Keegan, Cayden and Auryn
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 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. In 2013 the three Musketeers optioned a project in Jalisco State, Mexico from Grupo Mexico they called El Barqueño for a total of $8 million over a three year period with a small NSR due to Grupo 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 (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 downhole 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 downhole 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.