By The Gold Report
Source: Matt Geiger for The Gold Report 02/28/2017
Aside from the exuberance surrounding the tops of bull markets, the general investment public is uninterested and underinvested in natural resource equities, says Matt Geiger, founder of MJG Capital Limited Partners. Geiger views the general apathy toward natural resources as an opportunity, and profiles three companies that he believes are in position to break away from the herd.
For those underweight natural resources, it is not too late to adjust one’s portfolio—here is still plenty of money to be made in this current bull cycle. We are seeing signs that the next eight years will be starkly different from what we’ve seen over the past eight, which were the rising U.S. dollar, low interest rates, currency devaluations in the Western world, rising stock markets, falling commodity prices, low inflation, etc. Times are changing, and it would be prudent to shift exposure from the S&P 500 to natural resource equities.
The companies profiled below are on my radar as outstanding opportunities.
Viscount Mining Corp. (VML:TSX.V) is a prospect generator building a portfolio of high-quality precious metal properties within the United States. Viscount’s two core projects are Cherry Creek (East Central Nevada) and Silver Cliff (South Central Colorado).
With a current Enterprise Value of ~CA$22M, Viscount’s shares are a prudent (though not riskless) speculative bet on two highly prospective precious metal projects. Each of these projects has the potential to generate CA$100-250M in value for Viscount shareholders, but results must be delivered on both fronts over the upcoming 12 months.
In June 2016, the company closed an oversubscribed CA$2.3M financing at $0.50 with a full warrant at $0.70. The deal brought additional strategic investors onto the shareholder register, including Toronto-based Gravitas Securities, Sprott Asset Management and the CEOs of two North American silver producers.
The financing ensures that Viscount has a 9–12 month runway before requiring additional capital. This gives the company sufficient time to prove to the market that both Cherry Creek and Silver Cliff deserve substantial valuations. If Viscount is successful on either front, the company will be able to raise its next round of capital at a significantly higher valuation.
Cherry Creek has been the primary driver of Viscount’s share price over the past two years. In the latter part of 2014, Viscount announced a landmark earn-in agreement at Cherry Creek by partnering up with Summit Mining, a wholly owned subsidiary of global industry group Sumitomo. Sumitomo’s mining division is a massive operation, with a current market capitalization of ~US$8 billion. Its willingness to partner with a junior like Viscount demonstrates Sumitomo’s belief that Cherry Creek has the potential to host a multimillion-ounce precious metal deposit.
Sumitomo has the ability to earn a 75% ownership in the Cherry Creek project by spending a minimum of $10 million in direct exploration costs and delivering a full feasibility study, which can cost upwards of $25 to $40 million to complete. Once the feasibility study is delivered, Viscount retains the option to “put” its 25% ownership back to Sumitomo at a valuation determined by a mutually agreed upon third party appraisal firm.
Sumitomo completed a comprehensive surface exploration program in 2015, which was followed up by a midlevel drill campaign to test the continuity of underground silver bearing structures in both the Ticup and Doctor’s Cut zones. Assays from the program were announced in February 2016, and the results confirmed widespread silver mineralization.
Silver Cliff is the lesser known of the company’s two core properties. The project consists of over 100 lode claims and is located approximately 40 miles southwest of Pueblo, Colorado. From my experience, most Viscount shareholders are either unaware of Silver Cliff or ascribe very little value to the project. I view Silver Cliff as free upside on top the company’s current ~CA$22M Enterprise Value. But the market is likely to take notice of this project in 2017, due to a phase two drill program in Q2 and an updated prefeasibility study (PFS) in the second half of the year.
The remainder of Q1/17 should contain some quality news flow—with results from the final three holes from Silver Cliff and the long-awaited Flint Canyon assays both expected. For those willing to act decisively, Viscount shares below CA$0.60 is an excellent opportunity.
Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCQB) was one of our top performers last year. The company benefitted from a revival in the silver price twinned with renewed optimism for the Argentinean mining industry. Thanks to near term catalysts at both Chinchillas and Antofalla, Golden Arrow looks poised to carry this outperformance into 2017.
Golden Arrow’s flagship asset is the Chinchillas project located in northern Argentina. Since acquiring the project in 2011, the company has successfully discovered 250 million silver-equivalent ounces. This makes Chinchillas one of the largest silver development stories in the world.
In October 2015, Golden Arrow (which at the time had a sub-CA$10M market cap) signed a JV deal with precious metals heavyweight Silver Standard. Silver Standard’s rationale for doing the deal was simple—its Pirquitas Mill runs out of feed in 2017 and it sees an opportunity to use Chinchillas, located only 30km from the mill, to extend Pirquitas’ production life by multiple decades.
The JV agreement stipulated that Silver Standard would “spend a minimum of US$4 million for predevelopment activities” and “up to US$12.6 million based on the success of the predevelopment activities.” To form the joint venture, Silver Standard must pay Golden Arrow an amount equal to 25% of the Pirquitas Mine’s cash equivalent earnings starting October 2015 (minus certain expenditures for exploration, capital investment and closure costs). The 25% exercise payment must be sent to Golden Arrow by March 31, 2017.
Given the improvement in silver prices and Silver Standard’s aggressive expenditures on predevelopment activities, I am nearly certain that this deal will go ahead this quarter.
In October 2016, Golden Arrow announced a CA$2M work program at Antofalla including “remote sensing, IP/Resistivity geophysics, and geochemical sampling to delineate targets that will be tested with an estimated 3000-meter drill program.” I anticipate that first drill results from Antofalla will be announced in Q2 of this year. This prospect has a legitimate chance of becoming the Grosso Group’s fourth major mineral discovery in Argentina and could generate significant value beyond Chinchillas.
There are very few silver plays with such significant milestones expected over the coming months. Additionally, the nature of the Chinchillas deposit (bulk tonnage and relatively low-grade) gives Golden Arrow shareholders substantial leverage to further increases in the silver price. The next couple of quarters will be transformational for Golden Arrow, and investors interested in the story should get involved while the share price is below CA$1.
Excelsior Mining Corp. (MIN:TSX.V) was our featured investment in July 2016, and we’ve been shareholders for close to three years. The company’s Gunnison Project in Arizona remains our favorite base metal development play in North America, even after the 150% share price performance we’ve seen over the past six months.
Just within the past few months, there have been three key developments to the Excelsior story:
1) On Nov. 23, management announced a US$14M financing with private equity group Greenstone Resources. This gives the company a sizable working capital cushion, and there should be no more dilution until construction financing is raised in 2017.
2) In early December, the company released a feasibility study confirming Gunnison’s spectacular economics. There are very few projects anywhere in the world that can generate robust financial returns at current copper prices, and even fewer that can reach production within 24 months. Gunnison checks both of these boxes.
3) The EPA Issued the final necessary permits for competitor Taseko Mines to begin construction at its Florence ISR copper project in Arizona. The mine-permitting situation at the Florence Project is far more complex. Taseko receiving final permits just days before Christmas erases any credible worries regarding the remaining permits pending at Gunnison.
Excelsior has an excellent opportunity to commence production within the next 24 months with the following milestones expected:
- Underground Injection Control (UIC) draft permit issued by EPA by end Q2/17
- Aquifer Protection Permits (APP) draft permit issued by state by end Q2/17
- Final UIC and APP permits received by end Q3/17
- Construction financing raised at Gunnison by end Q3/17
- Construction commences at Gunnison by end Q3/17
- First copper production at Gunnison by end Q3/18
Excelsior remains my favorite copper play in North America with near-term production potential. If the company is able to execute on the above milestones, shares have the potential to double or even triple by the time construction commences at Gunnison in late 2017.
Matt Geiger is the general partner at MJG Capital, a limited partnership focused on long-term capital appreciation through investments in natural resources.
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1) Matt Geiger: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Viscount Mining, Golden Arrow Resources, Excelsior Mining. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by MJG Capital Limited Partners hold shares of the following companies mentioned in this article: Viscount Mining, Golden Arrow Resources, Excelsior Mining. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: Golden Arrow Resources. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) Patrice Fusillo assisted in compiling this article. Ms. Fusillo is an employee of Streetwise Reports. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She personally is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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