The Gold Report: Barry and Ryan, in March, you attended the
Prospectors & Developers Association of Canada (PDAC) convention, the
largest mining gathering in the world. What is your main takeaway?
Barry Allan: Probably the biggest takeaway this year was while
attendance was down marginally, the quality of the companies in attendance
was very, very good. It wasn't this frenetic activity of a bunch of people
running around looking for meetings, as there were better quality companies
in attendance and making presentations. I guess it is characteristic, to be
fair, of what we'd expect to see in a bear market, that the good always
survive, that the good always continue to make discoveries and move assets
farther down the track. I think that's exactly what PDAC was telling us this
year.
TGR: You prepared a report for PDAC highlighting more than a dozen
companies, not all of which are on your coverage list, that you believe have
great potential. Would you discuss a few of these companies?
BA: What Ryan and I were attempting to do here was to profile some
companies that were unique and caught our eye. Not all, as you say, were
under coverage, but they were companies that we had some knowledge about and
we found intriguing and interesting.
TGR: Which company would you like to start with?
Ryan Hanley: Red Eagle Mining Corp. (RD:TSX.V). I looked at its
project a couple of years ago while I was in Colombia. We decided to point it
out because it's one of the first major projects that has been able to
actually get through the permitting phase in Colombia. There are a couple of
reasons for this. One is that Red Eagle has done a good job on the community
side and has its social license. It has communicated well with all of the
stakeholders in the region. It also doesn't have the artisanal mining
problems that some of the other players in the area do, at least not to the
same extent, which has made the permitting process a little easier. In
addition, Red Eagle's project is an underground operation; it's not looking
at constructing a large-scale open pit.
Red Eagle now has everything in hand, including project finance, which I
think is worthy of quite a bit of attention. It also is a pretty attractive
deposit, a little bit over 5 grams/tonne (5 g/t) and a little over 400,000
ounces gold. There is quite a bit of exploration potential there as the
deposit remains open down-dip and to the east, as well as offers a few
satellite targets. We thought Red Eagle was one to definitely keep our eyes
on because of how well it has been advanced, how it is fully funded and how
it has exploration potential.
TGR: What is another company on your list?
RH: Rye Patch Gold Corp. (RPM:TSX.V; RPMGF:OTCQX), which is
in Nevada. The main thing that caught my eye is it has a 3.4% net smelter
royalty on Coeur Mining Inc.'s (CDM:TSX; CDE:NYSE) Rochester mine. Given
where commodity prices are today, that has given Rye Patch about $4-5 million
a year in revenue, which it can then use across its exploration projects. Rye
Patch's main project, Lincoln Hill, is right next to the Rochester mine. It's
scoped out as a small-scale operation, only about $30 million to build. It
has an attractive internal rate of return because while it is low grade, it
does have a low strip ratio, so the economics hold up in today's gold price
environment.
Additionally, Rye Patch has several other exploration properties that are
starting to look more interesting, including some in the Cortez Trend. Garden
Gate Pass looks like it falls along strike of Barrick Gold Corp.'s (ABX:TSX;
ABX:NYSE) recent Goldrush discovery, which is a little more than 8 million
ounces (8 Moz) at 11.5 g/t. Being along strike of that makes Garden Gate Pass
a pretty important exploration target, as is the Patty project, a joint
venture with Rye Patch, Barrick and McEwen Mining Inc. (MUX:TSX; MUX:NYSE) in
roughly the same area. Rye Patch is following all of these recent discoveries
of high grade along the Cortez Trend, in addition to the project that it
already has.
BA: We also profiled a company called Dalradian
Resources Inc. (DNA:TSX), which is based in Ireland; it had caught our
eye because of grade and good execution. This underground deposit is running
in the 10 g/t area, looking like it has something north of 3 Moz gold in
resources. It is test mining these high-grade, narrow-vein systems to prove
up the grade. Dalradian is high grade, is approaching its mine development
very smartly and doing what we think is a good quality job. So that caught
our eye.
We selected LiTHIUM X Energy Corp. (LIX:TSX.V) out of interest in the
lithium space and because of the people who were behind it, including
Executive Chairman Paul Matysek. The company has assembled brine lithium
properties in Argentina and has taken a fairly significant exploration bet on
properties in the only producing area in Nevada. We saw some good people here
getting a company organized and good sponsorship that would make sure the
capital was there to advance the project further. It has, as time wore on,
been certainly a darling of the marketplace and has shown some very
spectacular equity returns. We would say it still is a bit speculative at
this point, but it definitely has executed very well.
TGR: Do you think its Nevada location is giving it that extra push,
given Tesla Motors Inc. (TSLA:NASDAQ) and its Gigafactory?
BA: That's certainly part of it. LiTHIUM X is not alone in trying
to leverage the Clayton Valley for lithium production. What is more
significant is the company expressed a clear intent that it was in the market
to acquire such an asset, and it has subsequently executed on acquiring that.
So what may have started off as an idea has quickly transformed into good
exploration both in Nevada and Argentina. I think it's both of these together
that has really taken the stock to where it is.
TGR: Since you released your PDAC report, two of the companies you
profiled, Adventure
Gold Inc. (AGE:TSX.V) and Probe Metals
Inc. (PRB:TSX.V), have announced a merger.
BA: Those were two that we were fairly close to. We felt both
Adventure and Probe were very good quality exploration plays run by very good
quality people. We were not surprised that they have combined themselves into
a common company. Their methodologies are very similar; one is more Quebec
based than the other, but both are very good explorationists with good
properties to go exploring and with cash. What Probe brought to the table was
$20 million in cash, and Adventure brought good people and good properties.
TGR: Do you have any parting thoughts for our readers?
BA: Most of the equities we profiled in the PDAC report are much
higher now than where they were in March. I think it's testimonial to the
fact that the feeling in the mining industry is much better than it has been
in a good long while, and that's getting expressed even at the junior level.
TGR: Barry and Ryan, thank you for your time.
Barry Allan is vice chair, mining group and
senior mining analyst at Mackie Research Capital, and has been with the firm
since 1997. He was named to Zack's Investment Research's Top 10 5-Star
Analyst list in 2015, ranking No. 1 in North America for precious metals and
No. 3 across every sector in North America. Allan has worked in the mining
sector for over 30 years, serving as an exploration geologist before becoming
a gold and precious metals mining analyst with CIBC, Gordon Capital, BZW and
Prudential Bache. He holds Bachelor of Science degree in geology and a Master
of Business Administration from Dalhousie University.
Ryan Hanley is a research analyst with Mackie
Research Capital, covering the precious metals space, with a focus on junior
and intermediate producers, and the mining services space, with a focus on
mineral drillers. Hanley joined Mackie in 2010 and prior to becoming a
research analyst in March 2012, he spent two years working as a research
associate covering the precious metals sector. Hanley holds a Bachelor of Art
from McMaster University in Hamilton, Ontario.
