, particularly that which feeds the class 1 nickel market.  I wrote about this earlier this year, here is a link to the article for further reading.

For me, personally, the high consumption, falling inventories and weak spot price have been the most interesting thing to watch in this year’s nickel market, as the spot price really is running opposite to the way most would think.

In my opinion, in whatever scenario you pick, the world is headed toward electrification. This revolution in human history will be led by electric vehicles (EV) and will have a tremendous impact on the battery metals market.

In saying this, given the current and future chemistries used in EV batteries, NMC and NCA, nickel plays a major role. While I don’t see it staying this way forever, I would say that the next 10 to 12 years of battery demand is very bullish for nickel.

The question that then needs to be asked is, what will the EV adoption rate be, moving forward?

It’s a hard question to answer, but one thing to keep in mind is countries around the world are incentivising the adoption of EVs with rebates and instituting taxes on carbon emissions. I believe these incentives and penalties will only increase with time, making me more optimistic of a higher growth rate in the global EV market.

In saying this, it still isn’t an easy question to answer. One of the nickel market’s largest producers, Glencore, released an estimate a few months ago which used a 30% adoption rate in EVs by 2030.

In terms of nickel, a 30% adoption rate is equal to roughly 1.0 million tonnes of class 1 nickel demand. Considering the entire nickel market is currently 2.0 million tonnes, and given the current supply and demand fundamentals and the time and cash needed to find, develop and produce nickel sulphide projects, you have to ask yourself, where is it going to come from?

I’m bullish on nickel and provided there is resolution to the U.S. and China trade war, think 2019 is going to be a good year for the nickel price. In my opinion, nickel could challenge the US$8/lbs price level in 2019.

Companies I own, looking to add to or take a position in: FPX Nickel Corp. (FPX:TSXV), Horizonte Minerals (HLM:TSX)

 

 

Lithium

As I just stated in the nickel outlook portion of this article, I believe the world is headed toward electrification. With this paradigm change will come a much higher demand for batteries. Given current commercial battery technology and chemistry, this means that lithium will most likely continue to play a major role in the battery market as we move through the initial stages of this major shift.

The lithium market is small in comparison to the major base metals and is controlled by 4 main companies, SQM, Abemarle, FMC Corp. and Sichaun Tianqi Lithium Industries. Here’s a link to an article I did on the lithium market.

Given its size, I suspect that steady pricing is in everyone’s best interest and, therefore, believe we have somewhat of a floor in pricing at least at the moment.

In saying this, I believe this is why security of supply will become so important moving forward, because  at some point, there will be many hands looking to attain supply from only a few players.

Many pundits point out that there’s no shortage of lithium in the world, however, I think the rate at which it’s extracted will become the issue in the future, because I see the rate at which industry requires lithium will be much higher than current capacity.

I’m bullish on lithium and believe that we will see higher lithium prices in the future. For 2019, I expect prices to remain steady, while I believe the equities will make a rebound after their dismal performance in 2018.

Companies I own, looking to add to or take a position in: Neo Lithium (NLC:TSXV)

Iron Ore

From my perspective as a speculator, the narrative surrounding iron ore is concentrated on the premiums given to the high-grade concentrates – those which have over 62% iron content.  The beauty of the high-grade iron ore market is that it’s currently smaller than the low- grade portion and, given the increasingly stringent environmental regulations in all countries, most importantly China, I believe there is good reason to think that a hefty premium will be paid, moving forward, almost regardless of where the global economy is headed.

A great example of the high-grade market’s resiliency is its performance over the course of 2018, where both its premium and price have held fairly steady in the face of rapidly increasing interest rates and a U.S. and China trade war.

 

Overall, the global iron ore market isn’t short on iron ore, as there are many sources of low grade – 62% iron content, primarily in Brazil and Australia. In my opinion, the majority of the iron ore market will be susceptible to the ebb and flow of the global economy, and the direction with which the largest iron ore producers, Vale, want to push it.

I’m bullish on high-grade iron ore and am putting my cash in companies that are producers of the high-grade product or are developing high-grade iron ore projects toward production. In terms of price, I’m hard-pressed to pick a number. What I will say is that the high-grade product will continue to fetch a premium, which I believe will only increase with time.

The Labrador Trough is my focus, as not only is it located in a premier mining jurisdiction (Canada), but many of the companies with iron ore projects in that area are able to produce high-grade concentrates – 65% iron content.

 

Companies to watch – Altius Minerals (ALS:TSX), Champion Iron Ore (CIA:TSX), Labrador Iron Ore Royalty (LIF:TSX) and Alderon Iron Ore ( TSXV).

 

 

 

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, Altius Minerals, Aethon Minerals, LIORC, Neo Lithium, FPX Nickel, Kutcho Copper, Tinka Resources.  Of the companies mentioned in this article, Kutcho Copper is the only company with which I have a business relationship. Kuthco Copper is a sponsor of Junior Stock Review.

I continue to receive questions regarding the direction of the market, to which I can only reply “I don’t know.” I certainly have thoughts about the factors affecting metals markets, but am not under the illusion that I KNOW where the market is headed.

What I do know is that my money is best invested, in tranches, in the best companies in the sector. The best companies are led by the best management teams and, besides the pure exploration companies, are the owners of the highest quality projects.

By high quality, I’m referring to their economics. The best projects have robust economics at today’s metal prices.

It’s my opinion that when market sentiment does eventually change, the bull portion of the next cycle will be HUGE. Along with the supply shortages that I see in the fundamentals of most of the metals, the demand side of the equation looks particularly strong as, globally, the world begins to push toward electrification.

With the short-term direction of the market hard to gauge, one avenue for investors who want to give themselves the potential to profit in the relative immediate future, is to look at exploration companies with a program happening now or in the near future.

Like development companies, the best exploration companies are headed by the best management teams, who have chosen their exploration projects by a set of criteria which gives them the best possible chance at success.

I highly encourage investors to meet, or at the very least call, the people who are running the companies with which they are going to place their money. One of the questions that I think needs to be asked is how the company came to the conclusion that the project they are going to be exploring gives them the best chance at finding a mineral deposit of value.

One company which has been one of my favourites for some time now is Adventus (ADZN:TSXV). They are developing their Curipamba project in Ecuador.  While I’m looking forward to an updated PEA on Curipamba in the new year, it’s Adventus’ exploration potential with their Pijili and Santiago projects that has my full attention – and excitement – at the moment.

Let’s take a look!

 

 

Determining Potential Value in Exploration

Determining the upside potential or value of an exploration company isn’t easy, as much of the criteria is subjective in nature. Here are, in my opinion, a few of the most important points to ponder when it comes to evaluating investment in an exploration company:

#1 – Quality of the Management Team – Take a good look at the management team and any advisors or consultants associated with the company. Past success is a very good indicator of future potential. A good CEO should be able to clearly define the details, mainly the why and how of their upcoming exploration program.

#2 – Jurisdiction –Typically, the regions with the highest potential for uncovering a high value mineral deposit are those which have the most associated risk. It’s imperative to do your due diligence and understand where you are putting your money. Know your risk tolerance – buyer beware.

#3 – A Project’s Historical Work – Answer the following questions:

• In what stage of exploration is the project?
  • Has surface work been completed? Grab samples, soil samples, geophysics?
  • Is the project drill ready? How were the targets chosen?
• Historical work on the project?
  • Has the project already been explored by multiple companies?
  • If yes, what were their results? Why should you expect anything different?

NOTE: If a company is looking at exploring or developing a project that has already had a lot of work or exploration completed on it, the company needs to clearly outline how their exploration approach is different from the previous operators, and why it has a chance to be successful.

#4 – Cash – Cash is especially important in the current market. Does the company have enough money to execute on the exploration program that they have planned?

#5 – If unsuccessful, will I be able to sell? – This is an important question to answer and is partially overlapped with the previous point regarding cash. For me, I want to speculate in a company that will have cash remaining after their exploration program is complete in both positive and negative scenarios. An even better situation is to speculate in a company that will have cash remaining and an additional project(s) further down the development path, to which the market can assign value. In my opinion, you don’t want to be invested in a company that doesn’t have any money at this point in the market cycle, let alone own one with a recent unsuccessful exploration program.

 

Adventus’ Exploration Potential

Let’s use the criteria I just outlined to look at Adventus.

 

#1 – Quality of the Management Team – In my opinion, the Adventus team is as good as they come in the junior resource sector. The company is led by CEO, Christian Kargl-Simard, who has over 15 years of experience in both technical and finance roles in the mining industry. Additionally, and core to the team, is VP Corporate Development, Sam Leung. Leung has over 10 years of experience in the mining industry, having worked for Lundin Mining Corporation prior to joining Adventus. Finally, and key to Adventus’ exploration efforts in Ecuador, is VP Exploration Jason Dunning. Dunning has over 20 years experience in the mining industry and has worked in a similar role for Alamos Gold Inc., Selwyn Resources Ltd. and Yukon Zinc Corporation.

In addition to the main team, a major strength of the company, in my opinion, is in their association and close connection with Altius Minerals. For those who are unaware, Altius is both a diversified mining royalty company and mineral exploration project generator. Altius is headed by CEO, Brian Dalton, who is also Chairman of Adventus’ Board of Directors.

Also, Dr. Lawrence Winter, Altius’ VP Exploration, is an advisor to Adventus and, in my experience, has a top notch reputation throughout the resource sector.

People are key to the success of any company and, in the case of Adventus, I’m confident that this team will make 2019 a pivotal year in the company’s development.

 

#2 – Jurisdiction – Adventus’ project exploration and development focus is in Ecuador. For those who are unaware, Ecuador has a rocky past when it comes to mining investment. In my opinion, however, it’s changing in a direction that is attractive to mining investment and is a place where I have invested my cash.  Earlier this year, I wrote an article regarding Ecuador’s mining investment attractiveness; for those considering investment in Ecuador, I believe it’s a must-read.

 

#3 – Historical Work

Adventus is in, what I consider to be, a highly advantageous position when it comes to exploration and development in Ecuador; they are partnered with Salazar Resources, a junior resource company led by a senior Ecuadorian management team.

The Curipamba project was the first deal on which the two companies partnered, giving Adventus the opportunity to earn-in on 75% of the project, given development and payment requirements over a 5-year period.

Since this initial deal, Adventus and Salazar have expanded their relationship into an Ecuador-wide exploration Alliance.  The Alliance ownership is 80% Adventus and 20% Salazar, and allows the Alliance Board, which is made up of Sam Leung and Jason Dunning of Adventus, and Fredy Salazar, to pick and choose what they feel are the highest potential projects, and bring them into the Alliance for exploration and development.

 

Pijili Project

The first project to be brought into the Alliance is the Pijili project, which was granted to Salazar by the Republic of Ecuador.

The Pijili project consists of 3 concessions totalling 3,246 hectares, and is located in the Ecuadorian province of Azuay. Its potential has been revealed only through the legally permitted artisanal mining which is currently taking place – exploration through modern techniques has yet to take place.

Artisanal miners are mining precious metals bearing structures via several small open pits and underground tunnels. Also, Salazar notes that there is visible evidence of copper mineralization along the walls of the small open pits.

In their most recent news release, Adventus announced the commencement of an airborne MobileMT geological survey of the Pijili and Santiago projects. As VP of Exploration, Jason Dunning, cites in the news release,

“MobileMT will greatly enhance drill hole targeting by defining high-priority targets for follow-up in early 2019. This is the first time there will be a deep penetrating, uniform dataset for Pijilí and Santiago projects that will allow us to more accurately visualize the geological and structural framework in 3D to define potentially prospective host rocks for intrusion-related mineralization.”

Pijili presents a blank slate for exploration, one that I believe holds a ton of mineral potential.

 

 

Santiago Project

The second project brought into the Alliance is the Santiago project, which is roughly 110 km west of Lundin’s Fruta del Norte gold deposit.  Santiago consists of a single concession, which covers an area of 2,350 hectares.

Unlike Pijili, Santiago has seen the use of modern exploration techniques, which has exposed a series of vein occurrences. The occurrences have yielded good reconnaissance chip sampling results. Here are a few highlights, which can be found on Salazar’s website and SEDAR.

Source: Salazar Resources

 

 

Espanola Vein

2.0 m @ 28.1g/t Au and 231 g/t Ag

1.0 m @ 26.0 g/t Au and 242 g/t Ag

 

Quartz-Tourmaline Vein

1.9 m @1.19 g/t Au, 14.3 g/t Ag and 296 ppm Mo

3.3 m @ 0.59g/t Au, 36.6 g/t Ag and 390 ppm Mo

 

Ribs Zone and Ancha Vein

1 m @ 1.29 g/t Au and > 100 g/t Ag

1 m @1.65 g/t Au and > 100 g/t Ag

 

F.U. Structure

1.40 m @ 4.8 g/t Au and 378 g/t Ag

1.20 m @ 6.4 g/t Au and 136 g/t Ag

 

In addition to the chip samples, Santiago has seen historical drilling on the project by a previous operator, Newmont Mining Corporation.

The historical results are very intriguing as they exhibit characteristics of a Cu-Au porphyry system. I must, however, caution anyone from drawing any conclusions from these results as they are not confirmable – the drill core is unavailable.

Here are a few of the highlights, which can be found on SEDAR:

Hole FU 01 – Interval 0 to 323 m, 0.37 g/t Au, 0.23% Cu – 0.47% CuEq

Hole FU 02 – Interval 129 to 300 m, 0.5 g/t Au, 0.33% Cu – 0.66% CuEq

Hole FU 08 – Interval 0 to 300 m, 0.24 g/t Au, 0.11% Cu – 0.27% CuEq

 

As mentioned earlier, Adventus has announced an airborne MobileMT geological survey of Santiago, which will assist the exploration team in identifying the highest potential drill targets.

Personally, I will be watching for news from the airborne work and the targets that Adventus decides to pursue. In my opinion, there’s a lot of potential here.

 

 

#4 – Cash – In Adventus’ current corporate presentation, the company lists their cash position as $10 million, as of October 30th 2018. Given the current market dynamics, this is a great position to be in. Additionally, I might add, Adventus has enjoyed the uncanny ability to raise money through this bear market portion of the resource cycle, which I expect will continue in the future.

 

 

#5 – Downside Risk – Currently, as an investor of Adventus, I believe the biggest risk to my capital comes from the jurisdiction – Ecuador, for reasons I outlined in my article.  While there’s risk of failure in exploration at Pijili and Santiago, I don’t see the stock price taking a big hit for failure. Given the MCAP and the value I assign to Adventus’ assets, I see little to no value assigned to exploration upside at Pijili or Santiago.

Furthermore, given Adventus’ cash position, their access to funds and the assets they hold under management, I believe the risk to reward potential presented by the exploration is fantastic.

 

 

Concluding Remarks

The end of the year is upon us and with it typically comes a great opportunity to buy the best junior resource companies at a discount. While no one can predict the direction of a market with any consistency, buying the highest quality companies, with catalysts for share price appreciation, puts us, in my opinion, in the best possible position to profit.

To me, Adventus is one of those high quality companies that give the investor multiple avenues for success.  First, you have their flagship Curipamba project, which should have an updated PEA early in the new year. Second, you have their high potential exploration projects, Pijili and Santiago, whose upside potential, in my opinion, hasn’t been factored into Adventus’ MCAP as of yet. Third, you have Adventus’ portfolio of Irish projects, for which they are actively looking to find a JV partner. Finally, you have Adventus’ large stake in Canstar Resources, who will be beginning their inaugural exploration program on their Newfoundland based projects next year.

I’m looking forward to 2019!

 

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. All Adventus Zinc Corporation analytics were taken from their website and press release.  I have NO business relationship with Adventus Zinc Corporation.

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 2^nd 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 12^th 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 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 – 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 2^nd 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.

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.

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.

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 13^th 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

 

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.

 

 

As I have discussed numerous times, people are the most important part of a junior mining company. The reason for this, in my opinion, is because the vision and execution of that vision is what propels these junior mining companies forward. While great properties can be found accidentally, it does happen, most are sought out via a plan of action, which is specifically designed to identify the property or project with the highest potential, given the management teams criteria.

Today I have for you an example of how a bold vision, along with great execution is propelling a junior gold mining company into a mid tier gold producer on Canada’s east coast. This company is Anaconda Mining and the leader with the vision, is CEO Dustin Angelo.

In one of the first discussion I had with Angelo last summer, he explained that his goal for the company was to expand its production and eventually become a 100,000 of Au/year producer. He said Anaconda will achieve this by the developing its currently owned projects and will be looking to grow through the acquisition of gold projects on Canada’s east coast, which have an existing 43-101 resource estimate.

Angelo has an aggressive vision given the fact that their current production sits at roughly 15,000 oz of Au/year.  However, fortune favours the bold, and given Anaconda’s pedigree for success it comes as no surprise to me, that they have taken a couple giant steps towards the goal in the first month of 2018.

First, their Argyle Gold Deposit, which is a part of the Point Rousse Project near Baie Verte, Newfoundland announced its maiden resource, including some fantastic high grade drill results. Second this month, and the big game changer announcement for Anaconda, is positive Preliminary Economic Assessment (PEA) for its Goldboro Gold Project.

Let’s take a look!

 

 

Goldboro Gold Project

Anaconda’s Goldboro Gold Project is located on the north east coast of Nova Scotia, roughly 250 km northeast of Halifax. Goldboro consists of 37 mineral claims on 600 hectares and is accessible year- round via Highway 316 on a 2.5 km gravel road, with the other more obscure parts of the property having access via logging roads.

Anaconda acquired the Goldboro Gold Project from Orex Exploration early last year (2017), in all shares deal.  From many perspectives, this was a transformative acquisition for Anaconda, as it became their first property outside of Newfoundland and by far, their largest gold project, in terms of 43-101 resources.

The Goldboro Gold Project was acquired with a 43-101 complaint Measured and Indicated Resource of 2,556,000 tonnes at 5.48 g/t for 457,400 oz Au, and an Inferred Resource of 2,669,000 tonnes at 4.35 g/t for 372,000 oz Au.

Goldboro is entirely underlain by sedimentary rocks of the Goldenville Group, which are made up of greywacke, arenite and slate. Gold mineralization is found in quartz veins and within disseminated sulphides in the wall rock. Currently, the deposit known strike length is 1.6 km and can broken down into three main areas, the Boston-Richardson gold system and the East and West Goldbrook gold systems.

 

Positive PEA Results

The Goldboro Gold Project PEA results are in and in my opinion, are very positive. The PEA base case scenario, sees Goldboro being mined by both an open pit and underground workings, with on-site concentration through gravity and flotation circuits. Further leaching of the concentrate and recovery of the gold will be done at Anaconda’s fully permitted and operational Pine Cove Mill in Newfoundland.

To note, Anaconda’s PEA on Goldboro, does not include any of the 6000 metre drill program which they are currently completing. This PEA is truly a base case scenario,  which in my opinion, makes its results that much more impressive, as there is still a lot of upside potential given the high grade drill results which were released last summer.

Let’s take a look at the PEA base case scenario highlights:

 

Goldboro PEA Financial Figures

Long Term Gold Price Assumption for the PEA – $1550 CAD (roughly $1250 USD depending on the exchange rate)

After-Tax NPV @ 7% – $61 million CAD

IRR % – 26%

Pre-Production CAPEX Cost – $47 million CAD / additional $42 million CAD in years 1 and 2

Payback – 3.4 years

NOTE:  Anaconda has provided Net Present Value (NPV) – gold price sensitivity tables within the news release for those that would like to take closer look at how the project’s NPV changes with different gold prices and varying discount rates. I am not going to cover every scenario listed, but will instead talk about the extreme highs and lows of the project NPV.

 

Goldboro PEA Operating Figures

LOM average operating cash cost – $654 CAD/oz or $525 USD/oz

LOM average all-in sustaining cost – $797 CAD/oz or $640 USD/oz

Mining Rate – 600 tpd at an average open pit grade of 2.99 g/t and underground grade of 6.83 g/t. Translating into an average annual gold production of 41,770 ounces with up to 62,000 ounces in year 5.

LOM – 8.8 years, with 2.4 million tonnes of potential mill feed at an average grade of 5.13 g/t and recovery of 93.6% resulting in gold production of 375,900 ounces.

 

The strength of Goldboro’s operating figures are expressed in the NPV calculation of the project, as the base case scenario of $1550 CAD/oz is well above the average all-in sustaining cost of $797 CAD/oz.  Viewing Goldboro’s operating figures from the perspective of downside risk, I would say with respect to just the gold price, there is a lot of room for volatility. In reality, what would the world look like if gold were below $1000 CAD/oz? To be honest, I have no idea what that world looks, and believe it is unlikely we will see it.

Additionally, as I spoke about it in the introduction to the article, Angelo’s goal of reaching 100,000 oz of gold production per year is becoming more of a reality.  Anaconda’s current production, plus Goldboro’s projected average of 41,770 oz, put the Anaconda team more than half way to their aggressive goal!

 

 

NPV – Gold Price Scenario Comparison

Low Case – $1450 CAD/oz Gold

The low case scenario covered in the tables considers a gold price of $1450 CAD/oz, which is roughly $1160 USD/oz. The low case price is around $200 USD less than the current gold price. I am very bullish on gold and think that while there is always a possibility for it to fall to this level, I think given the current political and economic environment it is unlikely.

Never the less, at $1450/oz CAD and a 7% discount rate, the after-tax NPV for Goldboro is $44 million CAD. At the time of writing, Anaconda’s MCAP is roughly $46 million CAD, therefore at $1450/oz CAD or $1160/oz USD, Goldboro alone is estimated to be worth what the entire company is currently being valued at.

In my opinion, the infrastructure (Pine Cove Mill, Tailings Facility, Port, Roads, etc) and in-situ gold ounces of the the Point Rousse are easily worth the current MCAP, making the Goldboro Gold Project, at this point, icing on the cake, which has yet to be fully recognized.

 

 

High Case – $1700 CAD/oz Gold

The high case scenario covered in the table considers a gold price of $1700 CAD/oz, which is currently around $1360 USD/oz. Consider that the high case is around what the current gold price is sitting at, I believe this a conservative high price scenario.

The after-tax NPV at $1450 CAD/oz at a 7% discount rate is $86 million CAD, and gives us a clear picture what Goldboro is currently worth.  Given the fact that I see the gold price going much higher in the years ahead, I see tremendous value in the Goldboro Gold Project.

 

PUSH: Anaconda began a 6,000 metre drill program near the end of 2017. Watch for drill results in the coming weeks, as Anaconda completes both infill and step-out drilling on Goldboro, in an attempt to strength confidence in its inferred resource, and expand the overall size of the deposit.

 

 

The Point Rousse Project – Argyle Gold Deposit

On January 8^th, 2018 Anaconda announced its maiden resource estimate of its Argyle Gold Deposit, which is a part of the Point Rousse Project, near Baie Verte Newfoundland.  Using the image below for reference, Argyle sits approximately 4.5 km from the Pine Cove Mill and 1.5 km from the Stog’er Tight Mine.

 

 

 

The Argyle Gold Deposit is defined over a strike length of 600 metres and to a down-dip depth of 225 metres and is open in all directions. Using a 0.5 g/t Au cut-off, Argyle’s maiden resource estimate is the following: Indicated Resource – 543,000 tonnes @ 2.19 g/t for 38,300 oz of gold, Inferred Resource – 517,000 tonnes @ 1.82 g/t for 30.300 oz of gold.

These are very encouraging results, given Argyle’s close proximity to the Pine Cove Mill and the fact that the Scrape Trend, the green area in the image above, has produced yet another gold deposit. Further, Anaconda has identified 4 other exploration targets within the Scrape Trend, which are identified in the image above.

Further economic discoveries in this area would be highly advantageous for Anaconda, as their proximity to existing infrastructure should prove to their development to be much easier than a Greenfield discovery.

 

 

 

Concluding Remarks

Anaconda has gotten off to a running start in 2018 with positive PEA results from the Goldboro Gold Project and the announcement of the Argyle Gold Deposit’s maiden resource estimate. The results of Goldboro’s PEA give us a glimpse at how transformative this project will be for Anaconda’s future as it represents an almost tripling of Anaconda’s annual gold production.

As is laid out in the Goldboro PEA news release, there are risks associated with any developmental mining project, such as environmental concerns, resource estimate reliability or reductions in metal prices. However, Anaconda’s team has proven themselves competent in the economic development of mining projects and I believe is well suited to navigate the potential pitfalls that may come with the development of Goldboro, Stog’er Tight or Argyle.

Drill results from the 6,000 metre drill program at Goldboro are upcoming and should provide some PUSH to the share price, as I believe we will see some high grade gold assays, as Anaconda further defines the existing mineralization and begins to step-out and expand the deposit.

In conclusion, I believe Anaconda is undervalued given their assets, the Point Rousse Project and Goldboro Gold Project. With the release of further drill results from Goldboro and Anaconda’s development of the Project, I believe Anaconda is due for a re-rating. Help in this regard should come from institutional level organizations which I believe will have interest in this burgeoning 100,000 oz/year gold producer, which is located one of the best jurisdictions in the world, Canada.

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

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On December 20^th, the President of the United States, Mr. Donald Trump, signed Executive Order 13817, which calls for an end to the United States’ reliance on foreign imports of “critical” minerals. Before getting into the details of this Executive Order, I would like to discuss what an Executive Order is.

A U.S. Presidential Executive Order (EO) is legally binding and does not require Congressional approval to take effect, but has the same legal weight as laws passed by Congress.  Interestingly, EOs have occurred much more often than I would have expected, throughout the history of the United States. Examining Wikipedia’s EO page, you can see many Presidents have evoked this power during their terms, most notably Franklin D. Roosevelt who executed 3,522 EOs over the course of his presidency.

The basis of the EO is laid out in Section 1 of the report,

“The United States is heavily reliant on imports of certain mineral commodities that are vital to the Nation’s security and economic prosperity… An increase in private-sector domestic exploration, production, recycling, and reprocessing of critical minerals, and support for efforts to identify more commonly available technological alternatives to these minerals, will reduce our dependence on imports,…support job creation, improve our national security and balance of trade, and enhance the technological superiority and readiness of our Armed Forces, which are among the Nation’s most significant consumers of critical minerals.”

Interestingly, the United States Geological Survey (USGS) and the U.S. Department of the Interior released a report entitled, Mineral Commodity Summaries 2017, just a day before the EO was signed. I believe the report is important; the graph on page 6 is particularly revealing, as it lists all of the minerals and their net import reliance.

In Section 4 of the EO, it states that within 180 days of the date that Secretary of the Interior publishes a list of critical minerals, a report will be submitted to the President, outlining a strategy to reduce the dependence on imported minerals. I have paraphrased what the report will cover, please review the EO for further details:

• An assessment of the country’s ability to produce critical minerals through recycling.
• Plans for improving the topographical, geologic and geophysical mapping of the U.S. and make it available to the private sector for improved minerals exploration.
• Recommendations on how to streamline the permitting and review processes related to critical mineral resources. Therefore, enhancing access to critical mineral resources and increasing discovery, production and domestic refining of critical materials.

The economic and security merits of this EO can debated, however, putting it into the perspective of a resource investor, I think that this will translate into great things for mining companies with projects located in the U.S. that are exploring, developing or producing one of the deemed “critical” minerals.

I believe lithium will be a part of this “critical” minerals list, as the U.S. currently imports more than 50% of its lithium and looks to import far more, as Elon Musk’s Giga Factory, located in Nevada, is expected to have an annual capacity of 35 Gigawatt-hours, which is equivalent to the entire world’s current battery production.

This brings me to the subject of today’s article, an update on Cypress Development Corp.’s fall drill program on its contiguous Dean and Glory Lithium Projects in Clayton Valley, Nevada.

 

Cypress Development Corp. Update

In my last update, Cypress had just received their first round of drill results from its Dean Lithium Project.  Overall, the results were great and supported the case for the continuity of the deposit. In that update, I mentioned the potential for some PUSH in the share price based on the results from holes DCH-13 and DCH-14, which were upcoming. Based on the news released this morning (January 9^th), I was right; the stock is up on over a million shares of volume!

The latest results are highlighted by DCH-13’s intersection of 107 metres of 1134 ppm Li. This average grade is across the entire interval, which started just 5.5 metres below surface and reached a depth of 112.2 metres. The depth is in line with the results from the first round of drilling and DCH-13 remains open at depth.

Finally, DCH-14 intersected 76 metres of 733 ppm Li. While the grade is a little lower than the previous results, it is still very robust and is consistent with the other results in terms of being shallow, with mineralization being intersected just 2.9 metres from surface and stretching down to 78.6 metres.

Overall, these are terrific results and, as you can see in the drill hole map below, both holes extend the Dean Project mineralization to almost the full extent of the northeast portion of the property. With the results from Glory on the horizon, I think it is easy to see that this has all the makings of a very large deposit.

 

Dean & Glory Lithium Projects, Clayton Valley, Nevada Drill Hole Map

 

PUSH: Later this month, look for drill results from the Glory Lithium Project to show similar grade and shallow interval thickness.

 

Dean and Glory Lithium Project Metallurgy

In my introductory article for Cypress Development Corp., I commented that I felt the ability to economically extract the lithium from the claystones would be the largest hurdle for the company in the future.

Well, the company has taken some great strides toward proving out an economic process for extraction, as they have started some bench-scale test work on a sample of Dean Project sourced lithium claystone.

The results, thus far, have revealed moderate extractions of lithium in sulfuric acid solution rising to 74% in both sample types as temperature increases. Additionally, it should be noted that the extractions were achieved with relatively low additions of sulfuric acid for lithium-bearing claystone deposits, with rates of 140 kg to 170 kg per tonne of material. They will continue to optimize the extraction process by refining the leach conditions, checking for any mineralogical variability across the properties and determining methods of recovery of the lithium from the leach solutions.

 

Concluding Remarks

The latest drill results confirm the continuity of the deposit and its extension out to the northeast boundaries of the Dean Project. If Glory’s drill results follow in a similar fashion, Cypress could be in possession of what looks to be a very large deposit of lithium claystone.  As stated in the news release, Cypress will attempt to follow up the drill program with a resource estimate, giving us a clear path toward a Preliminary Economic Assessment (PEA).

Further, the progress made in the extraction of lithium from the Dean Project claystone is positive and, in my mind, a key point to the entire story. Further work to optimize the extraction process along with a resource estimate should provide the necessary inputs for what I think can be a very healthy PEA.

Putting it all together, Cypress Development Corp. is the 100% owner of what looks to be a large lithium claystone deposit in the heart of Nevada. Given the direction of the U.S. government and their push toward developing domestic sources of “critical” minerals, I believe the Dean and Glory Lithium Projects could become very valuable in the years ahead!

 

 

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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 Cypress Development Corporation shares. Cypress Development Corporation is a Sponsor of Junior Stock Review.