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A Portfolio Peek

A bit of a different Maven Monday this week. Usually I snip out part of the macro editorial from the letter to share, but this week I thought I’d send out the commentary I provided on the six Maven portfolio companies that put out news in recent days.

All have been in the portfolio for some time, so subscribers have had lots of time to position (and profit!). The idea is that some of you may have considered subscribing, but weren’t sure what you would get out of it.

What you get is the weekly letter. It always contains a macroeconomic editorial, of the type you have seen parts of in Maven Mondays. But it also contains comments on interesting industry news, extensive writeups of new investment recommendations, and updates on Maven portfolio companies - what they are doing and why it matters.

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Gold Standard Ventures (TSXV: GSV) – BUY; High Risk ($3.42)

Gold Standard released one particularly nice drill hole from North Dark Star, the developing northern addition to the deposit in the southeast corner of the company’s Railroad-Pinion project in the Carlin Trend.

Dark Star has been delivering the most exciting results for Gold Standard and the latest three holes fit that bill. In particular, hole 16-24 returned 3.16 g/t gold over 97.3 metres, in an intercept 65 metres downdip to the west of hole 8, which returned 3.95 g/t gold over 126 metres in early August.

It’s a great result for a few reasons:

  • It extends the well mineralized zone down dip
  • It shows that the dip seems to be flattening to the west, keeping the mineralization closer to surface.
  • Its higher-grade sections (10 metres of 4.02 g/t gold and 49 metres of 4.62 g/t gold) suggest a strong mineralizing system.

The cross section shows hole 24 testing below previous hits through the mineralized zone. The cartoon also shows the interpretation that the zone is flattening to the west.

Of the two other holes announced, one did not return significant gold while the other hit 39 metres of 0.72 g/t gold. Similar to the hit in hole 24, this intercept extended mineralization down dip in its cross section and suggested a flattening of the zone to the west.

To put this all into context: North Dark Star is, as the name suggests, a zone north of the main Dark Star deposit. Dark Star is home to 23.1 million inferred tonnes grading 0.51 g/t gold, for 375,000 oz. Gold Standard discovered North Dark Star in late 2015 with a few drill holes that returned longer and higher grade intercepts than they got drilling the main deposit. As such, North Dark Start has been GSV’s focus in the area this year. The work is starting to outline a clear zone of high-grade mineralization, much of which is oxidized.

There are some interesting holes still to report this season. Check out the map:

Key to me are the holes testing between North Dark Star and Main Dark Star, for which assays are pending. If the Main and North zones connect, Dark Star would suddenly become much more significant.

The market liked the latest numbers and lifted Gold Standard’s share price back up to $3.42. The stock remains a buy for GSV’s large land package, multiple discoveries, extent of pending news flow, backing from majors, and discovery potential.

Integra Gold (TSXV: ICG) – BUY; Medium Risk ($0.78)

The latest set of results from Integra includes the widest-ever gold intercept from the Triangle zone, as well as several infill holes carrying better-than-expected grades.

The headline result was 19.8 g/t gold over 19 metres. Yes, that deserves a Wow. It came from the C4 structure, which is already known to be the widest, thickest, and most mineralized of the key steeply dipping C structures at Triangle. Even within that context, it’s a very strong result, partly because it came from volcanic rocks 150 metres west of the dioritic plug that is central to the Triangle deposit. Such a strong intercept so far from the plug supports the strength of the mineralizing system.

Also of note: the interval consists of two sections of tension veining sandwiching the known C4 structure. That’s significant because clusters of tension veins offer the potential to add good volumes to the Triangle resource if they exist in useful places, and this intercept shows they do at least in this part of C4. The historic Lamaque mine was very successful in part because it tapped into a combination of C structures, with their strong grades and widths, and tension and C flat veins, which are narrow but when clustered can create very good ore.

The news release did not just report on one hole. Results also included 18.6 g/t gold over 9.7 metres and 27.1 g/t gold over 6 metres from the infill program on C2. Integra is hammering C1 and C2 with infill holes to establish a highly accurate resource model for these areas, which will be the first mined. In fact, development has advanced the tunnel to within some 300 metres of the deposit, which means Integra will actually be inside C1 and C2 around Christmas time.

Also, these results are especially good, carrying widths and grades significantly above the estimates for C2 in the current resource. That of course bodes well for the resource update (though these numbers will not be incorporated in the update out this quarter; they will be added to the count in the first half of next year) and for the bulk sample, which will tap into these exact structures early next year.

On another note: Integra just started a small drill program to test one of the top targets from the Gold Rush Challenge. It’s a magnetic anomaly that has seen two drill holes; both returned good results but because the zone sat near the old property boundary, exploration never went anywhere. Integra is now changing that with a 2,500-metre drill program.

A series of good news items for Integra.

Nighthawk Gold (TSXV: NHK) – BUY; Medium Risk ($0.50)

Last week was a big one for Nighthawk Gold. I wrote in the last letter about Nighthawk’s impressive drill results delineating high-grade shoots within the Colomac deposit in the Northwest Territories. Two days later, Nighthawk announced a $10-million investment from Kinross.

The investment will give Kinross a 9.5% stake in NHK, a nice foot in the door for the major should the Indin Lake project turn out to host the kind of gold that Dr. Michael Byron and his team think it could.

The placement consists of 6.17 million shares at $0.50 apiece and 10.8 million flow-through shares at $0.65 apiece. The flow through money will be put directly into exploration, as required, while the funds from the straight shares will be used for general working capital.

I said when I came back from the conference in Beaver Creek that joint ventures and equity deals were the talk of town and I expected several deals to flow from the event. This is one such deal. Byron says talks with Kinross started several months earlier but “Beaver Creek helped keep things going as we did receive a fair bit of interest from others across the board at the conference.”

Post financing, Nighthawk will have $15 million in the bank, of which $9 million will be flow through. A winter drill program is definitely in the works, to be followed by further summer drilling and a regional mapping and prospecting program. The flow through funding is sufficient to cover all this.

“Kinross seems to see what I see; that the Colomac-Kalgoorlie analogue is valid, thus there’s exploration upside to hopefully find additional higher grade domains at Colomac, and that the Indin Lake camp, as a whole, is deserving of serious exploration attention,” said Byron to me in an email. “They like the land package and the core asset. In a nutshell they are believers that this camp has genuine untapped potential, and with their support we intend to push that envelope.”

It’s great news for Nighthawk: enough money to fund their plans for the foreseeable future, buy-in from a major, and a good price by taking advantage of flow through funding (which I usually hate because buyers sell as soon as the flow-through share become free trading, but it works in this case because Kinross will in all likelihood hold).

Select Sands (TSXV: SNS) – BUY; Medium Risk ($0.88)

On Friday Select Sands announced a US$7.5-million private placement. Three hours later, it increased it to US$10 million. The raise is priced at $0.77 and the funds will finance the full cost of the deal SNS announced ten days prior, to buy the dry process plant and associated equipment that it has already been using on a toll basis to produce its sand.

The fact that the raise was so oversubscribed is significant in itself. Also significant is the fact that it is going almost entirely to four institutions out of the US. Having major US buy-in matters for a few reasons.

  • The US market is much more aware of the ramp up in demand for high quality silica sand to feed frac demand. That awareness is clear in how the share prices of major frac sand players have performed of late: the four publicly-listed players have tripled or quadrupled this year. For Select Sands to be establishing itself as a player in this game is very important. The deal for the dry process plant was the last piece of the puzzle; now SNS is an independent sand producer with lots of ramp-up capacity and the ability to sell sand into the energy market. (Remember, energy players – drillers – aren’t yet willing to pay as much for high quality sand as industrial buyers, so to sell into the energy market producers have to have low costs. That means at the moment the energy market is a high volume-low margin play, but as demand rises prices will too, and sand producers that are already established will benefit the most.)
  • Canadian exploration and mining stories have a hard time getting significant US investor attention. It’s partly because US investors struggle with Toronto listings; it’s partly just that investors innately like to support domestic stories. When a Canadian story does establish good US traction, the results are often impressive because there are simply so many more investment dollars available. Select Sands is now doing that.

Select’s share price rose 7% on Friday and another few today to reach $0.88. If you bought in with me at $0.36, taking some capital off the table is a prudent move. However, I think SNS has a lot of room to run yet: it is one of very few companies producing high quality sand from a deposit located near frac demand and its recent deals have it set up to sign its first energy contract, which would attract a new wave of attention.

Nevsun Resources (TSX: NSU) – BUY; Low Risk ($3.83)

I updated on Nevsun in the last letter, noting two causes for its share price struggle: problems with the new zinc circuit at Bisha, where the a mixture of copper minerals as mining transitions into the primary ore is leading to a copper con so loaded with zinc that copper smelters wont buy it, and a court decision regarding the forced labour case.

Shortly after sending I realized I failed to frame those issues in Nevsun’s bigger context, which I will do now.

The context is that NSU has been under significant selling pressure since its deal to acquire Reservoir Minerals. There are three groups of sellers. One is Reservoir shareholders who are not interested in being Nevsun shareholders. That’s fair enough, though probably does not represent a huge group.

Second are funds or managed money accounts that held Reservoir and have had to sell at least some Nevsun since the deal for tax purposes. Reservoir’s shareholder list was very US based and so this pressure has actually been considerable. Sprott Asset Management, for example, had a significant Reservoir holding; they like Nevsun but have had to sell some NSU to cover tax bills.

And third are Nevsun shareholders who sold because they did not like the Reservoir deal. This is a group small in numbers but unfortunately large in impact, because it includes the two Asian investors who tried to derail the deal through a dissident offer for Reservoir. Their offer was self interested, as the investors are groups publicly after off-take deals, and materially inferior to Nevsun’s offer.

Once Nevsun prevailed, the Asian investors started selling out of NSU. Together they controlled some 40 million shares, so the selling was significant.

Scott Trebilcock of Nevsun thinks that sale is now complete, which should relieve some downside pressure. The company’s news today – drill results from Timok – helped.

By way of reminder, Timok has two distinct portions. The Upper Zone is a body of semi-massive to massive sulphide mineralization carrying high grades of copper and gold. The Lower Zone is a porphyry body; the grades are much lower but the deposit is very large.

Nevsun is hammering the Upper Zone with infill drill holes in advance of the prefeasibility study next year. The work is to update and upgrade the resource, but as a side benefit it also creates new releases like today’s that remind the market just how amazing this deposit is.

  • 248 metres grading 6.37% copper and 3.32 g/t gold, including 87 metres of 11.95% copper and 5.35 g/t gold
  • 300 metres grading 5.5% copper and 3.83 g/t gold, including 40 metres of 18.8% copper and 10.6 g/t gold
  • 188 metres of 4.03% copper and 4.24 g/t gold
  • 220 metres of 3.12% copper and 3.83 g/t gold

Nevsun’s share price gained a nice 5.5% on the news.

Looking ahead, Trebilcock made Nevsun’s two current foci very clear: “We have to deliver a really strong prefeasibility study for the Upper Zone at Timok to lay out how we’re going to turn this great deposit into a valuable operation and we have to solve the problems with the copper concentrates at Bisha. There’s a lot else that’s interesting – exploration opportunities at Bisha, the rest of the Serbian portfolio we got with Reservoir – but for the market it’s about delivering those two things right now.”

Nevsun paid a price – shares, cash, and share price pressure – to acquire Reservoir, but the Timok asset was worth the price. Today’s news reminded the market of precisely that. And Nevsun will resolve the copper concentrate issue. To me, Nevsun remains a strong buy-and-hold stock.

Black Sea Copper & Gold (TSXV: BLS) – BUY; High Risk ($0.36)

Two Maven companies kicked off new exploration programs late last week. First, Black Sea Copper & Gold started work at Alankoy, in northwestern Turkey. The program includes detailed mapping, sampling, and ground geophysics, all designed to better outline the four known centers of mineralization.

The first target, in the property’s northeast, is a zone of extensive vuggy silicy and argillic clay alteration that also hosts a gold-molybdenum soil anomaly. This zone saw 11 historical holes; all were short, maxing at 150 metres, and one hit into copper-gold mineralization in its final 22 metres.

The second target is an area prospective for gold-copper skarn or breccia mineralization, because of its marbleized limestone, iron oxide stockwork veins, and skarn alteration.

Target number three shows potential for carbonate replacement mineralization through its extensive brecciation and types of alteration. A polymetallic soil anomaly lends evidence that the area could host precious and base metal mineralization.

And the fourth target, in the south of the property, already hosts a kaolinite or clay mine. The clay shows extensive silica and argillic alteration, similar to nearby areas of known epithermal mineralization.

I like to see Black Sea getting going. It’s not that they have been slow; listing through a merger and completing a financing are very time-consuming activities, especially as the team has simultaneously been advancing discussions and possible deals on additional assets in Eastern Europe. Those things are all very important, though from a news-flow point of view I’m glad to see exploration action.

Auryn Resources (TSXV: AUG) – BUY; High Risk ($2.79)

Auryn also announced the kick-off of an exploration program, at their Peruvian properties. This is a set of assets that Auryn has been working to assemble over the last year, but where the company has done very little on-the-ground work to date.

The Auryn team knows Peru very well so the guys knew exactly what they wanted to acquire in Peru and why, but this program will be their chance to show the market what they see in these projects.

The plan is to sample, trench, map, and conduct geophysics to delineate drill targets for next year. The projects being worked are Huilacollo and Banos del Indio, two proximal projects that are likely part of the same structurally controlled epithermal system, and Sombrero and Curibaya.

Huilacollo is 2,000 hectares in size and covers an alteration system measuring 6 km by 4 km on surface. Only a small part of that surface expression has seen any work. Work that was done includes some historic drilling in a small area; best results include 83 metres of 1.16 g/t gold and 6.5 g/t silver and 34 metres of 2.14 g/t gold and 22 g/t silver.

In its first program at Huilacollo, Auryn plans to sample, trench, and map the entire land package and test samples with multispectral analysis to hone in on high-temperature structures. That work will be aimed at outlining drill targets to test in early 2017.

Banos del Indio covers a large high-sulphidation alteration system that is essentially untested. Work there will start with multispectral sample analysis plus a property-wide IP survey.

Sombrero hosts a 20-km long limestone-intrusive contact of the kind that is prospective for skarn mineralization and has already produced several high-grade copper and gold grab samples. Auryn will rework old magnetics and IP data, complete a mapping and sampling program, and trench a few target areas.

And at Curibaya, the largest of Auryn’s Peruvian projects, a regional fault known as a key control for epithermal and porphyry mineralization in the area runs right through the land package. Auryn already conducted a property-wide stream sediment sampling program that identified an 8 km by 6 km area of drainage basins with anomalous copper and gold. Now the company plans to map and sample the area.

A few comments.

First, Peru gives Auryn focus and newsflow for the full half of the year when Committee Bay, in northern Canada, is closed for business. That alone is good.

Second, Auryn’s technical team knows Peru very well and are as excited about the potential to make a big discovery down there as they are about Committee Bay. From a technical team of this caliber and experience, that is exciting.

And third, it should not be a surprise that Auryn acquired large projects with limited data and that, as a result, the company has to start with this level of exploration: mapping, sampling, geophysics, and the like. This is a Go Big team and to find something big you to be willing to tackle the challenge of large, early stage projects. The downside is that the program is unlikely to generate headline-grabbing results, but those can only come if this groundwork happens first. So it’s good for Auryn to get going.

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