321gold.com
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| Portfolio Updates: BonTerra Resources (TSXV: BTR) and Columbus Gold (TSX: CGT) Gwen Preston
BonTerra Resources (TSXV: BTR) – BUY; High Risk ($0.35) It was a very busy week for BonTerra, with three news releases in three days. The first two concerned the Arena project in Quebec, which is BonTerra’s focus. The first announcement expanded the Arena property by adding a land position to the northwest. The second released new drill results. Drilling in the second half of 2016 significantly expanded the limits of the Gladiator deposit, as shown on the long section below, and also confirmed previous results from the Rivage zone to the west. Now the drilling goals are:
The latest results are part of effort #2. Hole 17-05 returned five mineralized zones, starting with two near-surface zones that were not previously known and continuing into the known Footwall, Intrusive, and Main horizons. The long section shows the near surface intercepts while the cartoon cross section shows the drill intercepting all five zones. The two new upper zones were intercepted within 20 and 50 metres of surface. One was a lower- grade mineralized intrusive that returned 12 metres of 1.1 g/t gold; the other is a shear zone with gold-bearing veins that returned 5 metres of 23.6 g/t gold. Next the hole cut through the Footwall zone, which returned 6 metres of 41 g/t gold. Deeper, the Main zone returned 4 metres of 3.4 g/t gold. With these results, Gladiator is now known to host at least five distinct subparallel zones of mineralization that collectively define a body of mineralization 1.2 km long and 800 metres deep. As VP Exploration Dale Ginn put it, “The presence of multiple continuous high-grade zones is significant and a potential positive contributor to delivering the better-than-average gold-ounces-per-vertical- meter number that mine developers and producers want to see.” The next day Kinross backed Ginn’s statement up with a $5.2-million investment in BonTerra. The major is buying 14.9 million shares at $0.35 apiece to take a 9.5% stake in the company. I knew BonTerra’s highly oversubscribed financing had nevertheless excluded at least one major that wanted to establish a foothold; now we know who that was. The Kinross investment is significant. BonTerra’s Arena project is in a hot jurisdiction: neighbor Osisko Mining keeps announcing high-grade hits from its huge drill program at Windfall Lake, like the 5.8 metres of 15.6 g/t gold announced today. The Urban-Berry camp is in stable Quebec, is easy to access, and is rife with gold if you know how to look for it. BonTerra has been a bit of a quiet player in this camp but I think that is about to change. With over $20 million in the bank BonTerra is about to get very busy and, with some luck, will I think attract major interest beyond Kinross. Columbus Gold (TSX: CGT) – HOLD; Medium Risk ($0.89) The feasibility study for Montagne d’Or is out and it outlines a large and economic gold mine, albeit one with some obvious room for improvement that was ignored for reasons related to the Columbus- NordGold deal. It’s all good, or will be soon. Let me explain. First, the key results of the study. It designed a Montagne d’Or mine producing 214,000 oz. gold annually for 12 years at an average all-in sustaining cost of US$779 per oz. The open pit carries a strip ratio of 4.5; the mill churns through 12,330 tonnes per day and recovers 94% of the ore’s contained gold via crushing, grinding, gravity concentration, and carbon-in-leach processing. Initial capital to build the mine is estimated at US$361 million, a good number for an operation of this scale. The ‘weak’ part of the study is an after-tax internal rate of return of 18.7%, which is below the 20% mark that many want to see and which means a 4.1-year payback period. Now to put the study in context. NordGold produced the Montagne d’Or feasibility study pursuant to its earn-in deal with Columbus, which the parties signed three years ago. It was the depths of the bear market, which makes it even more notable that Columbus extracted a strong deal for itself. The agreement required NordGold to complete a feasibility study within three years to earn 50.01% of Montagne d’Or. With the study now out, NordGold has 90 days to make a construction decision. If it’s a go, Columbus can elect not to contribute to construction costs, instead funding its part by diluting its stake in the asset. Here’s the interesting thing: the rate of dilution is pegged to the number of reserve ounces defined in the feasibility study. In short, the larger the reserve, the more Columbus gets to keep of the asset. Importantly, Columbus made sure to negotiate the numbers such that it would be near impossible to get diluted below 10% (at which point its stake would revert to a royalty). Good on Columbus for safeguarding shareholder interest in this significant asset, but in terms of the feasibility study the structure kind of worked against CGT, at least for the moment. As you can see from that dilution table, it was in NordGold’s interest to keep the proven and probable count below 3 million ounces. Guess what the reserve count came out as in the new feasibility study? 2.75 million ounces, well below the 3.9 million ounces in the measured and indicated resource. I’m not saying resource ounces necessarily upgrade to reserve ounces at a particular ratio, but in this case it’s fairly clear the reserve could be larger. For example, there are 960,000 inferred ounces under the pit in one corner. To have inferred ounces that don’t make it into the pit design is fairly normal, but in this case at least some of those ounces (about 200,000 of them) could, with a bit more drilling, be upgraded to measured and indicated status and included in the mine plan at no extra cost. In fact, Columbus and NordGold have already agreed to spend US$1.5 million to complete this bit of drilling. That agreement is noteworthy. Up to now, it was in NordGold’s interest to keep a lid on Montagne d’Or. By not promoting it NordGold kept interested parties at bay; by limiting the reserve count NordGold limited Columbus’ benefit. Now, with the dilution ratio and project ownership set, NordGold and Columbus are finally on the same side: they both want to make this project the best is can be. Whether that is so that NordGold builds a great mine or so that other miners are attracted to the asset and make an offer, the partners are now working together to maximize the asset. Another example of that is that the partners are spending the next six weeks improving some aspects of the study, which is not finalized until being filed with SEDAR in 45 days. The idea here is that NordGold’s tight timeline to get the study done meant some aspects were not optimized. For example, the capital cost estimates include US$47 million for mobilization, which means getting stuff to and from site. It is hard to estimate things like mobilization accurately and the tight timeline didn’t allow for that. In such situations engineers will guess high, often really high, to be sure they aren’t underestimating a cost. With more time and attention, it’s possible a more accurate mobilization cost estimate will come in lower. Now that they are on the same page, Columbus and NordGold plan to use the next 45 days to optimize some of those cost assumptions. The effort could improve the economics slightly. “NordGold is going to maximize what they can get out of Montagne,” said Columbus president and CEO Robert Guistra when asked what he thought the Russian company wanted to do now. There are options, the two most obvious being build the mine (which would likely mean buying Columbus out) or sell the whole thing. As for who would be interested, the answer is Almost any major mining company. Yes, the market likes to see IRRs above 20% but really most majors actually get interested at 15%. And majors need bigger projects like Montagne that can produce more than 200,000 oz. a year. I have no doubt there will be interest in this asset. How that interest manifests and on what timeline, I have no idea. NordGold will almost certainly make a construction decision, because at this point that means permitting the mine. Permitting progress adds value at a low cost, so that will happen. In the meantime Columbus is doing its own exploration program to test some of the most obvious resource expansion targets. Success with that would attract additional interest. At the end of the day, the feasibility study changed Montagne d’Or in a few key ways:
The market originally pushed CGT down on the news but today the stock rebounded to sit almost unchanged. The days and months ahead will be interesting. I think Columbus is fairly valued for its 45% stake in Montagne right now but exploration success, study improvements, or strategic interest could change that quickly. ### Mar 22, 2017 EDITORIAL POLICY AND COPYRIGHT: Companies are selected based solely on merit; fees are not paid. This document is protected by copyright laws and may not be reproduced in any form for other than personal use without prior written consent from the publisher. DISCLAIMER: The information in this publication is not intended to be, nor shall constitute, an offer to sell or solicit any offer to buy any security. The information presented on this website is subject to change without notice, and neither Resource Maven (Maven) nor its affiliates assume any responsibility to update this information. Maven is not registered as a securities broker-dealer or an investment adviser in any jurisdiction. Additionally, it is not intended to be a complete description of the securities, markets, or developments referred to in the material. Maven cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. Additionally, Maven in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned. Furthermore, Maven accepts no liability whatsoever for any direct or consequential loss arising from any use of our product, website, or other content. The reader bears responsibility for his/her own investment research and decisions and should seek the advice of a qualified investment advisor and investigate and fully understand any and all risks before investing. Information and statistical data contained in this website were obtained or derived from sources believed to be reliable. However, Maven does not represent that any such information, opinion or statistical data is accurate or complete and should not be relied upon as such. This publication may provide addresses of, or contain hyperlinks to, Internet websites. Maven has not reviewed the Internet website of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the convenience and information of this website's users, and the content of linked third-party websites is not in any way incorporated into this website. Those who choose to access such third- party websites or follow such hyperlinks do so at their own risk. The publisher, owner, writer or their affiliates may own securities of or may have participated in the financings of some or all of the companies mentioned in this publication. 321gold Ltd |
