A Golden Opportunity for Mining Investors

Buy low; sell high. Investors know how to make money. But how do they identify the best “buy low” candidates? One approach is to change their investment mantra to buy small, grow bigger.

Buy into a company with a $1 billion market cap, and for an investor to double their money that company has to increase its market cap to $2 billion. That’s a lot of growth. But buy shares in a company with a $10 million market cap and that market cap only has to rise to $20 million to give investors their “double”.

This is why Stockhouse investors tend to be small-cap investors. Investing in companies with smaller market caps provides significantly more growth potential than investing the same amount of money in larger-cap companies. This is not just an investor belief – it’s a fact. A Financial Post article points to a 2014 study which found that Canadian small-cap/micro-cap stocks provided an average return three times as great versus the largest 10% of companies (by market cap).

Does this mean “the smaller the better” for investors? Not quite. The problem with micro-cap companies which are too small is that they generally hold little in the way of assets and investors buy in predominantly on faith. But that is not always the case.

One Canadian micro-cap with enough meat-on-the-bone to interest mining investors is Golden Peak Minerals Inc. (TSX: V.GP, OTCQB: GPKMF, Forum). The Company has a market cap of only $7.1 million.

What do investors get with this $7-million company? To start with, the Company closed on a $2.3 million financing on December 20, 2016. While GP has drawn down some of those funds for general operationg expenses, this means that the market is presently valuing all of Golden Peak’s assets at little more than $5 million. Experienced mining investors looking at a $7-million market cap company with a healthy cash componentwould expect to find basically nothing in the way of valuable assets.

What such investors would not expect to see with a company of this size is a project with a historical resource estimate (compiled in 2009) of 450,000 ounces of gold and 118.7 million pounds of copper. A closer look is in order.

Golden Peak currently has four gold projects in its land holdings: Heikki, Atikwa Lake, Grenfell, and Lac Foubert. These land packages are located in brownfield mineralization belts in some of Canada’s most renowned gold districts.

The Heikki Project is part of the Company’s recent acquisitions (October 28, 2016) and one half of the new focus of exploration. Heikki is located in the famed Hemlo Gold Camp. More than 20 million ounces of gold have already been extracted from this region. Barrick Gold continues to operate a complex of mines on its own land holdings with the David Bell and Williams mines currently in production.



Recently, the area has seen an explosion in exploration activity with junior mining companies in a new “rush” to stake out their land claims. The Heikki land package is an option on 7,250 hectares of land directly to the north of the Barrick holdings.


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The Company then added an additional land package (February 1, 2017) directly to the east and adjacent to the Barrick property, appropriately named Hemlo East. That option agreement covers 3,504 additional hectares of Hemlo land, and the property boasts excellent infrastructure and highway access. This brings Golden Peak’s total Hemlo land holdings to over 10,000 hectares.

Golden Peak plans a methodical approach in exploring its Hemlo holdings in order to conserve shareholder capital. GP will engage in some preliminary sampling and surveying, and then only after evaluating all available data will it send in a drill rig. A VTEM airborne geophysical survey is already underway at Heikki.

Management is also excited about an even more recent acquisition (April 4, 2017): the Atikwa Lake Project. Atikwa Lake is located in the Rainy River Gold Camp in northwestern Ontario, directly to the north of the Cameron gold deposit. The property encompasses the past-producing Maybrun Gold-Copper Mine.



Maybrun went into production in 1970 with a 500-tpd operation, with mining ceasing in 1973. A 2009 historical resource estimate (referenced previously) indicates a resource of 450,000 ounces Au and 118.7 million pounds Cu. The most recent operator of this property (Opawica Exploration Inc) conducted additional drilling on the property in 2011 and 2012.


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Highlights from the 2011 drilling include (November 28, 2011) 489 meters of 0.49 g/t Au (including 309 meters of 0.59 g/t Au) and (February 28, 2012) 191 meters of 0.78 g/t Au (including 16 meters of 4.06 g/t Au with a sub-interval of 49.10 g/t over 1 meter, also 11 meters of 2.50 g/t Au with a sub-interval of 4 meters of 5.15 g/t).

The Hemlo properties represent two large land packages in a newly-revived gold district. Atikwa Lake has demonstrated excellent exploration potential in terms of its historical resource as well as the more recent drilling, which indicates both substantial tonnages of low-grade gold plus significant intercepts of high-grade gold.

Surprisingly, GP received no recognition from the market for these highly prospective acquisitions. However, on April 11th, Golden Peak’s share price moved from $0.41 up above $0.50 in just two days. What happened on April 11th? The Company announced the appointment of its new CEO.

Wesley Hanson is now GP’s President and CEO. Hanson is a mining veteran with more than 35 years of experience in mineral exploration and geology. He began his career exploring for Archean lode gold deposits, playing a prominent role in advancing several gold deposits to commercial production.

Among the credits in his lengthy resume are: serving as VP Technical Services for Kinross Gold, VP Mine Development for Western Goldfields, and from 2009 – 2013 he was President and CEO of Noront Resources Ltd. While there he was responsible for tripling that company’s resource and advancing the Eagles Nest project to the pre-feasibility stage. Now Hanson will apply those decades of experience to advancing GP’s gold projects.

“I am very pleased to be joining the Golden Peak team. The Company has assembled a highly prospective land package with assets in some of Canada’s premier gold camps, including the resurgent Hemlo Camp where we control over 10,000 hectares to the east and north of the initial Hemlo discovery.

These claims have seen limited exploration work since the initial discovery of gold in the Hemlo camp. As a result, we believe they offer excellent potential for new discoveries within this world class gold district. A VTEM airborne survey of the northern Heikki claims is underway and a comprehensive review of historical data from the recently acquired Hemlo East Expansion claims is underway with the objective of identifying and prioritizing drill targets.”

For investors who are still not convinced that Golden Peak’s assets are being undervalued by the market (even after the recent run-up in share price), a peer comparison is illuminating. As indicated on the map above, another one of the junior exploration companies which is very active in exploring the Hemlo Camp is Canadian Orebodies Inc. (TSX: V.CORE).

Canadian Orebodies has a current market cap of $22.8 million, more than three times that of GP. Including its Wire Lake property to the west, Canadian Orebodies has a similar sized land package in the Hemlo Camp.

Like Golden Peak, CORE also has another project which has had a previous resource estimate prepared. Canadian Orebodies holds a huge land package with a large iron ore resource. However, that property is located in Nunavut, in Canada’s far north. Putting any project into production in such a remote location inevitably implies massive capital costs – discounting the NPV of the project.

Both companies have similar Hemlo land packages. One company has a large iron resource in Nunavut, the other company has an historical resource estimate for a gold deposit in Ontario, with lots of existing infrastructure in place. And that Company – Golden Peak – is being valued at 1/3 the price.

In addition, Golden Peak boasts two other land packages in highly prospective mining districts, Grenfell and Lac Foubert. While Lac Foubert is still a very early-stage gold exploration project, the Grenfell Project has seen more development. Located in the Kirkland Lake gold district in the world-famous Abitibi greenstone belt, Grenfell has both historical and NI 43-101 drilling data.

Historical results include a significant intercept on the “No. 6 Vein” of 2.87 g/t Au over 20.03 meters, including 2.62 g/t over 13.72 meters. More recent drilling in 2012-13 yielded results of 2.85 g/t over 8.00 meters, including 4.00 meters of 4.09 g/t Au and 1.00 meter of 9.41 g/t.



The prospective potential of these properties for gold exploration is clear. However, some investors may be leery of the gold market. After surging in the first half of 2016, the price of gold seems to have stalled in recent months.

Investing in the gold market is further exacerbated by the fact that most commentary on the gold market is from commentators who are woefully uninformed of gold market fundamentals. At a mere $1,280/oz (USD), the price of gold must rise. This is not an opinion. It is a fact.

“Everyone thought at $1,600, $1,800 and $1,900 gold (that) all the mining companies were making profit hand over fist, but, the reality is that the capital costs of construction had escalated so significantly that the margins of production and the margin of operation were still tight,” Gray said.

"$1,300 is not a sustainable gold price." [emphasis mine]

This was written by a mining analyst in June 2013, when the price of gold was close to $1,400/oz. Most informed mining analysts now consider $1,500/oz to be a minimum “fully sustaining” price of gold – but that is only for producing gold mining companies.

It is the junior exploration companies who find almost all of the gold (eventually) mined by gold mining companies. These junior explorers began experiencing significant headwinds as soon as the price of gold slipped below $1,800/oz (USD) in 2011. Without a high enough price of gold to sustain gold exploration, the mining side of the gold industry is not sustainable over the long term.

The gold market is currently in a supply deficit. Gold demand in Asia (mostly China and India) continues to remain near all-time highs. The activities of central banks in the gold market represent a positive swing in demand of approximately 1,000 tonnes per year, in a sector with only 3,000 tonnes per year of mine supply. And this doesn’t even factor in the permanent, robust demand for gold as jewelry.

Gold is extremely undervalued. That is a fact. Is Golden Peak Minerals also extremely undervalued? That is for investors to decide after doing their own due diligence. However, in the eyes of many, the facts speak for themselves.

goldenpeakminerals.com


FULL DISCLOSURE: Golden Peak Minerals Inc. is a paid client of Stockhouse Publishing.


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