I have tried to make the point repeatedly over several of my last articles
that the very best way of betting on future success of a junior mining team
is to measure what they have done over the past 15 years. It's a reasonable
bet that those who have had success after success will continue to make money
for their shareholders. And those who have failed again and again will
continue their money-losing streak while the wind is high enough for even
turkeys to fly.
Two of the very best stories belong to the team of Ivan Bebek, Shawn
Wallace and Dan McCoy. The trio was the driving force behind Keegan Resources
that eventually changed its name to Asanko Gold
Inc. (AKG:NYSE.MKT; AKG:TSX) and recently began gold production in Ghana
after a merger with PMI Gold Corporation in 2012. Between the
dregs of 2008 and the market high of 2011 for gold, Keegan gave an 1850%
return to shareholders. Between the very lowest prices of 2014 until now,
Keegan/Asanko has provided a 266% return to shareholders.
Moving on to Mexico the group founded a company they named Cayden
Resources Inc. In 2013 the three Musketeers optioned a project in Jalisco
State, Mexico from Groupo Mexico they called El Barqueño for a total of $8
million over a three year period with a small NSR due Groupo Mexico. I went
to see the project shortly after they picked it up and wrote about it in May of 2013. You should read what I
wrote; I will take 100% credit for getting it right from the gitgo.
The El Barqueño project had been mined in the past. You could actually see
the various forms of mineralization in the wall rock. I have never seen so
many different types of alteration. I told Dan McCoy and his excellent
technical team that what they had was a lot better than even they thought. It
turns out I was right. They turned around and locked up the entire district.
The stock was $.72 when I did my write-up and went to $3.79 when Agnico
Eagle bought out Cayden 15 months later. It was really funny to me. The gold
market was in the doldrums even though gold didn't drop much from September
of 2011 at the high to December of 2016 at the low. It was a perfectly normal
correction in a bull market. True, the gold shares got creamed but that was
entirely psychological. It was a normal correction in gold but shares went
down 90+% and few investors had either the vision or the guts to hang on.
The deal between Agnico Eagle and Cayden was all shares so
for those who bought when I wrote about them and now; they are up a
magnificent 900%. I happen to like Agnico Eagle a lot so the existing Cayden
shareholders were even better off with Agnico shares than Cayden. It was a
good deal for everyone, the project was and is brilliant. Cayden picked up an
entire high-grade gold district in Mexico while the rest of the industry was
still engrossed in picking their noses. Then sold it while everyone else was
crying in their beer.
Having known these guys for years, when I spoke with Ivan Bebek, the
Executive Chairman of Auryn Resources Inc. (AUG:TSX.V) (pronounced R-In),
recently I was primed for another great story. Little did either of us
understand that this time I didn't need thirty minutes to get it, I got it in
two minutes.
I asked Ivan about a 43-101 resource at their project at Committee
Bay. Casually he tells me that they have gold associated with banded iron
and instantly the light flicked on in my tiny little brain cavity.
Banded Iron Formations of course are Archean in age,
going back some 1.9-3.5 billion years ago. Basically iron was dissolved in
seawater and as the oxygen content of the water increased due to
cyanobacteria activity the iron precipitated out. Those familiar with my past
writing will recognize that is also the theory of Quinton Hennigh as to how
the Wits got it's gold and how the gold was concentrated in
the WA deposits of Novo Resources.
In other words, by telling me that Auryn Resources has a gold resource at
Committee Bay with Witwatersrand potential, Ivan has given me the entire
story. I looked at their website and realized the gold grade and thickness of
what had already been drilled resembled that of the Central Rand District at Witwatersrand in South Africa.
Wow.
Auryn Resources bought 100% of the Committee Bay project by doing an all shares deal with the owner North Country Gold in
September of 2015, paying $20.5 million for a 43-101 resource of 1.65 million
ounces of gold. But the deal was a lot better than just $12.42 per ounce of
gold. Prior operators had invested over $27 million in infrastructure and a
total of about another $100 million in exploration. If you remember back nine
months ago, no one on the planet was interested in buying gold or gold
projects. After all, the experts were telling us gold was going to $700 an ounce. But Auryn wanted gold
and they wanted it cheap.
Since the takeover, Auryn has added 162,000 acres for a total of 380,000
acres of a deposit with a strike length of about 300 km. While Shawn Wallace
and Ivan Bebek were busy picking up gold for pennies on the dollar, Dan McCoy
was calling in his markers in the industry putting together what I think is
probably the best technical team in the entire junior mining arena.
Investors need to understand there are three different mindsets in the
gold mining business. The majors are big. They have committees minding
committees. While they have excellent geos and provide them with every tool
possible, they bury them in regulations and paperwork. You don't see a lot of
original thinking or discoveries out of the majors except by accident when
they drill condemnation holes in Nevada.
In the middle you have the mid-tier producers. They are in production and
have excellent geos but are more focused on profitable production than
discovery. They may do some exploration work but generally prefer to buy
projects and or companies after most of the risk has been removed. Agnico
Eagle is an excellent example of a mid-tier that is well led and no doubt
will be a major down the road. They are the leaders of the industry, not the
followers.
Lower down you have the junior mining companies often thought of and
called 'Penny Dreadfuls" or "Lottery Tickets." You often find
people running these companies who did a great job when they were taxi
drivers in Vancouver or running a drill rig crew in Northern BC. No doubt the
mining industry would be far better off if they were still running a drill
rig or driving a taxi. They either go up 2000% or blow up and do a roll back
on a regular basis. I know one guy who has murdered 20 companies and another
that blew up two companies easily worth $1 billion each. I know that
somewhere there is a village missing its idiot and he's probably running a
junior mining company in Vancouver.
But even in what might look like a field of lumps of coal, sometimes you
find a valuable diamond. What the McCoy, Bebek, Wallace crew do is hire
people smarter than they are. And I mean that. In every visit I have ever
made to their projects or talked to their people, I was impressed with the
technical prowess. They aren't hiring people to do two weeks work on
structural geology; they have put together a professional team equal to that
of any major on earth. And they have given that team the tools and money they
need to do the job.
The quality of the technical team and willingness to tackle giant problems
head on has already shown benefits. Committee Bay is located west and north
of Hudson Bay in the far reaches of Northern Canada. Everything has to be
flown in and it's expensive. The camp alone cost somebody, not Auryn, $20
million to build and outfit.
Doing core drilling that would cost $200 a meter in Nevada or $150 a meter
in Peru costs $1000 a meter in Committee Bay. So their new technical team led
by Michael Henrichsen, formally of Newmont Mining where he was their global
structural geologist, put their thinking caps on and figured that they could
use RAB drills to save money. At first when I heard that, I thought they had
lost their collective minds. A Rotary Air Blast drill delivers chips to
sample, not the high quality of core where you can see the orientation of
structure.
But they have improved on core and have probably led the industry in
technology. They are using down hole cameras. So instead of inspecting the
core visually, they are inspecting the hole. They get the same data as core
but at a 65-75% saving. So now instead of spending $1000 a meter, they can do
it for $250 a meter and can drill twice as fast as a core rig. In the entire
industry in the world, there are only five down hole cameras. Auryn owns two
of them.
At Committee Bay Michael's team also used drones to fly the entire 300 km
structure doing photographs. They now have data that would have cost millions
in the past but now costs thousands. And they are doing a lot of special
studies on glacial till. Glaciers have covered all of the deposit at
Committee Bay in the past. They know the direction of the glacial movement
and can sample the till and determine how gold grade matches structure. In
short, they are acting like they are majors but doing it with a junior's
budget and some smart thinking.
Auryn has moved drills into place and they have started drilling a
10,000-meter program for this year. The RAB drills can actually work year
round so depending on their results, they may end up drilling 12 months a
year. The RAB drills don't use water so there is no issue with permitting and
can go down 150-200 meters in depth. Results should start pouring in during
September.
The existing resource came from a portion of the 300km strike called the Three Bluffs. While the resource is high grade, this is
in Northern Canada and it will take a lot more ounces to move the levers of a
major or mid-tier to make them break out the checkbook. While five million
ounces get people real interested in BC or Nevada, it's going to take more
like ten to fifteen million ounces at Committee Bay.
I think they have got it and a lot more. This is a 300 km belt that has
been barely scratched. Auryn has the management, the money, the technical
team and the deposit. With the tailwind provided by a higher price of gold, I
think Auryn has a winner on their hands again.
But lest the reader believe Auryn is a single pony stable, it is not. They
have an equally interesting pair of deposits in Peru that I will cover in the
future.
Auryn is an advertiser and as such I am biased. I do own shares but wish I
owned more. In relative terms they haven't moved anywhere near as much since
the bottom in January as a lot of penny dreadfuls without money or
management. I am biased and you need to do your own due diligence.
Bob and Barb Moriarty brought 321gold.com
to the Internet almost 14 years ago. They later added 321energy.com to
cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both
sites feature articles, editorial opinions, pricing figures and updates on
current events affecting both sectors. Previously, Moriarty was a Marine F-4B
and O-1 pilot with more than 820 missions in Vietnam. He holds 14
international aviation records.
