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I’m bullish on the price of zinc. For those who may have missed it, here’s a link to Part 1 and Part 2 of Zinc’s Bullish Narrative, which I wrote last month.  After hitting a low of $0.66/lbs in the beginning of 2016, the zinc price rose off of its bottom, hitting a high of $1.33/lbs early in 2017.

 

Source: London Metals Exchange

 

The price has since corrected, currently sitting at roughly $1.12/lbs, and a lot of people are asking, ‘is the zinc bull market over?’ In my opinion, definitely not.

Simply put,  inventories are still falling without the aid of new supply coming online. I believe the cure for low prices is low prices, and while that still may be a few months away, I’ve found a company which has interests in a highly leveraged zinc deposit in a great mining jurisdiction. It gets even better, because their 30%  interest in the project is further strengthened by the fact that they will not have to pay a cent in the development of the asset, right through to production as Milpo will lend Solitario the construction funding necessary to maintain its 30% interest in the project.

Further, this company is currently awaiting the conclusion of a deal with another large, high-grade zinc deposit, which sits at the foot of the giant zinc mine, Teck’s Red Dog.

This company is cashed up and led by an experienced and savvy management team, which is dedicated to bringing value to its shareholders. This company is Solitario Exploration and Royalty Corporation.

Let’s take a closer look!

 

 

Solitario Exploration and Royalty (SLR:TSX, XPL:NYSE)

MCAP – 38.6 million (at the time of writing this report)

Shares – 38,685,189

Fully Diluted – 38,685,189

Cash – roughly USD $17 million in cash or cash equivalents – Q1 Financial Report shows $14.9 million in short-term investments, which I’m told are U.S. Treasury Securities and Bank CDs.

 

Solitario’s People

Solitario is led by CEO, Christopher E. Herald, who is a geologist by trade, having received a B.Sc. in geology from the University of Notre Dame, and a M.Sc. in geology from the Colorado School of Mines. Herald has been with Solitario since 1992, starting out as a Director and then taking on the CEO position in 1999. Prior to Solitario, Herald was President and CEO of Crown Resources Corp., which was sold to Kinross Gold.  Prior to Crown, Mr. Herald was a senior geologist with both Echo Bay Mines and Anaconda Minerals.

Walter H. Hunt is Solitario’s COO, a position he has held since 2008. Hunt’s work history is closely tied to Herald’s, having worked for Echo Bay Mines, Anaconda and Noranda in various senior roles. Hunt is a geologist by trade, having received his B.Sc. from Furman University, and a M.Sc. from the Colorado School of Mines. Before becoming COO of Solitario, Hunt was VP of Operations and President of Solitario’s South American Operations, positions he held since 1999.

Solitario’s Corporate Officers are rounded out by James R. Maronick, who is the company’s CFO.  Maronick is an accountant by trade, having received a B.A. in accounting from the University of Notre Dame, and a M.A. in finance from the University of Denver.

NOTE: Solitario is formerly the South American portion or subsidiary of Crown Resources, of which Herald, Hunt and Maronick were all a part. Crown owned the Buckhorn Mountain Gold Project in Washington State, which was sold to Kinross in 2006 for around $220 million. Solitario is now the sole focus of the management team, a team which has led the company through multiple commodities cycles, while minimally diluting its shareholders; not many companies are able to check off those two boxes!

Solitario’s management has set itself up well to capitalize on a zinc market which, in my opinion, is set to get hot as supply is falling short of demand. Let’s take a look at the properties in which Solitario has an interest.

 

Properties

Bongará Zinc Project

• The Bongará Zinc Project is located in the Eastern Cordillera of Peru at the sub-Andean front in the upper Amazon River Basin. 680 km north-northeast of Peru’s capital Lima and 245 km northeast of Chiclayo.

Source: 43-101 Technical Report – pg.4

• The location of Bongará is remote, which will certainly add cost to the infrastructure needed to run a mine. Workforce for a mine is another potential question mark. The Technical Report says the following,

“High-relief terrain and high annual rainfall are conditions affecting development, especially in the area of infrastructure construction and process/tailings containment and stability. Politically and socially, however, the development of a mining operation at this location is considered low risk as many of the local residents are already employed or seeking employment with Votorantim.” ~43-101 Technical Report – pg. 137

• By the end of 2017, the project will be fully accessible from the main highway via a 35 km road. In addition, further road construction will be completed on the property, as Milpo will construct roads to access some of the deeper areas of the property for exploration.
• In the Technical Report, the remoteness of the project brought into question the power source for the future mine. In the report, they refer to the construction of the Bagua/Jaen power station as a possible power source. Via email, I corresponded with Soliatrio’s Investor Relations Director, Debbie Mino-Austin. In our correspondence, she said that access to power shouldn’t be an issue and that the Bagua/Jaen power station had been completed. It’s likely, however, that a mini-hydroelectric plant on the Utcombamba River will be constructed for Bongará power (mini hydroelectric plants are common in Peru and relatively inexpensive to construct).
• Bongará is comprised of 16 contiguous mining concessions, covering approximately 12,600 hectares. In the image below, you can see the “newly” (at the time of the technical report) staked ground, which is on trend with the rest of the deposit and may provide some upside to the resource size with further exploration.

Source: Solitario

 

• The mineralization is polymetallic and of Mississippi Valley Type (MVT). To note, it’s expected to be an underground mine.
• Bongará is a Joint Venture project between Solitario and Milpo.
• Currently, Solitario owns 39% of the project, but Milpo can earn up to a 70% interest in the project by funding all project expenditures and, based on a positive feasibility study, commit to putting the project into production. Also, Milpo will finance Solitario’s 30% portion of the construction costs via a loan, which will be paid back with 50% of its net cash flow distributions, once in production.
• More than 80% of Milpo’s publically traded shares are owned by Votorantim, Solitario’s former JV partner. In 2014, Milpo announced its intent to acquire Votorantim’s share of the Bongará Project. Milpo is the 2^nd largest zinc producer in Peru, operating 3 other underground zinc mines and, from my perspective, is the perfect JV partner for this project.

PUSH: A Preliminary Economic Assessment (PEA) is expected to be completed by the end of July 2017.  The PEA should bring some much needed attention to the Solitario story, especially given its upside to a rising zinc price. What really strikes me is that Milpo did not have to jointly fund this PEA, which makes me think they’re confident that the PEA is going to show a lot of value in this deposit and, from a promotional side, is well worth the money.

 

Resource Estimate

Measured and Indicated Resource Total: tonnes – 2.78 million, Zn% – 12.77, Pb% – 1.78, Ag g/t – 18.2, ZnEq% – 15.1 – Contained metal: Zn Mlbs – 782.5    Inferred Resource: tonnes – 9.07, Zn% – 10.87, Pb% – 1.21, Ag g/t – 12.2, ZnEq% – 12.44 – Contained metal: Zn Mlbs – 2,173      Metal price assumptions in USD: Zn – $0.95/lbs, Pb –$0.95/lbs, Ag – $20/oz

NOTE: These are great zinc resource numbers, with both size (Total M&I + Inferred Zn contained metal = 2,955.5 Mlbs) and grade. The metal price assumptions are good, especially with upside in the zinc price. Also, as described in the Technical Report, mineralization is open and provides exploration upside to an already large high grade deposit.

What is Solitario’s portion of the Bongará mine worth? Until the PEA is complete, which will be soon, we really don’t know.  Not all in-situ metal is created equal and, therefore, makes it tough to realistically compare Bongará to other zinc projects in the world.

NOTE: Solitario’s 30% of Bongará is currently equivalent to: (925.3 Mlbs + 2,487.6 Mlbs) x 30% = 1,023.87 Mlbs of Zinc Equivalent.

However, I think the value proposition is fairly straightforward. Solitario has a tight share structure with roughly half of its MCAP in cash, therefore, not even considering Solitario’s other interests, you can see that the value per lbs, in USD, is roughly $0.011/lbs. That’s very cheap, in my mind, and I’m sure that the upcoming PEA will confirm this.

 

• The metallurgy of the deposit appears to be in good order as the predicted concentrate grades are as follows: Sulfide – concentrate Zn% – 55.2, Pb% – 52.6, Ag g/t – 7.3 Mixed – concentrate Zn% – 52.0, Pb% – 52.6, Ag g/t – 7.3   Oxide – concentrate Zn% – 47.5
• Comments regarding the metallurgy of the mineralization from the Technical Report,

“the high in-situ grades of the zinc mineralization and low impurities in sulfide at Bongará should generate a premium concentrate and a highly saleable product in a market where strong future demand is forecasted. The challenge to Project development lies in its remote location, which raises capital costs for construction and operating costs for concentrate delivery, among other things.” ~ 43-101 Technical Report – pg.137

• In my discussion with CEO, Chris Herald, he mentioned that one of the highlights of the Bongará Project is how clean the metallurgy is. The future mine should produce a top notch concentrate, one that will have smelters lining up to purchase it. This is really important when it comes to zinc deposits, because there’s a good portion of deposits out there that have mercury, iron or manganese issues with their concentrate, and require much more refinement to produce something saleable. In my opinion, metallurgy is arguably the most important attribute of any mineral deposit, not just zinc. So the fact that the Bongará metallurgy checks out is a big plus.

 

 

Peru as a Jurisdiction

In its latest rankings, the Fraser Institute lists Peru as the #1 jurisdiction for mining investment attractiveness in Latin America, with a score of 73.47 and 28th in the world.  Mining is a major source of employment for the Peruvian people; as you will see in the table below, Peru ranks not only tops for metal production in Latin America, but also close to the top in most categories throughout the world.

~ Source: Mining Peru

 

“[T]he mining industry believes that Peru’s favourable geology has been under-exploited…to date only about 12 per cent of Peru’s mineral resources have been worked…In all, Peru holds about 16 per cent of the word’s known mineral reserves, including 15 per cent copper and 7 per cent zinc reserves.”~ Mining Peru

 

Peruvian Leadership

The Prime Minister of Peru is determined in a two round election system.  A two round system works in the following manner; a single vote is cast for their chosen candidate. If no candidate receives the majority of the votes, usually 40 to 45% of the vote and a margin of 5 to 15%, all but the two candidates with the largest percentages are eliminated and then placed into a second election.

2016 was an election year in Peru. The Congressional election saw the Party, Popular Force, win in a landslide, taking 36.34% of the vote (~Peruvian Election Results). However, the Prime Minister election, which took two rounds to decide, went to the Party, Peruvians for Change, which is led by candidate, Pedro Pablo Kuczynski.

Kuczynski has held positions in the United States with the World Bank and the International Monetary Fund. He later became Peru’s designated general manger of its Central Reserve Bank. From the standpoint of an investor, I believe that Kuczynski’s western influenced work experience should prove to be an asset.

Will he be good for the Peruvian people? Hard to say, as developing a country’s economy is a costly business (debt) these days. But, if done properly, it could be the dawn of a new age for the Peruvian people, and may bring what is currently a third of the population, out of poverty.

My guess is that Kuczynski will be good for mining and, as a western investor, I’m comfortable with the risk that Peru’s leadership presents.

 

43-101 Technical Report – Peru as a Jurisdiction

SRK Consulting, the company that prepared the 43-101 Technical Report, has a great section discussing property and title in Peru:

“Mining in Peru is governed by the General Mining Law, which specifies that all mineral assets belong to the federal government. Mining concessions granted to individuals or other entities authorize the title holder to perform all minerals related activates from exploration to exploitation and, once titled, are irrevocable for so long as the fees are paid to the federal government on time.” ~43-101 Technical Report – pg.7

SRK Consulting also comments on the Peruvian workforce in relation to Bongará Project,

“No trained mining personnel reside near the Project. Untrained labor is readily available from local communities where few employment opportunities exist. Peru is a mature mining country with a mobile workforce. Abundant trained labor is present in all categories of mining throughout Peru. “ ~ 43-101 Technical Report – pg.8

The first thing that comes to mind when I read this is, “if you build it, they will come.”As cheesy as that may sound, Peru is a country that depends on mining for employment and, therefore, I do believe that when the time comes, a workforce will be available.

Source: U.S. Geological Survey

 

Peru is a country on the rise, as it has grown its economy at a rate of 6.4% annually, on average, for the last 10 years, which is 2nd among Latin American countries (~ Peru). The service industry represents the largest chunk of the country’s GDP, with agriculture following a close second.  Mining follows these top two industries and looks set for growth in the coming years, with further development of its prospective mining properties.

As Peru looks to further its economic growth, in my mind, mining will have to constitute a major part of their future. Therefore, while not without risk, Peru does present great value from a jurisdictional standpoint, today and into the future.

NOTE: In relation to Solitario, remember that its majority owner, Milpo, the 2^nd largest zinc mine operator in Peru, is handling development of the property and, thus, in my mind, reduces the risk associated with a foreign entity developing or operating the property.

 

 

Zazu Acquistion – Lik Property

• Solitario, upon approval of the purchase, will acquire all of the issued and outstanding shares of Zazu Metals Corporation. It is an all shares deal wherein holders of Zazu shares will receive, on closing, 0.3572 of a common share of Solitario, which represents a 41% premium over the VWAP20 of Zazu. Zazu shareholders are expected to represent approximately 34% of the issued and outstanding shares of the combined company. See the news release for the exact details of the transaction.
• Zazu acquired a 50% interest in the Lik property for $20 million in June 2007, from GCO Minerals. The remaining 50% of the project was and still is held by Teck Resources. The terms of the GCO agreement carried over to Zazu, which has the option to acquire an additional 30% of the property by qualifying expenditures of $20 million prior to 2018. See Technical Report or SEDAR for further information.

Further, in my email correspondence with IR, I asked, ‘how much money must be spent by Solitario to attain the additional 30% in the Lik property?’

“Approximately $20 million…If we don’t spend the $20 million, then Solitario will own 50% of the Lik Project and will continue to be the operator.”

• The Lik property is located in Northwest Alaska, 22 km from Teck Resources’ Red Dog Open Pit Mine.

Source: Zazu Metals

 

• The Fraser Institute’s ranking for Mining Investment Attractiveness gives Alaska a score of 80.27, placing it 5^th amongst the American States, and 14^th in the world. Even with this great ranking, at this current time, Alaska may still be associated with the highly publicized issues between Northern Dynasty and the EPA over their Pebble Project. Isolated incidents such as this can be present in the best of jurisdictions, as the score gives a broader view on the jurisdiction on a whole.  Proximity doesn’t mean that the Lik property is guaranteed to be approved for the construction of a mine, but Teck’s Red Dog mine is only 22 km away and has been operating for a long time. I’m confident that permitting won’t be an issue.
• The Lik deposit is divided by faulting into two parts, Lik South and Lik North. The PEA that was completed in 2014 was on the Lik South Deposit, which they believe can be mined in an open pit. The Lik North Deposit is much deeper than the South and will most likely require underground mining techniques for its removal.
• Original drilling (137 holes) of the project occurred in the 1970s, 80s, and early 1990’s with some historical mineral resource estimates completed by GCO and Noranda. Zazu completed an additional 92 holes from 2007 to 2011.
• Total Mineral Resource Estimate (North and South Deposits) taken from PEA Report:  Indicated:Mt – 18.11, Zn% – 8.1, Pb% – 2.72, Ag g/t – 50.2   Inferred: Mt – 5.34, Zn% – 8.66, Pb% – 2.69, Ag g/t – 38.0  (See the PEA for further details)

 

• The PEA was completed for the Lik South Deposit ONLY
  • After Tax NPV @8% – USD $25 million, IRR – 9.7%, 5.8 year Payback, CAPEX Cost – $351.7 million Metals Price Assumptions in USD – Zn – $0.9242/lbs, Pb – $1.013 lbs, Ag – $19.43/oz  – At first glance, this may seem low, but remember this is a high-grade zinc project and, therefore, should present a high sensitivity to the zinc price. The PEA lists revenue associated with each metal as approximately 70% zinc, 29% lead and 1% silver on pg.1-16.
• In Zazu’s corporate presentation on page 16, a price sensitivity table reveals the upside potential of the project. Using today’s zinc price of roughly $1.12 per pound, and the project After Tax NPV @8% jumps to USD $195 million, IRR – 20.0%, Payback 3.4 years.
• The Lik Property PEA envisions a 5,500 tpd mill, with a CAPEX cost of $352 million, including a 20% contingency. Again, remember that this only concerns the South deposit.

 

9.97% Equity Interest in Vendetta Mining

– On May 5^th, 2016 Solitario announced a strategic 9.97% equity investment in Vendetta Mining. Solitario purchased 8,000,000 units of Vendetta for a total consideration of CDN $362,000, with each common share priced at CDN $0.05, and one full warrant with a two-year term, and exercisable at CDN $0.10.  Please see SEDAR for more detailed information regarding the financing.

– This investment shows great foresight by Solitario’s management into the zinc market and the potential of Vendetta Mining, which has seen great gains in its share price since their purchase.

– While I like this investment, it’s a much smaller piece of my speculative thesis regarding Solitario. I have compiled some notes on Vendetta Mining because I really like their story and its potential, but I will publish those in a separate article. If you aren’t already a subscriber and don’t want to miss that article, become a Junior Stock Reivew VIP and have the article sent to your inbox for FREE.

 

Solitario’s Remaining Royalties

While Solitario does have additional royalties, I haven’t considered their value at their current stage of development. Nonetheless, here’s a list of Solitario’s 3 other royalties:

• Pedra Branca Platinum/Palladium Project – Solitario retains a 1% royalty
• Montana Royalties – 1.5% NSR on 11 properties
• Yanacocha NSR Royalty Project

Concluding Remarks

There’s always downside risk in any speculation that you make. In the case of Solitario, I think the current downside risk comes from the potential for the zinc price to fall. That said, a lower zinc price wouldn’t make their projects uneconomic, it would likely result in losses for zinc companies overall. Secondly, due to a lack of promotion, the stock is being thinly traded at just below 10,000 shares on the TSX per day and 58,000 on NYSE-MKT. However, I view this in a positive light; I relish the opportunity to buy shares of a company before their story catches on in the mainstream.  I expect post-transaction, that Solitario will want to get their new story out to the investment community.

For me, the release of the Bongará PEA in the next month or so and the confirmation of the Zazu purchase will be turning points for attention on Solitario, and will allow investors to put a proper valuation on this company. Now, with a MCAP of around $39 million, it’s undervalued, especially in context to the supply and demand fundamentals of the zinc market.

To summarize my reasons for buying shares of Solitario:

• An experienced management team which seeks and capitalizes on value in the market – without major shareholder dilution.
• PUSH from an upcoming Bongará PEA, which I believe will shine a very bright light on this large and high-grade zinc deposit.
• Bongará JV partner, Milpo – an experienced zinc mining company, which is set to cover all expenses and technical work on the project right up to the commitment for mine construction. The 30% interest in Bongará comes at no upfront capex cost to Solitario, just the repayment of Milpo-funded construction costs paid from operating cash flow. Consequently Solitario will receive cash flow starting day-one of production without dilution.
• Upon closing the deal – Lik Property JV partner, Teck – large senior multi-metal miner, which I would guess will be motivated to see development of this Alaskan deposit, as their massive Red Dog Mine will see reduced production numbers in the years ahead, right in the face of a supply shortage in the zinc market.
• Leverage to higher zinc prices – Both the Bongará and Lik Projects are highly sensitive to a rising zinc price.
• A good sized position in a highly prospective zinc exploration company – Vendetta Mining, which is currently worth: $0.34/share x 8,000,000 shares = $2,720,000. There are 5,000,000 Cdn $0.10 warrants, too!
• CASH – Solitario is sitting on roughly USD $17 million – almost half of their market cap – to my knowledge, ONLY Arizona Mining, amongst zinc companies, has a larger cash position.

 

Do your due diligence on Solitario and see if they are a company that fits your speculative criteria. For me, they present a great risk to reward speculation, especially going forward, as I’m confident that even if we don’t see higher zinc prices, there is still great value in this company.

 

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please do your own due diligence. I have NOT been compensated to write this article and do NOT have a business relationship with Solitario Exploration & Royalty. However, I do own shares in Solitario Exploration & Royalty. Please check SEDAR for the most accurate data regarding Solitario Exploration & Royalty information and analytics.

 

We’re currently in the first correction stage of this new gold bull market. When will we exit the correction? It’s hard to say, maybe it’s happening now. What I do know, is that we need to take advantage of this weakness in the gold price and the junior market to buy quality companies that will set us up for profits when the market turns up.

With regards to catalysts for a market turn around in the juniors, one thought I have is that it may be brought about by discovery. Over the first 5 months of 2017, we have seen a few hundred million dollars fed into the junior market via financing, setting us up for discovery possibilities as soon as right now, in some explorations camps.

Whether it be in the Urban Barry Camp in Quebec’s Abitibi Greenstone Belt or a company in BC’s Golden Triangle, discovery excitement is contagious and something that I believe could set the next leg of the bull market on fire.

Today, I have for you a company which is set to bring short term PUSH with a 7500 m drill program on their 30,000 hectare KSP property in BC’s Golden Triangle. This company is Colorado Resources – let’s take a look!

 

 

Colorado Resources (CXO:TSXV)

MCAP – 26.9 million (At the time of writing)

Shares – 94,820,386 (as of April 2, 2017)

Fully Diluted Shares – 112,362,482

• Warrants – see corporate presentation or SEDAR for most accurate information. The warrants range from a low of $0.13 to $0.60, with around 2 million expiring in 2017, more than half in 2018, and the remaining 4.4 million in 2019.

Cash – Around $6.5 million, of which $4.3 million is flow-through

Management Ownership – Approximately 6 million shares or roughly 6%

 

Colorado’s People

Colorado Resources is led by President and CEO, Adam Travis. Travis is a geologist by trade and gained his work experience with Keewatin Engineering, the Ron Netolitzky group of companies, and Hunter Dickinson group of companies. This work experience is especially pertinent to Travis’ current pursuit, exploration in BC’s Golden Triangle.

For those who aren’t aware, Ron Netolitzky and his associated companies have a history of success in the mining industry, in particular, within the Golden Triangle. A few of the highlights of his great career are the discovery of the Snip gold deposit and the massive Eskay Creek deposit.

With Travis and Colorado’s KSP property in the Golden Triangle, I’m not sure you could ask for better experience than working with Netolitzky.

Also, Travis started his own private company, Cazador Resources. Cazador was focused on the purchase of highly prospective properties which were later optioned by other prominent junior mining companies, such as Skeena Resources and Ascot Resources. This entrepreneurial attitude will translate well in Colorado, as a CEO must have this attribute to be successful.

The strength of a junior company, especially those focused on exploration, is highly correlated to the strength of the team doing the exploring. In Colorado’s case, I think this may be the aspect that stands out the most for me, as Travis has surrounded himself with a group of people that have extensive exploration experience in the Golden Triangle, which, most importantly, was successful, and as an added bonus, have worked together in different capacities over the past 20 years.

Beginning with Dr. Jim Oliver, who is Colorado’s chief geoscientist. Oliver has over 25 years of experience within the mining industry, having worked for both junior and major mining companies over the course of his career. Most recently, Oliver was VP of geology for the Hunter Dickinson Group of Companies before joining the Colorado team.

Also, Colorado has an extensive technical team which bring an added dimension to this junior exploration company. Here is a comment by Blanchard on the Technical Advisory Committee,

“Our technical advisory team are recognized experts in their respective fields and provide additional expertise in geophysics and geology with projects in this area of BC and these types of deposits.  Adam has been lucky to work with some very accomplished mining people throughout his career.  He spent the early years of his career with Keewatin Engineering (Ron Netolitzky and Larry Nagy) and also spent 5 years with Hunter Dickinson working with some of the best exploration geos in the business.  The relationships he developed and the support of our advisory board has been very valuable to Colorado.  It is always good to get 2^nd and 3^rd opinions and interpretations of your data.  Our team is as good as you get in this business and they all work very well together.”

 

Technical Advisory Committee:

• Mark Rebagliati is a geological engineer with a good portion of his career spent with the Hunter Dickinson Group of Companies. Rebagliati is a Canadian Mining Hall of Fame member.
• Charlie Grieg is a geologist who specializes in geological mapping. His career has spanned over 35 years, bringing him around the world to work numerous projects with Agnico Eagle, Yukon Zinc and Nevsun.
• David Rhys is a geologist with over 25 years of experience in the mining industry. His expertise is mainly with the interpretation of mine site ore controls and applications of mine geology to local and district scale exploration activities.
• Alex Walcott is a geophysicist with 20 years of experience in geophysical surveying and consulting around the world.

 

 

BC Politics

For those who don’t know, there was a provincial election in BC on May 9^th, which the Liberals won, edging out the NDP.  A Liberal win should result in a status quo for the miners, as the party appears to be set on promoting and supporting mining.

In a letter to the honourable Bill Bennett, the Minister of Energy and Mines, BC Premier, Christy Clark, stated,

“Work with the Ministry of Finance and Geoscience BC to establish long-term, predictable funding to foster oil, gas and mineral exploration and development in BC” ~Minister Letter

Further, BC Hydro completed the $716 million Northwest Transmission Line Project (NTLP), which was provided by the province to supply power to potential industrial developments in northern BC. The new line runs from Skeena Substation north to a new substation near Bob Quinn Lake, a stretch of nearly 344 kilometres (BC Hydro) (Power Line Geography ).

Typically, energy and accessibility are major sticking points for companies that explore in some of the more remote parts of the world. In BC’s case, they are trying to remedy this sticking point by providing the infrastructure needed for junior companies to become producers or, more importantly for the provincial government, to become large employers.

 

Tahltan Territory

On January 26^th, 2017 Colorado announced a communications agreement with the Tahltan Central Government (TCG).  The TCG is the governing body of the Tahltan Nation, which works to protect the Aboriginal rights and title, ecosystem and natural resources of the Tahltan community.

Tahltan territory encompasses 93,500 square kilometres in northwestern BC, running parallel to the Alaskan/Canadian border. Their three main communities are Telegraph Creek, Dease Lake and Iskut.

I was able to connect with VP of Corporate Development, Alex Blanchard, and asked him a few questions, one of which was in regards to the TCG. This was his response,

“We have a very good relationship with the TCG and signed a communications agreement with them in January.  Pretivm has worked closely with the TCG through mine development and they have a good working relationship.  I see a strong working relationship between Colorado and the Tahltan in the future.”

The engagement of the TCG well before the development of a mine in the area is a smart move by Colorado management, as a relationship started early on with full disclosure should build trust and, therefore, in my mind, has a higher probability of success in the future.

 

Colorado’s Properties

For this article, I will concentrate on what I think are Colorado’s primary projects, KSP, North ROK and Green Springs. Colorado does own 4 other projects in BC, which are Kinaskan, Kingpin, Hit and Heart Peaks.

KSP Property

• The KSP property is located in BC’s northwest region, referred to by most as the Golden Triangle. The property is made up of 59 claims covering 30,504 ha and is located approximately 15 km along strike to the southeast of the past producing Snip Mine, which produced over 1 million high grade gold ounces over its mine life.
• Colorado has the ability to gain an 80% interest in the property with Seabridge Gold, who purchased SnipGold Corp last summer.
  • In a December 20, 2013 news release, Colorado announced they had entered into the agreement with SnipGold for the KSP property. The option agreement included aggregate payments by Colorado of $500,000 and exploration work of $6,000,000 over a 4 year time period for a 51% interest.

The KSP property is large and diverse as Colorado is targeting both high grade gold veins within the Inel Khyber Pass and A-J zones, and bulk tonnage copper-gold mineralization within Sericite Ridge, Josh and Black Bluff zones.

 

There’s a good amount of historical data that’s presented in the May 7^th, 2014 news release, outlining the important data that had been compiled by the former explorers of the property.  I will list the data presented for the two most explored zones, Inel and Khyber Pass:

• Khyber – 1100 soil samples over a 400m x 1200m open ended area averaging 0.810 g/t Au – great grade for a soil sample
• Khyber – drill testing over a small portion of this soil anomaly returning drill intervals of up to 74.7 m of 2.2 g/t

• Inel – 1,240 m historical underground development, 192 holes with drill intercepts up to 15.5 m of 13.2 g/t Au. High grade intercepts – S116 (1989) with 7.3m of 20.93 g/t Au; U171 (1990) with 7.4m of 41.1 g/t Au and IS130 (1989) with 3.5m of 423.81 g/t

• Inel Ridge (500m east of Inel) – veins traced for over 1000 m with drill results up to 29.8 g/t Au over 1.25 m

Check out the KSP page of the Colorado website for further examples of historical drills on the properties’ other zones: Tami, Pins, Sericite Ridge, Josh, Black Buff and A-J.  Also, see SEDAR for further details on historical data.

KSP work completed by Colorado can be found in the following news releases (See SEDAR for the most comprehensive list of news releases):

• Colorado Resources’ KSP Property Update – September 24^th, 2014
• Colorado Drills 34 m @ 3 g/t Gold and Discovers New Zones at KSP Property – November 5th, 2014
• KSP Property Update- Colorado Acquires 3 More Gold Showings and Confirms KSP Joint Venture – January 19, 2015
• Colorado Announces Second New Porphyry Discovery At KSP – October 8th, 2015
• Colorado Resources Plans 5,000 m Drill Program at KSP Property Inel Area – February 29th, 2016
• Colorado Resources Announces KSP- Inel Zone Drilling Progress – June 30th, 2016
• Colorado Resources Reports Assay Results of First 8 of 37 Drill holes Completed to Date at the KSP-Inel Zone – July 19th, 2016
• Colorado Resources Drills 25.7 m of 9.24 g/t Au at Inel and Expands Drill Program – August 8th, 2016
• Colorado Continues to Return High Grade Gold from Inel Drilling at KSP District in the Golden Triangle, BC – September 21, 2016
• Colorado Drills 64 metres of 2.63 g/t Au and Outlines Several New High Grade Trends with > 1 oz/t Gold Intercepts at KSP Project – October 5th, 2016

 

Through the analyzing of historical data and completing their own geophysics and soil sampling, the Colorado team developed targets for their drill programs. In the summer of 2016, 59 holes were drilled for a total of 8,861.8 metres between the Inel, Tami and Khyber Pass zones.

• 53 holes were drilled at Inel, with hole INDDH16-029 delivering a hit of 1.0m of 165.5 g/t Au and broad low grades which included, hole INDDH16-025 with 99.0m of 2.11 g/t Au.

On May 11^th, Colorado released their plan for the KSP’s 2017 summer drill program and have confirmed that they will be drilling 7,500 m which will result in them spending the remaining $4 million dollars on the property to gain an 80% interest. I believe this is a big milestone in Colorado’s history, as the KSP property has a ton of potential, potential which I believe a major will have interest in, especially now that Colorado looks to control 80% of the property.  I would speculate that you could see a major buy a position just under 20%, like so many have been doing in this market cycle, but time will tell.

From the news release,

“A review of the 2016 geochemical data when referenced to last year’s drill program has shown that there are at least 10 soil geochemical anomalies of similar size and strength in the Inel –Khyber area (see News Release dated December 19, 2016 and Table 1) of which only one was tested by our 2016 drill program to shallow depths of approximately 125 m. Reviews of geological and geochemical data along with new geophysical Induced Polarization (I.P.) and Magnetic data have recently been completed and are showing some very compelling targets at depth and along strike of our 2016 drilling.”

Travis comments further in the news release about the mineralization,

“Our 2016 drilling also demonstrated that gold mineralization is not only restricted to the volcanic-sediment contact as previously thought, but is also found within the underlying sedimentary rocks, thus opening up a considerably larger target area. The current geological, geochemical data and geophysical models are also suggesting that the known mineralization outlined over a 400 m x 600 m area in our 2016 drilling is perhaps only a small portion of a much larger system.”

PUSH: This summer’s drill program, if successful, will provide some PUSH to the company’s share price, and for good reason – bigger is better.  The IP and magnetic data are showing some great prospects, especially when compared to where they drilled in 2016, see image below.

 

North ROK

• The North ROK property, like KSP, is located approximately 190 km north of Stewart in the Golden Triangle, in BC’s northwest. The property consists of 45 claims and is 21,179.89 hectares. Colorado owns 100% of the property, however, some of the claims are subject to a 2% NSR (see SEDAR for further info).
  • Travis’ past at Brett Resources is tied to the North ROK property, because in 2009, while working for Brett Resources, he staked the claim that covers the current Mabon showing. Brett Resources proceeded to carry out initial exploration of the claim, which consisted of silt sampling, prospecting and contour line controlled rock chip sampling.
• The property is underlain by volcanic and sedimentary rocks of the Upper Triassic, Stuhini Group to Lower Jurassic, Hazelton Group.
• Accessibility to the property is outlined in the NI 43-101 Technical Report,

“Access to the North ROK property is usually gained by taking Highway 37, commonly referred to as the Stewart-Cassiar Highway, north from Smithers or by taking a scheduled air flight from Smithers to Dease Lake. Property access to lower elevations is obtainable by truck or car from Highway 37 which passes through the western portion of the property. The extreme southeastern part of the property can be accessed by truck or car from the gravel, Ealue Lake road which passes along the north-shore of Ealue Lake in a north-easterly direction. The upper portions of the property are most easily accessed by helicopter.” ~Technical Report – pg.8

 

Targeting Porphyry Copper-Gold

Colorado is targeting porphyry copper-gold on this property and has an inferred resource, which currently sits at 142.3 million tonnes, averaging 0.22% Cu and 0.26 g/t Au. The NI 43-101 report can be found here.

“Based on the results of the 2013 exploration program at North ROK, a two phase 15,000 m success-contingent drilling program is recommended. It is also recommended that a downhole IP program be completed prior to the initiation of Phase 1 drilling. Phase 1 is divided into two non-contingent components. One 7000 m drilling component to focus on delineating the full extent of the North ROK deposit and another 3000 m drilling component to test other geological, geochemical and geophysical features including the West Mabon, Edon, Lower Mabon and North Mabon zones. A proposed Phase I budget of C$3,250,000 inclusive of all auxiliary, technical and support costs is recommended. The Phase II 5,000 m drilling program is contingent upon success at either or both of the two Phase 1 components and is budgeted at C$ 1,625,000 and will be guided by the results of the preceding drilling programs.” ~ Technical Report – page 3

• In 2014, Colorado followed these recommendations and succeeded in:
  • Intersecting new mineralization at the West Mabon Zone
  • Establishing significant depth potential and continuity of gold-copper mineralization over 250m below mineralization in DDH NR13-001
  • Defining the broad, deposit scale geometries and controls on mineralized zones
  • Extending mineralization southwest of DDH NR13-013
  • Testing of other Areas

 

BC Copper Grades

BC has a history of producing copper, with 13 Mt being produced between 1894 and 2014. 90% of that production came from 15 deposits, which were calcalkalic porphyries, alkali porphyries and VMS deposits.  Today, 0.3 to 0.4% copper is widely held as a gauge for an economic grade, however, when examining BC’s producing mines, you will see that the grades are lower yet still economical.  Mines which have grades in the 0.2 to 0.3% copper, typically have additional help from moly, gold or silver credits, which can make or break a mine. This is a point that needs to be considered when examining deposits that depend on credits from secondary metals, as base metal prices and precious metals prices don’t always coincide with upwards trends or generally high prices.

Source: BC Ministry of Energy and Mines

Examining the table, you can see that the grades of Colorado’s inferred resource are pretty good, the biggest difference right now is the size.   North ROK won’t see any drilling as it stands right now, as the main focus in the Golden Triangle this summer will be KSP.

 

 

ROK-Coyote Property Acquisition

On March 13, 2017 Colorado announced the purchase of the ROK-Coyote property from Firesteel Resources. The property lies south and east of North ROK, greatly expanding Colorado’s prospective land size. Firesteel received 1.5 million units of Colorado, with consist of both 1 common share and 1 common share purchase warrant at a price of $0.45 for a period of 24 months. There is a 2% NSR on the property, see news release for further details.

The property has been explored since the late ’60s, with geological mapping, geochemical surveys, grid-based geophysics, surface trenching and some drilling (see news release for more detailed information).  I believe Travis and his team are in a great position to explore and advance the ROK-Coyote effectively, as their experience not only in the Golden Triangle, but specifically on the North ROK property, has set them up well for being as efficient as possible in choosing the right targets to find mineralization.

As you can see in the image above, North ROK’s existing mineralization is found right on the border of the two properties, and it’s thought that it may continue into the ROK-Coyote property. If the mineralization does continue and it’s of a similar grade, this could be game changing because an increase in the size of this porphyry system would really bring attention to this deposit.

 

 

Nevada

Nevada has a long history of being a mining friendly state and ranks 4^th in the world according to the Frasier Institute’s ranking of the most attractive jurisdictions for mining investment. Some quick facts from the Nevada Mining Association:

• Nevada’s production accounted for 77.6% of the United States’ total and 5.4% of the World total gold production.
• 2015 Gold Production Totalled 5,339,663 Troy ounces
• 119 mines in Nevada
• Nevada Mining Gross Domestic Product – $4.6 Billion

Nevada is a hot bed for gold production – and for good reason. The state is home to Carlin Trend gold, which is characterized as typically hosting large oxidized ore bodies, which can be open pit mined and with low gold cut-off grade (<0.2 g/t). All of these attributes spell cheap gold production for the lucky company that finds it, which is key to making money in both a bull and a bear market.

One final thing on Nevada, Green Springs diversifies Colorado’s property portfolio out of BC, which, prior to knowing the outcome of this provincial election, was a great move in my mind, and shows that management is cognizant of jurisdictional risk.

 

Green Springs

The Green Springs Property consists of 193 unpatented claims covering 1,416 hectares, and sits approximately 50 miles south of Kinross’ Blad Mountain/Alligator Ridge Mine.  Colorado announced the optioning of the property last December from Ely Gold and Minerals. The option terms can be found in the news release.

Green Springs is a past producing property, having produced 1.1 million tons @ 2.1 g/t gold, which was heap leachable at an over 80% recovery.  Following USMX’s operation of the mine, it was further controlled by Palladon Ventures, which produced a 43-101 report in 2005, and then Ely Gold and Minerals, which has owned the property since 2013.

 

Colorado’s Work

Colorado was able to outline 8 exploration targets based on historical data, and completed a drill program in the first part of this year, 2017. Drill results were released on April 4, 2017 and were highlighted by intercepts of 135 ft of 3.23 g/t gold, 25 feet of 9.75 g/t gold in the E Zone.  From the news release in reference to the E Zone,

“These results confirm our concept that high grade feeder structures may exist to the south of the old pits and that mineralization can extend into the underlying Joana limestone.”

 

Further, the company highlighted work in the A zone to which they say, in reference to the drill results,

“These results confirm our premise that rocks mapped as the underlying and un-mined Pilot Shale have the potential to host significant gold mineralized zones at relatively shallow depths.”

In my discussion with Travis, he mentioned that they were sending their geological team to Green Springs for further work and preparation for further exploration this fall. The Green Springs property will bring Colorado year-round news flow and presents great speculative upside given the nature of the Nevada geology.

 

 

Colorado Resources’ Company Valuation

At the time of writing this report, Colorado had a MCAP of around $25 million.  Is that over-valued, under-valued or fair valued? Valuing companies at this stage in development isn’t easy, in my opinion, as we will be assigning value to a property’s potential rather than with an actual measurable resource, excluding North ROK, which does have an inferred resource.

A base value for a company can be found by looking at the liquidation value of their properties. Meaning, if the company were to stop exploring and sell their properties at this moment in time, how much money could they get? This isn’t an exact science, as all of the properties aren’t exactly alike and their selling price has a lot to do with where in the market cycle they are being sold.

For comparison purposes, let’s take a look at Seabridge Gold’s purchase of SnipGold in early 2016.  From Seabridge’s Annual Report 2016,

“SnipGold common shares received 1/63rd of a common share of the Company in exchange for 1 SnipGold common share held. 695,277 common shares of the Company were issued to existing SnipGold shareholders. The Company also issued 54,968 stock options and 1,587 warrants to existing SnipGold holders of similar securities. The fair value of the shares, stock options and warrants was $13.1 million. The Company also incurred $1.7 million of acquisition costs. The total purchase price of $14.8 million has been allocated to the assets acquired and the liabilities assumed based on the fair value of the total consideration at the closing date of the acquisition.” ~ Annual Report 2016 – pg.43

The acquisition by Seabridge was aided by the bottom of the bear market cycle, which made it hard for SnipGold to find financing. SnipGold isn’t a perfect comparison, but is a stone’s throw from Colorado’s properties and has similar geology, IE speculative upside.  Fast forward a year into the new bull market cycle and SnipGold is probably financed easily on its own, or is sold for more than the $15 million in this transaction.

If we assign this value to Colorado’s properties, which I think is really under selling what they have, and add their $6.5 million in cash, you have $21.5 million which is just below their current MCAP. Therefore, without even getting into where we are in the bull market cycle and the speculative upside of their properties, you are basically buying Colorado for the liquidation value right now – not many companies can say this.

While, for me, the liquidation value comparison is solid and enough for me to make a decision, for those who want a little more, let’s take a look at one more comparison; neighbouring Skeena Resources, which is a great comparison from a geological sense.

To begin the comparison, I’ll start with the copper-gold porphyry deposits’ Spectrum and GJ, which have resource estimates. Referring to the Spectrum Technical Report, page.8,

“NSR AuEq Cut-off (g/t) – 0.5, tonnes – 8,590,000, Au – 1.04 g/t, Ag – 6.58 g/t, Cu – 0.11%, AuEq – 0.87 g/t – Therefore contained metal – Au – 290,000 oz, Ag – 1,820,000, Cu – 20,835,000 lbs – Indicated Resource… NSR AuEq Cut-off (g/t) – 0.5, tonnes – 22,630,000, Au – 1.03 g/t, Ag – 3.85 g/t, Cu – 0.11%, AuEq – 0.85 g/t – Therefore contained metal – Au –750,000 oz, Ag – 2,800,000, Cu – 54,889,000 lbs – Inferred Resource”

Referring to the GJ Technical Report, page.5,

“Cut-off Cu % – 0.2, tonnes – 133,670,000, Cu – 0.32 %, Au – 0.36 g/t – Therefore the contained metal Cu – 940.23 million lbs, Au – 1.56 Moz – Measured plus Indicated Resource…Cut-off Cu % – 0.2, tonnes – 53,690,000, Cu – 0.26%, Au – 0.33 g/t – Therefore the contained metal – Cu – 312.54 million lbs, Au – 0.57 Moz – Inferred Resource”

 

How does Colorado’s North ROK compare? Here is a look at the 43-101 resource estimate. Referring to the Technical Report, page.2,

“Cut-off CuEq % – 0.20, Tonnes – 142,300,000, Cu – 0.22%, Au – 0.26 g/t, CuEq – 0.37% – Therefore contained metal Cu – 690,297,300 lbs and Au – 1,189,512 oz – Inferred Resource”

As you can see from the Technical Report data, Skeena’s resource estimates are more developed and larger than that of Colorado’s North ROK.  Skeena’s current MCAP, at the time of writing this report, is around $35 million, this valuation isn’t just based off of their resource estimate, but also the speculative value of their other properties.

Is Skeena worth more than Colorado? It’s up for debate, but I would say that from this perspective, Colorado is at least fair value. Personally, I think they’re both on the undervalued side in comparison to other junior companies, given what they have and their speculative upside potential and the management teams that are leading them. With the BC provincial election behind us, I think these companies will see their share prices rise as their value becomes more apparent.

 

 

In conclusion, like any exploration company, there are a lot of questions that need to be answered, and answered with good results. As we all know, in mining, the odds are stacked against us in terms of finding economic mineralization. However, I believe that Colorado Resources is a company which strengthens your odds of success because they possess the most important aspects of a junior miner.

They have:

• CASH – roughly $6.5 million
• A management team which has the knowledge and  X-Factor experience for exploration within the Golden Triangle
• Multiple district scale land packages with speculative potential – similar geology as some of the area’s most prolific mines and deposits: Eskay Creek mine, Snip mine, Pretium’s Brucejack Deposit and Seabridge’s KSM Deposit.
• Short term PUSH from a 7500 m drill program at their highly prospective KSP property

You be the judge as to whether Colorado Resources fits your individual investment criteria. For me, they’re a welcome addition to my speculative portfolio!

 

Don’t want to miss a new investment idea, interview or financial product review? Become a Junior Stock Review VIP now – it’s FREE!

 

 

Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please do your own due diligence. I have NOT been compensated to write this article and do NOT have a business relationship with Colorado Resources. However, I do own shares in Colorado Resources. Please check SEDAR for the most accurate data regarding Colorado Resources information and analytics.

 

For those who read my report on lithium, you know that I think the future is bright. Due to the attention that lithium has received, however, many moose pasture projects have entered the market and pose a real threat for those who don’t perform their due diligence and dig into the real story behind a prospective investment.

Today, I’m excited to share with you a lithium company whose project has the 3^rd best lithium grades in the world, the lowest concentrations of impurities in the business, and the cash to PUSH it all the way to a feasibility study, which is currently set for Q3 or Q4 of 2018.

This company is Neo Lithium. At PDAC this year, I had the chance to speak to Carlos Vicens, Neo’s CFO and just recently I exchange emails with CEO Waldo Perez. This report is a culmination of the notes I took from the conversations as well as my due diligence.

Let’s take a look:

 

Neo Lithium (NLC:TSXV)

MCAP – $124 million (at the time of writing this report)

Shares Outstanding – 88.6 million

Fully Diluted Shares – 109.6 million

• $25 million bought deal Private Placement closed on February 22, 2017
  • 7 million shares at $1.10 and a full warrant at $1.40 for a period of 18 months

Cash Position – $39 million as of September 30, 2016

Insider Ownership – 20%

• Refer to SEDAR and SEDI for the most accurate information

 

 

Neo Lithium’s People:

• Neo is led by President and CEO, Waldo Perez. Perez has 28 years combined experience in academia and within the mining industry. He has held senior positions with Barrick Gold, IAMGOLD, Latin America Minerals and Lithium Americas Corporation. Perez is highly respected by his peers for his geological knowledge and experience in lithium brine exploration. His intellectual acumen is further demonstrated by the proprietary lithium extraction process that he and Neo Lithium Technical Advisory Team member, Dr. Claudio Suarez-Authievre, co-developed for Cauchari Salar.

• Neo Lithium’s Technical Advisory Team is made up of three members who have worked with Perez at previous companies and, most importantly, have lithium brine work experience in South America’s Lithium Triangle.
  • Project Manager, Martin Erroz, brings 15 years of experience to Neo, having worked for a number of different companies over the course of his career, including: Lithium Americas Corp. and Latin America Minerals.
  • Mark King is a hydro geologist by trade and has 25 years of experience in academia and the mining industry. King specializes in ground water flow and migration of constituents dissolved in groundwater, making him a welcome addition to any lithium brine team.
  • Last but not least, Dr. Claudio Suarez-Authievre, whom I mentioned earlier, brings 17 years of experience in academia and the mining industry. Suarez-Authievre has worked for SQM and Lithium Americas Corp., and is now Process Engineer Manager at Neo.
• Neo’s CFO is Carlos Vicens, and the Board of Directors includes: Constantine Karayannopoulos (Chairman), Thomas Pladsen, Gabriel Pindar and Paul Fornazzari.

 

Jurisdiction Argentina:

• President – Mauricio Macri
• Macri has outlined a pro-business agenda for his government, which he has started to execute since his inauguration. His pro-business agenda is headlined with:
  • Filling his cabinet with former business executives.
  • Eliminated currency and trade controls and cut government spending

• • Cutting export taxes, most importantly on mineral products.

• Attracting foreign investment, most importantly, repairing the relationship with the United States. As reported by Reuters on March 24, 2016, Barrack Obama stated, “Argentina is re-assuming its traditional leadership role in the region and around the world.” From the same article,Reuters reports, “The American Chamber of Commerce in Argentina said U.S. firms would invest $2.3 billion in Argentina over the 18 months, including more than $100 million each from General Motors Co., Dow Chemical Co., AES Corp. and Ford Motor Co.”
• These are great signs for there being a change in global perspective, one that will only help future investment in the country and make it safer for our investment dollars.
• Argentina was the host of the World Economic Forum on Latin America, April 5-7, 2017. The event brought clashes between protestors and police, and was said to be provoked by Macri’s cuts to government spending.
  • The Euronews reports, “Protesters in Argentina have clashed with police during demonstrations against government austerity measures…Left-wing politician Alejandro Bodart said: ‘Macri will open the World Economic Forum and economists from around the world will come— they are all neo-liberal. There will also be business leaders who will come to discuss how to continue stealing the riches of our people, how to continue with plans to exclude one section of society so as to enrich the same old ones.’ ” ~ Euronews

It isn’t all rosy in Argentina, but many, including Neo CEO, Waldo Perez, believe that Argentina’s future is bright. In response to my question regarding Argentina’s outlook for the future, Perez responded,

“The outlook is very positive, favourable to foreign investors and pro-business.”

NOTE: The 3Q project is subject to a 3% royalty as outlined in the 3Q Technical Report,

“Article 6th of Provincial Law # 4757, establishes a mining royalty of 3% over the mineral value at mine mouth (Boca Mina). According to the National Law for the reordering on the Mining sector, the law applies for coordinating and organizing the payment of royalties to the Provincial Tax Collectors, therefore LIEX S.A. is required to pay the aforementioned 3% Boca Mina royalty to the provincial government of Catamarca.” ~ Technical Report – page.19

I think that the risk to reward potential of Neo Lithium, from a jurisdictional perspective, is worth the speculation, because assets like the 3Q property don’t come along very often.

 

 

Neo Lithium’s Property:

Tres Quebradas (3Q) Lithium Project

• 100% owned by Neo Lithium
• Located in northern Argentina, 25 km from Chilean border, in the southwest portion of the Catamarca Province.
• Within approximately 200 km of the Chilean Pacific coast – Port of Caldera (Copiapo)
• Closet city is the town of Fiambala, which is approximately 100 km east of the project.
• The 3Q property is accessible via a road which stretches up to the Northern Target area. In my conversation with Perez, I asked him about the property’s accessibility for trucks that would be transporting the lithium concentrate now and in the winter. He responded,

“Trucks with 15t [of] brine are already operating, transporting brine to the ponds. The [3Q] area is cold in winter but [there] is no snow near the salar, the salt precludes snow accumulation. We will operate all winter.”

• Total property size is 350 square kilometers.
• Exploration has been concentrated in, but not limited to, the Northern portion of the salar and brine complex, where very high grade targets have been found.
  • Northern Target area measures 20 km by 5 km
  • The latest drill results, release on March 20th, show that the project has a lot of potential to expand outside of the Northern Target.  The southern target results have lithium and potassium grades that are lower than those those in the Northern Target, but are still high in comparison to others found in the lithium triangle. Check out the news release for more detail.
• A geophysical survey of the Northern Target reservoir supports the 20 km by 5 km area and that the reservoir extends down 100m.
  • Brine Reservoir average lithium concentration, thus far, is 895 mg/L, making it the 3^rd highest grade lithium project in the world and 1^st in Argentina.
  • Brine Reservoir average Potassium grade is 7,694 mg/L.
  • Salar samples contain an average lithium concentration of 784 mg/L and an average potassium concentration of 6,796 mg/L.
  • Very low magnesium and sulphate impurities, in fact, they are the lowest combined impurity content of any known salar. This is a HUGE plus for Neo, as high grades of lithium can lose their lustre when mixed with high magnesium and sulphate contents, as they affect the cost of brine processing.
  • The average magnesium/lithium ratio is 1.58 in the brine reservoir and 1.87 in the salar.
  • The average sulphate/lithium ratio is 0.67 in the brine reservoir and 0.46 in the salar.
• Last year, the company, along with two engineering firms, Novigi Ltd. and Celimin, conducted a lithium processing test on a 0.5 tonne sample from the Northern Target area. The test concluded that the brine will not require any additives for lithium extraction and will be able to rely on solar evaporation for lithium concentrating.
  • In my discussion with Vicens at PDAC, he stated that the evaporation ponds will be located close to the northern target, yet still in range of an existing dirt road for trucks to pick up the concentrate and ship to the refineries.
  • Brine can be concentrated up to 4.6% Li with minimal reagent consumption, and up to 7% with further evaporation.
  • Pond recoveries are estimated at 25 tonnes of lithium carbonate per hectare of pond constructed.
    • Example – The area needed to extract 20,000 tonnes of lithium carbonate per year, 800 ha. This is less than a quarter of the flat property that they own.

 

Potential Fatal Flaw

The Preliminary Economic Assessment (PEA) should provide us with the best gauge as to what the upside potential is for the 3Q project.  The PEA is scheduled for Q3 of 2017, giving us very important insight in the near future.

Poor economics could leave this project to collect dust, but given what we have seen in Neo’s drill results, Li and K concentrations are impeccable and impurities are low. The biggest questions may lie in the actual size of the lithium resource and whether or not it can be concentrated.

• A resource estimate is due in the very immediate future, Q2 2017, and should give a good indication of the PEA potential.
• On-site evaporation testing will need to confirm that the engineering firm test results are reliable.

 

UPDATE – April 25, 2017

This update is to address a couple of potential issues that weren’t included in my original write- up for Neo Lithium.  I contacted CEO, Waldo Perez, and Investor Relations representative, Ali Mahdavi, and asked them questions that should help shed some light on these potential issues.

Question #1

Brian: Is the 3Q Project property considered a Ramsar site? If so, how do you plan to deal with permitting?

 Waldo: THE PERMIT HAS ALREADY BEEN OBTAINED. THE COMPANY IS FULLY PERMITED TO DRILL, BUILD PILOT PONDS, LABS, ROADS,  AND PERMANENT CONSTRUCTIONS AT THE SITE. A RAMSAR SITE DOES NOT IMPOSE LIMITATIONS FOR MINING, FORESTRY, INDUSTRIES OR ANY OTHER ACTIVITY. A RAMSAR SITE ONLY CONTEMPLATES WETLANDS. THE SALAR IS NOT A WETLAND AND THE TARGET AREA IS NOT LOCATED IN A WETLAND. THERE IS A WETLAND 50 KM SOUTH OF THE PROJECT.

Brian: As you describe, the permit that Neo attained was for preliminary work on the project, exploration, pilot ponds, etc. My concern is more with regards to bringing the project to production in the future; could the Ramsar designation hinder your attempts to attain a permit to extract the brine in a commercial scenario? Secondly, my concern is with the extraction of the water/brine from the salar affecting the wetlands south of the project. Is that a viable concern?

Waldo: NO, ONCE THE EXPLORATION AND DEVEOLOPMENT PERMIT IS OBTAINED, THE GOVERNMENT CANNOT DENY THE NEXT STAGE PERMIT. IT NEVER HAPPENED IN THE PAST. THERE IS MINING OPERATIONS IN RAMSAR SITES AND THERE ARE 1 MILLION PEOPLE LIVING IN ANOTHER RAMSAR SITE IN ARGENTINA. ARGENTINA HAS 5 MILLON SQUARE KILOMETERS OF RAMSAR SITES. THEY HAVE NO LEGAL PROTECTION STATUS OF ANY KIND. SO THERE IS NO LIMITATIONS ON WHAT CAN BE DONE, BUT OBVIOUSLY THE WETLAND ASPECTS OF THE SITES (AND PARTICULARLY NESTING SITES) MUST BE PROTECTED. WITHIN THE LITHIUM PROJECT THERE IS NO NESTING SITES. THE SITES IN THE SOUTH WITH NESTING SITES ARE ACTUALLY HIGHER THAN THE SALAR, SO WHATEVER IS DONE IN THE SALAR WILL HAVE NO IMPACT IN THE NESTING SITE.

 

Question #2

Brian: Will Neo’s evaporation ponds encroach upon flamingo nesting grounds?

Waldo: NO. FLAMINGO NESTING AREAS ARE 50 KM AWAY.

 

Question #3

Brian: Why is it primarily the Northern Target that sees the high lithium grades? Why isn’t the grade more uniform across the entire system?

Waldo: MOST LIKELY BECAUSE THE INFLOW OF HOT SPRINGS WITH LITHIUM IS FROM THE NORTH, CREATING A LITHIUM GRADIENT. ALSO THE LAKE IS A NATURAL EVAPORATION POND, INCREASING LITHIUM GRADE IN THE NORTH

 

Question #4

Brian: Will high iron levels brought into the salar by the hot springs and 3Q river prevent the brine from being concentrated into battery grade lithium carbonate?

Waldo: THERE IS NO IRON IN THE BRINE. IRON PRECIPITATES OUT OF THE SALAR. THE RED COLOUR YOU SEE IN THE HOT SPRING IS MOSTLY A BACTERIAL EFFECT.

Brian: My reference to high iron levels is from what I read in the Technical Report, page 38;

“High levels of dissolved iron and manganese are present in the discharge of the Tres Quebradas River, and widespread rust-coloured precipitate of iron hydroxide can be seen in the diffuse flow issuing from the alluvial fan (Photo 6.1). The thick occurrence of this material throughout the discharge zone indicates the flow is anoxic (strongly reducing) prior to discharge. Elevated levels of manganese in this discharge may be the source of the dark colouration noted for Laguna Tres Quebradas.”

Since it is a closed system, will these high levels of dissolved iron impact the brine ability to be concentrated into battery grade lithium carbonate?

Waldo: THE HIGH LEVELS REFER TO GEOCHEMICAL ANOMALIES FOR FRESH WATER COMPARISON. THERE IS BARELY ANY IRON IF YOU COMPARE THIS TO THE IRON CONTENTS OF PEGMATITES. THIS IRON AND THE MANGANESE DISSOLVED IN BRINE HAS NO SIGNIFICANT IMPACT IN THE PROCESS, ACTUALLY, ALL PRECIPITATES IN THE FIRST STAGES OF EVAPORATION.

 

Environmental issues can quickly become costly or even prevent a mining project from getting started. In Neo’s case, CEO, Waldo Perez, gives a very direct answer to my questions regarding the Ramsar site designation and its possible future ramifications.

You be the judge. Neo has a ton of positive characteristics, many of which I believe make it a world-class lithium deposit. That said, these potential environmental issues could have an impact on Neo’s future if they don’t play out as Perez suggests.

 

Despite these potential flaws, I’m extremely encouraged by what I see in Neo Lithium:

• A management and technical team led by Waldo Perez, which has been together for a number of years but, most importantly, have done it before with Lithium Americas.
• 3^rd highest lithium concentrations in the world.
• Lowest Impurities of any known salar– Magnesium and Sulphate.
• Short term PUSH from a resource estimate in Q2 of 2017 and a PEA in Q3 of 2017.

 

I believe that in the not-too-distant future, the 3Q Project will be considered lithium’s equivalent to uranium’s world-class Arrow Deposit. I’m a buyer and am optimistic about lithium’s future but, even if I wasn’t, I would still believe that Neo Lithium’s 3Q project is world-class, making it a great addition to anyone’s portfolio. I look forward to the news that’s to come in the remainder of 2017.

 

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Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

Disclaimer: This is not an investment recommendation, it is an investment idea. I am not an investment professional, nor do I know you and your specific investment criteria. Please do your own due diligence. I have NOT been compensated to write this article and do NOT have a business relationship with Neo Lithium. However, I do own shares in Neo Lithium. Please check SEDAR for the most accurate data regarding Neo Lithium information and analytics.