Millrock Resources (
TSX:V.MRO,
Stock Forum) has been around a while. It's been through the highs of the sector, it's been through the lows of the sector. But unlike many exploration companies from 'the olden days' of before 2011, it's still around. And it may be ready to take off again.
Four years ago, stock in the company hit $10 a share. Two years earlier, in the dark days of 2008, the stock was just 60 cents when industry heavyweight Brien Lundin walked former Stockhouse editorial boss Thom Calandra up to the Millrock booth at a trade show and said, “Millrock is my best call, ever.”
“I am not a fan of project generator models,” Brien whispered to Calandra, “but this group has attracted the who’s who of operators [like]
Kinross (
NYSE:KGC,
Stock Forum),
Teck (
TSX:T.TCK.A
,Stock Forum), Vale (
NYSE:VALE,Stock Forum),
Inmet (
TSX:T.IMN,
Stock Forum), and
Altius (
TSX:T.ALS,
Stock Forum).”
Lundin was among the first to start covering the company, way back in 2007, and he rode that horse to riches. From his initial recommendation it was a 15-bagger for those that sold at the high.
Fast forward to today, and Brien Lundin, immediately following the recent New Orleans Investment Conference, has issued yet another buy recommendation on Millrock in his
Gold Newsletter.
The Prospect Generator model is unique, but takes patience. It increases the chances of new discoveries by simultaneously advancing multiple assets with funding from joint-venture partnerships and strategic alliances. Prospect generators like Millrock leverage their exploration expertise by generating and operating exploration projects, while partnering with companies that are well-positioned financially and able to raise the vast sums of capital required to discover and develop world-class mineral deposits. In financial terms, this leverage transforms each dollar spent by Millrock into multiple dollars of exploration activity.
And it’s this leverage that has enticed the smart money to back them. Management proudly says it ”doesn't finance projects”, it “seeds geologists.”
“If our technical staff, or even outside geologists come to us with a bright idea that needs funding to bring it to the drilling stage, we'll help them move forward,” says founder and long-time company CEO, President and board member Gregory Beischer.
When the company has data that it thinks demonstrates the potential for a giant ore body, it dives into its extensive and well-worn Rolodex to find the right partners to play. “Majors know us. They know we operate to the highest technical level with great attention to safety, as well as environmental and social responsibility. They trust us with their funding to do sound exploration work. Once we secure a funding partner the project is essentially de-risked, and we realize income from management fees and payments, reducing our overhead. We stretch every one of our shareholders dollars as far as we can. The key to early-stage exploration success is sustained scientific effort over time on multiple projects. Our partnerships with mining companies make this possible,” says Beischer. “If a great discovery is made, our shareholders will reap the rewards. If we don’t make a discovery on a particular project, we don't lose the farm, and there are more projects in the pipeline all the time.”
Not every project pans out obviously. But enough do that the company continues, despite the austerity prevailing in the exploration departments of most major miners, to attract funding for its prospects. The company has carried out exploration in Alaska, the southwest US and Mexico and is looking at a strong year of drilling in 2015
In Mexico, the company has 11 prospects available for option, primarily in Sonora, part of the country that has long been a go-to copper mining destination. A
funding partner recently stepped up and Millrock’s technical team is running flat out on surface surveys in the great copper districts of northern Sonora. Any discovery here would be a game-changer – not just for Millrock, but for the funding partner…..and for Millrock investors.
Alaska is home base for this group. They know their giant backyard well and they know there are world-class metal mines to be found and made there. And they know how to navigate the permitting process with a forward-looking approach to community relations.
As a general rule, the company seeks out gold and copper as its main target commodities. Always opportunistic, the company recently acquired a uranium deposit in New Mexico at very low cost. “We are contrarians” says Beischer. Now is a time of great opportunity for Prospect Generators with money, foresight and guts. We are buyers. The same should be true for the contrarian investor. Now is the time to start building positions in the companies that will emerge from the cleansing currently in progress.”
“We use our shareholder’s money to generate prospects. Drilling exploratory holes is expensive business that can drain a treasury quickly. That is why we go to the operating, profitable mining companies to fund the expensive, highest risk part of our work. The major mining companies that have funded us so far trust us to do a lot with a little. More partnerships are in the works.“
They ain't lying that big companies trust them. Big companies also invest in them. So do significant industry players. Think Sprott. Think Casey. Think Cranberry Capital. These are equity investors that recently purchased stock. Mining companies like Altius, Kinross and Teck also hold shares and have funded specific projects.
“The stock is held by seriously tight hands,” says Beischer. “These are people who see the down market as an opportunity to pick up assets cheaply, and have the acumen to anticipate the market upswing. Our main investors are highly influential in the investing community. If we give them any exploration success to work with they will do their part to see that the success is reflected in our share price.”
If 21 different projects on the go seems a lot to the layman, that feeling isn't shared by management. Because they finance at an early stage – think early phase capital in the tech industry, where a startup is doing the initial work to see if its idea works before committing to growth financing – and seek JV partners when things get serious, Millrock has avoided seriously diluting the stock over its lifespan.
Of course, over time, even with efforts to prevent dilution, it tends to happen, so the company recently ran the stock back on a 10 to 1 deal, leaving it with a crazy tight 19 million shares outstanding going forward.
But the deeper you dig on this crew, the more impressive it gets. Alaskan mining properties, for example, have been beset by land claims for 40 years. Millrock, however, has utilized their local history, some serious sustainability chops, and an ingrained lack of BS, to negotiate deals that all sides see as a winner.
They recently raised enough money operate and generate prospects for the next two years or more, yet the share price is at a historic low. And there are two long term project decisions by JV majors in the coming in the quarter that could make the stock move upwards.
Essentially, Millrock is the Oakland A's of mining. It's a scouting team that feeds the bigger fish and manages to stay successful for little money by crushing data and finding what the market has missed.
“We do high quality scientific work,” says Beischer. “And we're geared to thrive in a down market. If things stay slow, we're covered for an absolute minimum of two years and can pick up cheap assets. If the money comes back, we can start really turning the crank on a lot of good projects and we will.”
In regards to the down market scenario, the company says it has identified 30 assets owned by distressed companies that it could conceivably come after. Beischer expects, of those, they'll grab the best 3 or 4.
The recent
rollback put the company in good shape going forward, and the financing, which came in at a whopping, and
almost unheard of in this market $4 million (oversubscribed from the original $3.5m), will be put to great use when assets are going for pennies on the dollar.
“Our goal is to become the premiere prospect generator in the world,” says Beischer. “We want to recreate the success of Altius, Virginia Gold Mines, Almaden and others that have had such great success using this business model. This is an attainable goal. Any drill hole could be a company-maker and the years going forward from this point promise lots of drilling.”
21 projects at a market cap of $8.8m? If one of those majors decides to finance one of those projects going forward, you'd expect to see the current $0.45 share price blown out to maybe double that, and should it hit $1, it activates warrants that will bring in another $5m, which makes Millrock a serious acquisition beast.
Do your due diligence. Because though prospect generators are the first ones weakened by a down market, when the market comes back, they're the first ones back to work.
--Chris Parry
https://www.twitter.com/chrisparry
FULL DISCLOSURE: Millrock Resources is a Stockhouse Publishing client