AOTH stocks – project development stages and risk versus reward

2021.03.27

When looking for an investment, the approach I take involves looking at the global, big picture conditions. I study trends, read the news, basically watch and listen to what’s going on in the world. Then I study the different sectors to select the one (or ones) that I think is going to match up well with the overriding, long-term theme. This is top-down investing.

The second part of my search for the dominant investment is a bottom-up approach. This is where I find individual companies, in the specific sector I have chosen to invest in.

If you’ve done your homework, all the necessary ingredients for a potentially successful investment – the right place/time, the right sector, an excellent project in a safe jurisdiction, and a high-quality management team – should be in place.

Remember, everything about a company flows from management – the ability to find a project or have joint ventures (JV) offered to the company; developing the project in a timely and efficient manner; financings done at a higher and higher share price; control over the share structure; and management interests aligned with shareholder interests.

Three company stages – risk vs reward

Only you can decide the level of risk you can tolerate and how much patience you have to sit while developments, “the story” plays out. It could be six months or four years; successful resource investors usually play the long game.

The most upside comes from a junior in the exploration stage when they make an initial discovery. Great drill assay results can send a junior’s share price skyrocketing. The reverse can also be true. Junior explorers working “greenfield” properties (no mining has ever taken place) are the riskiest plays by far. Strike out on assay results and it could be goodbye to a share price rise for an exceptionally long time – until the company finds another project. If you’re buying into a pure exploration play, make sure the company has another fallback project in its portfolio.

Next is the post-discovery resource definition stage. These companies have already found something, the share price has settled back after the initial discovery, and the junior is drilling and likely doing other exploration work, like sampling and surveying, to try and prove up a maiden resource.

Never chase a company whose share price has already exploded. Usually, the share price has had its run, the money’s been made. I try and enter after the excitement has died down and the share price has settled back. The company is working the property to see how far the mineralization extends, and hopefully they can produce an NI 43-101 compliant resource estimate and build upon it.

The third company stage is the asset/ development stage. Here the advanced-stage junior has already managed to put together a resource, which could be measured and indicated (more certainty, less risk) or inferred (less certainty, more risk). They believe the deposit, the asset, is large and rich enough to start down a development path. An asset/development stage company is, in the opinion of management, and likely stockholders who are following the story, likely to become a mine.

Later-stage companies (those doing feasibility, permitting and money raising) can offer an excellent entry point for investors. Often there is a quiet period when they are doing advanced studies and raising money to go into production. They may “base” (share price flattens) for quite awhile through this period – possibly a good time to accumulate shares if you believe in the story. After the funds are raised for production, investors can see they are going mining – the all-important cash flow is just over the horizon – and the share price will often break out of its trading range.

For these near-term producers, ie., those further down the development path towards a mine, the next steps include:

• Preliminary Economic Assessment (PEA) or scoping studies are done to examine potential mining scenarios and economic parameters. A PEA is an important milestone for any project, it’s the first step in a company’s economic and technical examination of a proposed mine.
•  Preliminary feasibility studies (“prefeas”) are more detailed than PEAs and are used to determine whether, or not, to proceed with a detailed feasibility study. They are also used as a reality check to determine areas of the project that require more attention.
• Feasibility studies determine definitively whether, or not, to proceed with the project. A feasibility study or bankable feasibility (BFS) provides budget figures for the project and will be the basis for raising capital to build the mine.

Remember all these studies are only yes/no decisions on whether to move to the next stage. None means the company is going mining; there is no mine until every stage is completed, permits are approved, and the necessary financing has been arranged.

When assembling a portfolio of junior resource stocks, it’s always a good idea to have a few stocks in each of the three company stages. A pure exploration play may sometimes feel like chasing a rainbow but the possibility of making 5, 10, even 20 times your money by purchasing a penny stock that goes ballistic on a discovery hole is reason enough to risk part of your investment capital.

I always aim to have a few post-discovery resource definition stage juniors in my portfolio, too. The risk has been greatly reduced, the wait time for a discovery non-existent, and the reward can be very nice, considering the much lower amount of risk, compared to an exploration-stage junior.

Finally, the least risky, asset/development companies should also be among every resource investor’s range of stocks. These companies are far along the development path, so a lot of the guesswork about grade, size, costs, and metallurgy has been taken out of the equation for us. They have done sufficient work to give investors a certain level of confidence that their project will successfully move towards being a mine. 

Please note: We’ve divided junior resource companies into three stages here, but in reality, every junior, especially those most successful, moves through each of these periods en route to developing a mine, or getting bought out. The trick is being able to identify which stage a company is in, and then tailor your investment strategy accordingly. 

Top-down trends

Following are the three trends that AOTH is invested in.

Electrification and decarbonization

While there is little we can do to prevent climate change – the Earth is going to continue to warm until it isn’t – we can do our part in cleaning up the atmosphere by reducing our fossil fuel usage.

The modernization and electrification of our global transportation system will require a change hitherto unprecedented in the history of civilization. Not even the shift from horse and buggy to the crank-start Ford Model T can compete with what it will take to electrify the billion-plus cars on the planet’s roads, and eventually put a complete stop to noxious tailpipe emissions resulting from the combustion of gasoline and diesel fuel, that are poisoning the air we breathe.

The fossil-fuel-based transportation system needs to be electrified, and the switch must be made from oil, gas and coal-powered power plants to those which run on solar, wind and thorium-produced nuclear energy. If we have any hope of cleaning up the planet, before the point of no return, a massive decarbonization needs to take place.

In a recent report, commodities consultant Wood Mackenzie said an investment of over $1 trillion will be required in key energy transition metals over the next 15 years just to meet the growing needs of decarbonization.

On top of surging demand for metals needed to feed so-called “green infrastructure” programs, we have current and emerging structural deficits for several metals, that will keep prices buoyant for the foreseeable future.

Over the past year, tight supply is reflected in the rising prices of copper, nickel, zinc, and lead, for example.

Inflation/ currency debasement

At AOTH we are also big believers in gold and silver.

Gold is a hedge against inflation, so it is generally bought when inflation goes up, or looks like it will, to guard against currency devaluation.

The dreaded “i” word is starting to be bandied about freely among financial news sites, and for good reason.

Central bankers have realized that keeping interest rates low and maintaining monthly asset purchases (ie. quantitative easing), have not given the desired economic boost; now they are counting on fiscal policy, ie., government spending, to do the trick. However, the US government does not have the money, so they borrow (print) it, at rock-bottom interest rates.

According to Reuters, the Fed’s easy monetary policy of the past year or so includes a continuation of bond-buying at a pace of $120 billion a month, until the Fed sees “substantial further progress” toward its goals of full employment and inflation.

If the Fed keeps quantitative easing going for 33 months, the duration left in President Biden’s four-year term, we could be looking at adding $3.96 trillion to the Fed’s balance sheet, pushing it above $10 trillion.

There will be a lot more monetary policy being undertaken, besides bond-buying.

Meanwhile the US national debt currently sits around $28 trillion, after $4.5 trillion in pandemic-related spending. That does not count the $1.9 trillion covid relief package just passed by the Senate. Coming up shortly is an expected $4 trillion infrastructure bill, Biden’s Clean Energy Plan pegged at $2 trillion, and trillions more in social spending spearheaded by the Democratic Party’s progressive left wing.

Certainly, there will be a recovery in the US, but at what price? How much higher does the already unsustainable national debt have to go?

In October 2020, the debt zoomed past 100% of GDP, for the first time since the Second World War, but that was just the beginning. The debt is currently the same size as the economy or slightly bigger; very shortly the debt will be much larger than its economy!

There is a historically close correlation between gold prices and debt to GDP. The higher the ratio, the better it is for gold.

We have monetary easing happening at the same time as fiscal spending “carte blanche” (remember Biden believes strongly in the power of the state to tax and spend. A long wish list waits to be filled, with little to no concern regarding the already out of control $28 trillion national debt, courtesy of Modern Monetary Theory, or MMT).

The result of these two forces acting together, is bound to create inflation.

Higher inflation is good for gold especially if Treasury yields do not get too high, a situation that would give negative real interest rates. Historical charts prove that every time yields fall below the rate of inflation, ie. they turn negative, gold goes up.

Apart from negative real rates, gold is also, we believe, destined for the next leg up once investors realize the US dollar is being massively devalued.

Gold generally moves higher when the dollar drops. Right now, the US dollar index DXY is holding around 92, but what happens when people realize the federal government has depreciated the greenback by spending $6.5 trillion using borrowed money, plus the Fed’s $7 trillion, meaning the purchasing power of the dollar has been cut in half? The equivalent of half the $28-trillion national debt? And with trillions more debt to come, at AOTH we believe there is only one way for the dollar, and only one direction for gold (and silver).

When gold prices approach or re-take highs reached last summer, silver prices will likely follow; the white metal’s dual-demand drivers, being both a monetary and an industrial metal, has some analysts predicting it will out-perform gold in 2021.

Analysts at Capital Economics think silver prices should gain momentum on the back of ongoing fiscal stimulus in China, and greater industrial activity which drives around half of annual silver consumption. They point out the latter will be helped by governments investing in green energy, including solar panels which contain silver paste.

The solar power industry currently accounts for 13% of silver’s industrial demand.

5G technology is set to become another big new driver of silver demand.

The Silver Institute (SI) expects silver demanded by 5G to more than double, from its current ~7.5 million ounces, to around 16Moz by 2025 and as much as 23Moz by 2030, which would represent a 206% increase from current levels.  

A third major industrial demand driver for silver is the automotive industry. While copper and battery metals are usually thought of as the main beneficiaries of electrification, it appears the white metal will get swept up in the EV growth story. SI anticipates that, due to the evolution of hybrid and battery electric vehicles, the auto industry is expected to absorb 90 million ounces of silver by 2025, rivaling silver consumption in photovoltaics, currently the largest application of global industrial silver demand.

All our stock picks at Ahead of the Herd fall under these three top-down investing trends: electrification, decarbonization and inflation.

Our bottom-up approach, where we find companies in each of the above sectors we have chosen to invest in, consists of 16 juniors, divided by company stage.

Exploration stage

Exploits Discovery Corp

As the dominant landholder in Central Newfoundland exploring over 200 km of deep regional fault structures known to host significant gold discoveries, Exploits Discovery Corp. (CSE: NFLD, OTCQB:RNRRF, FSE:634-FF) continues to generate buzz in what is possibly one of the world’s most exciting gold area plays. In February Exploits moved one step closer to its first discovery, announcing assay results from the Dog Bay project, one of seven known prospects that it has assembled within the Exploits Subzone gold belt. Five samples, one of which contained visible gold, returned assays of 61.3, 59.0, 14.4, 14.2, and 12.6 grams per tonne gold. Samples also returned silver grades of up to 189 g/t.

Renforth Resources

Renforth Resources (CSE:RFR, OTC:RFHRF, WKN:A2H9TN) continues to make good progress on its Parbec gold project in Quebec, releasing a cache of drill results to the market on Tuesday, March 9. The highlight from was 21.45 meters grading 5.57 grams per tonne (g/t) gold, between 254.8m and 276.2m meters in hole PAR-20-112. Two higher-grade sub intervals returned 6.27 g/t Au over 16.7m and 37.3 g/t Au over 1m. Renforth expects that the high-grade interval from drill hole PAR-20-112, other above-noted highlights, and the previously released assays from holes PAR-20-100 to 104 will have a positive impact on a future re-calculation of the resource estimate for Parbec.

Along with Parbec, Renforth is also advancing its Surimeau project in Quebec, adjacent to the Canadian Malartic Mine, currently the largest gold mine in Canada, and about 20 km south of Agnico Eagle’s LaRonde Mine. The 215 square km property is host to a known copper and zinc mineralized system, with additional geophysical anomalies. There is also an ultramafic sulfide nickel system nearby.

Falcon Gold

Falcon Gold (TSXV:FG, Frankfurt:3FA.G, OTC:FGLDF) has all the elements we like to see in an exploration-stage gold junior. The company is a large landowner in a past-producing mining district, with a mid-tier gold producer, Agnico-Eagle Mines, exploring just off its northern boundary. Its flagship Central Canada gold & polymetallic property has seen some very promising intercepts in and around the old mine. Each of five holes that were targeting the main structural trend of the past-producing Central Canada gold mine, intersected mineralization, with pierce points spaced over a 125-km strike length at various depths. A total of 1,137 meters of drill core and 240 samples have been submitted for analysis. 

Marvel Discovery Corp

Marvel Discovery Corp. (TSX.V:MARV) (formerly known as International Montoro) has two very interesting properties in northwestern Ontario, where a number of juniors have acquired ground and are working properties in close proximity to Agnico Eagle’s monster Hammond Reef gold deposit. Indeed “close-ology” appears to weigh heavily in its favor, with Grid Metals and Canadian Palladium reporting recent success at the drill bit near Pecors, and Falcon Gold delivering sweet assays from its Central Canada gold & polymetallic project, located just east of Blackfly. Marvel also has two projects in the Central Newfoundland Gold Belt. The Slip Lake project is next to New Found Gold’s (TSXV:NFG) Queensway discovery, and Victoria Lake is tied onto Marathon Gold’s Valentine Lake gold deposit.

Brigadier Gold

Brigadier Gold’s (TSX.V:BRG, Frankfurt:B7LM, OTC:BGADF) Picachos deposit is centered over the former San Agustin gold/silver mine. Within the property’s borders the company counts 160 former mines and small workings. Drilling to date has confirmed a 7-km strike length of vein that shows continuity on strike and mining width at depth. Brigadier earlier this year announced excellent results showing 12.62 g/t Au, 78 grams silver and a blistering 4.5% copper. That’s over $1,200 rock. In February Brigadier added a second drill to carry out second-stage drilling of a planned 5,000 meters — the first-ever drill program at Picachos. The company has also closed a $1 million private placement @ $0.20.

Victory Resources

Flush from a recent financing, and with a drill permit in hand, Victory Resources Corp. (CSE:VR, FWB: VR61, OTC:VRCFF)  is preparing to drill its two flagship properties, Loner in Nevada and Mal-Wen in south-central British Columbia. In the first-pass drill program at Loner, Victory intends to confirm intersections of gold-bearing quartz vein that correlate with historical underground mining and mapped surface gold occurrences. The company anticipates that drilling will demonstrate broader mineralization across the width and depth of the occurrences, which remain open in all directions. Mal-Wen is made up of four contiguous claims covering a total area of 1,954.5 hectares, all 100% owned by Victory. It forms part of a larger copper-gold porphyry district that is known to host some of the best deposits in Western Canada.

Post-discovery resource definition stage

Max Resource Corp

Max Resource’s (TSX.V:MXR, Frankfert:M1D2, OTC:MXROF) CESAR property is in northeastern Colombia along the world-famous Andean Copper Belt, where silver is also abundant. It lies on a massive sedimentary system covering a cumulative 220-km strike of highly prospective Cu-Ag mineralization. Max is the first company to explore all of the copper and silver-rich areas covered by the CESAR property. The junior already has multiple non-disclosure agreements in place to advance the project, including a collaboration agreement with an industry-leading copper producer.

Exploration thus far has identified multiple copper-silver target zones (CESAR North, CESAR South, and CESAR West) hosting significant discoveries with potential to expand further.

Equally compelling about the CESAR project is that it bears a striking resemblance in terms of grade, scale, and mineralogy to the world-class Kupferschiefer deposits found in Poland, which are the largest source of copper in Europe and the world’s #1 silver producer, with yields almost twice the production of the next largest silver mine.

Norden Crown Metals

Norden Crown (TSXV:NOCR, OTC:NOCRF, Frankfurt:03E) is hunting for high-grade silver and zinc deposits in Scandinavia. Over the past three years, Norden Crown’s drilling at Gumsberg has come up with some high-grade hits. Recently Norden Crown started drilling at Fredriksson Gruva, a past producing mine originally discovered in 1976. Based on historical drilling data and 3D modeling, the company projected that the mineralization does not end below historical mine workings, and instead continues, as suggested by regional drilling done by past explorers looking for iron deposits. The evidence so far is proving this theory correct. 

Having completed the first three drill holes, the company has successfully shown not only that the mineralization continues at depth, but that it has qualities consistent with a Broken Hill Type (BHT) deposit. BHT silver-zinc-lead deposits constitute some of the largest and highest-grade ore deposits in the world. The findings from the first three holes confirmed that Norden Crown is into a Broken Hill-type deposit such as those found in Australia, South Africa and parts of the Bergslagen mining district of southern Sweden where Gumsberg is located. Reported grades from mined ore are remarkably consistent, and past drilling rarely missed mineralization, which Varas says is very encouraging for further resource expansion.

Asset/ development stage

Dolly Varden Silver

Dolly Varden’s (TSX.V:DV, OTC:DOLLF) silver properties, consisting of two past-producing silver deposits, became part of British Columbia’s mining lore, featuring assays as high as 2,200 ounces (over 72 kg) silver per ton, with historical production of 20 million ounces Ag, between 1919 and 1959. In fact, the Dolly Varden/ North Star Mine was among the richest silver mines in the British Empire, producing 1.3Moz at an average grade of 1,109 g/t Ag between 1919 and 1921.

Dolly Varden’s goal is to try and extend Torbrit through some step-out drill holes, and to get into the high-grade, 500g to 1kg material. There are early indications of other Torbrit “look-alikes” along a 4.5-km trend. Through drilling, Dolly Varden wants to prove up another Torbrit and drastically increase the size of the resource which in all categories is about 44Moz at an average grade of 300 g/t. A key part of the exploration thesis is the fact that the rocks hosting the mineralization on the property are the same age as some of the other large deposits found in the Golden Triangle including Eskay Creek.

Freegold Ventures

At Freegold’s (TSX:FVL) flagship Golden Summit property in Alaska, a drill program that started in February 2020 was designed to test a revised interpretation based on Freegold’s work that higher-grade mineralization may extend to the west of the old Cleary Hill Mine workings in an area of limited previous shallow drilling. Freegold completed a preliminary economic assessment (PEA) on Golden Summit in 2016.

The three drills they have turning will continue to bang out a combination of bulk tonnage and high-grade intercepts for the foreseeable future as they move north and east towards the former high grade production areas. We will see intercepts from the Tolovana Vein the Wackwitz, Wyoming, Colorado and Cleary veins, as these veins all seem to converge in the current drilling area. This year the company will ultimately be afforded the time to get a first look below, and on trend with, American Eagle, News Boy and Hi Yu mines.

Backstopped by a global historic resource of 6.524 million ounces of gold and $30 million in cash, my money is on Freegold’s Golden Summit Project cruising to +10 million ounces of gold. The recent price correction along with the rest of the market appears to be an excellent opportunity for those willing to do some proper diligence to capitalize on one of the fastest-growing leveraged plays to gold in North America.

Cypress Development Corp

Cypress Development’s (TSX.V:CYP, OTC:CYDVF) Clayton Valley lithium deposit would be mined from neither brine nor hard rock, but claystone. An average production rate of 15,000 tonnes per day to produce 27,400 tonnes LCE annually over a +40-year mine life means the project stacks up extremely well against any of the 10 deposits listed here. The company in our opinion is extremely undervalued, having already completed a preliminary economic assessment (PEA) and prefeasibility study. Starting 2020 at $0.20/sh, CYP had a 10-timer, reaching a high of $2.21 on Jan. 12, 2021.

In January of this year Cypress said progress has been made in a scoping-level study of chloride-based leaching to recover lithium from claystone; and in February, announced that a previous C$8.5 million bought deal financing was doubled to $17 million due to strong demand from investors. A total of 13.6 million units were sold @ C$1.25 per unit.

Tinka Resources

Tinka’s (TSX.V:TK, OTCP:TKRFF) Ayawilca project consists of 16,500 hectares of contiguous claims, along a world-class mining belt in central Peru known for producing base metals. About 100 km to the north is the giant Antamina copper-zinc mine, owned by BHP, Glencore, Teck Resources and Mitsubishi. Ayawilca is a carbonate replacement deposit (CRD), an important style of polymetallic mineralization containing economic amounts of zinc, silver, lead, and copper. Notable deposits in the region include the Cerro de Pasco and Morococha mines.

The focus is currently on areas of zinc mineralization, which contain nearly 2 billion pounds of indicated resources, making it the largest zinc development project in Latin America and one of the biggest zinc resources held by a junior explorer. Tinka’s plan for 2020-21 is to undergo a resource expansion and infill drill program on the Ayawilca property. All 21 holes of the 7,600m program are now complete, meaning the company is ready to compile the drill data and complete geological interpretations in preparation for an updated mineral resource and PEA scheduled for the middle of 2021. Assay results for the last four drill holes are pending.

Palladium One Mining

Palladium One (TSX.V:PDM, Frankfurt:7N11, OTC:NKORF) is a platinum group element (PGE) nickel-copper exploration/ development company. Its assets consist of the Läntinen Koillismaa (LK) PGE-nickel-copper project in north-central Finland and the Tyko nickel-copper-PGE property near Marathon, Ontario. Tyko’s ore contains twice as much nickel as copper, and equal amounts of platinum and palladium. On Jan. 5 PDM announced assay results from the first two holes of a maiden drill program at the Smoke Lake target, completed last year. “Smoke Lake continues to deliver extraordinarily high-grade intercepts. The highest to date being 9.9% Ni Eq over 3.8 meters, within a broader intercept of 6.1% Ni Eq over 7.5 meters!  An extremely high-value, near surface resource appears within our grasp at Smoke Lake,” says Derrick Weyrauch, Palladium One’s President and CEO.

At Palladium One’s other active project, Läntinen Koillismaa (LK) in north-central Finland, recent phase 2 drilling at the Murtolampi Zone intersected high-grade mineralization of 13m at 3.4 g/t palladium equivalent (Pd_Eq) within 79m at 2.0 g/t Pd_Eq (hole LK20-026), the best grade drilled in the area. The property is part of an intrusive belt that runs east-west across Finland and into neighboring Russia. Palladium One recently secured a $12.5 million cash injection from Sprott Capital Partners. The bought deal financing (upsized to $15M due to being over-subscribed) ensures a healthy treasury that PDM can draw from, as it continues to explore its projects in Canada and Finland. 27,000 meters is planned this year from a total exploration budget of $11.5 million.

Getchell Gold

Getchell Gold’s (CSE:GTCH, OTCQB:GGLDF) Fondaway Canyon is an advanced-stage gold property located in Churchill County, Nevada. The project has been the subject of multiple exploration campaigns in the late 1980s and early 1990s. Record shows 591 holes totaling nearly 50,000 meters have been drilled on the property. The project area covers 12 known veins, including five mineralized areas – Colorado, Halfmoon, Paperweight, Silica Ridge and Hamburger Hill – and seven untested targets. A 2017 technical report showed an estimated 409,000 oz of indicated resources grading 6.18 g/t Au and 660,000 oz inferred grading 6.4 g/t Au – for a combined 1.1 million oz.

Drilling at Fondaway Canyon in late 2020 demonstrated the identification of thick zones of gold mineralization, interpreted as a down-dip continuation of surface mineralization: and high-grade mineralized structures with notable widths within the mineralized system. To follow up on these promising results, Getchell is planning an even bigger drill program this year at the Fondaway Canyon project. Earlier this month, the company announced it has secured a drill rig for early May to commence a Phase One 4,000-metre drill program.

ZincX Resources

ZincX’s (TSX.V:ZNX, Frankfurt:M9R, US:ZNCXF) Akie property is in northeastern BC within the geological district known as the Kechika Trough, which is highly prospective for zinc, lead and silver. The Cirque deposit, held jointly by Teck Resources (50%) and Korea Zinc Co. Ltd. (50%), is also found in the district. To date, drilling totaling 64,000 meters has defined a significant body of mineralization capable of matching, if not surpassing, the production of some of the largest zinc deposits found in the US.

The deposit contains an estimated 22.7Mt of indicated resources averaging 8.32% Zn (4.16 billion lb), 1.61% Pb (804 million lb) and 14.1 g/t Ag (10.3 million oz.) A preliminary economic assessment (2018) for the main Cardiac Creek contemplates a 4,000 tpd underground mine capable of producing 178 million lb of payable zinc and 20 million lb of payable lead annually over an 18-year mine life. Earlier this year, ZincX announced that planning is underway for a 2,000-meter summer drill program, which will provide new drill core samples for advanced metallurgical testing for zinc and lead.

Graphite One

Located on the Seward Peninsula in western Alaska, Graphite One’s (TSX.V:GPH, OTCQB:GPHOF) Graphite Creek property hosts America’s highest-grade large flake deposit. A preliminary economic assessment (PEA) released in 2017 showed 81 million tonnes of resources, mostly in the inferred category at a grade of 7% Cg, containing about 5.7 million tonnes of graphite. The same study envisioned a long-life (40 years) operation – based on drilling less than 20% of the deposit – with a mineral processing plant capable of producing 60,000 tonnes of graphite concentrate (at 95% Cg) per year once full production begins in the sixth year. Tests carried out on the property found that 75% of the flake graphite could be converted into spherical graphite, which is the form used in EV batteries.

Looking to advance what would be an integral part of the US graphite supply chain, Graphite One in February announced the completion of two non-brokered private placement offerings, raising gross proceeds totaling C$10 million. Proceeds will be used to further develop Graphite, including a prefeasibility study projected for completion by the end of Q2 2021.

Conclusion

I spend most of my due diligence time and effort on:

• A top-down theme – discover the dominant overall global theme(s)
• Bottom-up searches – find the companies involved at the stage your comfortable investing in
• Management due diligence

Think of an investment in a junior mining play as a journey, from high-risk speculation to low-risk investment. The milestones in getting to the destination are a series of de-risking events made possible by exploration, which most often includes taking soil or rock chip samples, conducting geochemical or geophysical surveys, and diamond drilling, the ultimate “truth machine” that either confirms or denies geological theories. 

These milestones start with an initial discovery, with more drilling lead to a maiden (first) resource estimate and are followed by a series of economic/ technical studies, including a PEA, prefeasibility study, and feasibility study. 

The point here is not that juniors are risky investments. It’s that a great deal of the risk can be taken out of them, through exploration and the completion of assessment/ study milestones that serve to prove the geological model and the extraction plan for getting the resource to market.

Early-stage “greenfield” exploration plays that succeed in finding a discovery have a good chance of finding more on the property that moves them into the post-discovery resource definition stage. Once a company outlines a resource, the next phase is developing the asset further. Completing the various technical studies required, serves to de-risk the project, and moves it further along the path to becoming a mine.

The big money is made by investing in a junior at an exceedingly early stage, usually when the stock in trading for mere pennies, and holding onto it until the pay day.

For example, roughly 5 years ago I first learned about Cypress Development Corp (TSX.V:CYP). I started buying shares at $0.11. The story, played out as I hoped, drilling the lithium discovery to a resource, metallurgical studies, and about a year later, a PEA, then an extremely attractive prefeasibility study. Only then did the market really begin paying attention; last year Cypress had a phenomenal year. From $0.20/sh, CYP had a 10-timer, reaching a high of $2.21 on Jan. 12, 2021.

I did even better. Though I sold my shares before they reached their peak, my gain, from buy-in to sell price, was over 17X.

Some investors make the mistake of holding on too long — either through greed, or fear of missing out. There is nothing wrong with taking a profit, and it doesn’t mean you’re giving up on the stock.

Since reaching its peak Cypress has slipped back to $1.10/sh (March 25), so I’m buying back in. I still believe in Cypress’ story; it continues to be an extremely valuable asset – I’m positioning myself for the next run. The company just announced it is developing a pilot plant – a significant de-risking event that should occasion more news flow.

As for our other AOTH resource stocks, outlined above, we have a mix of exploration, post-discovery and asset/development plays, that have all been found through our top-down themes of decarbonization, electrification and the coming inflation.

I’m expecting at least a couple of our exploration stocks to go into post discovery resource definition, I expect both Norden Crown and Max Resource to move into the asset/development stage, and we intend to follow them all.

Richard (Rick) Mills
aheadoftheherd.com
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AOTH/Richard Mills is not a registered broker/financial advisor and does not hold any licenses. These are solely personal thoughts and opinions about finance and/or investments – no information posted on this site is to be considered investment advice or a recommendation to do anything involving finance or money aside from performing your own due diligence and consulting with your personal registered broker/financial advisor. You agree that by reading AOTH/Richard Mills articles, you are acting at your OWN RISK. In no event should AOTH/Richard Mills liable for any direct or indirect trading losses caused by any information contained in AOTH/Richard Mills articles. Information in AOTH/Richard Mills articles is not an offer to sell or a solicitation of an offer to buy any security. AOTH/Richard Mills is not suggesting the transacting of any financial instruments but does suggest consulting your own registered broker/financial advisor with regards to any such transactions.

Richard owns shares of Norden Crown (TSX.V:NOCR), Graphite One (TSX.V:GPH), Max Resource Corp (TSX.V:MXR), FreeGold Ventures (TSX:FVL), Cypress Development Corp (TSX.V:CYP)

Exploits Discovery Corp. (CSE: NFLD), Renforth Resources (CSE:RFR), Falcon Gold (TSXV:FG), Marvel Discovery Corp. (TSX.V:MARV), Brigadier Gold (TSX.V:BRG), Victory Resources Corp. (CSE:VR), Max Resource Corp. (TSX.V:MXR), Norden Crown Metals (TSXV:NOCR), Dolly Varden Silver(TSX.V:DV), Tinka Resources (TSX.V:TK), Palladium One Mining (TSX.V:PDM), Getchell Gold (CSE:GTCH), ZincX Resource Corp (TSX.V: ZNX), Graphite One Corp. (TSX.V:GPH) are advertisers on Richards site aheadoftheherd.com