GFG Resources and the Curse of Big Deposits
Investors love seeing companies pick up projects with giant potential in the tens of million ounces of gold and billions of pounds of copper, zinc or lead. Investors love big projects. They should hate them. They are a curse.
Porphyries and alkaline intrusive systems can be humongous. Cripple Creek in Colorado is an alkaline intrusive system and was the source of over 23 million ounces of gold since 1890. But what junior mining companies almost always fail to mention is that for every giant discovery ten juniors will go belly up first.
Giant projects require giant amounts of money to explore and develop. The quantity of money and length of time it takes to fully define a large project almost guarantees failure as the standard.
Rattlesnake Hills in Wyoming is one of my favorite projects. Quinton Hennigh and I met in Colorado in October of 2008 and chatted for hours driving up to see it when it seemed the world was ending financially. Quinton was the CEO of Evolving Gold and for certain they were getting clobbered. I participated in a private placement in EVG some six months before on the basis of them having a potential extension to the Carlin Trend. I think I paid $.95 a share and while we were chatting away going to Wyoming EVG shares were trading at $.15. The company had $.22 a share in cash.
I told Quinton I had a bone to pick with him. I invested on the basis of a potential Carlin Trend gold deposit. And I had just been in Nevada looking at other projects for another company. My question basically was, what were we doing going to Wyoming when all of the push on EVG was in Nevada but we were not even in the state.
To give Quinton all the credit in the world, he did blush and look sheepish as he explained that Nevada had been oversold. It was going to take millions to explore and the market wasn’t interested in Carlin deposits, no matter what the potential. While Quinton was working for Newmont they had looked at Rattlesnake Hills. It was a Cripple Creek analog and it would be a lot easier to advance than their Nevada projects. Newmont passed on the project so EVG picked it up.
One giant problem that makes big projects even worse... Quinton and I were there in the middle of October. We got to Rattlesnake Hills, drove partway into the property, Quinton waved his arms and pointed to some hills and we left just before the entire state got snowed in for the next five months. Some projects are located in places where you can’t work for much of the year. And if you can’t work you can’t report and if you can’t report, investors get bored and dump your shares.
Quinton moved Rattlesnake Hills forward and it seems to me the shares went from $.15 to maybe $1.65 or so. Agnico Eagle found it interesting and did a deal with Evolving where the entire project was valued at $110 million. Quinton moved on to Novo and EVG went through a couple of changes of management.
In early 2012 Agnico Eagle wanted to slow the pace of their exploration. Gold had topped at $1923 in September of 2011 before dropping lower. All of a sudden the money spigots had dried up. By now a fellow with the name of R. Bruce Duncan was CEO. In my experience people who find a need to put an initial in front of their name are a bit pretentious. Duncan wasn’t a little pretentious. He was a lot pretentious.
Duncan saw a chance to get the benefit of millions of dollars that Agnico Eagle had spent on Rattlesnake Hills and get back 100% of the property. So he refused to budge on the terms of the JV and basically told Agnico Eagle to take a hike.
The wisdom of his actions pretty much shows up in the price of the shares. EVG was worth about $5 a share (pre-split, pre-split) Duncan could be just as pretentious as he wants but the share price says that under his management he pretty much destroyed the company. And while I accept that there are times such as 2011 until the end of 2015 where everyone was failing, Duncan is still failing.
EVG did a deal on Rattlesnake with another tiny junior that couldn’t get traction and finally sold it to a new company named GFG Resources (GFG-V) in late 2016. GFG shares some management with Gold Standard Ventures that has been a brilliant success in Nevada. And while GFG has expanded Rattlesnake in a good way, investors were starved of news for five months a year. So the project that was valued at $110 million in 2011 was limping along at a tiny fraction of that in 2017 even after brilliant results.
Management woke up and realized it was the lack of news flow that was killing the share price, not the quality of the project. So in December of 2017 GFG announced a takeover deal with Rapier Gold and acquisitions of projects from Probe Metals and Osisko Mining in the Timmins District in Ontario. Not only will there be measurable progress twelve months a year, GFG can keep their technical people hard at work year round.
I love the deal. I’m not a big fan of companies collecting projects like Beanie Babies. I’m not sure where the idiots running junior mining companies got the idea that if two or three projects are good, twenty or thirty are better. Who in their right mind actually believes he can advance thirty projects at the same time? I’ll bet they couldn’t even name the thirty projects.
As I said before, I really like Rattlesnake a lot. I believe it has district scale potential but it’s going to take a lot of money and management to prove up. But now they have feet on the ground in Ontario in a serious mining district with serious projects. The company has just over seventy million shares outstanding and is still less than 30% of what Rattlesnake alone was valued at seven years ago. With news in hand, I think the market will soon revalue the company. They have seven million in the bank to advance Canada for now and Wyoming if the snow ever melts.
I participated in a PP with GFG months ago and I own shares. GFG is an advertiser so I have to be biased. Do your own due diligence.