Drilling at Clayton Valley Lithium project, Nevada

1. Introduction

Despite negative sentiment in commodities and especially lithium of late, Cypress Development Corp. (CYP:TSX.V; CYDVF:OTCQB; C1Z1:FSE) keeps delivering the goods at its Clayton Valley Lithium project in Nevada at high speed. A Preliminary Economic Assessment (PEA) was announced at September 6, 2018, and the resulting economics were impressive. An after-tax NPV of US1.45 billion at an 8% discount rate and an after-tax IRR of 32.7% (LCE price of US$13,000/t) indicate the large size of Clayton Valley, making it a potential buyout or JV target for one of the major players like nearby Albemarle. This is exactly the kind of growth CEO Bill Willoughby had in mind when he signed up with Cypress Development, as he saw the potential for the large assets of Cypress one day gaining serious attention. Let’s have a look where Clayton Valley stands at the moment, after this PEA.

All presented tables are my own material, unless stated otherwise.
All pictures are company material, unless stated otherwise.
All currencies are in US Dollars, unless stated otherwise.

2. PEA

The new PEA wasn’t just an impressive study in itself, as it beat my expectations for NPV (my hypothetical NPV7.5 @US$12,000 would come in at US$966 million vs the PEA NPV8 of US$1,260 million; on the other hand the hypothetical IRR at 33.8% was slightly better vs the PEA IRR of 29%), Cypress Development also updated its resource statement. Notwithstanding the first NI-43-101 compliant resource estimate of 6.5Mt LCE that was already world class, the company now has almost 9Mt LCE (see green markers):

Again, as a continuous reminder, examples of world class sized LCE deposits in each category are brine projects like Cauchari/Olaroz (Orocobre 6.4Mt LCE, SQM/Lithium Americas 11.7Mt LCE), clay projects like Sonora or Thacker Pass (Bacanora: 7.2Mt LCE/Lithium Americas: 8.3Mt) or hard rock projects like Whabouchi (Nemaska: 4.06 Mt LCE). Although Cypress doesn’t have reserves yet, for size it is the largest clay-hosted deposit in the Americas at the moment.

For the PEA the company has elected to use only the high-grade portion to the east of the deposit (see red marker), with an average grade of plant feed ore of 1012 ppm Li. This is a viable option as the deposit is so big that high grading it results in a life of mine of 40 years at an annual production of 24,000t LCE anyway.

In order to discuss the PEA metrics a bit further, it is always useful to see those metrics lining up with the data of other peer projects. In this case there are three clay-hosted projects (although Rhyolite Ridge of Global Geoscience has low clay content), of which Bacanora’s Sonora is hectorite clay, which means it can’t be leached by acid at all, and needs very expensive roasting. Thacker Pass of Lithium Americas seems to have non hectorite bearing host rock (smectite and Illite clay) but sample material is called hectorite by metallurgical description, nevertheless it still can use acid leaching, and Rhyolite Ridge of Global Geoscience can use acid leaching as well. This last project is the only one without a completed economic study, but some work has been done already for a small (end target is a 30y LOM project) PFS study, and Australian companies can report these findings easier than Canadian ones, so some metrics are already available for the audience. On a side note: Global Geoscience has hired Amec Foster Wheeler for its upcoming PFS, and I consider Amec the single best engineering firm out there by a country mile, so in my view this study could become a future reference for likewise projects. Here we go:

*estimates by Global Geoscience

I have normalized the post-tax NPV and IRR for a lithium carbonate equivalent (LCE) price of $10,500/t, which I deem a reasonable and fairly conservative lithium product price. As we can see in the next chart, these prices have been much higher for the last two years or so, but the long-term contract prices are hovering around $13,000/t now, and as far as I am concerned this is the market where serious producers are doing business, and not the much smaller spot market, where prices are much more volatile:

Source: Presentation Lithium Americas

I can see this bottoming easily at $10,000–11,000/t so $10,500/t seems like a realistic midpoint to me. The very bearish Morgan Stanley report was timed to perfection in itself, but I don’t see, for example, SQM bringing online the projected 500kt LCE anytime soon, resulting in the dreaded oversupply from the end of 2019 onwards, as the company already has big issues expanding modestly as it is. It might be the case that the trade war between the U.S. and China is putting the brakes on the world economy, and in turn this could have an effect on electric vehicle (EV) demand, which means less demand for batteries and thus lithium, but as I don’t have a good grasp on the machinations of the lithium spot market, I don’t really have a good explanation on why lithium product prices dropped off so sharply over there the last six months or so. Maybe the negative commodity sentiment influenced small traders working with the most risky metals the most. Enough about the lithium price, let’s continue with the PEA.

When we look at the peer comparison, it will be clear that Thacker Pass comes closest to Clayton Valley, as both projects use acid tank leaching, and the ore is claystone hosted, although the ore from Thacker Pass seems to have slightly hectorite characteristics as mentioned. To what extent isn’t really clear, but what is clear is that opex and the capex/tpd ratio of Thacker Pass are significantly influenced by this, as both are much higher than the numbers for Clayton Valley. One of the reasons is that Thacker Pass needs about triple the amount of acid per tonne ore. Acid consumption is by far the biggest opex item for Cypress, as can be seen here:

And the acid plant isn’t cheap either:

When we look at the PFS of Thacker Pass, we see relatively equally high costs for utilities and reagents, and raw materials for the acid plant accounted for this: reagents are $18.14/t, raw materials for the acid plant $22.18/t, mining costs are $7/t, so this adds up pretty quickly, resulting in much higher opex compared to Clayton Valley. On a side note, a further item in the Thacker Pass PFS that I found to be interesting was the dewatering pump capacity with a peak of 340m3/hour, which is substantial. This might even influence the processing of mined claystone, as wet ore behaves differently.

The absence of hectorite ore at Clayton Valley is another reason that CEO Willoughby was excited to join Cypress. As he mentioned to me: “Early on, I saw leach tests from surface samples on Cypress’ property which showed the lithium was soluble in water and dilute acid. This was a good indication the lithium wasn’t present in hectorite.” I asked him if he didn’t think 10% contingency on opex was on the low side, and acid consumption could increase after further testing, and the answer was he even thinks they can go from 125kg acid/t ore to 100kg acid/t ore, which would shave off another estimated $1.5–2/t of opex, increasing after-tax IRR with an estimated 2–3% and the after-tax NPV8 with an estimated $40–60 million.

In case you wondered what the item Indirect Capital Costs stands for, as it isn’t really the margin for error, have a look at the indirect costs of Thacker Pass:

As Thacker Pass has more substantial stripping costs because of a higher strip ratio, Cypress has almost no stripping/pre-stripping as mineralization frequently begins at surface at Clayton Valley.

As no blasting or drilling is required, mining is very simple. Engineering firm GRE evaluated four options for mine equipment and mill feed transportation, and selected an in-pit feeder-breaker with slurry pumping for the base case.

Feeder breaker; Source

The only major piece of mobile equipment is a front-end loader to feed the in-pit feeder-breaker:

Front end loader; Source

Such earth-moving monsters are capable of scooping up 40-70t in one move, meaning one front-end loader could feed the processing plant at nameplate capacity. Waste mining is minimal, amounting to a total of 6Mt over the 40 year mine life, resulting in the very low strip ratio of 0.025:1.

The plant design of Clayton Valley includes agitated tank leaching, and a multi-stage thermal-mechanical evaporation system for concentrating leach solution. Slurried feed is transported to the mill where lithium extraction is achieved through leaching at elevated temperatures with dilute sulfuric acid. The sulfuric acid concentration is targeted at 5%, with the addition of concentrated acid delivered from the on-site 2,000 tpd acid plant. Steam from this acid plant will be used for heating in the leaching and evaporation stages of processing.

The retention time of pregnant solution in the leach circuit is estimated at 4 to 6 hours with acid consumption estimated at 125 kg per tonne of feed as mentioned. This is an advantage compared to the cheaper vat leach method which Global Geoscience intends to use, which takes much more time (days) and would need a much bigger plant for the same production. Net recovery of lithium throughout processing is estimated at 81.5%. Tailings are aimed to be dry stacked, which will improve permitting procedures.

Process water for the operation will be obtained by recycling barren leach solution after treating in a reverse osmosis plant, and by introducing fresh make-up water, estimated at 345 m3/hour and delivered via pipeline from a well field located off-site. Reducing fresh water needs as much as possible is also an advantage in Nevada, which is known for its water rights that can be owned by private individuals, and complicated permitting around using these water rights.

3. Next steps

The biggest issue for Cypress Development is the viability of the recovery method. Preliminary test results continue to be positive, according to management, but the company has to prove its method at a commercial scale at one point. When discussing this, and the potential need for a pilot plant, with CEO Willoughby, he answered that a pilot plant wasn’t needed to complete a PFS, this was only needed for a FS. The company is already looking at acquiring an existing pilot plant for this purpose. At the same time, he indicated that he wasn’t convinced Cypress would have to get a PFS first before going towards a FS.

In his view the recently completed PEA was already at the level of a PFS with respect to cost estimates; only some more drilling and metallurgical work would be needed for a PFS. He would rather see that Cypress would spend money on a FS in that case. Such an advanced study would be scheduled for completion by next summer by his estimates. As the treasury contains just C$500k at the moment, the company needs to raise sufficient cash in order to complete permitting and the FS. This means it has enough money to do additional met work as recommended by GRE. Cypress intends to proceed with this recommendation as soon as possible, beginning with the collection of representative sample material.

Share price 1 year time frame; source tmxmoney.com

The release of the PEA caused an unexpectedly fierce liquidity event, causing the share price to drop over 25% in a few days. Unexpected, as the PEA economics are robust, and the share price had held up strongly compared to almost all lithium competitors, who already shed 25–60% in the last few months, after overall- and lithium sentiment turned negative. It is possible that investors expected or hoped for a lower capex, as it would be a hugely dilutive event to finance capex by itself, at such a tiny market cap of C$19.8 million. But in my view a US$482 million capex is below average for the usual lithium project, as these are big ventures, and at some point Nemaska and Orocobre were tiny too.

A PEA is still early stage as a development stage, so it usually gets discounted quite a bit until it advances further, depending on the various parameters and economics of the project. With Cypress, the recovery method needs proof so I can imagine the markets are still willing to assign an increased discount to this as long as the method hasn’t been proven on a commercial scale. When Cypress manages to achieve success in this regard, the re-rating should be pretty significant, as the conservative NPV8 @US$10,500/t Li is about 62 times the current market cap.

4. Conclusion

The resource update for Clayton Valley ranks this project as the largest lithium clay deposit in the Americas, and the accompanying PEA indicated robust economics, holding up well at 20% lower lithium product prices. This comes in handy, as lithium prices are having a hard time these days. After this PEA, Cypress Development will probably start to appear on the radar of most major lithium producers/processors, and management already indicated it received interest from several of those parties to talk business. An important part of convincing others is proving up recovery at a commercial scale, and it is up to CEO Willoughby, who has a PhD in mining engineering and metallurgy, to lead this effort. Management is deciding now whether it wants to proceed with a PFS or a FS, which will determine the financing needs and timeline. I am curious what its next steps will be, as an interested shareholder.

 
Lithium bearing claystones at Glory project; Clayton Valley, Nevada

The Critical Investor is a newsletter and comprehensive junior mining platform, providing analysis, blog and newsfeed and all sorts of information about junior mining. The editor is an avid and critical junior mining stock investor from The Netherlands, with an MSc background in construction/project management. Number cruncher at project economics, looking for high quality companies, mostly growth/turnaround/catalyst-driven to avoid too much dependence/influence of long-term commodity pricing/market sentiments, and often looking for long-term deep value. Getting burned in the past himself at junior mining investments by following overly positive sources that more often than not avoided to mention (hidden) risks or critical flaws, The Critical Investor learned his lesson well, and goes a few steps further ever since, providing a fresh, more in-depth, and critical vision on things, hence the name.

I hope you will find this article interesting and useful, and will have further interest in my upcoming articles on mining. To never miss a thing, please subscribe to my free newsletter at http://www.criticalinvestor.eu/, in order to get an email notice of my new articles soon after they are published.

Disclaimer:
The author is not a registered investment advisor, and has a long position in this stock. Cypress Development is a sponsoring company. All facts are to be checked by the reader. For more information go to Cypress Development Corp. and read the company’s profile and official documents on Sedar, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.

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In a Sept. 11 research note, analyst Eric Zaunscherb with Canaccord Genuity reported that eCobalt Solutions Inc. (ECS:TSX; ECSIF:OTCQX; ECO:FSE) successfully finished pilot-scale metallurgical testing for its Idaho cobalt project and intends to release the optimized feasibility study results by the end of this month. “These results could be an important milestone for eCobalt and a catalyst for its share price,” he added.

After eCobalt releases the findings, Zaunscherb explained, it will ship samples from the pilot plant to prospects for potential offtake agreements, finalize terms and agreements with them as part of a project financing package and come to a production decision.

The analyst noted that eCobalt’s stock price has “suffered since the beginning of the year.” He attributed this in part to depressed “sentiment around the battery materials theme” and delays in the feasibility study process. The latter were caused by the decision of eCobalt’s management team during the study to change the type of cobalt to be produced at Idaho, to a low-arsenic cobalt copper concentrate instead of cobalt sulphate heptahydrate.

Zaunscherb purported that the battery materials space should gain favor toward year-end, when “electric vehicle sales penetration ticks up and newly constructed battery manufacturing capacity comes online, complete with start-up restocking.”

Canaccord Genuity maintains its Speculative Buy rating and CA$0.90 per share target price on eCobalt Solutions, whose stock is trading now at around CA$0.81 per share.

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Disclosure:
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Disclosures from Canaccord Genuity, eCobalt Solutions Inc., Flash Update, September 11, 2018

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eCobalt Solutions Inc. currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During this period, Canaccord Genuity or its affiliated companies provided investment banking services to eCobalt Solutions Inc.

In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services from eCobalt Solutions Inc.

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It was a wonderful day and perfect weather for the ferry ride from Sidney, Nova Scotia, to Channel-Port aux Basques, Newfoundland.

One thing I noticed strange on my first several days of travel in Newfoundland were all the high voltage electrical transmission lines. They seemed numerous and going everywhere, although nothing is really there. For the most part Newfoundland is barren land with only around 550,000 people across the whole province. And Newfoundland/Labrador is larger than New Brunswick, Nova Scotia, and Prince Edward Island combined, although you could eliminate half of it (Labrador) as there is little development other than resources. About 95% of the people live on Newfoundland, and the island has about 25% of the population of the other three eastern provinces I’ve mentioned.

As you know I have a keen interest in energy and alternate energy. I could not help but wonder, where is all this power going in a province where growth is stagnant and the population has been stuck in the 500-550,000 range for decades.

The most positive outcome is this new high voltage transmission line, which runs through the northern part of Zonte Metals Inc.’s (ZON:TSX.V)’s Cross Hills project. This picture is not from Zonte’s property but elsewhere, but it is the same transmission line.

Newfoundland’s Electrical Boondoggle

Electricity prices are a hot topic in Ontario, but Ontario folk may take some comfort that Newfoundland will soon join them and probably see rates way higher. Ontario has the third highest rates in Canada, and Newfoundland is about $0.01 per kilowatt hour (kWh) lower.

After several days speaking with locals and seeing local news I learned all the transmission lines were, in part, about a project called Muskrat Falls. About 3,200 transmission towers were built because the project is far away from where any power is required. In fact, all this power is not required in Newfoundland either.

In Newfoundland, Hydro is a provincial crown corporation under the umbrella of a company called Nalcor Energy, and is the primary generator of electricity in Newfoundland and Labrador, with an installed generating capacity of 1,637 megawatts (MW). In 2008, more than 80% of this energy was clean, hydroelectric generation. Hydro’s power-generating assets include nine hydroelectric plants, one oil-fired plant, four gas turbines, 25 diesel plants, and thousands of kilometers of transmission and distribution lines.

The diesel plants are small and for remote areas. Why would a province with no growth need a huge new 3,000 MW hydro-generator, almost twice current capacity? Just considering the first phase, at 824 MW, is about a 50% increase over current capacity. The answer: it is not needed.

Muskrat Falls is probably a bigger boondoggle than the likes we have witnessed in Ontario. Phase one at Muskrat Falls includes construction of an 824 MW hydroelectric-generating facility, over 1,600 km of transmission lines across the province, and the maritime link between Newfoundland and Nova Scotia.

The original Muskrat Falls deal was designed to supply the island with low-cost hydro power to replace power generated at the oil-fired Holyrood power station, and to sell Emera 20% of the output for use by its Nova Scotia Power subsidiary. The balance was going to be sold to “lucrative U.S. power markets.” There is no doubt the original projected cost, between $5 and $6 billion, was low-balled because of either engineering incompetence or political posturing—or some of both. The project got the go-ahead during the 2011 election campaign when Stephen Harper, desperate to win seats in the province, promised federal loan guarantees to get the dam and its lengthy transmission system from Labrador to the island, and on to Nova Scotia, built, despite an unconvincing economic case.

The latest estimate for the project completion is $12.7 billion, more than double the original. There are estimates between $0.22–0.24 per kWh for the cost of generation. This is about double current rates in Newfoundland and no doubt makes this the most expensive large electrical generation in Canada.

Muskrat Falls has actually become cheap power for Nova Scotia at Newfoundland’s expense. What a win for Nova Scotia. Think of it. Newfoundland said, “If you (Nova Scotia) connect to our grid, we will give you one-third of Muskrat Falls power free for 35 years.” Since there is no market for the rest of Muskrat Falls power, Nova Scotia is going to get another third at market prices of $0.03–0.04 per kWh. In essence, Nova Scotia will be getting two-thirds of Muskrat Falls power for a few pennies or less/kWh, while the cost to Newfoundland will be $0.22–0.24 per kWh. What a boondoggle.

This is very sad for a province already saddled with huge taxes. Provincial fuel taxes are more than double almost anywhere else in Canada. Practically everything costs 10% to 25% more because it has to be shipped to Newfoundland by sea, since not much is produced there. However, the beautiful scenery and laid-back way of life is free.

I love Newfoundland, and the people there are second to none. Mining discoveries and new mines would be very well received as the jobs are badly needed and the extra revenues to government coffers from the additional tax base are badly needed also.

That said, let’s get into the mining mania that is gripping the province. The best explanation is the graphic.

The circular structure outlined by the air magnetic in red is the intrusive outlining epithermal vein activity. Practically all the ground is now staked around this, and on the epithermal trend that continues to the northeast indicated by the red arrow, toward Zonte’s Wings project, and the arrow to the southwest, toward Marathon’s Valentine project.

I found most of the projects are early stage and private. There is a good private project that will soon be vended into a public company, and I believe that will be a good one to jump on. It is advanced and drill-ready. As soon as news is out on that acquisition I will send out an alert. RJK Explorations acquired it.

Sokoman Iron Corp. (SIC:TSX.V): Recent price $0.17; sold at average of $0.38

I was looking forward to visit the Sokoman project to gain a better understanding. However, when I spoke with the CEO, he came across quite unusual. He was not interested in me visiting the project, I was told there was nothing going on until September, there was nothing to see and there was no outcrops. The company’s presentation and news releases say otherwise. I spoke with him a day after I commented about the misleading news release and I would be surprised if SIC saw that; perhaps they did. A site visit would be an opportunity for a better understanding of the project—who turns down free newsletter coverage?

Something smells here, and it is not good. Misleading drill news that hyped a 11.9-meter intersect when it was only 1.35 meters. There has been trenching, 111 drill holes and no resource yet. I think the drill hit was simple luck. For now I will still follow it and let the chart and/or the next drill results make my decision on what to do next. We took profits out twice at higher prices, and sold the remaining position in the high $0.20s, so I will use an average of $0.38 as the selling price.

This is how to calculate the grades outside the 1.35-meter high-grade intersect. First, find the total grams over the long intersect: 44.96 X 11.90 = 535.02 g/t. Next the high-grade portion: 385.85 X 1.35 = 520.90 g/t. Next, subtract the two-gram numbers and average over the outside portion of the high-grade intersect which is 11.90 – 1.35 = 10.55 meters. 535.02 – 520.90 = 14.12 g/t, so 14.12 g/t / 10.55 M = 1.34 g/t over 10.55 meters.

This 1.34 g/t would not be economic in an underground mining scenario, and that is what we are looking at here, because it is under a lake. Really, there is no long intersect. The real result is 385.85 g/t over 1.35 meters, and this is high grade but a narrow intersect and most likely a lucky hit on that vein.

In my update to sell a couple weeks back, I noted the stock will probably move down and continue to fill the gap from $0.24 to $0.42. It actually went lower and shows signs that it might be consolidating between $0.15 and $0.20. I will wait for next drill results before I decided whether to jump back in or not.

RJK Explorations Ltd. (RJX.A:TSX.V): Recent price $0.17; Opinion—sold at $0.19, buy back under $0.15

RJK announced its acquisition of its MGD project just as I was leaving for Newfoundland, and I did not have a chance to arrange a visit. There was probably nothing going on anyway, so soon after acquiring. I have a feeling I will be back to Newfoundland soon so will try a site visit then. This map gives a good idea of where RJK’s project is and location relative to SIC. In that regard the location is awesome.

The MGD project is located within a northeast-trending belt of Silurian volcanic, volcaniclastic and sediment rocks. The project has considerable coverage of the large regional fault structure located in the area. The MGD project consists of approximately 12,896 acres (5,200 hectares).

RJK paid quite a bit for this, and a 20-million share financing is quite dilutive. The good news is that Sprott and Palisades came into financing. The stock jumped higher and quickly, so often you see a correction back to the gap, weakness down to around $0.11 was no surprise.

What really interests me about RJK is its second acquisition, Rolling Pond, announced last week. The Rolling Pond property consists of 3,550 hectares of highly prospective ground containing a large epithermal system within a structural corridor that extends for a distance of eight kilometers. Historical exploration work performed by Altius Minerals Corp. (ALS:TSX.V) in 1998 included prospecting, mapping, ground-induced polarization/resistivity and high-resolution airborne magnetometer surveying. The results of this work successfully delineated a high-level sinter zone over a strike length of 1,100 meters, with an approximate width of 50–60 meters along a small portion of the structural corridor. A follow-up, five-hole program not only confirmed the presence of the epithermal system at depth, but also successfully identified the presence of the boiling zone, as defined by the presence of bladed calcite and lattice textures.

It was also noted that gold and base metal values increased at depth in the system and additional deeper drilling was recommended. Boiling zones are of significant importance in epithermal systems as they indicate the proximal locality for precipitation of gold-bearing fluids. RJK has applied for exploration and drilling permits with the intention of using the historical high-resolution airborne magnetics and induced polarization/resistivity surveys, along with the drilling data from historical drilling, to test the system below the boiling zone. A 3-D analysis of the historical drill data is currently in progress and field crews have been mobilized to site to begin preparatory work.

RJK can earn a 100% interest in the Rolling Pond property by paying $50,000 cash and 350,000 shares on signing, and $50,000 and 350,000 shares on the first, second and third anniversaries of the agreement. The property is subject to a 2% net smelter return royalty, with the ability to buy back 1% for $1 million at any time.

I went over this property with Dean Fraser and like the potential much more than what they have around Sokoman, mainly because Rolling Pond is more advanced and we will soon see some drilling. I marked the Rolling Pond property on the regional map I used preceeding Sokoman.

We did well selling around $0.20 and the stock came back down and started filling the gap between $0.08 and $0.15. It has been trading thin since that bottom at $0.11. I would try bids under $0.15 to buy back positions.

The issue with all these projects around Sokoman is that they are epithermal vein systems and one has to do a lot of drilling to find the veins and see if they carry any good grades. Once orientation, strike and depth of the veins are determined, then infill drilling has to be done to prove resources. Often these veins have to be drilled on 250-foot centers. You’re looking at a lot of drilling, and if it is down deeper, even more costly. These can be very worthwhile if you have high grades, but as in the case of Sokoman, there’s 111 drill holes and no resource yet.

Zonte is exploring a much different target at Cross Hills, a bulk tonnage iron-oxide copper gold (IOGC) system. White Metal Resources Corp. (WHM:TSX.V) is also exploring a different type of system.

While Sokoman’s news brought a lot of attention to Newfoundland, perhaps the best is yet to come. Wait until Zonte makes a discovery at Cross Hills this year and the staking rush will go into an even higher gear.

Zonte Metals Inc. (ZON:TSX.V): Recent price $0.30; opinion—strong buy

I met with Terry Christopher and Dean Fraser the night before we were going to head out to the project. Both are a wealth of knowledge. Terry has two discoveries under his belt and is a native of eastern Canada, and Dean, a native of Newfoundland, has also participated in large discoveries. I met Dean many years ago when he worked with another company and he is an intense, hard-working geologist and an expert geophysicist. Both Terry and Dean have a hard work ethic and work well together. Earlier in the summer, Bill Carson, a prospector, also aided in the systematic exploration on parts of the property.

A key to understanding these IOGC systems is the magnetite, which is really the iron oxide that carries the other metals like copper, gold and silver. It is very easy to identify with a magnet and when I tested this sample the magnetic pull was strong. You can also do this in the field and keep in mind that the iron adds value to an IOGC system, but usually the copper is the key metal.

I spent the next day investigating Zonte’s Cross Hills project and my timing was very fortunate. Christopher and his team have been working relentlessly and meticulously since the beginning of January overturning every rock and running high resolution ground magnetic surveys on this large project. It has paid off big time as the previous press releases have identified numerous large targets, many of which Zonte has yet to field check. Others, such as Dunns Mountain and K6, have delivered copper coincident with the large magnetic targets. Since early July the company has expanded the land position significantly to 123.25 square km and has submitted numerous samples to the assay labs.

It appears, through its meticulous process culminating in these past several weeks, Zonte has figured out the controls of the system, orientation of known anomalies and how they tie together in an IOGC system. With this knowledge the company has been revisiting anomalies. There is very little experience in Canada on these systems, but Zonte does have some outside consultation. Previously it found little copper outcropping because surface rock was very weathered. Unraveling the alteration pattern, geologic setting and system controls at Cross Hills, the company discovered where and what rock types and surface features to look for. At one target I visited, I was able to observe surface copper showings throughout the anomaly and it appears the company has not sampled many of them, which is upcoming when assays are received.

The pic below is an example of a magnetite vein on top of the Dunns Mountain anomaly. The color does not show well in this picture, but the vein is about as wide as the pen on each side—what looks blue-ish is actually green, indicating copper.

With IOGC systems you have the main massive/breccia ore body down deep with mineral pulses creating veins above it, and above the veins the disseminated mineralization. It is very rare to find the veining exposed as indicated above—most cases they are buried and you find the disseminated at best. Most anomalies in these systems are often blind or drilled in very little more than alteration. At the Cross Hills project copper mineralization is found at surface and at Dunns Mountain as veining throughout the target area.

It pays to do all the long, detailed and hard work, and hats off to the Zonte team in doing this, and putting this puzzle together.

As I mentioned, the iron oxide is key, and this is what Zonte’s magnetic surveys have been identifying. This is the Dunns target, and it shows the magnetite as very intense just 50 to 100 meters below surface. When you have magnetite veins running copper above this, there is little doubt the magnetic anomaly carries stronger copper values. The only question is what grades and what lengths of mineralization will be revealed by the drills.

Zonte is planning more sampling, tightening up the magnetic surveys and might run IP surveys to help pin point drill targets.

This picture is from Zonte, and shows Dunns Mountain, K6, Nine Mile and Carols Hat anomaly positions. It points out how vast the project is and that it might contain more than one deposit.

After seeing this all for myself, and going over all the geology and data with Terry Christopher, I am convinced this will be a major discovery.

Here is a little background on IOGC and what public info we know on Cross Hills so far. Most often IOGC systems are large, hosting billions of pounds of copper and millions of ounces of gold with iron. Zonte’s magnetic anomalies show up very large and strong. Typically you will see long intersects (hundreds of meters) of mineralization in these systems, and they are large open-pit operations. Grades can vary.

A description at Investing News on copper: “IOCG ore bodies range from around 10 million tonnes of contained ore, to 4,000 million tonnes or more, and have a grade of between 0.2 percent to 5 percent copper, with gold contents ranging from 0.1 to 3+ grams per tonne. The tremendous size, relatively simple metallurgy and relatively high grade IOCG deposits can produce extremely profitable mines.” And that is why Zonte is focused on Cross Hills.

The advantages Zonte has are location and infrastructure. There is paved road access to the project and a major high-voltage transmission line was put through the northern area of the project last year. Access to an Atlantic seaport is only about one hour away. This means a lower grade project could be economic. I am not saying this will be lower grade. At this point we don’t know and don’t have a deposit yet.

Zonte released news Monday. It increased the land position significantly from 81.75 to 123.35 square kilometers after identifying controls of the mineralization. Christopher commented that the company will advance drill targets with about a month of additional work. Therefore it sounds like it will be drill-ready later in October.

I often commented that the stock would fill the gap between $0.25 to $0.32 or so and has now done that. It may continue to trade there longer, just no way to be certain. On the topic of gaps, we also have a breakaway gap from $0.18 to $0.25. They are identified with higher volume and we can see that higher volume. The good news is these breakaway gaps often repeat themselves a few times. For example, with Garibaldi (GGI:TSX.V), last year, it had four gaps. The first from around $0.25 to $0.60, the second gap $0.80 to $1.50, the third at $2.00 to $3.60 and a fourthfrom $3.75 to $4.75.

White Metals Resources Corp. (WHM:TSX.V): Recent price $0.13

In some cases timing did not work out well. In August many were on holidays and with the bear market on the TSX.V, many juniors have little funds to do any work. I headed up the peninsula to St. Anthony, probably the most beautiful part of Newfoundland. I believe I found WHM’s property but there was a very thick fog that day, even though the forecast was sunshine. We also planned to go whale-watching and the fog usually lifts by the afternoon, but not that day. I waited to 5 p.m. and the thick blanket of fog persisted, but when leaving, just 5 to 10 km down the highway, there was no fog. Unbelievable.

But it was all fog, and that dam foghorn went off about every three minutes. It was no use taking any pictures so I used this pic from WHM’s presentation. WHM’s Gunners Cove project looks quite interesting and I have known its geo, Dr. Scott Jobin Bevans, for many years. White Metals announced a financing Sept. 5 and has begun an important channel sampling program on seven priority targets at its Gunners Cove gold property. To date, 120 channel samples have been submitted to Eastern Analytical Laboratories in Springdale, Newfoundland, and a further 300 samples are expected to be taken in the coming weeks.

The Gunners Cove gold project is a new unexplored gold system that has now been traced intermittently for 18 kilometers along strike (north-south) and from 1.3 to 3 kilometers in width (east-west). It is quite a large project at 59,402 hectares and has good road access.

It has some similarity to Zonte’s Wing’s project because it is sedimentary-based and in WHM’s case gold is hosted in black shales. This is much different than the Sokoman area, focused on veins. To date, 15 new areas of gold mineralization have been discovered, of which seven have been identified as high-priority targets. The seven priority targets that will be channel sampled include the Thompson zone, the East and West Gunners pit (discovery pit) and the Hidden pit, which is also located in the Gunners pit area. Also included in the program are the Stephens zone, the Totem zone and the Bazooka zone. Grab samples taken across strike at the Bazooka zone area yielded anomalous gold concentrations over 1,000 meters across strike.

Technical personnel for the company have designed the channel sampling program as the best way to properly evaluate the gold tenure and continuity on the various gold zones, as well as assist in the delineation of targets for a future diamond drilling program.

Since the initial gold discovery in September 2017, the company has had excellent success not only in making new discoveries, but extending the area of gold mineralization substantially at the Gunners Cove gold project.

Anomalous and moderate-grade gold assays are associated with 2–10% pyrite nodules, discontinuous stringers, fragments and cubic crystals. The gold zones are hosted in a geological distinctive unit of chaotic, multilithic breccia with a predominately graphitic and mudstone matrix. This unit is associated with regional thrust faulting and referred to as a melange. Anomalous silver, copper and molybdenum are also associated with the gold mineralization.

I am going to look at this in some more detail and wait for channel sample results before deciding on whether to buy the stock. On the chart, there is resistance around $0.15 to $0.17, and higher around $0.23 cents. Support is around $0.08 to $0.11, and it appears it will probably trade between $0.10 and $0.15 cents ahead of channel sample results.

Ron Struthers founded Struthers’ Resource Stock Report 23 years ago. The report covers senior and junior companies with ample trading liquidity. He started his Millennium Index of dividend stocks in 2003 – $1,000 invested then was worth over $4,000 end of 2014 and the index returned 26.8% in 2016. He retired from IBM after 30 years in customer service, systems and business analyst, also developing his own charting software. He has expertise in junior start-ups and was a co-founder of Paramount Gold and Silver.

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Disclosure:
1) Ron Struthers: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Zonte Metals, RJK Exploration. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company currently has a financial relationship with the following companies mentioned in this article: None. 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: None. Click here for important disclosures about sponsor fees.
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. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Charts and images provided by the author.

Struthers’ Resource Stock Report Disclaimer:
All forecasts and recommendations are based on opinion. Markets change direction with consensus beliefs, which may change at any time and without notice. The author/publisher of this publication has taken every precaution to provide the most accurate information possible. The information & data were obtained from sources believed to be reliable, but because the information & data source are beyond the author’s control, no representation or guarantee is made that it is complete or accurate. The reader accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Because of the ever-changing nature of information & statistics the author/publisher strongly encourages the reader to communicate directly with the company and/or with their personal investment adviser to obtain up to date information. Past results are not necessarily indicative of future results. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial adviser & is not acting as such in this publication.

In a Sept. 6 research note, Canaccord Genuity analyst Eric Zaunscherb reported that Neo Lithium Corp. (NLC:TSX.V) finished a hydrological model, an initial production well and an environmental baseline study, all part of the feasibility study work on its Tres Quebradas project in Argentina.

Zaunscherb reviewed each of the three developments. As for the hydrological model, it showed that the planned mineral extraction methods would have zero to minimal environment impact for several decades on the Tres Quebradas and Laguna Verde lakes just south of the project. To arrive at this conclusion, data from two drilling seasons and from 11 long-duration pumping tests across the salar were incorporated into the model. It will serve as the foundation of a reserve estimate.

“The completion of the hydrological model is an important step in progressing the production model and assessing any of the project’s potential environmental impacts,” Zaunscherb noted.

Regarding the initial well, its production rate, using a high-grade cutoff, is equal to about 20% of the total production needs of the project, meaning it would likely require few wells. The 12-inch-wide, steel filter well that descended 100 meters yielded 90 liters of high-grade lithium brine. The grade cutoff was 800 milligrams per liter lithium whereas the cutoff for the Measured and Indicated resource was 614 milligrams per liter. Further, these results were consistent with those of the hydrological model.

Zaunscherb wrote that Neo Lithium will keep building production wells in the northern, high-grade zone to “define production capacity, test the aquifer and carry on production level pump tests.”

With respect to the environmental baseline study, it will be forwarded to the provincial authorities. Of note, the study found that no significant nesting grounds are located within the proposed mining and operations area. In other related news, Neo Lithium’s environmental exploration and development permit has been renewed for two years.

The company has sufficient cash, $49 million, to take it through the feasibility stage. To get it from feasibility through development, it is currently considering the various financing options “with the goal of securing a joint venture partner by year-end,” Zaunscherb explained.

He reiterated Canaccord Genuity’s Speculative Buy rating and CA$2 per share target price on Neo Lithium, whose current stock price is around CA$1.04 per share.

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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following company mentioned in this article is a billboard sponsor of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from Canaccord Genuity, Neo Lithium Corp., Flash Update, September 6, 2018

Analyst Certification: Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in the research.

Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Required Company-Specific Disclosures (as of date of this publication):

Neo Lithium Corp. currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During this period, Canaccord Genuity or its affiliated companies provided investment banking services to Neo Lithium Corp.

In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services from Neo Lithium Corp.

Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Banking services from Neo Lithium Corp. in the next three months.

An analyst has visited the material operations of Neo Lithium Corp. Partial payment was received for the related travel costs.

Disclosures are available here.

Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT, US$4.40) announced an agreed take-over by Zijin Mining at C$6 per share, a meaningful premium over Lundin’s hostile C$4.75 bid. Zijin is the third-largest publicly traded gold miner in the world. Following its purchase of the Bor mine and smelter, it became a front-runner for Timok. The following day, Lundin said would not increase its bid for Nevsun.

This is a good offer, though we should have preferred one at least partially in shares in a good copper company, allowing us to continue to have exposure to Timok, as well as avoid the immediate tax bill.

Will there be another bid?

The probability now that there will be another bid is low, notwithstanding that Timok is one of, if not the best undeveloped copper projects in the world, and that there is a paucity of good copper projects in low-risk jurisdictions. However, the bid is over NAV, at the high end of a purchase of an undeveloped project. Zijin has a competitive advantage with its smelter, so another company bidding higher could not have the same rate of return as Zijin. And if another company made a higher hostile bid, there is always the possibility that Zijin would come back topping it, so a third party is unlikely to go to the time and trouble of a hostile bid they may not win.

But another higher bid is by no means out of the question, given the quality of the asset and the number of companies that have looked at it recently. We speculate that Nevsun’s somewhat unusual comments that “the board has preserved the ability to respond to unsolicited proposals”…and “optionality remains for us to consider a superior bid” mean that Nevsun knows other companies are still interested.

We are holding for a little longer:

• The stock price is below the bid price (C$5.82 vs C$6).
• The downside is minimal since this is an agreed acquisition.
• There is still the possibility of another higher offer. The low break fee (of $50 million) could be interpreted that Nevsun is leaving the door open, with Nevsun management retaining the right to consider a superior bid.

On the other hand:

• The bid price is in Canadian dollars, so currency fluctuations can affect what we receive.
• There is always the risk (albeit low) that Zijin won’t complete, because, for example, it does not receive necessary Chinese approvals.
• The possibility (as discussed) of a higher offer is low.

In short, we are holding for now. Once the bid circular is filled—by September 18 at the latest—the tender will remain open for 105 days, unless Nevsun shortens the bid period. Were this to occur, we would infer that no other bid was expected. But if you need the funds for something else—whether a holiday or to buy other resource stocks at bargain prices, then you can sell with low risk of foregoing meaningful upside.

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Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Nevsun Resources. 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 Adrian Day Asset Management hold shares of the following companies mentioned in this article: Nevsun Resources. 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 billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 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. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports (including members of their household) own securities of Nevsun Resources, a company mentioned in this article.

In a Sept. 6 research note, Joe Reagor, a ROTH Capital Partners analyst, reported Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT) agreed to acquire Cameco’s 24% interest in the Wheeler River uranium project for 24.6 million Denison shares. The shares were valued at $0.65 apiece, for a total of $16 million.

That amount compares to $94 million, the difference between the values ROTH attributes to Denison’s shares pre and post acquisition, $392.3 million and $486.4 million, respectively, Reagor pointed out.

Because the Toronto-headquartered producer “paid a below market price,” for the stake, noted Reagor, ROTH increased its target price on the company to US$1.20 per share from US$1.10. Denison is currently trading at around US$0.48 per share.

The deal, which Reagor described as “accretive,” will boost Denison’s ownership in Wheeler River to 90%, assuming the other partner of the joint venture, JCU Exploration, does not exercise its right of first refusal to acquire a prorated portion of Cameco’s interest, which would amount to about 3.16%. Should it do so, Denison’s ownership of the project would be roughly 86.48%.

Reagor concluded the report by adding the transaction should benefit Denison shareholders because they will have a “larger percentage of future resource increases as the company continues to explore the project.”

ROTH maintains its Buy rating on Denison.

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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following company mentioned in this article is a billboard sponsor of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from ROTH Capital Partners, Denison Mines Corp., Company Note, Sept. 6, 2018

Regulation Analyst Certification (“Reg AC”): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

ROTH makes a market in shares of Denison Mines Corp. and as such, buys and sells from customers on a principal basis.

Shares of Denison Mines Corp. may be subject to the Securities and Exchange Commission’s Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.

ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.

Evrim Resources Corp. (EVM:TSX.V, 1.31) announced that Newmont Mining had made a strategic investment in the company, buying 4.8 million shares at C$1.50 per share, with 80% of the $7.3 million proceeds earmarked for work on its new discovery, Cuale in Jalisco, Mexico, allowing Evrim to advance the project without a partner or earn-in option.

Big win for Evrim

It’s a great deal for Evrim. It brings its total cash to a little more than C$12 million—some old warrants were exercised earlier in the year—and allows it to advance Cuale without diluting its interest in that property. That is a very healthy balance sheet for a prospect generator exploration company, and provides Evrim with lots of flexibility in advancing the property. The dilution at the company level, around 6%, is modest. Newmont has no rights to the property or the company (other than a Right of First Offer—a ROFO—meaningfully different and less significant than the better-known Right of First Refusal—ROFR). A joint technical team will be established and this could be significant, since Newmont has wide experience in high sulphidation systems; Evrim retains the final say.

Newmont gets a seat at the table and a microscope on the property, potentially influencing the direction of exploration, with no future obligations, as well as the ROFO which could set the timing of a takeover battle (we are getting a little ahead of ourselves here) to its advantage.

There are the usual restrictions on resale of the shares, rights to participate in future equity offerings, and limitations on additional purchases in the market. Newmont and Evrim already work together on a regional generation alliance.

Short delay in exploration

As mentioned earlier (see here for an review of Cuale and here for more on Evrim), the drill permit for Cuale required a small environmental study and more time, leading to the entire exploration program, including trenching, soil sampling and geophysics, being delayed. That work, however, is now well underway, with results expected in stages this month, and drilling (following anticipated receipt of the permit) now expected later in October.

Royalty dispute to be settled?

Other company projects are also advancing. Results of a drill program at the Axe copper-gold porphyry project in British Columbia, funded by its partner Antofagasta, are expected shortly. And Harvest Gold has approved a drill program at Cerro Cascaron, in which it has earn-in rights. Lastly, and perhaps significantly, First Majestic announced it is working to settle the dispute with Evrim over the Ermitano property, adjacent to First Majestic’s Santa Elena Mine and on which Evrim has a royalty interest. This has the potential for relatively near-term cash flow for Evrim.

All the market’s focus at present is on Cuale, but positive developments at other projects—particularly a resolution of the Ermitano dispute—all add value to the company. At a market cap of around C$110 million, there is clearly downside if Cuale proves disappointing, but there is still plenty of upside on positive drill results, and other assets to support the price, while the odds of a bust are relatively low. If you do not own it, Evrim remains a buy.

Nevsun battle begins to pick up

Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT, US$3.78) continues to advance development of the Timok property in Serbia, though Lundin Mining’s hostile bid and moves by Nevsun to find a white knight dominate investor focus as the shares begin to slowly move up above the Lundin bid price.

Friday it was announced that China’s Zijin Mining had won the tender to buy 63% of the Bor mining complex, including the country’s only copper smelter, for $1.26 billion. This potentially has ramifications for Nevsun, though they are purely speculative.

Nevsun is thought to be behind schedule for the 2020 deadline of a full feasibility and associated work necessary to convert its exploration license to an exploitation license. (Nevsun disputes this.) Though it might seem difficult to conceive that Nevsun would lose its license, nonetheless it has already had a one-year extension and the government may take a less lenient approach on further delays, especially with Zijin in the country and hungry for more ore to feed the Bor smelter.

At the minimum, this could be one added factor to get Nevsun motivated to sell. Zijin is believed to be one of the companies that is talking with Nevsun about an agreed takeover of the entire company. Five companies are understood to have made firm proposals for an interest in the company—most likely at 19.9%—with four of those at prices above that represented by the current Lundin bid. Several are understood to be potentially interested in the entire company, with two in more advanced talks.

Significant change in shareholder base

Lundin’s current bid of C$4.76 has been rejected by Nevsun and is widely considered inadequate by Nevsun shareholders, though, as we have discussed, some of the larger institutional holders would be happy with the price for their own peculiar interests. There has also been considerable shuffling of major holders, with London’s M&G and Vanguard reducing their holdings, while Fidelity as well as some hedge funds including Cobas and Passport have added considerably, with many others adding incrementally. Regulatory filings for the end of August, to be released within the next 10 days, should shed more light on this and tell us if these assessments are correct. If M&G—the erstwhile second-largest holder—and Vanguard—the erstwhile sixth largest—have sold, then we might infer that the cap on the stock price has been removed.

Given the floor presented by the Lundin bid—which under Canadian law can only be withdrawn on certain narrow conditions—and the potential upside of a competing bid or raised Lundin bid, the risk-reward in buying Nevsun is very positive. We would continue to buy, always subject to continuing developments.

Newmont to earn into high potential project

Miranda Gold Corp. (MAD:TSX.V, 3—3.5 cents) announced a long-anticipated option agreement on its Lyra project in Colombia with Newmont, which, by spending $600,000 over 18 months, will earn 51%. It will have the right to take its interest to 70% by spending another $7 million over the subsequent four years.

The Lyra project consists of 14 concessions that could offer an extension to Continental’s Buritica deposit, in which Newmont last year acquired a 19% interest. Although very early stage, the project certainly is prospective and Newmont’s interest in the district keen.

And another financing

No sooner had the announcement of the option hit the wires than Miranda announced another $1.5 million private placement. This follows a highly controversial placement at the beginning of the year by which the company paid bonuses to directors and officers to purchase shares in the placement, somewhat negating the point of an “equity raise.” The equity was issued all right, but the “raise” part of the equation was less than initially announced. So with cash down to $600,000 at last quarter end (May 31), another financing was no surprise.

The market did not take well to it, however. After moving up for a couple of hours after the Newmont news, it fell back closing barely above where it has traded before the news. The shares to be issued represent almost 30% dilution—before taking into account the new warrants (and that follows 25% dilution in March). The units have been priced at 4 cents, which may be difficult in the current market.

Alaska project on hold

Separately, Gold Torrent has failed to complete a financing to bring the Lucky Shot project into production, and went into default on an agreement with its largest shareholder. Miranda owned a 30% equity interest and rights to purchase a 3.3% royalty (with monthly installment payments). Now, Miranda has agreed to sign over its equity interest to the new owners, Cartesian Capital, though it retains rights to the royalty. The future is unclear; Cartesian is an investment company not a miner, while Miranda is not in a position to put more money into the project. At minimum—and perhaps in entirety—it holds only part of the royalty (currently 0.4%) on a project that has been postponed indefinitely. We expect further developments on the project, however, as Cartesian looks to recover what it can of its investment and finds someone to take over the project.

At minimum we can say that the early 2017 announcement that financing for Lucky Shot “had been secured” with an expected end-2018 production start was overly optimistic and premature. The nirvana of a self-financing exploration company is also clearly gone.

The Newmont-funded Lyra project is very prospective, so we are holding Miranda for now awaiting exploration work and results. We want to see the financing complete before looking at further decisions.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”

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Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Evrim Resources and Nevsun Resources. 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 Adrian Day Asset Management hold shares of the following companies mentioned in this article: Evrim Resources, Nevsun Resources and Miranda Gold. 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 billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 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. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports (including members of their household) own securities of Evrim Resources and Nevsun Resources, companies mentioned in this article.

Maurice Jackson: Joining us for a conversation is Matthew Gili, the president and CEO of Nevada Copper, North America’s next copper producer.

Matthew, who is Nevada Copper Corp. (NCU:TSX), and what is the value proposition you present for investors?

Matthew Gili: All right, who is Nevada Copper? Nevada Copper is a developing copper producer in western Nevada. Its chief asset is Pumpkin Hollow, which is located near the town of Yerington. It’s a fully permitted, shovel-ready, copper project with 5 billion pounds of copper. We’re targeting initial production from the underground in late 2019. Run by a team of mine builders, supported by strong copper fundamentals, we will be the next copper producer.

There’s three legs to the value proposition. I like to talk about the first being the underground, and that’s what our announcement earlier today really brings to light, the development of our underground operations.

The second of the three legs of the value proposition is about the open pit, the deposits adjacent to the underground deposit that has the potential. This really will be the next phase of growth for Nevada Copper.

And lastly, the region of Yerington that historically was a major copper producer from Anaconda, and there’s a lot of potential in that region. So we see ourselves with that first mover advantage in Yerington district.

Maurice Jackson: Nevada Copper just released some breaking news, which I know your entire team is proud to announce. What can you share with us?

Matthew Gili: It’s a very exciting and a very monumental day for Nevada Copper. What we announced is that the Board of Directors for Nevada Copper has approved the construction decision, and authorized the expenditure of $197 million to bring the underground and associated processing facility to full production. That work has started, but will now commence in full earnest, such that we’re able to start producing concentrate in the fourth quarter of 2019.

Maurice Jackson: Allow me be the first to congratulate Nevada Copper on this monumental accomplishment. Mr. Gili, what are the economics of the underground mine?

Matthew Gili: At full production, will be 5,000 tons a day, producing about 27,000 tons of copper in concentrate. The NPV at 5% is about $301 million. The yield as far as free cash flow is about $80 million per year over the first five years, with about a 13-year mine life.

Maurice Jackson: Now, I understand that Nevada Copper has taken an extra measure of protection by adding a standby loan facility. Can you explain the benefits of this standby loan facility?

Matthew Gili: One of the positives of Nevada Copper is that we have such a strong and experienced Board of Directors. And what they bring to this is knowing how to manage and mitigate risks, something that we feel very strongly about. And one risk for any project is making sure that you are fully funded towards the end, when you’re starting to wrap up your production.

So this is a facility that was brought on by our largest single shareholder, Pala. It is a subordinated standby of up to $25 million such that, if there are any hiccups, if there any needs for additional funding, we have that facility available ahead of time. It also allows Nevada Copper to be able to pursue that open pit and regional strategies as I alluded in my previous response, such that we can grow the company and really make it a broad based company, not focusing solely on the underground.

Maurice Jackson: Not to undermine what we’ve discussed so far in today’s interview, but does Nevada Copper have any updates on its pre-feasibility study?

Matthew Gili: The schedule for the pre-feasibility study for the open pit is first quarter of January of 2019. What we are doing right now is completing the Preliminary Engineering Assessment, the PEA, for the open pit, that we can insert into our current technical report. That PEA will really outline our strategy for the open pit. It’s markedly different than the previous strategy for the open pit in that we’re really focusing on a smaller capital expenditure, smaller pit, but focusing on the high grade portion deposit. That PEA will come out in this quarter. It won’t have all of our current drilling. So as you know, Maurice, we’ve been actively exploring on the property this year. We’ve completed 26 new holes. That assay data and that geologic interpretation is being worked into the resource model, and that new information will go into the resource model with the submission of the PFS in the first quarter 2019.

Maurice Jackson: What is the next unanswered question for Nevada Copper? When should we expect results, and what determines success?

Matthew Gili: So the next unanswered question for Nevada Copper would really be when do we bring that open pit online. When do we start to develop that? Right now, we’re planning on the end of 2020 to begin construction. That’s going to depend upon a lot of different factors. What determines success for that? Well, it’s really shareholder value, right? When is the right time to bring that on? What is the right configuration for that open pit, and how do we get the most shareholder value for the assets that we own?

Maurice Jackson: If Plan A doesn’t work, what is Plan B?

Matthew Gili: So Plan A is the open pit, is a reduced volume focused on the high-grade copper mine. Really, what would cause that not to work would be an increase in copper price that would want us to develop that faster. So what we do is pursue the necessary facilities so we can bring that open pit online sooner. Plan B is actually a really good case, and that is that there’s so much interest in copper that we actually want to accelerate the development of the open pit.

Maurice Jackson: Matthew, what keeps you up at night that we don’t know about?

Matthew Gili: What I focus on the most is personnel, making sure that I am able to bring together the right team to really bring this forward. I wouldn’t say that it keeps me up at night, but it’s something that I’m very focused on and something that is always in my mind. How can we bring on the highest quality talent, and how can we develop that quality talent within the organization?

Maurice Jackson: Last question. What did I forget to ask?

Matthew Gili: We’ve touched on the standby facility, touched on the open pit. We are also excited about region, Yerington as a district, historically a very large producer, lots of interesting prospects in the region, and really this, Pumpkin Hollow is the base by which we will grow Nevada Copper.

Maurice Jackson: Matthew, for someone who wants to get more information about Nevada Copper, please share the contact details.

Matthew Gili: Simple contact details, nevadacopper.com, and there’s a lot of information in there. You’ll be able to see our latest investor presentations, and really get a good understanding of what I’ve touched on today in this discussion.

Maurice Jackson: For our audience today, we wish to remind you that Nevada Copper trades on the TSX symbol NCU, and on the OTC symbol NEVDF. For additional inquiries, please contact Richard Matthews at (604) 683-8992, or you may email [email protected]

Matthew Gili of Nevada Copper, thank you for joining us today, on Proven and Probable.

And as a reminder for our listeners, Nevada Copper is a sponsor of Proven and Probable, and that we are proud shareholders of Nevada Copper for the virtues conveyed in today’s message. And last but not least, please visit our website www.provenandprobable.com where we interview the most respected names in the natural resource space. You may reach us at [email protected].

Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.

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Disclosure:
1) Matthew Gili: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Nevada Copper. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: Nevada Copper.
2) Maurice Jackson: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Nevada Copper. 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: Nevada Copper is a sponsor of Proven and Probable. Proven and Probable disclosures are listed below.
3) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Jericho Oil. Please click here for more information.
4) 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. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
5) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

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Another Labor Day has come and gone, and I sit here in the back of my boat typing yet another rambling, rancorous recount of forty-one years covering the financial markets, and I have to tell you—I am depressed.

Don’t get me wrong; this summer was yet another magnificent series of forays into northern Georgian Bay, and despite fierce forest fires and terribly dry conditions, there was just so much to explore that I come away damning Mother Nature for making Canadian summers so short.

Despite that, I look at the global fiscal situation and am constantly amazed that the world’s stock exchanges remain elevated. What is even more puzzling is that the only market celebrities left that are able to show their faces on CNBC these days are the thirty-something permabulls who forge ahead buying any and all dips because “the Fed has our back,” and who have never experienced crashes even vaguely resembling 1987, 1998, 2001, or 2008. All of the old stock market “gurus,” like Robert Farrell or David Stovall, have moved along and even the more recent superstars, like David Einhorn or Doug Kass, are hiding. Truly smart, experienced managers are being left behind in the performance race due to their unwillingness to ignore history in terms of both valuation and risk. Poor Dennis Gartman has flip-flopped from bull to bear to bull no fewer than a dozen times since 2008, each time admitting his errors but failing to explain why he keeps getting whipsawed.

As I explained a few weeks ago, we all look at the same data and read all the same headlines, all failing en masse to accept that the fuzzy-cheeked kids buying stocks on margin day in and day out are actually the “smart money.” With their thirty-something brethren manning the computer terminals, they are seen using trained algobots to decipher all the patterns and analyze all the word clouds before launching microbursts of buy orders through microwave transmission systems many nanoseconds faster than anything even remotely similar to the “Quotron” order execution terminals of the 1970s and 1980s. So when I see the S&P down 3% with an hour of trading left and leave for the day thinking that there is simply no way any human trader would step into a market this bad, my jaw drops through the floorboards when I see on the news that a “Late Rally Saves Stocks.” Therein lies the source of my angst (and anger).

Last Friday’s COT report has now been the focus of more than fifty breathless commentaries, complete with table-pounding and cymbal-clashing, as the anticipation of a proctologically challenging short squeeze resembles a “visions of sugar plums dancing in their heads” type of expectational nirvana. Yes, it was noteworthy in that in the futures and options portion, the Commercials are actually net long silver for the first time I can ever recall. They are also pretty close in gold, creating one of the most powerfully bullish set ups since the COT was introduced in 1986.

However, that was before the “machines” took over the trading floors. What I think we are going to get is a retest of the August 16 capitulation lows, both precipitated and engineered by Primary Driver #1 (algobots) at the prompting of Primary Driver #2 (Sovereigns and Central Bankers).

You see, this type of “trading action”is about as unnatural verging on the perverse as I have ever experienced. There is indisputable evidence that conditions similar to December 2015 have arrived, but the defining difference is that while the Commercials and the Large Speculators are still in battle, the market is still reacting to external factors rather than the bullish COT. It is beyond anything I have ever studied in all my years studying the back pages of the Wall Street Journal and Barron’s Market Lab section on a Sunday afternoon, while listening to Zeppelin (70s) and Supertramp (80s) and Nirvana (90s).

The maddening element in analyzing price action in gold and silver lies within the realm of consistency, which is totally absent. The same applies to stocks and bonds, where risk premiums should be skyrocketing due to the likelihood of default, given the debt loads associated with stock buybacks and, in the case of governments, the inability of the populace to generate enough tax revenue to meet interest payments.

I usually include charts in my missives because they provide a visual canvas upon which the analytical painting gains substance and form and allows my readers to glean a sense of purpose in the assessment of the next direction of whichever market I am viewing. However, irrespective of the identity of the perpetrator, someone or something is influencing the dollar-based prices of gold and silver.

In light of this, charts remain meaningless and ineffectual. Head-and-shoulders, cup-and-saucer, gravestone dojis, hanging drunkards, and whatever other technical formation, I absolutely refuse to make investment decisions on their interpretations. In this day and age, it is the double drivers of technology (algobots) and government (interventions) that have, as their sole mission, the protection of the reserve-currency-status of the U.S. dollar. This directive is indelibly etched into every facet of financial market warfare by the U.S., while combatting it remains the sole mission of Russia and China and a vast majority if the Islamic world.

Integral to all of this is the necessity of keeping a stranglehold on gold and silver prices while juggling the stock and bond markets like a one-eyed circus clown to maintain the status quo of how international money flows in favor of the Americans. Specifically, it does not matter whether the Commercials are long or short, or whether Large Speculators have amassed a short position, the notional amount of which is larger than total global mine production for the past year. The algobots simply wag the dog (physical gold price) by controlling the tail (futures) under the full blessing of government regulators and exchange officials.

The COT report began in 1986, and in the entire history of this report, there has never been an occasion when the Commercials were net long gold. Since they represent the bullion producers (hence the term “bullion bank”), it is an outrageously bullish development. However, unless the algos are in sync, and unless the sovereign market makers are OK with it, the power of this setup is going to be conflicted by the two primary drivers. I want to see a three-day close above $1,220, with persistently declining open interest with the next three COT reports, indicating that the algobots (Large Specs) are running for cover and capitulating. Then and only then will I place a tentative and very swollen toe back into the precious metals waters.

I mentioned Western Uranium Corp. (WUC:CSE; WSTRF:OTCQX) and Aben Resources Ltd. (ABN:TSX.V; ABNAF:OTCQB) in recent commentaries, with the former hitting a 52-week high at $1.84 while the latter has retraced from the $0.38 level to today’s low of $0.28. I continue to accumulate ABN on weakness and am looking for similar opportunities for WUC.

While ABN is a drill-hole play with an extremely high-risk/high-reward profile, WUC is a value play, with a market cap at 1.23% of the in-ground value of seventy-five million pounds of uranium (@$26.30/lb.) and thirty-five million pounds of vanadium (@$18.60/lb.). The combined uranium/vanadium portfolio of assets is worth US$2.62 billion, versus the current $32.3 million market value of the shares (which seems somewhat out of whack).

The pullback in ABN is related to the length of time that has passed since the August 10 announcement of 62.4 g/t Au over 6 meters in the first hole. Tremendous volumes have passed through the ABN turnstiles (62,272,372 shares) since the discovery was announced, and all of the chatrooms are rife with the usual pro-con banter that typically accompanies exploration plays but which usually take on the distinctive odor of a horse paddock. As I wrote about a few weeks back, I had great success in the Golden Triangle with Stikine back in 1989 with the Eskay Creek discovery, so at a $33 million market cap, there is a great deal of upside should the North Boundary Zone become part of, or secondary to, the new South Boundary Zone, where three holes intersected “quartz-sulfide veins containing abundant pyrite and copper (chalcopyrite) mineralization.”However, the trading natives are restless and without the usual dosages of Ritalin (drill results) to settle them down, the traders will be as nervous as a cat in a room full of rocking chairs.

I have been reading blog after blog chortling on and on about September’s reputation as the best month of the year for gold and silver and the worst for stocks, but once again I remind you that seasonality trades have been and will continue to be divorcee-makers, while the algobots and central bank desks are in full operation and control. We have the most bullish setup in nearly two decades for the PMs, and with seasonality and COT structures positive, yet gold and silver continue to have great difficulty in attracting interest.

By contrast, in looking at the NYSE Advance-Decline Line (A/D line) year to date, it is apparent that the ETFs now run the market, as “passive investing”is the only possible explanation for an A/D line so perfectly symmetrical with stock prices. In a normal, non-manipulated market, one sees numerous divergences over a year of trading, a signal that money is flowing in or out of stocks. In fact, one of the great sell signals I used to watch out for was an big up-move in the stock market that would go unconfirmed by a failure to do the same for the A/D line. Legendary Robert Farrell’s Rule #7 is “Markets are strongest when they are broad and weakest when they are narrow,”and while many like to use the FANG stocks’impact on the averages as an example of a narrow market, that A/D line shown above looks superb. Conclusion: Don’t be too confident in September rewarding the bears.

My model portfolio is 65% invested today, with 50% in gold, silver, and a basket of the juniors (Stakeholder Gold Corp. (SRC:TSX.V), Canuc Resources Corp. (CDA:TSX.V), WUC, ABN), as well as one private. I have 15% invested in highly speculative call and put option strategies on silver and the S&P 500. The 35% cash is targeting silver calls on the basis that if all of the celestial bodies align in the next week or so, a $3-5 per ounce move is entirely possible.

Ladies and gentlemen, if there was ever a super-spring-loaded trade setup in the history of markets, it is silver. With the crashes in copper, zinc and lead in the last year, base metal production is coming down, and with it the arrival of these biproduct supplies that have a negative AISC. While I acknowledge that my normally bullish enthusiasm has been somewhat tepid over the summer, it is because of an analytical paralysis brought on by the perfidiousness of our financial markets. And despite that, I am steadfastly, shoe-bang-the-podium, nutbar positive on the outlook for the precious metals (and particularly silver) going into the last third of the year. In the hierarchy of needs, one needs food, shelter, warmth and water to survive. In my world, one needs fine spirits and ample medicines to survive, as well as a well-timed entry point.

A pittance to ask, in my opinion, a mere pittance.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

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Disclosure:
1) Michael J. Ballanger: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Western Uranium & Vanadium Corp., Aben Resources, Stakeholder Gold and Canuc Resources 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 referred to in this article: Western Uranium & Vanadium. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Aben Resources. Click here for important disclosures about sponsor fees. 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. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Western Uranium & Vanadium Corp., Aben Resources, Canuc Resources and Stakeholder Gold, companies mentioned in this article.

Charts courtesy of Michael Ballanger.

Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.

In April 2018, Mackie Research Capital featured an article on Streetwise Reports that commented on the disconnect between the strong recovery in the price of oil and lack of response by most energy stocks. With valuations near unprecedented lows, Mackie highlighted oil and gas stocks that are fundamentally undervalued and well positioned for when valuations revert to the norm. Two of Mackie top picks that have multi-bagger return potential from the current levels have recently announced exciting updates that could unlock substantial additional upside for investors.

On July 30, 2018, Prairie Provident Resources Inc. (PPR:TSX) announced a very positive drilling update at its Princess core area, with two new wells each producing at ~900 boe/d and a third exploration well testing ~770 boe/d. These are boomer wells which are on track for three-month payouts making them of some of the best performing non-resource oil producing wells in Alberta. In addition, PPR has a potential significant cash windfall coming from a Quebec settlement that positions the stock for a rerate.

Point Loma Resources Ltd. (PLX:TSX) announced on July 25, 2018,two exciting new Banff oil pool opportunities, captured on company lands, that are on trend with other significant Banff oil pools that hold an average of 62 million barrels (mmbbls)of original oil in place (OOIP). PLX expects to drill a horizontal well targeting its Banff opportunities in Q4/18 that could be a game-changer for the company while also having a sizeable stake in the Duvernay Shale oil play that continues to evolve in PLX’s area of operations.

Both PPR and PLX have a large inventory of low cost Mannville drilling locations that form the bases for years of low risk steady growth production, and both companies have upcoming near-term events that could be transformational and game-changers for the stocks.

PRAIRIE PROVIDENT RESOURCES INC. – PPR – TSX

PPR is focused on the development of its conventional oil weighted assets in the Wheatland and Princess properties in Southern Alberta and its Evi area located in the Peace River Arch area of Northern Alberta. PPR also holds ~240,000 net acres in the St. Lawrence Lowland of Quebec that are prospective for the Utica Shale. The company remains highly undervalued on a cash flow, reserves and NAV basis and receives no option value for its Quebec assets. In addition, with the recent drilling success at its Princess core area, production has increased to over 6,000 bbl/d (~75% liquids).

Three Boomer wells at Princess: Year to date, PPR has drilled a total of five wells in the Princess area, all successful. The three most recently drilled wells are boomers, which are on track for three-month payouts. The 100/13-24-20-11W4 well (“13-24”) continues to exceed expectations with an average rate 940 boe/d (75% liquids) in July. The 13-24 well is one of best performing non-resource oil producing wells in Alberta. The 102/13-26-20-11W4 follow-up well was recently placed on production at a constrained rate of 900 boe/d (85% liquids) and we expect this too will be one of the best non-resource oil wells in Alberta. PPR also drilled the 103/14-12-019-11W4 exploration well targeting a new Glauconite channel, which flow tested at an initial rate of 770 boe/d (56% liquids) and was very recently placed on production. PPR has multiple follow up locations to drill, which could build production prior to year-end.

Potential Cash Windfall from Quebec Settlement Could Rerate the Stock: PPR is seeking damages of US$188.9 million related to the termination of the rights to one of the company’s licences in Quebec. The final hearing concluded in November 2017 and a ruling in the dispute and potential damages could be announced in H2/18. Over a five-year period PPR committed a significant amount of time and capital to securing the exploration licences, acquiring and interpreting seismic and drilling wells. We feel damages of between US$25 million to US$60 million would certainly be in the realm of possibility. Damages at the low end of this range would allow the company accelerate growth through drilling or acquisitions, and could re-rate the stock.

POINT LOMA RESOURCES LTD – PLX – TSX-V

PLX is highly undervalued (trades well below its 1P reserves value with the value of the company backstopped by its Mannville producing assets alone) and has a large concentrated land base (over 250 net sections) and deep multi-zoned drilling inventory to fuel growth. Production has recently increased to over 1,000 boe/d with an additional ~200 boe/d expected in Q4/18, from low risk well reactivations. In addition, during the second half of 2018, PLX plans to drill two to three high impact horizontal wells, including an exciting new Banff Oil play that has significant multi-bagger upside for the company as a standalone new play.

Two Potentially Large Banff Oil Opportunities with Big Upside: Based upon the new 3D seismic data and combined with bypassed pay and oil shows in company owned wells, PLX identified two well-defined, Banff oil pools that are on trend with other significant Banff oil pools in the area. Five offsetting Banff pools have large OOIP ranging from 22 to 91 mmbbls of oil, with an average in place resource of 62 mmbbls. Most of the offsetting Banff pools were discovered many years ago and have been exploited primarily with vertical wells, utilizing outdated technology.

Based upon OOIP resource of between 25 to 75 mmbbls, we calculated a mean potential net value of $40.0 million ($0.66/sh) per Banff oil poolwith an upside case of $135 million ($2.24/sh) per Banff oil pool. In Q4/18, PLX plans to utilize the latest proven technology to drill a horizontal well targeting its Banff oil opportunities. The opportunities are located near to the company’s Paddle River production facilities, which should allow quick on-stream time. Success would be a significant game-changer for the stock, which trades at the $0.28/share level currently, with investors able to get in today far below management and the company’s strategic insiders, which have an average cost base of $0.55/share.

Free Option Upside from its 12,500 net acres in the Duvernay Shale Oil Play: PLX has established ~12,500 acres (~20 net sections) of land within the Duvernay oil shale window. Industry interest in the Duvernay has been heightened by impressive initial oil weighted production tests results from the likes of Artis Exploration (Private), Vesta Energy (Private) and Crescent Point. As a result, land prices continue to escalate in the oil window of the Duvernay. As the Duvernay shale play continues to evolve, we believe that PLX lands holdings provide significant optionality to farmout, swap or even outright sell the acreage. There is no value for the Duvernay oil shale play reflected in the current stock price, which we consider a free options for investors.

Bill Newman is vice president of international and domestic oil and gas research with Mackie Research Capital Corp. He has been an energy analyst for 22 years. He holds a bachelor’s degree in commerce from the University of Calgary, and has a CFA designation.

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Disclosure:
1) Bill Newman: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. 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: Within the last two years, Mackie Research Capital has managed or comanaged an offering of securities for, and received compensation for investment banking and related services from Prairie Provident Resources Inc. and Point Loma Resources Ltd. Bill Newman has research coverage on the following companies mentioned in this article. Prairie Provident Resources Inc. and Point Loma Resources Ltd. Relevant disclosures required under applicable to companies under coverage discussed in this article are available on our web site at www.mackieresearch.com. I was not paid by Streetwise Reports for writing this article. 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 billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
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. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Despite the summer doldrums, a strong dollar, a developing trade war between the U.S. and predominantly China, and the resulting poor sentiment in commodities and mining stocks, Kutcho Copper Corp. (KC:TSX.V) managed to raise decent money, necessary to fund its ongoing drill program at its flagship project, the Kutcho high-grade copper-zinc project in British Columbia, Canada.

All presented tables are my own material, unless stated otherwise.
All pictures are company material, unless stated otherwise.
All currencies are in U.S. Dollars, unless stated otherwise.

On August 15, 2018, Kutcho completed its previously announced short form prospectus offering consisting of 9.2 million flow-through shares at a price of C$0.45 for gross proceeds of C$4.14 million. This offering will close in two tranches; the first of C$3.6M is already closed. Kutcho Copper has arranged a second tranche, on a delayed settlement basis, with one additional subscriber for total gross proceeds of C$540,000 to close on or before September 30, 2018.

The offering was conducted by a syndicate of well-known agents led by Haywood Securities, including GMP Securities, Canaccord Genuity, Cormark Securities and Macquarie Capital Markets Canada. These agents received a cash commission of 6% and warrants entitling them to acquire 480,000 common shares of the company at C$0.45 per share for a period of 24 months. A 6% finder’s fee plus warrant is decent, as it is becoming increasingly difficult at the moment to raise cash, due to negative sentiment and cannabis taking up most available investment dollars it seems, especially at a premium (18% at the time of the offering) and with no warrant like this round.

The filling up of the treasury didn’t stop there for Kutcho. The company received its second advance payment as planned on August 21, 2018, from Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) in the amount of C$4.6 million under the agreement previously announced on August 10, 2017, entitling Kutcho Copper to a total of US$7 million. This amount is now fully received, and is meant to fund the ongoing expenditures related to completing its Feasibility Study (FS), like engineering, permitting, environmental work, geotechnical work, etc.

This work is progressing well, as Vince Sorace, president & CEO, stated:

“We have been making good progress in the field the past few months advancing the project towards Feasibility. Geotechnical and metallurgical drilling is almost complete, resource expansion drilling has commenced and environmental baseline studies have been progressing smoothly. The recent financing coupled with Wheaton’s payment gives the Company the capital towards continuing its goal of completing the planned Feasibility Study in Q2 2019.”

As a reminder, resource expansion drilling has commenced two weeks ago, and will be completed at the end of September/mid-October of this year. The FS data collection is on schedule and is also expected to be completed mid-October. The company is looking to complete its field season before the winter break (starting at the end of October), which would make everything more expensive, and according to management the company is on schedule. In the mean time, management acknowledged the issues that several companies had when applying for permits in BC (Taseko, KGHM), and has chosen to take a different road. This resulted in very good working relationships with supportive First Nations, and the company is working together now with the same bands with whom VP Community & Environment Sue Craig already reached agreements with at another, much larger project.

Although everything seems to be running smoothly and is managed very professionally, with a profitable (post-tax IRR of 28% @$2.75/lb copper, @$1.10/lb zinc) project that has a post-tax 2017 PFS NPV8 that is 15 times bigger than its current market cap, investors apparently don’t all seem to appreciate the quality and progress being made, and might still need to be made more aware of Kutcho Copper, as the share price drop was much more than justified based on negative mining stock sentiment and metal prices alone, as more well-known peers like Trilogy, NGEX and Nevada Copper lost (a lot) less during the summer:

Share price over 1 year period

As it seems the Kutcho share price has found support now, and the market cap has come down to less than half the amount of cash in the treasury after the closing of the most recent offering, the buying opportunity for new investors is pretty good at the moment, and I am considering averaging down as well. I believe a second opportunity could present itself during tax-loss selling season, which usually puts pressure on stocks that have come down a lot during the year, and basically transpires between mid-November and mid-December until the holidays. However, it is also very well possible that Trump reaches an agreement with China on trade tariffs before mid-December, and commodity/mining sentiment could turn fairly quickly by then, and a rising tide lifts all boats.

A quick update on metal prices: the copper price finally seems to consolidate at the $2.70–2.75/lb Cu levels, as potential copper mine strike issues (Escondida) and ongoing salary negotiations with other large LatAm mines seem to be dwarfed by China trade war concerns, which might be more or less contained by now for the time being:

The fundamentals for copper are still very strong for the next three years, with a 5–10 Mt deficit expected by 2021. But we are not out of the woods yet, depending on Trump’s goals and agenda. My belief is he will keep looking at the almighty U.S. stock markets, and more or less like the Federal Reserve, will determine his policies by probing and testing his ideas, and watch very closely what the effects will be on the stock markets.

Zinc is developing/behaving differently, as it is less fragmented as a market, warehouse inventories have impact, smelters have even more impact on pricing and basically control the zinc market anyway. Since the LME inventories recovered from 150 kt to 250 kt in a matter of weeks, and the trade war eroded metal sentiment, the zinc bull market seemed to be over:

It can be seen that the low in LME levels coincided with the peak in the zinc price, although there is no direct correlation between LME levels and zinc price:

At a zinc price of $1.13/lb, it will be clear that only very robust zinc projects will be of interest for financiers/potential suitors. The Kutcho project is very robust with a conservative base case zinc price of $1.10/lb, and it can go much lower before the post-tax IRR drops below 18–20%, which I consider a threshold for capex financing for this relatively small-sized base metal project. Many zinc projects are losing economic profitability now as their base case zinc prices are above current metal prices, and will have a hard time arranging capex or finding a suitor in the near future, as these are probably looking at a long-term zinc price of $1.00–1.10/lb now, as they usually discount current metal prices by 10–20% to have a safety margin.

The Kutcho project isn’t losing any profitability at the moment as the base case metal prices were set at today’s prices. It is very rare to see this happening for a base metal project these days, and shows the strength of its economics. And this is just the first stage as investors familiar with the story know. Management is looking to double the tonnage through the ongoing exploration drill program, which could, combined with other measures, generate total tonnage in the realm of 20 Mt. Other opportunities are improving recoveries of copper and zinc, FX rates, higher metal prices and further optimization of, for example, mine plan and opex.

As a reminder, and I keep rehashing these figures as they show the current undervaluation at its very best, when I would use a 20 Mt scenario, an 80% Zn recovery rate, a 1.25 exchange rate, a US$2.75 base case copper price and a fixed US$1.10 Zn price, a 2,500 tpd throughput scenario for a LOM of 22 years, and a 4,500tpd throughput scenario for a LOM of 12 years, this would be the resulting, hypothetical sensitivity table:

I don’t expect the NPV8 to double instantly on doubling tonnage, but it will most likely increase significantly, and Kutcho Copper will turn into a deep value play even more, as C$265 million is 15 times current market cap, C$404 million is 22 times market cap, and C$499 million is 28 times market cap. There is, to my knowledge, no other project with such a big dislocation between market cap and (current and future potential) NAV, such a profitable base metal project, so cashed up and so backed by a very strong strategic partner that has a clear interest in bringing this project into production. And it also has its brand-new blockchain initiative MineHub, backed by a syndicate of large companies, which could add value further on. At some point in time, a re-rating seems almost inevitable, in my opinion, if the company keeps delivering as it does.

Kutcho project

I hope you will find this article interesting and useful, and will have further interest in my upcoming articles on mining. To never miss a thing, please subscribe to my free newsletter on my website http://www.criticalinvestor.eu to get an email notice of my new articles soon after they are published.

The Critical Investor is a newsletter and comprehensive junior mining platform, providing analysis, blog and newsfeed and all sorts of information about junior mining. The editor is an avid and critical junior mining stock investor from The Netherlands, with an MSc background in construction/project management. Number cruncher at project economics, looking for high quality companies, mostly growth/turnaround/catalyst-driven to avoid too much dependence/influence of long-term commodity pricing/market sentiments, and often looking for long-term deep value. Getting burned in the past himself at junior mining investments by following overly positive sources that more often than not avoided to mention (hidden) risks or critical flaws, The Critical Investor learned his lesson well, and goes a few steps further ever since, providing a fresh, more in-depth, and critical vision on things, hence the name.

The Critical Investor Disclaimer:
The author is not a registered investment advisor, currently has a long position in this stock, and Kutcho Copper is a sponsoring company. All facts are to be checked by the reader. For more information go to www.kutcho.ca and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.

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Streetwise Reports Disclosure:
1) The Critical Investor’s disclosures are listed above.
2) The following companies mentioned in the article are sponsors of Streetwise Reports: Wheaton Precious Metals. Click here for important disclosures about sponsor fees. 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. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Wheaton Precious Metals, a company mentioned in this article.

Charts and graphics provided by the author.

In June, I talked about a pending private placement being offered by Colorado-based Western Uranium Corp. (WUC:CSE; WSTRF:OTCQX) at $0.68 per unit (half-warrant at $1.15) and suggested that the deeply discounted market capitalization/pound of uranium/vanadium was being addressed by way of a joint venture with Australia-based Battery Metals Resources Ltd. (BMR).

I followed up with an e-mail two days later introducing BMR, which had just announced a $25 million initial public offering (IPO) with a concurrent $50 million secondary as a tagalong, with BMO Capital Markets as lead underwriter. These two e-mails were intended to provide a chance to either average down on the 2016 $1.70 funding or at the very least initiate new positions in the deal by way of the $0.68 unit, which was being raised as the share price cruised along in the $0.85-1.05 range during most of the marketing period.

Since then, the company has closed over $3.6 million and has completed a name change to Western Uranium and Vanadium Corp., and has released news regarding developments surrounding the 5 Mlb vanadium resource contained in the Sage Mine located in Colorado. WUC entered into a joint venture agreement with BMR pertaining to the exploitation of the Sage deposit, which was announced on June 6; it was this announcement that triggered my immediate interest in revisiting the opportunity after experiencing such dire disappointment in early 2017. The arrival of an Aussie group that knows mining and appears eager to advance and exploit the vanadium assets is a welcome development for WUC, and one that has resulted in my adding an additional chunk of stock to my portfolio. After participating in 2016 with a purchase of $1.70 unit deal, I have added triple the dollar amount in the most recent placement and now have an adjusted cost base of CA$0.80. With the stock at CA$1.55, a problematic situation has been rectified, with further developments on the very near horizon enhancing the near-term upside potential.

Technically, WUC has clawed its way back above the downtrend line from the $5.00 peak in 2015 and the $2.75 peak in 2017. RSI and MACD are in recovery mode and volumes are respectable.

Investing in uranium deals has been a nightmare since the late 2010 top, north of $75/lb, with all rallies being sold unmercifully and dips rarely advantaged. Rarely, if ever, treated as “green” energy, the U2O3 stocks have been treated like Japanese whaling ships at a Greenpeace convention. They are seen as “weaponry” by the masses, as opposed to the cleanest form of energy on the planet and one which has an extremely long shelf life. Vanadium stocks, by contrast, are beloved by the electric vehicle (EV) tribe, with many exploration issues having participated in the recent price advance.

Vanadium has been the superstar of the battery metals group, having outperformed lithium, cobalt and graphite since 2015. To understand the history of industrial applications for the metal, this link will take you to an excellent article from BBC World News.

Valuation
The company has four main properties, which are estimated to contain a total estimated resource of 75 million pounds of uranium. In addition, three of the four properties contain 35 million aggregate pounds of vanadium, with an implied value of US$647 million. At the current price of $1.55 per WUC share, the company carries a market capitalization of US$31.6 million, which represents 4.88% of the in situ metal value (ISMV) of the vanadium alone. Combining the in situ metal value of the 75 million pounds of uranium (@ US$26/lb) worth US$1.95 billion, you arrive at a combined (uranium and vanadium) in situ metal value of US$2.475 billion, such that Western Uranium is trading at 1.27% of the value of all historic resources.

The Opportunity
Most developers in the mining space will carry market caps in the 5-15% range depending on location (geopolitical and geographic).

Conclusion
When you view Western Uranium and Vanadium Corp. and attempt to conduct the normal-course due diligence so greatly required in today’s world, you are taken aback by the numbers I have provided above. How can a company with assets this good be completely ignored by investors? How can an investment story so compelling be so completely dismissed, from 2015 at CA$5.00 all the way to CA$0.66 in 2018? The answer lies in management. George Glasier is a friend of mine and one of the senior statesmen of the North American uranium industry. He can tell you more about the uranium space than any person I have met in all of my years in the resource business. However, George operates his business from a technical perspective, and that includes language the vast majority of investors do not exactly comprehend. In my discussions with George, I committed to assist him in the marketing of the WUC story so as to ensure the maximization of shareholder value by way of the clarification of exactly how what George does will, in due course, result in a higher share price. And that is what I am trying to do today. Pretty simple math.

In my 41 years in the investment industry, I learned by way of pain and suffering that many great investment opportunities arise from the ashes of the “resistance to promote” by the managers of projects that are technically sound but either “early” or “late,” and WUC is just one of those opportunities.

If, by chance, the vanadium story is a “late-to-the-party” facet of the WUC attraction, then the majorasset, uranium, will be the fallback position because of its unenviable role as a major bear market disaster story. If the uranium space suddenly ignites, then the aggregate package is going to be revalued in short order, and it is important that both assets are strategic assets in terms of U.S. national security and are therefore integral to the story .

Any way you cut it, if WUC gets carved up as an “asset liquidation sale” (which it will not), shareholders will receive far greater rewards than what is being offered today by way of a US$31.8 million quote.

Recommendation: BUY at a US$1.50 limit (CA$2.00)
Target: US$3.40 (6-month); US$6.80 (12-month)

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

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Disclosure:
1) Michael J. Ballanger: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Western Uranium & Vanadium Corp. 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 referred to in this article: Bonaventure Explorations Limited is owned by me and my wife and has earned consulting fees from Western Uranium in the past. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 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. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Western Uranium & Vanadium Corp., a company mentioned in this article.

Charts courtesy of Michael Ballanger.

Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.

Skyharbour Resources Ltd. (SYH:TSX.V;SYHBF:OTCQB) plans for its upcoming 2018 diamond drill program to commence shortly and it has now completed the 100% earn-in of its flagship, high-grade Moore uranium project well ahead of schedule, the company reported in a news release.

In addition, 1,159,175 warrants have been exercised recently, raising an additional $449,884 in net proceeds for the company, according to the company.

Upcoming 2018 drill program:

Skyharbour reported that it has received all of the required permits for its upcoming diamond drill program.

“We will be commencing our planned summer drill program very shortly to test more extensively new targets in the underlying basement rock at the Maverick corridor on the company’s flagship, high-grade Moore uranium project,” stated Jordan Trimble, president and chief executive officer of Skyharbour Resources. “The known high-grade, unconformity-hosted uranium mineralization at the Maverick corridor was deposited there through feeder zones in the basement rock, the discovery of which will be a top priority in this upcoming program given other recent basement-hosted discoveries including NexGen’s Arrow deposit, Fission’s Triple R deposit and Denison’s Gryphon deposit. Furthermore, warrants that were set to expire have been exercised bringing in additional funds which have been used to complete the 100% earn-in of the company’s Moore project well ahead of schedule.”

Skyharbour’s technical team recently reinterpreted historical drill information and has identified high-priority drill targets within the basement rocks of the Maverick corridor below the drill-defined, high-grade, unconformity-style uranium mineralization at the Main Maverick zone.

“Prior drilling within the basement rocks, although of minimal extent, has intersected significant structural disruption and favorable alteration along with anomalous pathfinder elements and low-grade uranium mineralization,” Skyharbour reported. “These characteristics bode well for the discovery of basement-hosted feeder zones to the overlying high-grade, unconformity-hosted uranium mineralization within the Maverick corridor.”

The company announced that 1,159,175 warrants were exercised recently, raising an additional $449,884 in net proceeds.

“The majority of these warrants were set to expire last week and had an exercise price of 40 cents,” the company noted, adding that Skyharbour is fully financed for this upcoming 3,000-meter diamond drill program at its Moore uranium project, which has a budget of approximately $1 million. The company is well financed with over $3.2 million in the treasury after making the $300,000 payment to complete the earn-in at Moore.

Skyharbour also announced its option partner, Azincourt Energy (TSX.V: AAZ, OTC: AZURF), updated its upcoming winter work program at the East Preston uranium project, located in the southwestern Athabasca Basin, Saskatchewan, Canada, planning to begin after mid-November and include approximately 2,000–2,500 meters of diamond drilling designed to test several previously identified high-priority targets.

Azincourt announced earlier this year that it entered year two of its option agreement with Skyharbour and Clean Commodities Corp., in which Azincourt can earn a 70% interest in the 25,329 hectare project.

At the East Preston property, ground-truthing work confirmed the airborne conductive trends and more accurately located the conductor axes for future drill testing. The gravity survey identified areas along the conductors with a gravity low signature, which is often associated with alteration, fault/structural disruption and potentially, uranium mineralization. The combination/stacking of positive features will assist prioritizing targets for testing first.

The Main Grid shows multiple long linear conductors with flexural changes in orientation and offset breaks in the vicinity of interpreted fault lineaments which are classic targets for basement-hosted unconformity uranium deposits. These are not just simple basement conductors, they are prospective and upgraded/enhanced targets because of the structural complexity.

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Disclosure:
1) John McPhaul compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an employee. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Skyharbour Resources. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Skyharbour Resources, a company mentioned in this article.

In an Aug. 26 research note, analyst Joe Reagor indicated that ROTH Capital Partners revised its near-term estimates for Pretium Resources Inc. (PVG:TSX; PVG:NYSE) to reflect its recently reduced commodity price estimates. The changes, however, did not affect discounted cash flow enough to warrant a revised target price, so ROTH maintains its $19 per share target and its Buy rating on Pretium. The stock is currently trading at around $11.40 per share.

ROTH revised its near- and medium-term cost forecasts on various commodities because their prices have dropped recently and are expected to remain under pressure as long as the U.S. dollar remains strong.

For Q3/18, the firm changed its forecasts on these commodities:
Gold: To $1,210 per ounce ($1,210/oz) from $1,350/oz
Silver: To $15.25/oz from $17.31/oz
Lead: To $1 per pound ($1/lb) from $1.10/lb
Zinc: To $1.10/lb from $1.40/lb
Copper: To $2.75/lb from $3/lb

For Q4/18, ROTH made these changes:
Gold: To $1,225/oz from $1,300/oz
Silver: To $15.90/oz from $17.33/oz
Lead: To $1/lb from $1.10/lb
Zinc: To $1.10/lb from $1.30/lb
Copper: To $2.75/lb from $3/lb

For full-year 2019, it revised these price estimates:
Gold: To $1,288/oz from $1,500/oz
Silver: To $17.17/oz from $20/oz
Zinc: To $1.10/lb from $1.20/lb

Despite ROTH’s lowered near-term projections for Pretium as a result of the decreased commodity price estimates, Reagor said the company will likely still generate enough cash to repurchase its gold stream by the end of 2018. In the meantime, however, ROTH is omitting it from its conservative model on the miner. “Instead, view the stream repurchase as upside to our valuation,” he added.

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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following company mentioned in this article is a billboard sponsor of Streetwise Reports: Pretium Resources. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Pretium Resources, a company mentioned in this article.

Disclosures from ROTH Capital Partners, Pretium Resources Inc., Company Note, August 26, 2018

Regulation Analyst Certification (“Reg AC”): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

ROTH makes a market in shares of Pretium Resources Inc. and as such, buys and sells from customers on a principal basis.

ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.

Maurice Jackson: Welcome to Proven and Probable. I’m your host, Maurice Jackson. Joining us is Jayant Bhandari, the host of the highly acclaimed Capitalism & Morality seminar, and a prominent, sought-after advisor to institutional investors. Today we will discuss geopolitical events between the United States and third world nations.

Jayant, we’ve talking with you today so that you can share your insights on developments occurring with peripheral markets, specifically in third world nations. You and I were talking offline and you referenced a sequence of events that you see occurring with third world currencies rapidly depreciating. What currencies are being impacted, and why?

Jayant Bhandari: Maurice, it would be much nicer to ask which currencies are not being impacted. The reality is that just about every currency is getting depreciated, compared to the U.S. dollar right now. That is something that you can see across the third world countries. The Turkish lira has fallen drastically over the last few weeks. The Brazilian and Indian currencies keep falling. The Russian ruble keeps falling. In fact, you can randomly look at any of the third world countries, and the currencies are starting to fall. The people living in these countries want to buy U.S. dollars. American funds are taking their money out of these countries, and they are finding America a better place to invest.

But, not just the third world countries, even the developed country currencies are affected. For example, the euro has fallen in the last weeks. The depreciation of currencies outside the U.S. is actually quite an issue right now. This will result into a significant pain increasing in particularly the third world countries. These countries will implode politically and they will suffer hugely in terms of their economies.

Maurice Jackson: Now, are these short-term impacts caused by the Federal Reserve?

Jayant Bhandari: These are not impacts caused by the Federal Reserve. We have to look at things in proper perspective. The third world countries were getting a free ride. They have been getting a free ride for decades. The only exception I see there is China. But, the third world countries have been beneficiary of the free gift of European and American technology for the last 50 to 100 years, or 300 years. Also, the easy money policies of the European banks meant that a lot of easy money flowed into the third world countries in expectation of better yields.

Both of those things are now reversing. The easy fruit from the free gift of Western technology has now been plucked. The easy money policy of at least the American Fed for the moment has ended. Which means that the third world countries that taught that they were very smart people and that they were developing because they were something very special, is turning out to be completely false. They were mainly the beneficiary of the gift that the U.S. was giving to them. Also, the world has been a very stable place because of America. Countries like Canada and Germany, for example, are beneficiary of the military might of the US. But, then America does not even get thanked for the benefits it provides to so many of these countries.

Maurice Jackson: You reference the United States, and we also just discussed the Fed. Let’s now inject here that the Fed is increasing rates, if it goes with its plan to do so, and/or tariffs. How do they fit into this narrative?

Jayant Bhandari: I am a person who likes free trade. I’m a libertarian, and I think people should have full freedom to buy, exchange and trade with whomever they want to conduct their transactions. However, the trade can result into certain problems. So, free trade is always good for a society. But, it might not benefit everyone in the society equally. What happens, for example, is that when a rich country trades with a poor country, both the countries benefit from free trade. But, what happens with the underclass of the rich country is they might actually suffer while it is the rich people who benefit the most.

Now, I have nothing against it. But, the problem is that mostly today, the choices these rich countries have is that either reduce the suffering of the poor people, or provide social welfare, social security. So, if Trump has the choice between increasing tariffs or that the underclass in America gets more jobs or to continue to provide more social welfare, maybe the first choice, which is to restrict some trade to enable job creation among the underclass in the U.S., is a better choice.

Maurice Jackson: So, then in your view because I hear this a lot, that the U.S. is acting like a bully. So, in your view, is it justified in its actions?

Jayant Bhandari: Maurice, in the real world, nothing is perfect. We choose between a bad and a worse. Most people in the world would move to the U.S. tomorrow morning if they could. Just about everyone I meet in India or any of these third world countries, including in Africa or the Middle East, would tomorrow morning move to the U.S. if they could. America is a great place. America is a bully, of course, it is a bully. Imagine what Iran would have done or Russia would have done if it had a similar kind of military might that America has.

America is a bully. America has to look after maintaining its stability around the world. That does not mean that I like the military industrial complex that has developed in the U.S., which actually creates a lot of problems. Americans are the people who really believe in fairness. American people rise up against the governments when America starts to do too much wrong.

Maurice Jackson: Are you surprised that investors are moving to the U.S. currency, the dollar, rather than the ultimate currency, gold?

Jayant Bhandari: No, I’m not surprised at all. The people in the third world consider the U.S. dollar to be gold. So, they quite rightly want to move their currencies, convert their wealth into American dollars. I know people who actually keep American dollars with them, and they convert everything they own in these third world countries into American dollars. The American dollar is among the most stable currencies in the world. Now, that does not mean, Maurice, that the U.S. Fed does not depreciate and continue to depreciate American dollar. But, again, we are choosing between a bad choice and a worse choice. In the real world, we only have these two choices.

Now, coming to gold. Gold is a very important insurance that people have. I think people should be paying more attention to gold. The reason is that America is doing well for now, and in my view America will continue to do well under Trump. But, Trump is not going to be there forever. America will start to change again. America will become more leftist once Trump is gone. By that time, you should be thinking of converting your U.S. dollars into gold. When we invest, we should be investing for the long term. That is where gold becomes extremely important.

Maurice Jackson: Switching gears onto issuers, do you have any names and/or arbitrage opportunities that have your attention at the moment?

Jayant Bhandari: One company, Maurice, that you follow and I follow is Irving Resources. The ticker is IRV. I’m actually keeping a very close eye on that company. I’m expecting that it might get its permit sometime this year. So, that’s one good company. There are two arbitrage opportunities that I want to mention here. Both are very easy in terms of understanding mathematically. One company is Kangaroo Resources Ltd. (KRL:ASX). The ticker is KRL on the Australian Stock Exchange. This company is being acquired for $0.15 in cash. It is today trading at $0.12, which means that there is a clean 25% arbitrage upside in owning Kangaroo Resources. The other company that I want to mention is Nkwe Platinum Ltd. (NKP:ASX). The ticker is NKP. NKP also trades on the Australian Stock Exchange, and this company is being acquired by Zijin Mining. It is currently trading at $0.09 Australian, and shareholders will get $0.10 Australian in cash after the modular is closed. Which means that the current upside is about 11%.

Maurice Jackson: Jayant, as always, thank you for sharing those opportunities with us. Finally, what can you share with us about the Capitalism & Morality seminar, for reason, argumentation and liberty? Are last month’s presentations uploaded?

Jayant Bhandari: Those presentations are yet to be uploaded. But, the next seminar will be held on August 3, 2019. We have still to start working on it. But Doug Casey, Rick Rule and Ian Plimer have already confirmed that they will be speaking at the next year’s conference.

Maurice Jackson: Last question. What did I forget to ask?

Jayant Bhandari: Two things, Maurice. Do the best in the bear market. People worry too much about the bear market. In my view, the bear market is actually the best time to make money. Also, people are very worried about the trade war between the U.S. and China. I think this is creating into unwinding of a lot of speculative investments that people had made. But, eventually, all this trade war will end up looking like noise in a few months’ time. People should assume that this will go away, and if they don’t get too fearful about the possibility of this trade war continuing, they might actually be in a position to position themselves to profit from the fear that the trade war has brought to the market. This trade war, in my view, is only going to end up as noise, nothing else.

Maurice Jackson: Ladies and gentleman, this is coming from one of the most respected names in the natural resource space. Thank you for sharing your wisdom, Jayant. If someone wants to get more information about your work, please share the contact details.

Jayant Bhandari: Everything that I do goes on my website, jayantbhandari.com.

Maurice Jackson: Last but not least, please visit our website www.provenandprobable.com, where we interview the most respected names of the Natural Resource space. You may reach us at [email protected].

Jayant Bhandari, the host of Capitalism and Morality, thank you for joining us today on Proven and Probable.

Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.

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Disclosure:
1) Maurice Jackson: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Irving Resources. 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: Irving Resources is a sponsor of Proven and Probable. Proven and Probable disclosures are listed below.
2) Jayant Bhandari: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Irving Resources, Nkwe and Kangaroo. 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.
3) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
4) 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. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
5) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Irving Resources, a company mentioned in this article.

Proven and Probable Disclosures:
Proven and Probable LLC receives financial compensation from its sponsors. The compensation is used is to fund both sponsor-specific activities and general report activities, website, and general and administrative costs. Sponsor-specific activities may include aggregating content and publishing that content on the Proven and Probable website, creating and maintaining company landing pages, interviewing key management, posting a banner/billboard, and/or issuing press releases. The fees also cover the costs for Proven and Probable to publish sector-specific information on our site, and also to create content by interviewing experts in the sector. Monthly sponsorship fees range from $1,000 to $4,000 per month. Proven and Probable LLC does accept stock for payment of sponsorship fees. Sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

The Information presented in Proven and Probable is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose. The Information contained in or provided from or through this forum is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information on this forum and provided from or through this forum is general in nature and is not specific to you the User or anyone else. You should not make any decision, financial, investments, trading or otherwise, based on any of the information presented on this forum without undertaking independent due diligence and consultation with a professional broker or competent financial advisor. You understand that you are using any and all Information available on or through this forum at your own risk.

After a screaming January to start 2018, it’s been six consecutive months of pain across the mining industry. The catalyst for this has largely been fear that the Trump tariff tantrum will derail global GDP growth, coupled with fears that the U.S. dollar is set to continue its seven-year bull market and stifle raw material demand from emerging economies. The pain has been particularly acute over the past few months, leading many industry observers to question whether we have plunged into a new mining bear market.

This is not an unreasonable question. After all, the TSXV is off 28% since reaching a multi-year high in January as seen in the chart below. (Any drop of greater than 20% is generally considered bear market territory.) Just two weeks ago, money managed short positions in copper hit a new all-time high. It’s a similar story for gold where in early July speculators went net-short the metal for the first time in two years.

The anecdotal evidence is out there as well. In mid-July, the widely followed resource investor Marin Katusa blasted an email to his mailing list announcing that he was “cashing up” and expecting resource stocks to drop to significantly lower levels over the rest of 2018. Not long thereafter, Vanguard announced that its $2.3 billion Vanguard Precious Metals and Mining Fund (VGPMX) was being be renamed to Vanguard Global Capital Cycles Fund and broadening its investment mandate beyond mining. This is exactly the type of behavior that you expect to see in bear markets.

In light of these negative developments, it’s clear that we’re in another mining bear market right? Not so fast. My read is that we are NOT in another bear market and this instead should be viewed as a consolidation period within the mining bull market that began in early 2016. This view stems from a couple of factors.

The first is that, by historical standards, the bull market that began in January 2016 would have been abnormally short and weak if it indeed ended this past January. As pointed out recently by newsletter writer Gwen Preston, the average junior mining bull market has “averaged 47 months with a 202% gain. . .If this [bull] market indeed ended in January (the last high), it would have been the shortest (25 months) and the weakest (73%) in four decades.”

This in and of itself is of course not conclusive evidence that this bull market is still ongoing. It is indeed possible that a decade from now we’ll look back on the two-year period between January 2016 and January 2018 as the shortest resource bull market of the past 50 years.

However, it is my belief that markets generally adhere to Newton’s Third Law: For every action, there is an equal and opposite reaction. This is particularly true for mining, which, like shipping, is abnormally cyclical due to the capital-intensive nature of the business. It is said that bear markets are the authors of the following bull market. And we generally find that the more ugly the bear, the more attractive the bull.

With this principle in mind, it seems unlikely to me that the most severe bear market in a generation (2011–2015) would be followed by the shortest and weakest bull market in four decades. This suggests to me that at least one more dramatic up leg is still forthcoming before we see the next bear.

The second and more persuasive piece of evidence that this bull market is ongoing is that the senior miners continue to deploy capital into junior developers and explorers at a healthy clip. There is the recent M&A activity surrounding Arizona Mining, Nevsun, Novagold, Peregrine and Northern Empire. We’re also seeing an increased appetite for strategic investments into earlier stage juniors. Big boys South 32, Newcrest and Goldcorp have been particularly active on this front.

This is sustainable, at least for the next few years. The senior miners of both base and precious metals have markedly healthier balance sheets than they did just a few years ago. They also have the desperate need to replenish their project pipeline, after years of divestments and minimal development spending through the 2011–2015 mining bear market. More deals are coming, and soon.

For these reasons, I view this current market weakness as consolidation before the next leg up and NOT a prolonged bear market. However at this point you may be thinking:

I don’t care whether this is technically a correction or a bear market. These are just semantics. I’m losing money and I’m tired of it. When will things start going up again? And when they do start going up, how long will the good times last?

We’ll take these one at a time. There are a few potential catalysts in the coming months with the potential to reverse the weakness we’ve seen in metals and in particular juniors.

While this may be viewed as overly simplistic to some, it may take something as obvious as traders and fund managers getting back to their desks after the summer holiday. Up until the past couple of weeks, it was a particularly slow summer with low trading volume and investor interest. Given that historically precious metals perform exceptionally well in September (see chart below), it may take a simple change of season to draw attention back to the metals complex. The aforementioned newsletter writer Gwen Preston is one proponent of this view. We’ll learn shortly whether this year is different.

Another possibility is that, after spending the last six months worried about deflation, we could see the market come to the realization that if anything the China-U.S. trade spat is inflationary and does not have the potential to seriously undermine global GDP. As noted by Sprott’s Shree Kargutkar: “The U.S. currently trades approximately $2.3 trillion worth of goods with the world and the portion of goods affected by import tariffs is estimated to be $92 billion, or a mere 4%.”

4% is inconsequential. The real risk, of course, is that this skirmish between the United States and China sets off a global wave of protectionist policies. However, at the moment, Trump seems to be the only global leader reveling in this conflict.

Barring a global wave of protectionism, the real impact of the trade war will be inflation. Quietly, it was announced last week that the 12-month rate of core inflation in the United States rose to 2.4%, the highest rate in just under a decade. This is generally the type of announcement that is greeted by traders flocking to metals and commodities in general. That has not been the case but, if data continues to point towards higher than expected inflation, investors will begin to take notice.

The third possibility is that Trump and Xi come to a compromise on trade by the end of the year. I think there is a distinct possibility of this coming to pass. It’s in neither country’s economic interest for the face off to continue. Both leaders will likely sit down at some point and, when this occurs, there will be an opportunity for them to cut a deal (even if it’s not substantively different than the status quo of the past two decades) and then both declare victory. If we do indeed see a resolution, the market will likely flip to a “risk on” mentality resulting in increased capital inflows to industrial metals and associated mining equities.

Now that we’ve discussed the potential catalysts for the next stage of this mining bull market, the next question is how long this up leg will last. This is a good time to reference Rick Rule from an early July interview with The Next Bull Market Move:

“My suspicion is that, absent a global recession, and I should qualify that. We’ve been a long time without a recession, but absent a global recession, I sort of think this business is poised for some very good times.

You and I talked in the prior interviews, I said earlier about supply destruction, and supply destruction has happened in our business.

As demand recovers, the ability to meet changing price signals by adding supply is absent in the two, or three, or four year timeframe in the mining business. Absent a global recession, I suspect that you’re going to see stronger commodity prices across the board.

I also think that as a consequence of nearly a decade of underinvestment in resources, that the development and exploration pipelines throughout the sector are empty.

The consequence of that is that you’re going to see exploration budgets increase fairly dramatically. So absent a global recession, this is a big ask, I think that we’re in for two or three pretty good years in our sector, perhaps more depending on the way that the global economy behaves.”

Rick is correct in that the mining industry deserves to boom for another two to three years as a consequence of the supply destruction we’ve witnessed over the past half-decade. This may very well come to pass. But he’s also right to add the caveat that any synchronized global recession or black swan liquidity crisis like we saw in 2008 would not spare mining equities by any stretch of the imagination. These are equities after all, and risky ones at that.

Therefore, we need take into account the general economic picture to get a sense of how long this next mining up leg will last. We are undoubtedly in the later stages of a powerful economic cycle that began just under a decade ago. I feel strongly that this cycle will crest sometime in the next one to three years. It’s just the way these things work. The economy is cyclical and this current expansionary wave is already longer than most.

My sense is that this global recession that Rick worries about will indeed materialize in late 2019 or 2020. To account for this possibility, by Q3/19 our portfolio will be more conservative with increased exposure to farmland, forestry and cash.

If I’m wrong and the mining business booms for the next four years without being interrupted by a global recession, then roughly half of our portfolio will still be exposed to mining and we’ll do great.

If however we do see a recession in the 2020 timeframe, then losses within the portfolio will be cushioned by this more conservative tilt. Once we are deep in the next mining bear market (whether in 2020 or 2024), I will then again ratchet up our hard asset exposure to 80-90% of the portfolio.

While thinking about the next global economic recession isn’t fun, there are a couple positives to keep in mind: (1) we should have a good 12-18 months to make substantial returns from well-managed exploration and development stocks in the meantime and (2) assuming it is caused by a global recession, the next mining bear market should be relatively short in duration. This is because demand-side worries are generally more short-lived than overcapacity issues. Just compare the sharp 2008–2009 resource bear market (sparked by demand worries) with the prolonged 2011–2015 resource bear market (caused by oversupply).

You can sum up my perspective on mining equities as positive over the next 12-18 months, cautious over the medium term (2-3 years), and extremely bullish over the long term (5+ years).

Matt Geiger is the managing partner at MJG Capital, a limited partnership focused on long-term capital appreciation through investments in natural resources.

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Disclosure:
1) Statements and opinions expressed are the opinions of Matt Geiger and not of Streetwise Reports or its officers. Matt Geiger is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. The author was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Charts courtesy of Matt Geiger.

The new high registered Tuesday in the S&P 500 (plus a myriad of smaller cap indices) marked the longest bull run in NYSE history and given that it has done so on the crest of a gargantuan global growth of credit, here is a list of failed trades that plagued a great many savvy (and not-so-savvy) traders in 2018.

Failed Trade #1: Shorting Stocks within a money-printing orgy

There is an expression that I learned in the fall of 1979 when in discussion with a portfolio manager who toiled for the old and venerable Walwyn Stodgell Cochran Murray Ltd. of Toronto and it goes like this: “Never underestimate the replacement power of equities within an inflationary spiral.” The idea here is that since banks control monetary policy and since banks detest policies that reduce the money supply, then monetary policy shall always, one-hundred percent of the time, favor the indiscriminate creation of money. Reeling in profligate spending regimes is contrary to the interests of the global banking fraternity (or cartel) that earns outrageous profits off the ever-expanding supply of currency units, be they dollars, loonies, euros, yen, pounds or yuan. Traders, investors and a myriad of portfolio managers have been carried out of the Capitalist Coliseum on their shields having attempted to short the S&P 500 because of “overvaluation.” The failure here lies in misjudging the manner in which $14 trillion in credit creation since 2009 has decided to percolate down into the system, debasing its purchasing power and saving the banking system from certain (not “probable or possible “) collapse.

When CNBC runs a cover story entitled “LONGEST BULL RUN EVER” complete with pompoms and drums and flutes, look no further than the U.S. Treasury and the Federal Reserve as rationale. Where the trade failed miserably was in the erosion of the stability and sanctity of cash such that it took more of the diluted purchasing power of American currency units to buy one hundred shares of Apple in 2018 than it did in 2013. The expansion of price-to-earnings multiples, which are historical omens for better business conditions in the future, came about as a function of wildly expanded money-in-circulation chasing the same number and quality of iPhones, NOT due to improved wages and living conditions unless, of course, you are a banker.

Failed Trade #2: Fighting the Fed

Fighting the Fed while investing against accommodative monetary policies is like taking a knife to a gunfight; chances are you will lose. The “stretched valuation” meme has been trotted out by visionaries such as Jeff Gundlach, Doug Kass, Peter Schiff, and a handful of other notables including on any given Wednesday, Dennis Gartman, who reserves the right to change his mind whenever he (often) chooses. While I, too, agree that stocks are overpriced by most measures, by way of passive policy moves and/or direct intervention, the Working Group on Capital Markets(the PPT), working alongside the Fed, have been able to keep equity markets elevated with constant surveillance and animated jawboning. Until the Fed signals a hostile shift in policy (and they haven’t yet despite the rate hikes), fighting the Fed has been a loser’s trade. Shorting the VIX into spikes to above 25 has always resulted in returns to the 10–12 range since the lows of 2009. As the late and quite great Marty Zweig used to say “Don’t fight the tape and don’t fight the Fed.”

Failed Trade #3: Owning gold and silver

For the year, the S&P 500 is ahead 8.46% while gold is down a near-identical 8.76%. Silver is off 14.4% so there is a great deal of catching up to do if my forecast of an”up year” is to materialize. This year has been all about the mighty U.S. dollar and how “making America great again” means pumping up U.S. stocks and bludgeoning anything gold, silver or foreign. Owning gold and silver in 2018 is now reminiscent of the dog days of the summer of 2015 when everyone HATED junior explorers of all ilk and tone. However, the last month of 2015 saved the year and here in 2018, we have the seasonally strong fourth quarter to do the same. One proviso for the discussion of “seasonality” is that it has been yet another “fail” because expectations of Dewali (Indian wedding season) and restocking by the Italian jewelry trade have been ineffective in triggering anything representing accelerated demand and a subsequent price floor. The failure here was that elevated inflation rates would prompt demand but it hasn’t come close to the debilitating impact of the strong USD since trade war rhetoric began.

Failed Trade #4: Owning the Senior and Junior Gold and Silver Miners

Whether it was the big boys like Barrick and Newmont or the up-and-comers like Argonaut or Fortuna, owning the gold and silver miners was a brutal exercise in masochism. 2018 was the first year in the last ten that I failed to record one trade in the Junior and Senior Gold ETF’s but I am seriously contemplating an intiating position in the JNUG (DIrexion Daily Junior gold Miners Bull 3X ETF). Mind you, every time I type in the ticker symbol into the “BUY” box on the order entry machine, a series of sirens and loudspeakers go off with an imposing voice booming out “Warning! Warning ! Warning! You are about to blow your brains out and your wife will divorce you!,” which gives one pause before pulling the trigger. I know in my heart of hearts that the junior gold miners are cheap from every aspect of analysis known to mankind, but we all feel like the cat that jumped onto the stove—we absolutely avoid getting burned again by interventions and false bottoms.

Failed Trade #5: Owning the TSX Venture Exchange (the junior explorers)

The TSX Venture Exchange has been the host for most of the major mineral finds of the past 50 years but because of growing scarcity and accessbility of new mineral deposits, there have been far too few explorers that have actually found something large and high grade resulting in a windfall return for investors. As I wrote about in July, the trouble this year is that even what appear to be major discoveries are beng deeply discounted and in many cases completely ignored by traders and investors alike. There have been a few exceptions but virtually all facets of this sector were hurt and nowhere more pronounced than in the junior explorcos. As an aside, it is especially brutal when you consider that the guys and gals running the TSXV have been pruning explorcos from the list and replacing them with weed and crypto deals to try to improve the optics required to attract the younger and more adventuresome investment crowd. It didn’t matter; they avoided the TSXV like the plague.

Failed Trade #6: the “The Zinc Trade”

Back in late 2017, I was being accused of “sour grapes” by advising everyone to avoid drinking the KoolAid surrounding the most over-pumped commodity trade of all time—zinc. People tend to forget that I was an early bull on zinc from 2010 to 2016 having raised a great portion of the exploration funds for what became Tinka Resources Ltd.’s Ayawilca zinc discovery of 2012. However, the algo-based parabolic ascent of zinc in 2017 from $0.80/lb. to over $1.60/lb. resulted in an extremely crowded trade where zinc deals were like foreheads: everybody had one.

I argued more than once that the screaming zinc price hit $1.40, supply would magically and mysteriously appear knocking price back down. The screams of outrage and protest as investors and traders guzzled the KoolAid made a great many owners of high-cost (and now high-PRICED) zinc deals ecstatic with share prices rising 500–100% on the assumption that zinc would continue to climb to the heavens. Because of the sharp crash in zinc (and copper), dozens of PEAs and FSs are today being reworked with discounted net present value numbers being ratcheted down taking share prices along for the slide. It is a lesson to be remembered and it is aligned with the legendary Bob Farrell’s Rule #9, “When all the experts and forecasts agree, something ELSE is going to happen”—and it did —and now a myriad of junior zinc deals are in bear markets with many of their shareholders holding a large and very malodorous bag.

…and now for some “good news”…

Three Exceptions to the Rule:

1. Kirkland Lake Gold Inc. (KL:TSX; KLGDF:OTCQX): This company has advanced from the $6.00 range in early 2017 to the current $25.48 level after touching $30 earlier. Solid execution and superior management (Eric Sprott is chairman) have allowed shareholders to avoid the bloodbath in senior and junior issuers. The outperformance is staggering.

2. Western Uranium & Vanadium Corp. (WUC:CSE; WSTRF:OTCQX, C$1.18): Since I just completed a report on WUC, the shares are now sailing along north of $1.00 with the recent $0.68 funding now closed with over $3.5mm raised. As I said in the report, this one took a little longer to develop, but I believe it is primed and ready for a big 2019.

3. Aben Resources Ltd. (ABN:TSX.V; ABNAF:OTCQB, C$0.44): In addition to the spectacular results reported recently (62.4 g/t over 6m) from the Golden Triangle region of B.C., I am delighted that there is finally a company that has raised money, drilled, reported great results, and then was REWARDED. Up 148% in the past month, ABN holds a very special fondness for me because its chairman, Ron Netolitsky, was the driver behind Consolidated Stikine Resources, which owned 50% of the Eskay Creek discovery of 1989, and also because it helped me recover the losses from the 1987 market crash. I first heard about Stikine from Murray Pezim but rather than buy his deal, I elected to go with Netolitsky’s and bought 20,000 shares at $0.80 (pre-discovery). I sold the shares four months later for $15/share despite being warned against it by the late Ron Brimacombe. A few months after I sold (recovering $300,000 lost in Oct/’87), International Corona bid $67 per share, which amounted to $1,040,000 being left “on the table.”

These Aben results are very much on par with the original 1989 discovery and since it appears to be associated with the same fault that yielded the fluids forming the Eskay deposit, I am putting ABN on my recommended list for 2018 on the assumption (and prayer) that this will wind up as yet another 3,000,000-ounce gold and 160,000,000-ounce silver deposit. More importantly, I am hoping that Aben’s success triggers a much welcomed renewal of speculative appetites by investors spilling over to the rest of the exchange. One final reason I took the plunge: Aben’s chairman is none other than Ron Netolitsky. As they say in sport, you never bet the horse; you ALWAYS bet the jockey.

In case you hadn’t noticed, all of the “Failed Trades” covered in earlier paragraphs are actually classic “contrarian buys” as we speak. In November of 2015, you could have applied my remarks to all of the precious metals failures because by mid-2016, had you bought into the misery of the precious metals purgatory , you would have made a great deal of money. Final note on the recent bounce in the precious metals : I have yet to add to my GLD holdings because silver fails to lead and because the miners are really having difficulty getting going. I will probably await the COT Report expected this Friday afternoon before deciding whether or not adding to the GLD is worth risking yet another set of locks on the medicine chest and booze cabinet that shall be liberated either by way of unanimous consent or large, ignominious crowbar.

Everything has its consequence.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

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Disclosure:
1) Michael J. Ballanger: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Western Uranium & Vanadium Corp. and Aben Resources Ltd. 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 referred to in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Aben Resources. Click here for important disclosures about sponsor fees. 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. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Aben Resources, a company mentioned in this article.

Charts courtesy of Michael Ballanger.

Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.

The Gold Report: Prices of some commodities have been falling. What are your thoughts on the current commodities market?

Rob McEwen: The commodities market has been adversely impacted by the strong dollar and the discussion of a trade war possibility, which may already be happening. With the economies of America, Europe and Asia picking up, most investors are asking, why buy gold or silver? The dollar is the key. When it starts dropping, we will see the price of gold, silver and all commodities improve.

TGR: What is your sense of that? Do you think that we might be in for a longer period with a stronger dollar?

RM: Many foreign governments and companies borrowed in dollars, thinking the dollar was going lower relative to their own currencies. But the dollar has done the complete opposite. So now, these borrowers of $US are being squeezed as their borrowing costs have risen dramatically. This is creating financial distress in certain corners of the world. At these locations the price of gold has been climbing quickly.

When will we see the gold price going up in America? Look to the fall; that is when investors will turn their attention to some of these developing problems that exist outside of America and consider how it will impact America.

TGR: What about gold equities? Do you see their prices recovering irrespective of the price of gold or are the two looped together?

RM: During the past two months, gold equities have been performing better than bullion. In the past, rallies in the gold equities have been an early signal of an improving gold market. When I look at how well the gold equities have held up relative to the drop in the gold price, I’d say that’s a very positive sign. Also, there’s a seasonality factor to consider. We are entering the fall, which often has been good period for gold and silver.

I’m optimistic about the price right now. It is a good time to be buying. Investors’ sentiment is extremely bearish for gold. So, if you are brave enough to act as a contrarian, it’s time to buy this sector!

TGR: What mining companies are you paying close attention to?

RM: I believe the junior and midtier explorers and developers are going to be the focus of the market. This is where investors will make the largest percentage gains. They have growth in production and resources, whereas, most of the seniors have sold current and future production to pay down their heavy debt loads. So, they have a negative slope on their production profiles where the juniors and the midtiers will have positive growth.

There are a couple of juniors I watch closely. I’m talking my own book though, so I want to caveat emptor:

One, Mawson Resources Ltd. (MAW:TSX; MWSNF:OTCPK; MRY:FSE) is an junior exploration company actively exploring in Finland. It has some very interesting, high-grade gold drill results. Earlier this year, Goldcorp Inc. (G:TSX; GG:NYSE) purchased 12.7% of the company.

Two, Pure Gold Mining Inc. (PGM:TSX.V) is an exploration and development story operating in the prolific the Red Lake district in Ontario, Canada, which is around my old stomping ground with Goldcorp.

Three, Monarques Gold Corp. (TSX-V:MQR) is a small, growing gold producer that has been steadily building its resource and production base in Quebec, Canada. It has been buying growth at attractive prices when few are buying.

Four, B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX) is a midtier producer with a diversified production base. Its management team has been executing well on its growth strategy and its shares have been performing better than the industry.

Beyond these four companies there are numerous juniors and midtiers with good exploration results and positive low capex development stories that the market is just not paying any attention to. I believe now is the time to be building positions in these companies.

Senior producers such as Goldcorp and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) are in the market buying. They are stepping over the intermediate-sized companies and going after the development or late-stage exploration companies. Compounding this demand are the intermediate producers that are also looking to buy the same type of companies. For these reasons, I favor the juniors that have interesting exploration stories. I believe this is where your readers have the opportunity to make their biggest gains in the sector, make the biggest returns.

TGR: What do you see happening in mergers and acquisitions (M&A)?

RM: The majority of the senior producers need new resources, need new projects for their production growth pipeline to prop up their share prices. In the past four years they have gutted their exploration departments and budgets as well as selling off mines to reduce their debt and rid themselves of high cost mines. To address these needs the seniors have been buying future production. This trend feels like it is going to accelerate. M&A activity should pick up in the fall.

TGR: Let’s turn to McEwen Mining Inc. (MUX:TSX; MUX:NYSE). Can you bring us up to date on what’s been happening with the company?

RM: There’s been a lot happening. We have three active mines producing gold and silver, we are constructing our fourth and we are finalizing plans for a fifth mine. Our mines are located in the Americas: in Canada, Mexico, Argentina, and our fourth mine is scheduled to begin operations in Nevada in Q1/19.

Here is a quick overview of our operations. In Argentina, we have a 49% interest in the San José mine, an underground gold-silver mine that began production in 2007. It is one of the highest grade gold-silver mines in the Americas with a resource grade of 457 grams per tonne (g/t) silver and 6.7 g/t gold. It is located on a large property package that surrounds one of Goldcorp’s largest mines, its Cerro Negro mine.

Also in Argentina, we have 100% of a very large copper deposit, Los Azules, with about 30 billion pounds of copper. We are working on an access route that would dramatically change the value of this project. Currently, we’re only able to get in and explore this property about four and a half months of the year because we have to go over two high mountain passes that get blocked by winter snow. We believe we’ve found a route from the north that would allow us 12-month access below the snow line, which would dramatically improve the value by giving us year-round access and low altitude power, and it would make our drilling and exploration and development costs a lot cheaper if that works.

In Mexico, our 100%-owned El Gallo gold mine is an open-pit mine, heap leach operation. We stopped mining in May of this year but will continue producing ore into 2020. Recently we released a preliminary economic assessment (PEA) on a project that would utilize the existing facilities to process gold and silver ores from nearby satellite deposits. The PEA shows a low capex, long life project (10-12 years) with a 20% internal rate of return (IRR) at current prices. We will have a feasibility study on Project Fenix out early next year.

In Nevada, we’re building a mine called Gold Bar. I was just down there. It’s about half built. We expect it to be completed before year-end and in production in Q1/19. It will be an open-pit, heap-leach gold mine that we own 100%. It is located in a world-class district for gold discoveries and mines. It is 25 miles south of Barrick Gold Corp.’s (ABX:TSX; ABX:NYSE) Cortez Hills property, Goldrush zone and its very recently announced Fourmile discovery, where ABX pulled some spectacular drill assay results; 70+ grams over 16 meters was one of the holes.

This discovery is very encouraging for us because it opens up new possibilities for a bigger, longer life mine at Gold Bar. Up until very recently our geologists had concentrated solely on exploring for shallow oxide gold ores that could be recovered by heap leaching. We did have a few sulphide hits that were higher grade and longer intercepts, but there was never any further follow-up. That has now changed and drilling on deeper targets has just commenced.

In Timmins, Canada, we bought two packages of properties last year. In April, we bought a company called Lexam VG Gold Inc. and in October we bought the Black Fox Complex from Primero Mining Corp. These purchases gave us three large land packages along a geological structure that has yielded over 200 million ounces of gold over the past 100 years. This structure is locally referred to as the Golden Highway.

The Black Fox Complex included an underground mine producing approximately 50,000 ounces of gold per year, an operating mill with excess processing capacity and great exploration potential. The previous owner purchased the complex in 2014. They paid and subsequently invested a total of $560 million. We were able to buy it for a very attractive price of $35 million. And for that, we got production, albeit a short-life mine at the moment, of 50,000 ounces (50 Koz) per year, a very large land package in a prolific gold district, $180 million of tax loss carry forwards that we could apply against future profits, along with an operating process plant (mill) that had excess capacity. Not only was it an inexpensive purchase, it was also very strategic because we could take the assets that we purchased earlier in the year and process those resources at the mill. For 2018, we have a $15 million exploration program underway at the Black Fox complex, and it’s delivering good exploration results to date.

So all in all, there’s a package of three sources of production with a fourth coming onstream and good exploration in two world-class areas, Nevada and Timmins, Ontario. And then if your readers like copper, we have a very large copper deposit that has robust economics at $3 copper. So I’d say we’re in good shape right now. We have a small level of debt. I own 24% of the company. I have better than $130 million invested personally, and that’s my cost base in the company. I take a dollar a year as salary and have chosen to not take any options or bonuses while I’m running this company. I want to be very close to my shareholders and make money the same way as my shareholders do, and that’s through a higher share price.

TGR: You have said that one goal is to have McEwen Mining qualify for the S&P 500. How do you see that happening?

RM: We’re moving purposely toward our goal. In order to qualify, I believe we have to build our annual gold production to 600,000 ounces and have a pipeline of future production that would lift our annual production up to over 1,000,000 ounces. In addition, our cost of production would be in the bottom half of the industry’s cost curve and our average mine life would need to exceed nine years. I believe with these attributes, we could achieve the required market cap to qualify for inclusion in the S&P 500.

We have good organic growth, but that won’t get us to where we want to go. So, we’re continuously looking for opportunities to do some M&A on an accretive basis that’s not diluting our existing shareholders. It’s quite easy to grow if you just want to buy, but it’s very difficult to grow and not dilute your share owners. That was one of the big problems in the last run-up, where we saw companies getting bigger. They paid large premiums for their growth, and their share price remained stagnant and their share owners suffered!

My approach is very different. It ensures that I will only make money the same way as my fellow share owners. First, I only receive a salary of a dollar a year; second, I have deliberately chosen to not be given a year-end bonus; third, I have deliberately chosen to not receive any stock options or granted share purchase options; and fourth, I have just increased the cost base of my investment in McEwen Mining to $158 million. Only a higher share price will increase my investment and that of my fellow share owners.

TGR: With the price of gold staying relatively low for the last couple of years, are you seeing many properties at distressed values at this point?

RM: There are some. The Black Fox complex that we purchased last October would be a clear example of a distressed asset. Right now a large number of the gold funds are experiencing a continued stream of redemptions, so they’re not looking to buy new stories. They’re just looking to sell stories they own to cover the redemptions. And that has had an adverse impact on anybody who’s looking for financing in this market right now. So that creates the opportunities to build positions in gold equities at very attractive prices.

TGR: Is there anything else that you’d like our readers to know?

RM: If your readers feel the global economies will continue to grow, then copper is a very large component of economic growth. And as I said, we have a very large, undeveloped copper project in Argentina that gives us tremendous leverage to the price of copper. If your readers are thinking that there’s going to be monetary distress, we’re producing gold and silver. We provide your readers which unique leverage to both scenarios!

We have just borrowed for the first time. $50 million. I view it as a bridge. It is a short three-year term. We didn’t want to do an equity financing at our current low share price. So we decided on a debt financing. It took longer than expected but we completed the financing and received the funds last week. We went out and talked to 69 banks and credit agencies and came up with a piece of debt that’s three years long. It’s 9.75%, very light on covenants and can be retired. I wanted that flexibility. Of the $50 million, I’m taking down $25 million personally. These funds will be used for completing the Gold Bar project in Nevada.

Most of the institutional investment in McEwen Mining is through exchange-traded funds and indices. BlackRock, Oppenheimer, Van Eck are big. We have a large retail following, and 95% of our trade takes place on the New York Stock Exchange. They’re smaller institutional investors.

TGR: Thanks for your insights.

Rob McEwen is the chairman and chief owner of McEwen Mining Inc. He is the founder and former chairman and CEO of Goldcorp Inc., which is one of the largest gold producers in the world. In 1990, McEwen jumped from the investment industry into the mining industry. By 1993, he had begun a consolidation of five companies that would take eight years to complete. The resultant company was Goldcorp Inc., which has become a gold mining powerhouse. During the last thirteen years of Rob being Goldcorp’s CEO, the company’s market capitalization grew from $50 million to over $8 billion and its share price grew at a compound annual rate of 31%. McEwen was awarded the Order of Canada in 2007 and the Queen Elizabeth’s Diamond Jubilee Award in 2013. He holds an Honorary Doctor of Laws and an MBA from York University and a BA from the University of Western Ontario. Also, he received the 2001 PDAC Developer of the Year Award and was inducted into The Canadian Mining Hall of Fame in 2017.

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Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Rob McEwen: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Mawson, Monarques, Pure Gold, McEwen Mining. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: McEwen Mining pays me $1 a year. My company has a financial relationship with the following companies mentioned in this interview: N/A. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.American), a producer of uranium and vanadium in the U.S., announced that it has completed the previously announced acquisition from Excalibur Industries of royalties on the company’s 100%-owned Nichols Ranch in situ recovery (ISR) project in Wyoming.

The company also acquired royalties on several operating, standby and advanced-stage ISR projects in Wyoming owned and operated by Power Resources Inc., a wholly owned subsidiary of Cameco Corporation, the company said in a press release.

“The Company has also provided the State of Wyoming with a notice of its intent to repay and retire its Wyoming Industrial Development Revenue Bond (“Wyoming Debt”), which has a balance of $8.3 million as of the date of this release,” the company stated. “On Monday, the company acquired a six percent to eight percent sliding-scale gross proceeds production royalty on its Nichols Ranch, Hank and Doughstick properties. (Doughstick is a part of the Company’s Jane Dough Project expansion area).”

The royalty applies also to the nearby Niles Ranch, Willow Creek and Verna Ann properties, which are important pipeline uranium properties also owned by the company.

“Acquisition of this royalty is expected to significantly decrease the company’s cost of production at Nichols Ranch. Energy Fuels also acquired the four percent gross proceeds production royalty on Cameco’s North Butte/Brown Ranch Project (“North Butte”), the Ruby Ranch Project, and the Greasewood property,” stated Energy Fuels.

North Butte is a fully permitted and operational project that has been operated by Cameco as a satellite to its Smith Ranch-Highland in situ recovery project since 2013. In November 2017, the company announced that the transaction would occur by way of a merger of Excalibur with an Energy Fuels subsidiary, but the parties agreed instead to structure the transaction as a purchase of assets.

“At the closing today, the Company delivered to Excalibur 995,619 common shares of Energy Fuels having a total value of $2.9 Million, which were priced at $3.26 per share based on the volume-weighted average price (“VWAP”) of Energy Fuels’ shares on the American NYSE for the five trading days ending on August 13, 2018, as well as approximately $25,000 cash for all accrued but unpaid royalties owing to Excalibur at the time of the closing,” noted the company.

In addition, Energy Fuels is holding back another 107,221 common shares having a total value of $350,000, which, pending the satisfaction of certain conditions, will be released to Excalibur six months following the date of closing.

“These shares were likewise priced at $3.26 per share based on the VWAP of Energy Fuels’ shares on the NYSE American for the five trading days ending on August 13, 2018,” the company stated.

On Aug. 10, 2018, the company gave notice to the State of Wyoming that it intends to retire the entire outstanding principal balance of its Wyoming Debt within the next 30–60 days. The Wyoming Debt, which is secured by the company’s Nichols Ranch Project, currently has a principal balance of $8.3 million.

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Disclosure:
1) John McPhaul compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an employee. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
2) The following company mentioned in this article is a billboard sponsor of Streetwise Reports: Energy Fuels. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

History doesn’t repeat itself but it often rhymes.
– Samuel Clemens (Mark Twain)

I decided that before I sat down to write the weekly recap and outlook for the gold and silver markets that I would go to a few of the great commentary sites such as Streetwise, 321Gold, Goldseek and Gold-Eagle and read what the other “experts” are saying about the precious metals markets before I attack the keyboard. Earlier in the week, I had been working on a Western Uranium Corp. story and was astounded how stress-free it was writing about an energy deal as opposed to a sound money deal. After perusing perhaps two hundred paragraphs from some pretty smart guys and gals, it occurred to me that we are all looking at the same data and the same charts and reading the same headlines in an effort to sound original in our assessment of the metals

But what we are all missing are two very important and, in fact, crucial realities of today’s markets and I am going to focus on these in today’s missive. I could write about the COT report due out any moment (which I predict will be a doozy, with the Commercials recording a net long position for the first time ever), or I could drone on and on about RSI and MACD and the histograms and inverted teacups and screaming Dojis and hallucinating haramis, but it is all meaningless drivel in the context of the primary drivers for gold and silver. All that matters is that since the 2016 top at around $1,365 per ounce, gold has been unable to sustain any upward momentum thanks largely to the drivers.

Driver #1: Computerized Trading and Algobots
In 1998, I was first introduced to the concept of pattern-recognition algorithms that could trade stocks based upon the software’s uncanny ability to scan predictive movements and formations and execute buy or sell programs on such interpretation. The growth of computer-driven money management has now resulted in trading “floors” nearly devoid of human interaction, with carbon units only present to make sure the machines don’t go berserk (which they have on multiple occasions).

In vast, highly liquid markets like Forex and bonds and stocks, these algobots can operate fairly effectively, but in thin markets like commodities (and especially gold and silver), the algobots have a habit of feeding off each other. Once a short-term trend has been established, the ‘bots pounce and, in fact, extend and exaggerate it to the point of insanity. Once the ‘bots get control of the near-term trend, all other life forms join the party and the meme-du-jour becomes status quo, and there is no economic, financial or geopolitical event that will reverse it. The ‘bots do not analyze; they simply react and execute.

For this reason, I refute the idea that the Chinese are rigging the gold market by pegging the yuan to gold via the USD/CNY exchange rate. For most of the 2014-2018 period, a number of the blogger-gurus chortled on about how gold mirrored the JYP/USD cross—and before that the USD/EUR cross—but all that was, IMHO, was the pattern-recognition software picking up a working correlation and reacting to it. The more it worked, the more the ‘bots did it, and the cycle repeats itself over and over and over until the algo-scanners detect a “new kid on the block” of correlation. At that point, they run with it.

And because it is so completely warped in its extent and its intensity, the carbon-based trading units get on the keyboards and post accusatory rants about some sovereign entity rigging the price with all the fancy gold-yuan overlay charts being irrefutable “proof.” All it really proves is that the ‘bots have detected a correlation trend, and they have hijacked it. If any trading platform can abuse the system with not even the slightest of regulatory repercussion, it is the computers.

So, driver #1 is the existence of the algobots, and while it is entirely possible they are the riggers of the precious metals markets, they do so not from anything sinister or policy-driven; they are simply following the code written for them by the programmers.

Driver #2: Central Banks and Currency Regimes
Lord Rothschild said, “Give me control of a nation’s money and I care not who makes its laws.” And nowhere is that more evident than in the attitude of the banking community toward sound money. Bankers make fees from currency, and the more currency they control, the more fee income they derive.

For this reason, currency debasement is the primary incentive of all bankers. Take the financial crisis of 2007-2008. The global economy was humming along just fine, with the exception of the U.S. mortgage and housing market, where lack of adequate regulation allowed the markets to get out way ahead of their skis, resulting in a crash.

However, the only people affected were the banks and, technically, they were all toast. But since that would have vaporized shareholder equity for the elite class (primarily the bankers), it would have been a relative non-event for the rest of the working and middle class.

Now, this is a point of fierce debate because it is said that everyone was going to be impacted because “the system was freezing up,” which included deposits, but the vast number of Americans whose balances were well below the federal deposit insurance guarantee ($100,000 in Canada) were not at risk. Only the owners of the banking shares were at any real risk, so rather than allow the natural elimination of those entities that took unnecessary risks and failed, Hank Paulson begged Congress for, and received, a massive bailout through printed, fabricated, phony counterfeit money. In this manner, the utility of gold and silver as the rightful providers of safe-haven attributes was snatched away and replaced with the utmost of moral hazard.

Ten years later, with stock valuations stretched on the crest of a $14 trillion injection wave, gold and silver have been relegated to the role of cult-status investing. Only old people in North America (and citizens of Argentina, Venezuela and Turkey) believe in the safe-haven utility of gold and silver. Further, the youngsters would rather own pot stocks and cryptodeals (or Elon Musk’s Rocket to Mars for the price of a pizza deal) rather than two metals representing 5,000 years of monetary functionality.

In a nutshell, central banks and politicians knowthat if gold succeeds as a replacement for the rotting paper currency that underpins the “system,” then the Emperor’s-New-Clothes-Ponzi-scheme gig will be up and they will be unable to sustain this tax-and-spend, boom-and-bust cycle that allows the banker/politician criminal partnership to flourish.

The investing pubic also knows that gold is the mortal enemy of the money-printers/credit-creators because it shines an embarrassing and incriminating light on the banking cartel and their Machiavellian maneuvers. It is for this reason that they opt for Bitcoin as a receptacle for excess currency units and an alternative to bank accounts that can be subject to bail-ins and other confiscatory procedures.

These are the two primary drivers that dominate the demand-supply conundrum that infuriates fundamental analysts in their assessment of the balance of money flow between the buyer and seller of gold and silver. Their influence has dwarfed all forms of fundamental and technical analysis, and has completely negated their impact on pricing. It has been further exacerbated by driving participants away from the market because of the constantly inexplicable behavior whereby price defies historical directional stimuli and moves as if guided by some “invisible hand.” This type of behavior is always, and without fail, the result of interventions that free market advocates abhor.

The COT Report
Just as I complete a thorough debunking of “all that has worked in the past,” and having declared it obsolete, out comes the COT report. It is a wildly bullish report from a couple of perspectives. First, the Commercial aggregate short position is now within 5,000 contracts of the December 2015 bottom in gold at $1,045. Second, the net shorts for Large Specs (dumb money) at 215,500 contracts is 45% higher than it was at the bottom in December 2015. In a normal world, absent the criminal interventions and manipulations mentioned earlier, I would go “all in” on options on the JNUG and NUGT, and buy several hundred GLD contracts for January expiry. However, I am awaiting evidence of a short squeeze, engineered and triggered by the Commercials and agonizingly executed by the Large Specs, who stand to get annihilated if gold turns now.

I would also observe that in referring back to primary Driver #1, there is no rational human being, analyst or otherwise, who would allow a position in anything to grow as large as what we have witnessed in the Large Spec aggregate short position. Prudent portfolio management would prune down, but since the algobots are only reactive (to trends), they have simply followed the programming code and piled on. When the programming rules instruct them to cover, there will be a mad scramble to do so, and that is what will send this pendulum of doom in the opposite and welcomed direction.

Once I see evidence of distressed buying (hopefully this week), I will be adding to the GLD options, where a month ago I took a 25% opening position in the October $120s (some $5 higher). The beauty of scaling into positions over a number of days (or weeks) is that you can be wrong in your timing but still live to fight another day. I still have 75% of the original funds available to add to positions, but at levels far more palatable than they were thirty days ago. In this manner, I am able to avoid taking a sledgehammer to my forehead in self-recrimination and loathing.

As the title of this missive implies, conditions for the gold and silver markets are today similar, but not identical, to conditions in 2015, when prices bottomed and set up one of the most breathtaking rallies of my career, which lasted until August of 2016. The HUI followed later, on January 19, 2016, with a bottom tick of 99.17 before screaming to over 280.

Yes, it is true that history never repeats, but as for rhyming, this is a “Casey-at-the-Bat” poem in full regalia. Everything about the bottom of December 2015 is now in place, with even greater force and conviction. We shall soon see whether a historical repetition of the events of 2015-2016 unfold, unleashing a cavalcade of stampeding buyers in gold and silver bullion, futures, junior and senior gold miners and, of course, the explorers.

Bring it.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

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Disclosure:
1) Statements and opinions expressed are the opinions of Michael Ballanger and not of Streetwise Reports or its officers. Michael Ballanger is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. Michael Ballanger was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Charts courtesy of Michael Ballanger.

Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.

eCobalt Solutions Inc. (ECS:TSX; ECSIF:OTCQX; ECO:FSE) recently reported construction continues to progress on time and on budget at its Idaho Cobalt Project, which is the only near-term environmentally permitted primary cobalt deposit in the United States. The project is located near the town of Salmon, within the Idaho Cobalt Belt.

The company stated that the construction highlights include:

• Completed the WTP building foundation and slab. Building steel erection and placement of large components to commence August 18th.
• Started lining the Tailings Waste Storage Facility (TWSF) and ponds for September completion.
• Completed potable water system connection to site admin building.
• Completed the power distribution system to the ponds and wells.
• Water Treatment Plant (WTP) equipment has been mobilized to site.

“Very good progress has been made at the ICP by our exceptional team of mining professionals. We remain on target for commercial production to begin in 2020. In addition, discussions continue to progress with strong interest from multiple potential off-take partners and project financiers in numerous jurisdictions. We remain focused on the execution of our strategic plan to create long term value for all shareholders by pursuing a clean cobalt concentrate favourable to the battery manufacturing market,” stated Paul Farquharson, president & CEO of eCobalt.

Development of the concentrate roasting process utilizing a rotary kiln continues as planned. Bench scale testing, conducted by Expert Processing Solutions, a Dundee Sustainable Technologies partner laboratory, was completed in July. Pilot-level testing to confirm the updated process flow sheet was also conducted in July at Hazen Research, Inc., the company reported.

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Disclosure:
1) Jake Richardson compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: eCobalt Solutions. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) announced its Q2/18 financial and operating results along with its most recent dividend.

The company reported Q2/18 net earnings of $318 million, which included a $246 million gain from disposal of the San Dimas silver stream.

Q2/18 revenue was $212 million, up 6% year over year (YOY). Sales volume was 6 million ounces (6 Moz) of silver and 81,100 ounces (81.1 Koz) of gold.

Average cash costs in Q2/18 were $4.54 per ounce of silver sold and $407/oz of gold sold, higher than those in Q2/17, which were $4.51/oz and $393/oz, respectively.

Adjusted net earnings in Q2/18 were $73 million, up 9% YOY. Cash flow from operations was $135 million, up 8% YOY. Reflecting on H1/18, President and CEO Randy Smallwood said in a news release, “Wheaton’s high-quality portfolio and strong margins generated over $260 million of operating cash flow” during that period.

As of June 30, 2018, Wheaton had about $93M million of cash on hand and $957 million outstanding through its $2 billion revolving term loan.

Along with reporting Q2/18 financial results, the streamer declared its third quarterly cash dividend for 2018. It was $0.09 per common share, up 29% from the dividend of the same period in 2017.

Wheaton also provided recent noteworthy transaction updates, which included completion of two acquisitions. One was the cobalt stream from Vale’s Voisey’s Bay mine, and the other, which closed after the end of the second quarter, was the gold and palladium stream from Sibanye-Stillwater’s Stillwater and East Boulder mines. “These additions ideally fit within our existing portfolio as they are both high-margin and long-life mines with significant exploration potential,” noted Smallwood.

Also post-Q2/18, Wheaton acquired Adventus Zinc Corp. and a right of first refusal on any new precious metals streaming or royalty deals on Adventus’ Ecuador properties.

As for total attributable production during Q2/18, Wheaton achieved 6.1 Moz of silver and 85.3 Koz of gold. Compared to Q2/17’s figures, silver production dropped 15% whereas gold production rose 7%, compared to Q2/17’s figures.

With respect to the mines individually, Salobo produced 63.9 Koz of attributable gold, about 11% more than that produced in Q2/17, due to greater recovery and throughput offset partly by lower grades.

Peñasquito produced 1.3 Moz of attributable silver, a 15% decrease relative to Q2/17 because production from the oxide heap leach was lower.

Antamina produced 1.5 Moz of attributable silver, about 23% less than that produced in Q2/17. This drop was anticipated and due to mine sequencing in the open pit.

San Dimas produced 5.7 Koz of attributable gold and 0.6 Moz of attributable silver.

Vale’s Sudbury mines produced 4.9 Koz of attributable gold, about a 34% decrease YOY, resulting from reduced throughput and lower grades.

Constancia produced 0.6 Moz of attributable silver and 3.2 Koz of attributable gold, about 9% and 37% more than quantities produced in Q2/17, respectively. Increased production of both metals is attributed to higher grades and greater throughput.

Looking forward, Wheaton expects to achieve production in FY18 of 355 Koz of gold, 22.5 Moz of silver and 10.4 Koz of palladium.

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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following company mentioned in this article is a billboard sponsor of Streetwise Reports: Wheaton Precious Metals. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports (including members of their household) own securities of Wheaton Precious Metals, a company mentioned in this article.

The Trump Administration is at it again. On July 18, the financial press got hold of a story that said the next target of the Trump tariffs is likely to be the uranium/nuclear energy sector. In what looks like a repeat of what happened with steel and aluminum, the White House said it would investigate whether uranium imports threaten national security, given how dependent the United States is on the nuclear fuel. If the sector is threatened—and why wouldn’t it be, where 90% of the uranium needed for American nuclear reactors comes from abroad—import tariffs would likely be imposed.

If that happens, it would hurt nuclear power plants, who are already struggling with low electricity prices and flat demand, Bloomberg noted in reporting the story.

But this isn’t really about national security, or in legal terms, section 232 of the 1962 Trade Expansion Act, which allows the U.S. government to impose tariffs without a vote by Congress if imports are deemed a national security threat. Section 232 was used to slap 25% tariffs on steel imports and 10% on imports of aluminum in March.

It’s about two U.S. uranium producers who are fed up competing with state-owned companies in Russia and Kazakhstan (i.e., Rosatom and Kazatomprom). Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.American) and Ur-Energy Inc. (URG:NYSE.MKT; URE:TSX) petitioned the government in January for the probe. Notably absent from the complaint was Uranium Energy Corp. (UEC:NYSE.MKT), which mines uranium in the United States and Paraguay and processes it in Texas.

Since they supply less than 5% of the uranium needed for U.S. nuclear power plants, Energy Fuels and Ur-Energy feel threatened, and want protection. Are they likely to find a sympathetic ear in the U.S. government? You bet. Despite the prices of practically everything made from imported steel and aluminum going up, including of course, cars (GM is already losing money), this government doesn’t seem to get the fact that slapping tariffs on strategic metals that are in short local supply will hurt domestic industries that must buy those raw materials from abroad.

If the complaint is successful, two things could happen: a “buy American” quota that limits uranium imports and reserves 25% of the market for domestic production, or a requirement that utilities purchasing nuclear power buy U.S. uranium. We’ll address the likely impact of section 232 on the uranium market in another section, but the truth is, 232 is a red herring.

It’s a distraction from what is really going on with uranium, which is the setting up of an extremely bullish scenario for uranium investors due to supply shortages in the face of high demand for the nuclear fuel as a result of the ever-growing need for clean power globally. The supply-demand imbalance will mean higher prices. This article will explain how this will come about, and why now is an excellent time to be investing in junior uranium companies that offer the greatest leverage to a rising commodity price.

Demand picture

Demand for uranium, of course, is directly tied to the need for nuclear power, which is growing exponentially especially in Asia due to the problems with air pollution from coal-fired power plants. The global demand for electricity is expected to increase by 76% by 2030, and while everyone knows about the electric vehicle “revolution,” what is not often talked about is how will all that extra power be generated. Much of it will have to come from nuclear.

There are currently 452 operating nuclear reactors and 56 new ones under construction globally. According to the World Nuclear Association, China with its appalling air pollution is the leader with 17 new reactors under construction and 184 planned or proposed. Up until recently Japan was out of the nuclear mix, with all but a handful of nuclear reactors shut down for safety checks following damage to the Fukushima Daiichi plant during the 2011 earthquake/tsunami. But Japan, which has no oil and gas of its own and depends heavily on nuclear, now has nine reactors back in operation—a tripling from 2017—and aims for nuclear to represent just under a quarter of its power mix by 2050. Japan’s Abe Administration is pro-nuclear. Russia is building nine new reactors and India is constructing seven.

A 2015 chart from Thomas Drolet, head of Drolet & Associates Energy Services, was extremely accurate

According to nuclear consultant UxC, this means the global capacity for nuclear power is expected to grow by 27% between 2015 and 2030. And that means a whole lot more uranium. How much? UxC estimates annual uranium demand will spike by nearly 60%, from the current 190 million pounds of U3O8 to 300 million pounds by 2030.

September 2017, Uranium Participation Corporation

But there’s a problem. Uranium supply has been steadily dropping since 2016. That year total mined supply was around 163 million pounds, in 2017 it was 154 million, and this year it’s estimated to be under 135 million. With current U3O8 demand at 192 million pounds, that leaves a shortfall of at least 57 million pounds. More on why that is in the next section, but first, it’s important to understand uncovered uranium demand.

Uncovered demand

Nuclear utilities buy uranium on long-term contracts, in order to lock in the price. These contracts usually last four to 10 years. The long-term demand for uranium is calculated by figuring out utilities’ requirements for U3O8 that is not covered by contracts. This is known as uncovered demand. According to UxC, uncovered uranium demand is projected to increase by up to 54 million pounds by 2020, or just under a third of total demand that year. Then it just keeps rising: 150 million pounds in 2025, 179 million pounds by 2030. That 179 million pounds of uncovered demand is actually 16 million pounds more U3O8 than total mined production predicted for that year.

UxC Uranium Market Outlook Q3 2017

Why is this important? Because it means utilities will have to start negotiating long-term contracts soon, in order to prevent themselves being in a situation where their requirements are uncovered. If not, they will have to buy uranium on the spot market to have enough nuclear fuel. The trend since 2010 has been for utilities to buy a greater percentage of material on the spot market, with lower volumes contracted. This means contracting will have to increase in the very near future. By 2025 almost two-thirds of existing contracts will expire.

Supply picture

At current prices, about three-quarters of uranium mines are uneconomic. This is why several large uranium mines have shut down recently. In 2017, operations at Cameco Corp.’s (CCO:TSX; CCJ:NYSE) McArthur River/Key River were suspended. Rabbit Lake was shut down in 2016. State-owned producer Kazatomprom announced it will cut 20% of its production over the next three years, all in the hope that decreased supply will lift uranium prices beyond the $20-something range per pound, which is below the cost of production. The effect was to give a short-term boost to the uranium spot price. Recently the Kazakh Energy Minister suggested that there would be another 6% production cut, to 56.2 million pounds.

Since 2016, between 30 and 33 million pounds of mined uranium has been curtailed, representing about 23% of global production.

As mentioned, uranium mines will only produce around 135 million pounds in 2018, compared to demand of about 190 million pounds. That leaves a shortfall of roughly 55 million pounds. This shortfall could be met with secondary supply i.e., uranium that is stockpiled by governments and utilities for strategic reasons. However, much of this supply is locked up and not available for the market. It’s not “mobile,” meaning it cannot be counted on to add to primary mined supply.

Back to the long-term contracts. Over the next seven years the majority of them are going to expire. The utilities could buy uranium on the spot market, and with the price in the low $20s, this would make sense. But heavy buying would drive the spot price higher, so they don’t really want to do this. They prefer to negotiate long-term contracts at a slightly higher price, say $30 a pound. But this price is still low for uranium miners to make profits. The lowest-cost producing mine breaks even at $20 a pound. They need higher prices. How do they get higher prices? By cutting production. So uranium miners are likely to keep slashing production to drive up contract prices.

There’s one more factor affecting uranium supply: depleted uranium mines. Big mines like Ranger in Australia, and Rossing in Africa are running out of ore. As the grades become too low to be economic, these multi-million (annual) pound producers will scale back production, or even close down, further inflating prices. The Ranger mine operated by Rio Tinto will stop operating in 2021 and is slated for closure in 2026. Paladin Energy has cancelled a planned expansion and has shuttered its aging Langer Heinrich open-pit mine in Namibia.

Depleting spot supply = higher prices

On top of constrained mine production, coupled with higher demand for nuclear energy as new reactors get built, there is expected to be more buying on the spot market, which is about to put upward pressure on the spot price. Let’s take Cameco as an example. The Canadian producer has closed down mines, but it still committed to supplying uranium to its long-term contracts with utilities. With prices so low, it’s actually cheaper for Cameco to buy uranium on the spot market than to mine it. Cameco will have to buy 8 to 10 million pounds of spot uranium over the next six months or so. This represents around a quarter of the spot market. And with Cameco just announcing that it has suspended production at McArthur River/Key Lake indefinitely, Cameco is likely going to buy even more.

Second, enter a new uranium holding company aptly named “Yellow Cake.” Over the last few months this London-based fund raised US$200 million in an IPO and bought 8.1 million pounds of uranium from Kazatomprom, uranium that would otherwise have been sold into the spot market. The material is being held at Cameco’s storage facility in Ontario.

So between Cameco and the Yellow Cake fund, these two entities are either buying (in the case of Cameco) or withholding from (Yellow Cake) the spot market, an amount equivalent to about 50% of the total spot market for uranium. Another 6.5 million pounds has been stripped out of the spot market by producers or funds last year and this year (see graphic below), for a total of 24.6 million pounds.

This is bound to spark an upward price reaction in the spot market, something that Cameco and Kazatomprom, which represent around 60% of the uranium market, would love to see.

Cameco is a publicly traded company whose shares rise and fall with the spot uranium price. And they’ve just laid off hundreds of workers. State-run Kazatomprom is planning on doing an IPO on 25% of the company. They don’t want to IPO with the uranium price in the low $20s. Instead, they’re hoping to push it into the $30s or beyond, which would command a much higher IPO price.

Why uranium tariffs won’t work

Back to Trump’s uranium tariffs. Can U.S. nuclear utilities really be forced to buy American uranium when the country is 90% dependent on foreign imports? And could they even produce enough? The answer, of course, is no. The U.S. uses 50 million pounds of U3O8 annually but only produced 2.5 million pounds last year. U.S. nuclear utilities get the rest of what they need from Canada, Australia, Russia, Kazakhstan and Kyrgyzstan. This makes the United States the most vulnerable country to the risk of uncovered uranium. While the U.S. consumes the most uranium, with its 99 reactors, it only produces enough fuel for one reactor.

According to David Talbot, the most knowledgeable uranium analyst, it’s just not feasible for U.S. uranium producers to be able to ramp up to the level required (12 million tonnes per annum) without significantly higher uranium prices to make increased output profitable:

Even if a political threat is determined by DOC, we don’t expect the US gov’t to force utilities to buy up to 1⁄4 of its requirements domestically as recommended by the producers. While the US might have sufficient licensed production capacity and ample resources to cover, based on the current state of the industry we don’t believe US producers are capable to increase production from an expected near 1-2 MM lbs in 2018 to beyond 12 MM lbs pa, in the absence of higher uranium prices. About 4-5 MM lbs pa of stable US production seems more likely, although again higher prices are likely required to provide production incentive.

And while Russia would gladly disrupt its shipments to the U.S. in the event of a U.S.-Russia trade war, including uranium, Talbot writes that even with other importers stepping in to replace Russian imports, “it could result in rapid price appreciation.” While this would be good for uranium producers and investors, it would be bad for nuclear utilities, and ultimately, power consumers. It’s another unintended consequence (like the auto industry for steel tariffs) of the Trump tariffs on a domestic industry dependent on imports. Another key point: If U.S. nuclear utilities think that section 232 is going to be imposed on the uranium/nuclear sector, these companies will start buying on the spot market, where U3O8 can be purchased for cheap, because they know the price will go up if uranium tariffs come into play. In other words, the threat of uranium tariffs will put more upward pressure on the spot price.

Conclusion

The uranium price is going to rise and when it does, uranium explorers, producers and investors are going to get taken for a very exciting ride. The uranium market is looking at a perfect storm of factors that are very good for U investors right now. Despite its perceived risks, nuclear is a green form of power generation that is emissions-free. The return to nuclear power for uranium-dependent Japan is already happening. The global demand for U3O8 is very likely to increase not only due to that 76% figure mentioned at the top, but because of the need for more power to run electric vehicles. When EVs are plugged in, where does the power come from to recharge them?

A bear market in uranium since 2012 has dropped the price to a point where uranium is no longer profitable to mine for most producers. Hence the shutdowns of major uranium mines like McArthur River, Langer Heinrich, and curtailment of production from Kazatomprom. On top of that, big funds are emerging to buy uranium from the spot market. Top producers like Cameco are also buying from spot in order to keep fulfilling its long-term contracts despite cutting production. In the next seven years three-quarters of uranium contracts will expire. Re-contracting will have to take place before then, or before all the uranium in the spot market disappears. Utilities need to re-sign long-term contracts to ensure their uncovered demands are met, and as shown above, uncovered demand is increasing.

The shift in the spot market is key; with so much buying going to come into the spot market, it’s only a matter of time before the price responds in kind.

I’ve got restricted uranium supply due to shutdowns and depleted mines, steady demand due to global electrification needs and EVs, heavy buying on the spot market and a select junior uranium explorer (juniors historically offer the most leverage to a rising commodity price) on my radar screen.

Richard (Rick) Mills
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Richard (Rick) Mills, AheadoftheHerd.com, lives on a 160-acre farm in northern British Columbia. Richard’s articles have been published on over 400 websites, including: WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Beforeitsnews, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes, Ninemsn, Ibtimes, Businessweek, HongKongHerald, Moneytalks, SeekingAlpha, BusinessInsider, Investing.com, MSN.com and the Association of Mining Analysts.

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Disclosures:
1) Rick Mills: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Skyharbour Resources. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company currently has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures/disclaimer below.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: Energy Fuels and Skyharbour Resources. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts 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. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this interview, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Skyharbour Resources, a company mentioned in this article.

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Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.

Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

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Maurice Jackson: Joining us today is Gregory Beischer, the president, CEO, and director of Millrock Resources Inc. (MRO:TSX.V; MLRKF:OTCQX), a premier project generator.

I understand that you have some exciting news for us for current and prospective shareholders. Mr. Beischer, take us to Mexico, where Millrock Resources just completed its second phase of core drilling at the La Navidad Gold Project. What can you share with us?

Gregory Beischer: We are satisfied with the drill program results of 3000 meters to fully test the Cobre and Crossover prospects, and we hit gold in just about every hole. Pretty long, anomalous sections of mineralization in the core. What we presented in the press release are the best of the best, but the higher grade or thicker intersections only. And there’s some decent widths there with some pretty decent grades. So, we were pleased. More drilling still remains to really understand the significance whether some of these intersections join together into some sort of a cohesive deposit that could be economically mined.

We would have liked to have seen a few thicker intersections. In that part of the world, for the type of mining that would be done, pretty low grade is minable, down as little as 0.5 a gram of gold per ton. But you need pretty thick volumes or thick intersections to make big volumes of material to mine. So, Millrock and Centerra will be considering these results over the month, seeing how we think they all tie together, and then make a decision about the project going forward.

M. Jackson: Millrock has some additional news regarding drill Hole NV010, which was discovered in the first phase of the core drilling. What can you share with us?

G. Beischer: It was Hole 21, Maurice, that had quite a thick intersection of gold, over 60 meters. So that’s definitely the sort of width we’re looking for. One interpretation is that we drill partially down a vertical structure. And if that’s the case, then that 60 meters is not a true width and not as significant as it might first appear. There’s alternate interpretations, though, and if it is a 60-meter thick intersection, that’s the sort of thing we’re really looking for at that grade. But we won’t be able to know for sure which interpretation is correct until more drilling is done.

M. Jackson: That’s my next question here for you, Gregory. What is the next step at La Navidad, and when can we receive an update?

G. Beischer: Shareholders will receive an update before the end of August. As I mentioned, we’ll have a team meeting with our partner, Centerra Gold, at the middle of the month and make a decision about the project’s next step from there.

M. Jackson: Moving on to British Columbia, Millrock Resources has just executed a definitive agreement on three projects with Sojourn Exploration. Please share the details of this transaction.

G. Beischer: This is something we’ve worked long and hard on and I was really glad to finally be able to announce this today. Millrock has vended into Sojourn Exploration, another TSX Venture Exchange listed company, our three projects in the Golden Triangle that we bought back in 2015. We are selling them to Sojourn Exploration for a large number of shares in this new start-up, and we received some cash reimbursement for exploration work that we funded last year.

There will be a new technical team coming into Sojourn, and they’re coming with four of their own projects. And these are geologists that we’ve known for some time now. They are top-notch technical talent. In fact, I don’t think there could be much better. One of the main principals of the company basically wrote the book on Northwest British Columbia metallogeny.

These people are proven explorers. They’re proven generators. And this is what we wanted to find, geologists who would run the company and follow rigorously, as does Millrock, the project generator model. And these fellows already have established a track record, and command respect from major mining companies. And, in fact, there are several major mining companies already lined up to go look at the projects in the coming weeks. So, I know that they’ll be successful in securing funding partners for the projects, and we’ll see exploration going on.

So, for Millrock, it’s great, because now we have exposure not just to the three projects that we acquired in British Columbia a couple of years ago, but the four others that these gentlemen are bringing to the company. And they’re pretty darned good and interesting projects that have a chance of success. So, we’ll be content to be large shareholders; probably in the order of 19% of the company will be owned. And if they have exploration success and those shares become highly valuable, that’s going to benefit Millrock shareholders.

M. Jackson: That’s another classic display of good business acumen by Millrock Resources. So, you have the shares, and you also received some cash. Share with us, what do you plan to do with the capital from these sales?

G. Beischer: It’s not a huge amount of capital, but it’s always welcome to put that into our treasury. And we just keep doing what we’re doing, Maurice. It’s got to be a constant pipeline of new projects. So, that money will be used in part to generate more projects elsewhere. I will say that we’re not going to generate more projects in British Columbia. When we bought those projects, it was a target of opportunity at what appears to have been the very, very bottom of the market, in late 2015.

But, we’ll leave it to Sojourn to be one of the better project generators in BC. And look, there’s a lot of competition in British Columbia, a lot of smart geologists. So, we’ll stick to Alaska, where there’s a lot more elbow room, and Sonora, where there are really good chances of finding mines. So, we’ll deploy the capital to generate more projects is the short answer.

M. Jackson: Congratulations on all fronts. This is quite impressive. As a shareholder, I wouldn’t expect anything less from Millrock Resources. Before we leave, Mr. Beischer, last question. What did I forget to ask?

G. Beischer: We always like to talk about the price of gold because, as you know, even though Millrock explores for copper, and zinc, and even uranium, so much of capital availability seems to depend on the price of gold. And it’s gone down. No idea what it’s going to do any more. I think it’s going to take a surging gold price before investor interest will really pour into the mining markets. And some of the things I read tell me a big rise up is imminent, but we’ve seen that before. So, I’m not sure, but I know it has a big effect on junior explorers.

M. Jackson: Gregory, if someone listening wants to get more information regarding Millrock Resources, please share the contact details.

G. Beischer: Please visit our website at www.millrockresources.com and or contact Melanee Henderson of our investor relations office who will be glad to take your call and answer any questions.

M. Jackson: And as a reminder, Millrock Resources trades on the TSX-V symbol MRO, and on the OTCQX symbol MLRKF.

And last but not least, please visit our website www.provenandprobable.com where we interview the most respected names in the natural resource space. You may reach us at [email protected].

Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.

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Disclosure:
1) Maurice Jackson: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Millrock Resources. 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: Millrock Resources is a sponsor of Proven and Probable. Proven and Probable disclosures are listed below.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
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. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Millrock Resources, a company mentioned in this article.

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In an Aug. 7 research report, Eight Capital analyst David Talbot announced an increase in the target price for Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.American), from CA$3.85per share to CA$5.40per share. Energy Fuels’ shares are currently trading around CA$4.21.

The increase was predicated on “higher long-term V205 prices of $12/lb (up from $6/lb), assuming 4MM lbs of V205 production over the next three years at 50% margins, and increased U3O8 throughput from processing of alternate feed, pond returns, and toll milling fees,” the analyst wrote.

Noting that Energy Fuels “continues to outperform its peers,” Talbot detailed elements of what he considered a “banner quarter,” including delivery of 500,000 pounds of U3O8 at an average price of $53.55 per pound, which beat Eight Capital’s forecast. “Cushioned by high priced contracts, EFR was also able to scale back production and reduce operating costs,” Talbot added.

The analyst also commented on the fact that Energy Fuels’ stock has rallied, noting his firm’s belief the rally was spurred by “an upturn in the uranium market, lower operating costs, significant production optimization ability, additions made to its balance sheet, and plans to produce vanadium over the next three years.” Energy Fuels operates White Mesa, which Talbot states is “the only vanadium-capable mill in the USA while prices continue to rally in the face of a vanadium flow-battery revolution.”

“We continue to recommend Energy Fuels as a Buy,” Talbot wrote.

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Disclosure:
1) Tracy Salcedo compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following company mentioned in this article is a billboard sponsor of Streetwise Reports: Energy Fuels. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from Eight Capital, Energy Fuels Inc., Target Revision, August 7, 2018

Conflicts of Interest: Eight Capital has written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research and other businesses. The compensation of each Research Analyst/Associate involved in the preparation of this research report is based competitively upon several criteria, including performance assessment criteria, the quality of research and the value of the services they provide to clients of Eight Capital. The Research Analyst compensation pool includes revenues from several sources, including sales, trading and investment banking. Research analysts and associates do not receive compensation based upon revenues from specific investment banking transactions.

Eight Capital generally restricts any research analyst/associate and any member of his or her household from executing trades in the securities of a company that such research analyst covers, with limited exception.

Research Analyst Certification
Each Research Analyst and/or Associate who is involved in the preparation of this research report hereby certifies that:
• the views and recommendations expressed herein accurately reflect his/her personal views about any and all of the securities or issuers that are the subject matter of this research report;
• his/her compensation is not and will not be directly related to the specific recommendations or views expressed by the Research Analyst in this research report;
• they have not affected a trade in a security of any class of the issuer whether directly or indirectly through derivatives within the 30-day period prior to the publication of this research report;
• they have not distributed or discussed this Research Report to/with the issuer, investment banking at Eight Capital or any other third party except for the sole purpose of verifying factual information; and
• they are unaware of any other potential conflicts of interest.

The Research Analyst involved in the preparation of this research report does not have any authority whatsoever (actual, implied or apparent) to act on behalf of any issuer mentioned in this research report.

Additional disclosures available here.

In an August 3 research note, analyst Edward Sterck reported that BMO Capital Markets increased its forecasted shareholder return on Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE) to 9% from 8.4% to reflect the new US$1 billion share buyback program. “This places Rio Tinto well above the peer average of 6.8%,” he added.

Also, Sterck highlighted that this higher projected shareholder return comes despite an environment of inflationary cost pressure, resulting specifically in higher costs for Rio Tinto’s base metal segments.

In its model of Rio Tinto, BMO boosted its projected cost estimates within its copper and its bauxite, alumina and aluminium divisions. BMO decreased the expected prices for sales of alumina and bauxite, which led to a reduction in EBITDA as well. The miner’s 2018E group EBITDA was lowered by 7% and its 2019E EBITDA, by 4%.

Sterck concluded by saying the Rio Tinto story is “still attractive” and “despite slightly reduced EBITDA estimates, the company continues to offer the best risk/reward and commodity mix compared to its largest peers, in our opinion.”

BMO Capital has an Outperform rating and a £46 per share target price on Rio Tinto, whose current share price is around £38.81.

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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following company mentioned in this article is a billboard sponsor of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from BMO Capital Markets, Rio Tinto, August 3, 2018

IMPORTANT DISCLOSURES

Analyst’s Certification
We, David Gagliano and Edward Sterck, hereby certify that the views expressed in this report accurately reflect our personal views about the subject securities or issuers. We also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.

Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Company Specific Disclosures
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Rio Tinto.
Disclosure 6C: Rio Tinto is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.

For Important Disclosures on the stocks discussed in this report, please click here.

Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE, US$21.18) continues to diversify away from silver with two new streams, a gold and palladium stream on the Stillwater Mine (a long-life mine in the U.S.) and a cobalt stream on Voisey’s Bay nickel mine. Both streams are front-loaded; Wheaton will receive 4.5% of the palladium reducing on hurdles to 2.25% and 42% of the cobalt (expected to commence in 2021 after a mine expansion) down to 21% over time. The first has a 6.1% IRR, and second 11% (before tax), reasonably high in the current streaming environment.

However, Wheaton, already with a less than sterling balance sheet, funded both—$500 million and $390 million respectively—from its credit facility, adding to its debt.

Wheaton is undervalued relative to the other large royalty and streaming companies. The ongoing dispute with Canadian tax authorities is largely priced in, though a completely unfavorable outcome would hurt the stock, particularly given that the amount in dispute has not been reserved. We are holding Wheaton.

Not achieving goals yet

Goldcorp Inc. (G:TSX; GG:NYSE, US$12.34) saw a weak quarter, with lower gold production and higher-than-estimated costs. The company has advised the third quarter will also be soft, while forecasting a strong fourth quarter. The company’s grand 20/20/20 goal (for 20% higher production, higher reserves, and lower costs) was restated, but the company does not appear to be making great strides towards the goals. Execution is the key. Two major new mines have been experiencing more difficult ramp-up periods than expected—that’s Cerro Negro and Éléonore—though both are improving, and these two mines give the company potential to go some way towards their production and cost goals.

The balance sheet, with $2.4 billion of net debt, is not as strong as many of its peers, though its valuation is below its peers. We are holding, but not energetically buying more. However, the current price—down over two dollars from mid-June—is overdone, and probably a good price for a trade here.

Good quarters at Yamana and Osisko

Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE, US$3.10) had a good quarter, with better-than-expected production and lower costs. A new mine, Cerro Moro, just announced commercial production so will contribute in the second-half, which should be another good period for Yamana.

Net debt is a reasonable $1.58 billion, with liquidity of almost $900 million (most of which is a credit facility, not cash). It is valued below peers. We are holding for the time being, but given that Yamana has disappointed us time and time again, we are not buying.

Stock slammed by mine delay

Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE, US$9.16) reported good results, particularly a record production quarter at Canadian Malartic, its cornerstone asset. The bad news was the announcement of a blockade at Lydian’s Amulsar project in Armenia, which pushes back production to the middle of next year (at the earliest). This was to have been Osisko’s next major cash-flowing asset, and the news drove Osisko’s share price down sharply ahead of its own results.

The balance sheet remains strong. Though cash is down to $189 million, after new investments of $108 million in the quarter (and two of which carry future payment commitments), debt is also down after a $52 million repayment to $450 million. Osisko also has a large portfolio of junior companies valued around $450 million, and it is expected that Pretium will buy back its royalty, giving Osisko US$119 million before year end, so the balance sheet remains, and will remain, strong.

Osisko trades at a meaningful discount on several metrics to other large royalty companies, only partly justified (smaller, and higher-risk in exploration), also now at a discount to NAV. Take advantage of the sharp price decline—from $9.68 at the end of July; Osisko is a strong buy here.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”

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Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Osisko Gold Royalties. 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 Adrian Day Asset Management hold shares of the following companies mentioned in this article: Wheaton Precious Metals, Goldcorp, Yamana Gold and Osisko Gold Royalties. 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 billboard sponsors of Streetwise Reports: Wheaton Precious Metals. Click here for important disclosures about sponsor fees. 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. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports (including members of their household) own securities of Wheaton Precious Metals, Osisko Gold Royalties and Pretium Resources, companies mentioned in this article.

Lundin Mining Corp. (LUN:TSX) has made a formal bid to buy Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT; NY US$3.67), jettisoning erstwhile partner Euro Sun and offering all cash in a hostile takeover. At C$4.75 (about US$3.66, almost exactly the market price), the offer significantly undervalues Nevsun, and presages further activity including, we think, another bid from another company.

Real value and strong potential

Nevsun management, and the board when it makes its formal response next week, will reject the bid as too low. We agree. Nevsun has four parts (plus cash of $125 million).

• The steady cash-flowing Bisha mine, where metallurgical issues that plagued the mine last year seem to have been resolved with improving copper recoveries, plus other Eritrean properties; an Eritrean discount, notwithstanding the recent official end to the war with Ethiopia.
• The high-grade Timok Upper Zone where preliminary construction is underway and financing negotiations commenced.
• The high-potential and long-life Lower Zone, of which Nevsun owns 46% (in partnership with Freeport). The problem is that the Upper Zone has to be mined first and it could be up to 20 years before mining the Lower Zone.
• The regional exploration properties, where drills have started turning on a summer drilling program; in the Bor area, some 27 deposits have been discovered so the odds are strong that Nevsun would eventually find at least one more deposit. The problem is that in Serbia exploration permits last only seven years; some of these will start to expire soon, requiring renegotiation with the government.

Clearly, inside Nevsun are a couple of assets with hard valuations and a couple with longer-term or more speculative, but highly prospective, valuations. Of course, a buyer expects to buy at a discount, but buying one of the world’s best undeveloped copper projects—if not the best—at a low point in the copper price cycle, gives plenty of upside. That’s worth a premium for a major global mining company.

You do not need to take any action. The Lundin tender is open for 120 days (from July 26th), so there is no rush, and is a tender, meaning you do not need to do anything. It requires 66.67% of shares outstanding to be effective. If you are inclined to take the C$4.75, then just sell in the market, get a couple of pennies above the tender price to cover commission, and you don’t have to wait three months!

Possible scenarios

We suspect Lundin will be forced to raise its price, perhaps to C$5.25. Remember, someone has been buying millions of shares since the proposal; they are looking for a higher price (given they are buying at the tender price). Many long-suffering Nevsun retail shareholders also tend to think the company is worth more. I don’t think the current tender will be successful.

It is possible—likely?—that Lundin, having already made a failed bid for Timok two years ago, will raise its offer, perhaps to C$5.25. It has C$1.5 billion in cash, though could draw on credit lines or top up with shares to increase its offer. (We would like to see shares in a solid company structured as a merger, to avoid immediate tax consequences for U.S. shareholders). It is also possible that another company will come in after seeing how high Lundin will go, perhaps in a friendly acquisition.

We could write reams on all the various factors—Nevsun’s largest shareholder owns more dollar value in Lundin; its second-largest shareholder has been aggressively selling shares, over 9 million shares in June, and likely responsible for the huge volume trading days (including one well over 10 million shares); the resignation of Lundin’s CEO on the day the proposal went formal; and so on—not to mention the various and varying rumors swirling around these companies.

What’s the risk?

But the bottom line is simple: the current bid appreciably undervalues the assets; another bid is likely; while the downside is protected by Lundin’s bid. The major risk is that Nevsun does something such as selling a strategic interest in Timok to a partner, which would encumber the project and make it less attractive to another buyer. Given a proposal is currently active, such a move now would not be in shareholders’ best interest. If a major company—Rio Tinto, say—were to make such a strategic investment, even at a price above the current market, the stock will likely fall back because many recent buyers, including arbitrageurs and opportunistic traders, would immediately get out, sensing that an acquisition of the company had been thwarted. Depending on how low the stock price fell, it would then be a good long-term purchase. But the immediate profit potential would be gone.

Give the tender price and market price undervalue the assets, given the likelihood of a higher bid, and given the relatively low downside, we would hold Nevsun here. On the other hand, if you are overweight the stock, you might take the opportunity to reduce your position, given the not-insignificant risk.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”

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Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. 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 Adrian Day Asset Management hold shares of the following companies mentioned in this article: Nevsun Resources. 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 billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 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. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports (including members of their household) own securities of Nevsun Resources, a company mentioned in this article.

Blue Sky Uranium Corp. (BSK:TSX.V) is continuing work at its Amarillo Grande uranium-vanadium project in Rio Negro, Argentina, to release of a preliminary economic assessment (PEA) on the Ivana deposit there by the end of 2018. Also, exploration for additional resources is underway.

“We continue with our strategy to advance our exploration and PEA program work at Amarillo Grande so that we are positioned to capitalize on that return for our shareholders,” said Nikolaos Cacos, the president and CEO.

With respect to the PEA, preliminary mineralogical testing has been done, by the Saskatchewan Research Council (SRC) laboratory. The SRC now is conducting metallurgical and process test work that will include “QEMSCAN quantitative mineralogy testing and customized leach experiments.” The goals are “confirming the balance of uranium and vanadium in the ore preparation and optimizing the leach extraction rate and recovery,” a news release explained. The results will be used to design the flowsheet for the PEA.

Regarding efforts to expand resources and/or identify new mineralization at Ivana, Blue Sky is continuing its auger drilling program to identify deposit extensions and new areas of mineralization on the Ivana property. The company completed 425.5 meters of shallow auger drilling in 110 holes, from which radiometric probe data are being processed. Those results should be announced soon.

To follow auger drilling, Blue Sky plans a 1000-plus meter stepout, reverse circulation drill program around Ivana. It is scheduled to start in mid-August.

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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

To be a uranium bull lately is to take the classic contrarian investor position. The last hot uranium market, before 2011, ran the spot price up to $138 per pound, and made investors a lot of money. High prices though begets production, and supplies from Canada, Australia and Kazakhstan, the top three producers, started to flood the market. Then came the Fukushima Daiichi nuclear reactor incident in Japan, and poof, the bull market was over.

Japan shut down all of its nuclear reactors for safety checks, and the world soured on nuclear, with some countries (e.g., Germany) saying they planned to phase out nuclear for good. Un-needed uranium for Japan’s nuclear reactors flowed into the spot market, further depressing the price, which slid to around $20 a pound, rendering three-quarters of uranium production uneconomic.

For years now, utilities have been buying up spot supplies to take advantage of low prices, but over the last six months, those supplies have disappeared. Soon utilities will have to sign new long-term supply contracts, in the shadow of a looming supply deficit.

Big producers like Cameco in Saskatchewan and Kazatomprom, Kazakhstan’s state-owned uranium company, have been cutting production, with Cameco’s McArthur River Mine shut down last year. But Cameco needs to keep buying large volumes from the spot market to fulfill its contracts including 11–15 million pounds through 2019, which is over 20% of the spot market. On top of that, big funds are being set up to hold U3O8 (triuranium octoxide, aka yellowcake), which are removing more supply from the market.

Meanwhile, uranium demand keeps rising, as the world’s need for electrification intensifies. Global demand for electricity is expected to grow by 76% by 2030; much of this demand will be met by nuclear. According to the World Nuclear Association, there are currently 452 nuclear reactors operating in 30 countries, supplying around 11% of the world’s energy. Fifty-six reactors are under construction, with the majority, 17, in China, plus another 481 planned or proposed. Nine reactors in Japan have restarted. UxC, a nuclear industry consultant, estimates nuclear power capacity will increase from 379 gigawatts to 483GW by 2030, while uranium demand could grow from 190 million pounds to over 300 million pounds by 2030—a 60% jump.

When the spot market runs dry, utilities will have to renew their contracts, fast. They don’t really care what the spot price is, they just need to ensure their uranium needs are covered. When that happens, the uranium price is expected to go gangbusters.

Buying into the uranium market now really means being ahead of the herd. So how to invest in this coming uranium bull? Well, the best place to look for returns is the juniors, where the uranium bear market of the last seven years has decimated share prices, meaning very attractive entry points. And the preferred location is Saskatchewan’s Athabasca Basin, home to the world’s highest-grade uranium jurisdiction, where the largest uranium mine (McArthur River) is, along with Cameco’s Cigar Lake Mine, and some very notable recent high-grade discoveries including Fission Uranium’s Patterson Lake South/Triple R, Rio Tinto’s Roughrider deposit and NexGen Energy’s high-grade Arrow deposit.

A lot of exploration is happening around the Basin, and one of the best companies to have amassed a large, prospective land position is Skyharbour Resources Ltd. (SYH:TSX.V;SYHBF:OTCQB).

The Strategy

Skyharbour started about five years ago in the pit of the uranium downtown, when good properties in the Athabasca Basin could be snatched for pennies on the dollar. The Vancouver-based firm has spent around $4 million acquiring roughly 200,000 hectares, including the highly prospective Moore Project, which it optioned from Denison Mines back in 2016. Denison, listed on the TSX and NYSE, is Skyharbour’s largest strategic shareholder and its president, Dave Cates, is on Skyharbour’s board. Moore hosts the Maverick Zone, where historical drill results feature 4.03% equivalent U3O8 over 10 meters, including 20% eU3O8 over 1.4m starting at a depth of 265m, as well as 5.14% U3O8 over 6.2m. Recent drilling by Skyharbour returned 21% U3O8 over 1.5m, at a depth of 265m. This project is the main focus for the company and will see continued drilling and exploration as Skyharbour’s team looks to expand on the known high-grade zone while homing in on additional discoveries.

The Fraser Institute Annual Survey of Mining Companies, 2016, rated 104 jurisdictions around the world based on a combination of their geologic attractiveness for minerals and metals and their policy attractiveness. In 2016 Saskatchewan ranked as the top jurisdiction in the world. In 2017 Finland ranked as the most attractive jurisdiction in the world for mining investment, followed by Saskatchewan.

Skyharbour also owns 100% interests in the Falcon Point, Yurchison and Mann Lake uranium projects on the east side of the Basin. The Falcon Point property hosts an NI 43-101 mineral resource of 7 million pounds U3O8 inferred at an average grade of 0.03% U3O8 and 5.3 million pounds thorium dioxide inferred at an average grade of 0.023%.

The company also has a 50% interest in the Preston Project—one of the largest land packages (75,965 hectares) in the Basin—strategically located near Fission Uranium’s Patterson Lake South Triple R uranium deposit and NexGen Energy’s Arrow deposit, both of which contain high-grade uranium.

While Skyharbour is a top-tier uranium explorer, with the expertise to back that up (see Team section below), the company is also a prospect generator, meaning its strategy is to ink option agreements on its secondary properties, thus allowing other companies to come in and incur exploration expenditures in return for earning stakes on those properties.

CEO Jordan Trimble explains the dual-pronged strategy.

“First and foremost, we offer high-grade discovery potential in the best uranium district in the world,” he told Ahead of the Herd in a recent interview, referencing recent discoveries like NexGen and Fission as examples Skyharbour is trying to emulate. “But secondly, we also act as a prospect generator, because we have acquired such a large property package in the Athabasca Basin, 200,000 hectares of ground. So instead of letting these other properties sit there and collect dust, what we do is we go out and we find strategic partners to come in and advance these projects.”

The prospect generator component is key with such a big collection of properties as SYH, because without regular exploration, the claims could expire, leaving the company exposed to poachers. And while optioning off part of a project means Skyharbour owns less of it, “if you end up with 30 or 40% of a big discovery and deposit, then it’s a hell of a lot better than 100% of nothing,” Trimble quips.

The Team

On the exploration side, Skyharbour is led by Richard Kusmirski, a geologist with over 40 years of industry experience. The former exploration manager at Cameco is now the head geo at Skyharbour. Critically, it was Kusmirski who discovered the Maverick Zone at the Moore Project, as well as the Fraser Lakes Zone B deposit at Way Lake (now Falcon Point) in the early 2000s. At the time, Kusmirski was president and CEO of JNR Resources, acquired by Denison Mines in 2012.

According to Trimble, Kusmirski took JNR from a $5 million market valuation to over $300 million, and the two main projects he had—Moore and Falcon Point—now belong to Skyharbour. “He built a multi hundred million dollar company and we have gone back and acquired the two main projects and a few others for approximately C$4 million.”

This just shows you the re-rating potential there is in the next uranium bull market as Skyharbour has taken advantage of a depressed market, laying the groundwork for the impending reversal in the market.

As for Trimble, he was the Corporate Development Manager for Bayfield Ventures before it was taken out by New Gold in 2014. Skyharbour board chair Jim Pettit was CEO of Bayfield at the time of the acquisition, and is another veteran with more than 30 years of resource industry experience. Other key members of the team include: director David Cates, the current president and CEO of Denison Mines and Uranium Participation Corp; strategic advisor Paul Matysek, founder and CEO of Energy Metals Corp, which leapt from a market cap of $10 million to a whopping $1.8 billion before it was acquired by producer Uranium One; experienced company builder Donald Huston; and technical advisor Thomas. Drolet, a uranium/nuclear expert who runs his own energy consultancy and is the former head of Ontario Hydro (now Hydro One).

The Basin

Often called “the Persian Gulf of uranium,” the Athabasca Basin is home to high-grade exploration plays, a handful of advanced projects and some prolific uranium mines. These include Cigar Lake, held jointly between Cameco, Areva (now Orano) and Tepco Resources, McArthur River and Rabbit Lake mines, both of which are currently on care and maintenance. The Athabasca Basin produces about 15% of world uranium supply.

What is unique about the Basin is its grades—at over 20 times global averages. Some deposits are over 100x the world average including Cameco’s Cigar Lake which contains an average 17.8% uranium. In comparison, the Priargunsky underground uranium mine in Russia has grades of just 0.15%. Or Rio Tinto’s Rossing open-pit mine in Namibia, with grades of 0.03%, compared to over 19% in Denison’s Phoenix deposit—a difference of 630X.

The Basin contains sedimentary rocks with high-grade, often low-tonnage “unconformity” bonanza-type deposits, located on the contact between the Athabasca sandstone and the underlying basement crystalline rock.

How much of a bonanza? As shown in the graphic below, a 1% grade of U3O8 is the equivalent dollar value ($770) of 20 grams per tonne gold, 1404 g/t silver, 13.7% copper or 28% zinc.

For a good history of the Athabasca Basin, read “How Saskatchewan remade uranium mining.”

That article by MINING.com notes the real game-changer happened with the discovery of Rabbit Lake, where radioactive boulders at surface were indicative of richer uranium deposits at depth. In 1977, the Midwest discovery, made again from boulders at surface, led to extensive staking, and a new era of high-grade underground discoveries, including Dawn Lake, McLean Lake, and the mother of all deposits at the time, Cigar Lake. This was followed in 1988 by the discovery of the McArthur River Mine.

Recent notable discoveries include:

• Hathor’s Roughrider deposit in 2009, with grades up to 17%. Hathor was acquired by Rio Tinto in 2012 for US$641 million.
• Denison Mines and Cameco’s first resource estimate at the Wheeler project, in 2010, revealed grades exceeding 19%.
• Areva and UEX Uranium Exploration in 2010 released a mineral estimate on three properties at the Shea Creek property.
• Cameco and Areva in 2012 reported resources at Tamarck and Waterbury Lake, respectively.
• In 2015, Fission Uranium discovered Patterson Lake South, with mind-blowing grades up to 23%. The deposit was later named Triple R.
• Around the same time NexGen Energy discovered the Rook 1 property containing its Arrow deposit, composed of a series of at least five mineralized shear zones. A PEA was released in 2017.
• Wheeler River’s Phoenix and Gryphon deposits are being developed by Denison Mines. Phoenix has indicated resources of 70.2 million pounds U3O8 at 19.1% grades, while Gryphon contains inferred resources of 43 million pounds at 2.3% U3O8.

Trimble notes a lot of the exploration being done in the Basin of late by juniors would not be possible without a better understanding of the geology as well as technological advances that have been made. Many of the areas in the Basin are not greenfield; they’re previously explored brownfields. That means going into known districts using new exploration techniques or geological theories, and making new discoveries that way. “That’s very much what’s happening here in the Athabasca Basin,” he says. “Geophysical surveys have come a long way and are producing much better drill targets. They are more refined and can penetrate a little bit deeper down into the basement rock which has given us new targets below the known high grade Maverick Zone at Moore—potentially feeder zones for this high grade at the unconformity.” Another advancement is a better understanding of indicator minerals and clay alterations, which allow explore-cos to better home in on targets.

“Thirty years ago, they’d hit the unconformity or drill maybe a little bit into the basement rock and stop,” says Trimble. “This new way of thinking has opened up the Basin.” He gave the example of McArthur River, which needed over 200 holes to drill down to 500–600 meters to just find the deposit.

“It’s not something that a junior exploration company can fund. The science is much better, the targeting mechanisms and techniques have been refined. And that allows us to go out there and make discoveries with less capital and with more efficiency.”

The Deals

It’s fair to say that Skyharbour Resources wouldn’t be in the position it’s in—55 million issued and outstanding shares with a current market value of $22 million—without the project deals it has completed, allowing the share float to remain low. Insiders, management and key shareholders own 40% of the shares.

Two years ago, Skyharbour inked an option deal with Denison Mines to acquire Moore, in exchange for doing expansion and exploratory drilling on the high-grade Maverick Zone and other target areas on the 35,705-hectare property. Denison is Skyharbour’s largest shareholder, owning about 10% of its shares. Under the option agreement at Moore, SYH must spend a total of $500,000 in cash and shares within five years, and also shell out $3.5 million in exploration expenditures (now complete), in order to get 100% of the project. However, Denison did not want to completely part ways with the project given the potential and has the option to buy back a 51% interest. Trimble notes that Denison is focused on developing the Wheeler property, so optioning Moore to Skyharbour made sense. And with Kusmirski, the discoverer of the high grade at Moore, at the exploration helm, Denison has confidence in Skyharbour to come up with the goods in the ground.

Two more significant agreements were entered into at Skyharbour’s Preston property—a good example of the prospect generator model in action. In March 2017, Skyharbour brought in Areva (now called Orano) optioning 70% of its Preston project located near NexGen Energy’s Arrow and Fission’s Triple R deposits to the French nuclear giant. Under the agreement Orano can earn up to 70% of Preston by spending $8 million over six years. The other 30% would be divided between Skyharbour and Clean Commodities.

At the same time, Skyharbour agreed with Azincourt Uranium to option 70% of another portion of Preston, with Azincourt issuing 4.5 million shares and spending $3.5 million over three years, to Skyharbour and Clean Commodities. The two agreements in total mean that for $11.5 million in exploration and cash payments plus 4.5 million Azincourt shares, 70% of the Preston and East Preston projects will be optioned off.

Orano, formerly Areva, is a strategic partner for Skyharbour to have advancing Preston. After a recent recapitalization, name change and renewed focus in Canada, it is looking to secure a long-term supply of uranium for nuclear power generation.

SYH’s Trimble says that Skyharbour hopes to enter into similar agreements with its other 100%-owned properties: Falcon Point, Yurchison and Mann Lake.

The Flagship

The Moore project that Skyharbour optioned from Denison is composed of 12 contiguous claims totalling just over 35,000 hectares. It is located between the Key Lake mine and mill complex and the McArthur River Mine. Over $35 million in historical exploration has been done, with over 135,000 meters of diamond drilling and more than 370 holes completed.

Since mid-2000, the focus at Moore has been on the 4-kilometer Maverick structural corridor where pods of high-grade unconformity-type uranium mineralization has been intersected. During the winter and summer of 2017, just under 10,000 meters of drilling was completed. Highlights included 20.8% U3O8 over 1.5m, 9.12% U3O8 over 1.4m, and 2.23% over 9.3m U3O8, all at between 250 and 275m depth. About half of the 4-km corridor has been drill-tested. Stepping out 100m from the Maverick Zone, Skyharbour also discovered a new high-grade mineralized lens, where 9.12% U3O8 over 1.4m and 4.17% U3O8 over 4.5m at 278m depth was found.

This year a drone survey was conducted along the corridor, flown at close 20m spacings at 35m elevation. This enabled Skyharbour to better define high-priority targets. A recently completed 3,400m, nine-hole winter drill program returned high-grade mineralization and successfully expanded known zones.

This summer’s 3,000m program, however, will take a different tack, and will focus on drill-testing the Maverick corridor primarily below the unconformity in the relatively untested basement rocks.

In announcing the summer drill program, Trimble compared similar basement drilling successes to what Skyharbour hopes to find at Moore:

The known high grade, unconformity-hosted uranium mineralization at the Maverick corridor was deposited there through feeder zones in the basement rock, the discovery of which will be a top priority in this upcoming program given other recent basement-hosted discoveries including NexGen’s Arrow Deposit, Fission’s Triple R Deposit and Denison’s Gryphon Deposit.

Following this drill program, Skyharbour’s plan is to come out with a maiden resource estimate at Moore, in the first half of 2019. Between the drilling and the resource estimate, there will be ample news flow and catalysts for the company over the next year to position the company optimally to thrive in an improving uranium market.

Conclusion

If you’re a junior exploring for uranium, it helps to be in the Athabasca Basin. Not only does the Basin host the highest-grade uranium in the world, it is also in Saskatchewan, considered one of the best mining jurisdictions globally. The region is known for enriching shareholders fortunate enough to ride the wave. Successful projects have included NexGen’s Rook (Arrow deposit), Hathor’s Roughrider, Denison’s Wheeler, Enexco’s Mann Lake, and Fission Uranium’s Patterson Lake South.

Here at aheadoftheherd.com we believe there is no reason why Skyharbour can’t emulate these successes, especially considering its exploration team is headed by the geologist responsible for discovering the initial high grade at the flagship project. Drilling I 2017 at Moore has shown some excellent drill results, and this summer’s program could be even more intriguing when the drills hit the basement rocks.

As well, Skyharbour is also looking at exploration upside from the partners it has entered into option agreements with, and the properties it has yet to option out. For example at Falcon Point, mineralization containing up to 68% U3O8 has been identified in grab samples, the source of which has yet to be found.

Consider too that these are not greenfield properties. Skyharbour spent approximately $4 million to acquire its five projects, where over $75 million in historical exploration had been invested. That’s a lot of exploration data to have under your belt.

But why invest in uranium now, when the sector is still down after being kicked so hard in the years following Fukushima? Well, the market is poised for a turnaround. We’ll get more into that in another article, but a few points are key:

• Global demand for nuclear energy is strong and not going away despite the unfortunate accident at Fukushima. The leaders in building new nuclear reactors are China, India and Russia.
• Uranium demand is set to outstrip supply. Current demand is 190 million pounds but mine supply is now only 135 million pounds; the estimated supply gap is 100 million pounds by 2030.
• Utilities are going to need to buy more uranium. Over 65% of current contracts are due to expire by 2025.
• Almost no one is making any money at $20 uranium. This is why some of the biggest and lowest cost uranium mines, like Cameco’s McArthur River/Key Lake, Rabbit Lake and Paladin Energy’s Langer Heinrich Mine in Namibia, have shut down. Low prices forced the biggest uranium supplier, Kazakhstan, to slash production by over 20%. The price needed to bring new mines online is estimated at $60 a pound.

Remember the electrification of the global transportation system is being achieved by batteries—energy storage devices. That energy has to be produced in the form of electricity to charge those batteries. As much as I love solar and wind it is not now and will never be the answer for most of our base load (24/7), emission free power. Continuing to burn fossil fuels and damming more rivers are not the answer either. Nuclear energy is.

For all of these reasons, Skyharbour Resources (TSX-V:SYH) (OTCQB:SYHBF) and the next uranium bull market is on my radar screen.

Richard (Rick) Mills
aheadoftheherd.com
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Richard (Rick) Mills, AheadoftheHerd.com, lives on a 160-acre farm in northern British Columbia. Richard’s articles have been published on over 400 websites, including: WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Beforeitsnews, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes, Ninemsn, Ibtimes, Businessweek, HongKongHerald, Moneytalks, SeekingAlpha, BusinessInsider, Investing.com, MSN.com and the Association of Mining Analysts.

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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.

Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard owns shares of Skyharbour Resources (TSX-V:SYH).

Disclosures:
1) Rick Mills: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Skyharbour Uranium. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company currently has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures/disclaimer above.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: Skyharbour Uranium. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts 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. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this interview, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Skyharbour Uranium, a company mentioned in this article.

In a July 29 research note, analyst Joe Reagor reported that ROTH Capital Partners increased its price target on Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.American) to US$3.75 from US$2.75 in light of two pieces of recent uranium market news. The first is that Cameco will not be restarting its suspended production. The second is that the U.S. Department of Commerce is investigating the effects of uranium exports on national security. Consequently, Reagor wrote, “We believe the uranium spot price is poised to increase significantly.”

Cameco’s July 25 announcement that it was indefinitely shutting down its McArthur River and Key Lake operations “is paying immediate dividends for the industry,” noted Reagor. Specifically, on that news, the uranium price jumped to $25 from $23 and “appears headed higher, in our view.” Were the uranium price to increase substantially in the near term, the analyst argued, Cameco still probably wouldn’t relaunch production because of the heavy severance costs it incurred when it initially ceased operations.

As for the U.S. government’s study of uranium imports, Reagor said, “We view this as a significant positive for the U.S. uranium industry and believe the investigation could lead to a recommendation of imposing tariffs.” However, due to the requisite steps and related time frames of the process, the potential benefit to the industry and, therefore Energy Fuels, would not come for at least a year.

In revising its model on Energy Fuels, ROTH extended production, 2.5 million pounds of uranium annually, from 2028 to 2033. “We believe this demonstrates the significant production growth potential of the company if the uranium price recovers to a sustainable long-term level,” indicated Reagor.

ROTH has a Buy rating on Energy Fuels. Its stock is trading today at around US$2.95 per share.

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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Energy Fuels. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from ROTH Capital Partners, Energy Fuels Inc., Company Note, July 29, 2018

Regulation Analyst Certification (“Reg AC”): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

ROTH makes a market in shares of Energy Fuels Inc., and as such, buys and sells from customers on a principal basis.

Shares of Energy Fuels Inc. may not be eligible for sale in one or more states.

Shares of Energy Fuels Inc. may be subject to the Securities and Exchange Commission’s Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.

ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.

“Finding gold in the shadow of headframes” is one of the old adages of mining, and it’s one that Goldplay Exploration Ltd. (GPLY:TSX-V;GLYZF:OTCQB) has taken to heart. The company’s properties are in the Rosario Mining District, in Sinaloa, Mexico; the district is home to the historical multimillion ounce Rosario gold-silver mine.

Calling the Rosario mine “historical” is no understatement. The mine has been operated for more than 250 years, producing multimillion ounces of gold and silver. Other mines in the area include the Trinidad Mine, operated by Marlin Gold Mining Ltd., and First Majestic Silver Corp.’s Plomosas Silver Project.

Goldplay’s portfolio consists of more than 250 sq km in the Rosario Mining District.

Goldplay is now exploring its 100%-owned El Habal property, positioned just next door to Rosario and shares a similar geology to that of the Rosario Mine. Located 75 km east of Mazatlan and 10 km by paved road from the town of Rosario, the area has necessary infrastructure.

Late last year, Goldplay completed a surface channel sampling and trenching program that showed wide oxidized mineralized zones over a 2 km strike length. In addition to historical mine sites, the sampling indicated four new prospects: La Reina, El Arenal, Santos and Octavio. Highlights from the trenching program include 130 meters grading 1.86 g/t Au, 100 meters grading 1.20 g/t Au, 90 meters grading 0.84 g/t and the most recent discovery expanding the mineralized zone further east with 20 meters grading 1.33 g/t and 50 meters grading 0.48 g/t Au, including 13 meters grading 1.07g/t.

Goldplay has now begun to drill the property and just announced initial results from the first four drill holes, totaling 1045 meters of drilling. The company announced that the drilling “successfully identified near-surface continuity of gold mineralization, confirming extension of trenching results down dip at Santos target.”

Drill highlights include:

• 77.5 m @ 0.43 g/t Au in drill hole 18 EH-2
  Including 9.45m @ 2.05 g/t Au
• 15.4 m @ 1.35 g/t Au in drill hole 18 EH-1

Marcio Fonseca, president and CEO of Goldplay, stated, “Goldplay’s objective is to define the geometry and controls of mineralization at El Habal within the 6 km-long prospective corridor, expanding gold mineralization both along strike and down dip. We are pleased with the progress the Company has made towards advancing this goal.”

The company noted that the “drill intercepts have revealed wide gold mineralization hosted in a series of altered rhyolites, andesites and intrusives. The mineralization represents a high-level gold system hosted in a volcanic sequence with intrusive (granitoids) and related hydrothermal fluids.”

“The next step will be a follow up drill program,” Fonseca emphasized.

Another project in Goldplay’s portfolio, San Marcial, consists of 1,250 hectares and features a near-surface high-grade silver, zinc and lead 30 Moz Ag eq historical resource. San Marcial is at an advanced stage with upside potential for resource expansion and potential development of an open-pit mine, being located only 5 km from First Majestic Silver Corp.’s Plomosas project. An exploration program including drilling is in the works to support a resource update in the near term.

Goldplay has caught the interest of Brien Lundin, editor of Gold Newsletter. He wrote on July 1, “More recent trenching on existing targets at Goldplay Exploration Ltd.’s El Habal has outlined 130m of 1.86 g/t gold, 100m of 1.2 g/t gold and 90m of 0.84 g/t gold; plus, just announced trench results on the new Octavio target to the east of the main mineralization zone include 1.33 g/t over 20m and 0.48 g/t over 50m. Those are outstanding trench results; in fact, these results are what finally pushed me off the fence to a recommendation.”

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Disclosure:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an employee. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Goldplay Exploration. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Investing in the stock market involves the risk of loss and is not suitable for every investor. Past performance may not be indicative of future performance. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from Gold Newsletter, July 2018

The publisher and its affiliates, officers, directors and owner actively trade in investments discussed in this newsletter. They may have positions in the securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advisor. Authors of articles or special reports are sometimes compensated for their services.

Kutcho project, exploration camp

1. Introduction

Since my last update in May, Kutcho Copper Corp. (KC:TSX.V) has been working hard to advance its flagship copper-zinc Kutcho project in British Columbia. The company defined nine priority drill targets and started drilling in June; they replaced Allison Rippin Armstrong this month who was responsible for environment and community relations and are raising C$4M to support the current Feasibility Study work, permitting efforts and drilling campaign to expand the current resources. On top of this, CEO Vince Sorace has been working on a brand new and very exciting new initiative called MineHub Technologies for over six months now, and felt it was sufficiently advanced to share it with the audience on July 12, 2018. This update will predominantly zoom in on MineHub as it could be a very substantial development for Kutcho and its shareholders.

All presented tables are my own material, unless stated otherwise.
All pictures are company material, unless stated otherwise.
All currencies are in US Dollars, unless stated otherwise.

2. General update

Before I will discuss MineHub, a brief overview of the current state of affairs seems appropriate. Drilling at Kutcho commenced in the first week of June with two rigs, and the company has a crew of 45 men stationed on site now. This drilling has predominantly a metallurgical and geotechnical nature and less of resource expansion at the moment, and is meant to provide necessary information for the upcoming Feasibility Study (FS) planned for Q2, 2019. This program also has priority over the upcoming resource expansion drill program, which will start mid August, and will be completed in September/October of this year. Also, environmental data is being collected at the moment, needed for the ongoing permitting process. The FS data collection is expected to be completed mid-October.

As a reminder, Kutcho Copper management has planned the scale of the upcoming field program such that they can achieve all the technical data collection for the feasibility in one field season. The easy field season up there is May 21 to October 31. Outside this window, things are not impossible, just more expensive, and therefore the company is looking to complete all drilling requirements within this period.

The proceedings of the ongoing C$4M financing (flow through at C$0.45 and no warrants) will be used towards completing the FS, permitting and for the resource expansion drill program. The good thing is that the money is raised at a premium of today’s share price of C$0.38, with no warrants:

Share price over 1 year period

I am not a big fan of a short form offering as these shares can be sold immediately without the usual four month hold period, but since Kutcho seems to be bottoming in the summer doldrums with low base metal prices and slightly negative commodity (stocks) sentiment, this is a long-term play on copper and not some trading vehicle, with strong backers, and there is no warrant attached, I don’t see much downside and therefore not a lot of reasons for participants to sell off soon. Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) would like Kutcho Copper to proceed asap to the FS, and is supportive here.

On a side note but an important one, CEO Sorace told me that changes are coming up soon in BC legislation, causing the company to move a lot of CSR (Corporate Social Responsibility) consultation work upfront of the permitting process. This will create more certainty later on in the process, but it also causes additional costs earlier on.

When looking at the staff, it definitely caught my eye that a high profile permitting expert like Allison Rippin Armstrong (she handled permitting at Kaminak’s Coffee project in Yukon, Canada) left the company in the middle of gathering environmental data and talks to First Nations. It turned out to be for personal reasons, unfortunately, and had nothing to do with the company or project. Continuing as an advisor, Armstrong has been replaced by another very accomplished expert in the field of environmental assessments, permitting and local communities, the acclaimed Sue Graig. She is probably known best for her accomplishments with NovaGold and Aurico Gold, both involvements were awarded by awards addressing her excellence.

More specific, for NovaGold she also played a key role in establishing the participation agreement with the Tahltan Nation (First Nations), and this is the same First Nations group that Kutcho is dealing with now, so this is a strong advantage. In addition, she is also the president of the Yukon Chamber of Mines and a director of Yukon Energy Corp., and has served as the chair of AME Mineral Exploration Roundup, as well as a board member of the AME. AME stands for Association for Mineral Exploration British Columbia, and is a pretty influential body in mining in Canada. In my view, it is clear that the Kutcho Copper project still is in good hands on the environmental/community/permitting front. This pretty much sums up the status on the Kutcho Copper project, now it is time to proceed with MineHub, a project Sorace seems just as exicited about as he is about the Kutcho project.

3. Minehub

MineHub Technologies is one of the first, if not the first, serious application attempts of blockchain in mining. Blockchain in short is a system that allows information to be coded in a decentralized way. Besides the numerous initiatives around with bogus stories on blockchain just to ride the hype, there really is nothing blockchain related working at the moment in the mining industry. Blockchain tech is being developed everywhere now, with a large base in the financial industry, but Sorace noticed about six months ago that certain blockchain applications were also making its way into the energy industry. New developments usually get adopted in finance and high-tech industries first, and it trickles down to lower tech industries afterwards. Mining can be considered pretty low tech, and behind the curve.

Sorace saw opportunities there, as he was tech-oriented earlier on in his career, for example setting up solutions for grid storage for almost a decade. He thinks blockchain will be the most disruptive tech since the internet, and he is certainly not alone in this, as the world’s largest companies have all set up departments to incorporate this in their organization processes. It is everywhere now, and it is just a matter of time when it becomes mainstream, not if. Sorace was thinking how to apply this in mining. Soon he came up with supply chain management, as the industry is perfect for it. The current system is antiquated, and would love improvements on costs and efficiencies.

Copper cathodes

A lot of time- and cost savings can be realized here in the vision of Sorace, such as visibility and speed through the supply chain, by using smart contracts for transactional requirements and compliance with regulations across multiple jurisdictions and reducing in house personnel responsible for back office processes and data security. For example, one shipment of concentrate has a binder full of documents; there is no uniform system as well. Loads of emails go back and forth, spreadsheets need to be compared, etc. Sorace is taking the holistic approach here; essentially he wants an approach for the whole industry as he sees possibilities for a fully integrated system of various applications through MineHub. He quickly realized he couldn’t do this alone, and approached some of the biggest players in the industry. To his surprise, everybody he talked to was very interested, and he was able to quickly assemble a syndicate of very high profile companies.

He wasn’t allowed to mention names yet (a news release will come out in the near future addressing this subject), but according to the news release handling this subject, the syndicate consists of a senior mining company, one of the world’s largest streaming companies, an international base and precious metals and concentrates trading company that specializes in providing trading and financing solutions for miners and smelters, and a global financial institution offering banking services in the metals and mining industry. At least about one name I’m fairly certain when guessing, as it seems to make sense that “one of the world’s largest streaming companies” is no other than financing partner Wheaton Precious Metals. Sorace assured me these were all multi-billion dollar outfits and are considered to belong to the top of their fields. This all sounded very promising, but the story continues.

Sorace also hired a big name in tech to become the CEO of MineHub, which is a private company at the moment. MineHub will self-finance and will not need Kutcho Copper money. He is also looking for a big blockchain company that could provide the necessary technology, to set up the needed applications. The syndicate partners will provide knowledge/experience, which needs to be baked into the future applications. Sorace took care of the intellectual property (IP) first when negotiating with the syndication partners, which I found to be a smart move, as tech is all about IP. The central idea is to license out the applications to parties outside the syndicate. The syndicate members will become shareholders of MineHub, but they will have to pay for using the applications as well.

Beside all this, Sorace is also talking to others regarding strategic relationships to help with adoption and deployment of the technology within the mining space. It isn’t clear yet if MineHub will be a spin-out of Kutcho, or Kutcho remains a large shareholder, but it seems likely that MineHub will be listed at some point on the Venture Exchange. Its first goal is achieving a pilot of a supply chain application in six months, and a commercial application shortly after this.

At this point it is hard to provide any insights on future cash flows and value for Kutcho Copper shareholders in any shape or form, but if it works out the way Sorace is envisioning, with MineHub taking over/participating in a substantial part of mining industry software, things could get pretty interesting a year from now.

After discussing MineHub at some length, I would like to rehash the valuation scenarios again, as a reminder about how undervalued to NAV this stock really is at the moment.

4. Indications of valuation

Although the Kutcho project already has a much higher NPV8 compared to the current market cap (C$265M vs C$18.2M), there is clear appeal in doubling the resource and improving economics. There are several ways like

lowering the cut-off from 1.5% to 1% for the Main zone (which could add up to 5Mt to the mine plan), convert Inferred to M&I or later on to Reserves for the Sumac Zone, as this would add about 4Mt, and add tonnage through drilling at depth, which could add another 1.3–3.6Mt. This could definitely generate tonnage in the realm of 20Mt. Other opportunities are improving recoveries of copper and zinc, FX rates, higher metal prices and further optimization of, for example, mine plan and opex. In the longer term, there is a lot of exploration potential, and even further out there is potential for new discoveries at the newly optioned TCS property not too far away.

All opportunities considered, when I would use a 20Mt scenario, an 80% Zn recovery rate, a 1.25 exchange rate, a US$2.75 base case copper price and a fixed US$1.10 Zn price, a 2,500tpd throughput scenario for a LOM of 22 years, and a 4,500tpd throughput scenario for a LOM of 12 years, this would be the resulting, familiar, hypothetical sensitivity table:

By running the numbers it shows why developing the 4,500tpd scenario probably is the most economic scenario, followed by potential delineation of more resources (and eventually into reserves) for a longer LOM through exploration.

I updated the peer comparison again, despite incredible variation in typical metrics, notwithstanding stage or jurisdiction, at least it represents a brief overview of copper projects:

And:

As a rule of thumb and always the case with peer comparisons, every company has its own story with very specific details, causing valuations the way they are, therefore making it impossible to take comparison results at face value. With the current base case NPV8 of C$265M @US$2.75/lb Cu, and the expanded scenario coming out with the FS in Q2, 2019, I expect the share price to re-rate as a pretty profitable C$400–500M NPV8 at FS level should be reflected more than the current market cap of C$18.2M, in my view.

It is again hard to pinpoint to a certain valuation, as I didn’t foresee the current, pretty low share price as well. But keep in mind that at some point, the market cap has to make up for the difference between the current market cap and 0.8–1 times NPV8 when commencing commercial production as a rule of thumb. A double when the FS comes out in Q2, 2018 shouldn’t be unrealistic at all, maybe depending on sentiment improving by then.

5. Conclusion

Kutcho Copper has started drilling, is collecting data for the environmental assessment and permitting process, is raising C$4M and is launching MineHub Technologies, together with a powerful syndicate, which could have the potential to disrupt mining industry software. Clearly the company isn’t sitting on its hands, and supported by Wheaton Precious Metals the profitable Kutcho Copper project is fast-tracked towards the FS. With the expected estimated resource expansion coming up, which in turn will strongly improve economics, it seems a bottom is forming at the moment, and could be setting up Kutcho for a healthy re-rating when the FS comes out next year.

Kutcho project

I hope you will find this article interesting and useful, and will have further interest in my upcoming articles on mining. To never miss a thing, please subscribe to my free newsletter on my website www.criticalinvestor.eu, in order to get an email notice of my new articles soon after they are published.

The Critical Investor is a newsletter and comprehensive junior mining platform, providing analysis, blog and newsfeed and all sorts of information about junior mining. The editor is an avid and critical junior mining stock investor from The Netherlands, with an MSc background in construction/project management. Number cruncher at project economics, looking for high quality companies, mostly growth/turnaround/catalyst-driven to avoid too much dependence/influence of long-term commodity pricing/market sentiments, and often looking for long-term deep value. Getting burned in the past himself at junior mining investments by following overly positive sources that more often than not avoided to mention (hidden) risks or critical flaws, The Critical Investor learned his lesson well, and goes a few steps further ever since, providing a fresh, more in-depth, and critical vision on things, hence the name.

Disclaimer:

The author is not a registered investment advisor, currently has a long position in this stock, and Kutcho Copper is a sponsoring company. All facts are to be checked by the reader. For more information go to www.kutcho.ca and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.

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Streetwise Reports Disclosure:
1) The Critical Investor’s disclosures are listed above.
2) The following companies mentioned in the article are billboard sponsors of Streetwise Reports: Wheaton Precious Metals. Click here for important disclosures about sponsor fees. 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. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Wheaton Precious Metals, a company mentioned in this article.

Charts and graphics provided by the author.

Vancouver-based Surge Copper Corp. (SURG:TSX.V) stated on Wednesday it closed a non-brokered private placement consisting of 2.3 million units priced at 10 cents a share, raising $230,000. Comprised of a share and a warrant, unit holders can buy common shares for the next 36 months at an exercise price of $0.18 per share. Surge was trading at 11.5 cents a share at the close of trading Friday in Toronto.

Meanwhile at Ootsa, where a 3,000m drill program is underway, the second hole intersected a new zone of mineralization 500m northeast of the East Seel deposit.

East Seel is considered to be the deposit with the highest grades, where 40- to 50-meter intersections of nearly 0.75% to 1% copper grades have been assayed.

Surge Copper has plans to expand the current mineralized zones and its 2018 exploration plan involves exploring around the edges of the East and West Seel deposits. The goal is to add another 20 to 24 million tonnes to the current 224 million tonnes of measured and indicated resources in the ground, which would enable Surge to comfortably run a stand-alone operation, i.e., a mine that could function without any involvement from neighboring Huckleberry Mine, owned by Imperial Metals but currently on care and maintenance.

Hole S18-212 was drilled at a 135-degree angle to a depth of 483 meters, and is said to contain zones of mineralization containing pyrite, chalcopyrite and sphalerite along with carbonate and quartz. More details are contained in a July 26 press release:

The mineralization occurs as a sulfide rich breccia matrix and in sulfide veins and veinlets and is best developed between about 218 and 296 metres depth. Hole S18-214 is a 100 metre step out from hole S18-212 and was also drilled at an azimuth of 135 degrees and a dip of -50 degrees. Hole S18-214 intersected the same mineralized sulfide breccia as hole S18-212 and has traced the mineralized zone closer to surface. Hole S18-214 encountered 55.3 metres of overburden prior to hitting highly altered bedrock, and intersected sulfide breccia mineralization from 91 to 120 metres depth with weaker breccia below. Hole S18-214 is still being drilled.

The style of mineralization encountered in holes S18-212 and 214 is distinct from the porphyry style mineralization that occurs at the East and West Seel deposits but this style has been intersected at Ootsa previously. Hole S06- 42 encountered this style of mineralization and highlights its potential to host high grades as the hole returned 138 metres grading 0.84% copper and 22.1 g/t silver, including 42 metres grading 1.24% copper, 32 g/t silver, and 0.13 g/t gold (previously released).

The proximity of Surge Copper to the currently-shuttered Huckleberry Mine means it is an ideal takeout target for Imperial Metals should Imperial need more mineralization to feed its aging mine, which is estimated to only have about five more years of minelife. However, Surge also has enough potential reserves for a stand-alone operation, which could either interest an investor wanting to partner with it if Surge Copper goes mining, or a major who buys the company outright. All three scenarios are good for Surge investors, who are bound to see a dramatic share price rise if any of these possibilities takes place.

And takeouts ARE taking place in northwestern BC, in the Golden Triangle, home to some of the largest and richest mines in Canadian history as well as a bevy of exploration projects that have yet to yield pay dirt. Yesterday Newmont Mining, a U.S. gold major, acquired a 50% interest in the Galore Creek Partnership from NovaGold Resources and Teck for $275 million. Galore Creek is around 150 km northwest of Stewart, BC. A 2011 prefeasibility study outlines 9 billion pounds of copper (measured and indicated), 8 million ounces of gold and 136 million ounces of silver. As part of this week’s deal, Newmont will also get 40% of the adjacent Copper Canyon property. NovaGold noted the stake sales will allow the company to focus on its flagship Donlin Gold project in Alaska, which contains an estimated 39 million ounces of measured and indicated gold grading 2.24 grams per tonne.

We reported recently that big copper deals are drying up, and that large copper companies best look to exploration companies to obtain new supply. A deficit in the copper market is predicted in two short years, by 2020. That means juniors like Surge Copper are well placed for a buyout. If success at the drill bit continues, their interest in SURG is likely to be piqued.

Richard (Rick) Mills
aheadoftheherd.com

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Richard (Rick) Mills, AheadoftheHerd.com, lives on a 160-acre farm in northern British Columbia. Richard’s articles have been published on over 400 websites, including: WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Beforeitsnews, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes, Ninemsn, Ibtimes, Businessweek, HongKongHerald, Moneytalks, SeekingAlpha, BusinessInsider, Investing.com, MSN.com and the Association of Mining Analysts.

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Richard owns shares of Surge Copper (TSX.V:SURG).

Disclosures:
1) Rick Mills: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Surge Copper. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company currently has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures/disclaimer above.
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3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

The Energy Report: In response to a Section 232 petition by Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.American) and Ur-Energy Inc. (URG:NYSE.MKT; URE:TSX), the U.S. Commerce Department declared that it has opened an investigation into whether uranium imports threaten U.S. national security. How does this change the market landscape for uranium?

Blake Steele: This is potentially a very exciting catalyst for the U.S. uranium industry. President Trump has been protective of other U.S. industries, imposing steel and aluminum tariffs on the back of a Section 232 petition as well. And currently, the U.S. produces less than 5% of its annual uranium consumption while nuclear energy accounts for approximately 20% of the electrical grid.

Ultimately, this investigation has the potential to create a uranium market with two prices. One, there’s going to be a global price for production destined for non-U.S. consumption. And two, there’s going to be a price for U.S. domestic production, which will likely be meaningfully higher. Azarga Uranium Corp.’s (AZZ:TSX) asset suite is well positioned to take advantage of this.

In terms of timing, the Secretary of Commerce has 270 days to report and propose recommendations to President Trump. Trump then has 90 days to take action on those recommendations, should any actions be necessary to address the threat.

TER: Aside from this investigation, what other things are happening on a macroeconomic level with uranium? Prices have been low for a long time.

BS: You’re right, prices have been depressed for a prolonged period of time. Globally, we’re finally starting to see producers slashing supply. Producers have eliminated or are in the process of eliminating more than 30 million pounds (30 Mlb) of annual production since 2016. In conjunction, utilities have been underbuying in recent years, running down stockpiles and contract positions put in place pre-Fukushima, when European and U.S. utilities were concerned about market tightness due to rapid growth out of China.

You couple this with large funds being established to hold physical uranium, the U.S. Department of Energy halting sales to fund clean-up programs and Cameco Corp. (CCO:TSX; CCJ:NYSE) buying large volumes in the spot price while Japan continues to restart reactors, it’s a bit of a perfect storm here. All of these events are putting pressure on prices as spot supply begins to dry up.

In conjunction again with this, demand is growing. China is forecast to construct six to eight nuclear reactors per year, increasing to 10 after 2020. Japan will require approximately 30 reactors being back online to achieve its goal of powering 20–22% of its grid through nuclear.

One of the most significant upcoming catalysts could be McArthur River going into care and maintenance beyond the previously announced 10-month suspension. I would expect to see an announcement on this before the end of this quarter. (Editor’s note: On July 25, Cameco announced the suspension of McArthur River for an indeterminate duration.)

So all of these factors considered, I think it’s presenting a very interesting dynamic for the next 12 months in the uranium sector, the start of potentially a bull market here.

TER: One thing that I’m curious about is that most of the utilities that require uranium buy it on long-term contracts, and those contracts in the past have been in the $50 per pound ($50/lb) range. The spot price is well below that. As those contracts expire are the utility operators buying on the spot market? Are they going for new long-term contracts at lower rates?

BS: Contracting to date has been generally slow. Utilities over the last few years have been picking up pounds on the spot market, but this fundamentally has to change. As a result of those factors previously mentioned, the supply in the spot market is really drying up. Now, couple that with the fact that in excess of 75% of producers are not making money at current spot prices, they’re not going to be entering into contracts with utilities at anywhere near this price point. So I think when the utilities start contracting in a meaningful way, we are going to see long-term prices substantially north of where they and the spot price are today.

TER: Let’s turn now to your merger. Azarga completed the merger with URZ Energy Corp. on July 5. Would you talk a little bit about the merger and the benefits of the amalgamation?

BS: From our perspective, the merger presented an opportunity to create the only pure-play in situ recovery (ISR)-focused uranium developer in the U.S. The merged company has in excess of 30 Mlb of Measured and Indicated resources and 8.7 Mlb of Inferred resources located in the U.S. So we’re talking about scale focused in the U.S., which, with this 232 petition, seems to be the place you want to be right now.

The company’s flagship asset, the Dewey Burdock project in South Dakota, is the highest-grade undeveloped ISR project in the U.S. And adding URZ’s pipeline of assets, which includes the Gas Hills project in Wyoming, was a natural fit.

The merger also created a vehicle with an enhanced market position and a more diversified shareholder base, broadening investor and analyst appeal. Creating additional liquidity and investor interest in the uranium sector I think is an important goal for any vehicle.

TER: How have you consolidated the management teams?

BS: The combined management team is very interesting. We have over 100 years of experience in the ISR space, including development, design, permitting and operational experience. We have a very strong board with a diverse skill set, led by Glenn Catchpole as our chairman. Glenn had great success building and ultimately selling Uranerz Energy Corp. in the past. Our chief operating officer, John Mays, has 20 years of experience in the design, construction and operation of ISR mines in both the U.S. and Kazakhstan. All in all, I’d say we have a very strong management team poised to advance our asset suite and continue to unlock value for our shareholders. From my perspective, working with Glenn provides me with the opportunity to leverage Glenn’s vast expertise and experience. And ultimately, together, the combined management team has a larger network that will provide more opportunities for Azarga and our shareholders.

TER: You mentioned that Azarga has one of the largest portfolios of in situ recovery uranium projects in the U.S. Can we talk about ISR for a moment? Does it provide advantages over conventional mining?

Glenn Catchpole: Yes. In the U.S. our deposits typically are not high grade when you compare them to, say, the Athabasca Basin. But our advantage is that in the U.S. we do have deposits that can be produced at competitive levels using the ISR technology.

To give you an example, in the early 1980s, when the uranium industry all over the world went bust, prices went down to less than $10/lb and essentially all the conventional uranium mines in production in the U.S. at that time could not compete with the high-grade deposits in, as I said, the Athabasca Basin deposits in Canada. The only ones that were left in production in the U.S. were the ISR mines that we had in places like Texas, Wyoming and Nebraska.

Those ISR mines were able to still make a return on their investment that was acceptable from a business standpoint. That’s because the technique doesn’t require excavating big pits, and doesn’t require sinking shafts. In ISR mining, we don’t have those considerable expenses.

Another important aspect is from a permitting and regulatory standpoint; we do not need tailings ponds, as tailings ponds require considerable reclamation at the conclusion of mining. So this makes us cost competitive with other places in the world. And we see that trend continuing, as noted by production out of Kazakhstan on the Inkai project that I worked on, where they’re able to compete as probably the lowest cost or next to lowest cost producer in the world and, again, using the ISR technology.

BS: Glenn hit the nail on the head there. Another thing that’s important to point out is that approximately 50% of today’s uranium is produced using the ISR mining method. So it’s not a new methodology. It’s existed for decades. It’s widely utilized.

ISR projects also provide greater operational flexibility and provide the company with the ability to adapt to changing uranium prices. Projects can ramp up and be built in a matter of months, as opposed to 5 or 10 years like conventional assets in the basin, with significantly less upfront capex, which ensures that projects in the advanced permitting stage, such as our Dewey Burdock, are well positioned to take advantage of the next uranium bull market. So I think having the U.S.’s highest-grade undeveloped ISR project, Dewey Burdock, really helps set us apart from our peers.

TER: Speaking of Dewey Burdock, Azarga’s flagship project in South Dakota, would you bring us up to date on it and where the permitting situation is right now?

BS: Dewey Burdock is the highest-grade undeveloped ISR uranium project in the U.S. The project has forecast first quartile C1 cash costs and only requires $27 million of capex to achieve initial production. Life-of-mine production is expected to be 9.7 Mlb U3O8 with annual steady state production of 1 Mlb.

We are also very excited about the growth potential of the Dewey Burdock resource. We are currently working on a resource update using newly identified mineralization, which will nearly double the number of mineralized intercepts at Dewey Burdock. The additional mineralization is contiguous with existing ISR resources at Dewey Burdock and falls within the existing Nuclear Regulatory Commission license (NRC) boundaries. On the back of this, we are aiming to announce a resource update later this quarter followed by an updated preliminary economic assessment (PEA) in Q4/18 or early Q1/19 in which we expect improved project economics due to the increased scale of the project.

On the permitting front specifically, we are working toward finalizing the permitting process. We have received the NRC license as well as the draft Environmental Protection Agency permits. And the state permits have been recommended for approval. There is one remaining contention being worked through on the NRC license, but we expect that to be resolved sooner rather than later.

TER: Dewey Terrace has the possibility of becoming a satellite operation. What is its status?

BS: We have identified 259 mineralized drill holes at Dewey Terrace, which is directly adjacent to Dewey Burdock but on the Wyoming side of the border. Dewey Terrace could be a potential satellite project to Dewey Burdock, and we are continuing to review project information with the goal of identifying a uranium resource here. So for us, Dewey Terrace is yet another catalyst that we can potentially leverage in the next 12 months.

TER: Does the fact that it’s located in a different state complicate matters?

BS: Glenn has developed, permitted and designed the Nichols Ranch project in Wyoming with Uranerz. So we don’t foresee that being an issue, just really part of the process in the future.

TER: Let’s go on to the Gas Hills project, which belonged to URZ Energy. Is it the next project that you anticipate being developed? What is its status?

BS: The Gas Hills District is a prolific uranium district. Approximately 100 Mlb of uranium were mined here from the 1950s to the late 1980s. We are currently evaluating how ISR mining may positively impact future development options at the Gas Hills project. Historically, the majority of mining in this area was done via open-pit mines, and it wasn’t necessarily considered from an ISR perspective. To date, three of the five deposits at Gas Hills have been shown to be amenable to ISR mining, and we are very excited about the ISR prospects. So the key here for us is to focus on the ISR potential of the project and to move the project forward to fill our development pipeline.

GC: We’ve been doing some studies that indicate to me that considerable pounds could be mined from Gas Hills using the in situ leach technology. It wasn’t used out there in the past just because historically mining was conventional mining. But once the price went south, as I mentioned earlier, those Gas Hills mines all shut down from the conventional mining. And there are still considerable pounds out there, and the majority of those pounds, I feel, are extractable by ISR. So I’m very optimistic how that can fit into our overall planning, and of course, a lot of that planning and decision-making will hinge on what happens to the price of uranium going forward.

TER: Let’s talk about Azarga’s share structure post merger. How many shares are outstanding? What percentage is closely held?

BS: We have approximately 156 million shares outstanding. I would say about 40% of the register is closely held. Management, directors and founders have a lot of skin in the game, and we are certainly aligned with our shareholders when it comes to this. I think it’s always important. You want to make sure that management is always aligned with your shareholders.

TER: Do you have funding in hand to take Dewey Burdock to production?

BS: We will need to secure project financing to develop the project. The initial capex is only $27 million. Our plan of attack here would be to have a funding solution in place prior to or concurrent with the finalization of the permitting process for Dewey Burdock.

TER: Any parting thoughts?

BS: The next 12 months look very exciting for the sector and specifically our business. We’ve touched on a number of catalysts already—the resource update and the PEA update at Dewey Burdock, the permitting progression at Dewey Burdock, the satellite deposit in Dewey Terrace, as well as the continued evaluation of ISR development options at Gas Hills. All things considered, it’s a very exciting time for our business.

TER: Thanks for your time, Blake and Glenn.

Blake Steele is the president and CEO of Azarga Uranium. He joined the company in October 2014 as the chief financial officer and subsequently took on the roles of president and CEO. Prior to serving as the CFO of Azarga Resources, which merged with Powertech Uranium to form Azarga Uranium, Steele served as director of finance at SouthGobi Resources (part of the Ivanhoe Mines Group), and prior to that as manager, corporate development. Steele began his career with Deloitte & Touche, where he worked in both the audit and financial advisory practices. Steele graduated from the University of British Columbia with a Bachelor of Commerce degree. He is a Chartered Accountant and Chartered Business Valuator in Canada.

Glenn Catchpole is the chairman of Azarga Uranium. He served as a member of the Board of Directors and the CEO of Uranerz Energy Corp. from 2005 until 2015 when the company was sold to Energy Fuels Inc. for more than $150 million, creating the largest integrated uranium producer in the United States. Catchpole is a licensed engineer who holds an M.S. in civil engineering from Colorado State University. He has been active in the uranium solution mining industry since 1978, holding various positions including wellfield engineer, project manager, general manager and managing director of several uranium solution mining operations. He served as general manager and managing director of the Inkai uranium mine in the Republic of Kazakhstan, taking it from acquisition through feasibility study, joint venture formulation, government licensing, environmental permitting, design, construction and the first phase start-up.

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Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: Azarga Uranium and Energy Fuels. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Blake Steele and Glenn Catchpole had final approval of the content and are wholly responsible for the validity of the statements. Opinions expressed are the opinions of interviewees and not of Streetwise Reports or its officers.
4) Blake Steele: I was not paid by Streetwise Reports to participate in this management interview. I had the opportunity to review this for accuracy and am responsible for the content. I or my family own shares of the following companies mentioned in this discussion: Azarga Uranium.
5) Glenn Catchpole: I was not paid by Streetwise Reports to participate in this management interview. I had the opportunity to review this for accuracy and am responsible for the content. I or my family own shares of the following companies mentioned in this discussion: Azarga Uranium, Cameco and Energy Fuels.
6) Discussions are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
7) The discussion does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This discussion is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
8) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Azarga Uranium, a company mentioned in this article.