Sun Metals Corp. V.SUNM

Write up today......

[wjtanchak]

Sun Metals is About to Heat Up

5/6/2019

 

 

By: Malcolm Shaw

(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long SUNM.V and TECK.B.TO)

Just before Halloween last year, Sun Metals (SUNM.V, last at $0.53) first caught my eye with an intercept (hole 421) that eventually turned out to yield 100 metres of 5% Cu Eq in a new discovery at its Stardust project in central British Columbia, Canada. That hole was one of the best exploration holes drilled on the planet last year and yet the news was met with plenty of selling as beleaguered resource sector longs limped into the gutter last Christmas after a terrible year while their weed-sector counterparts toasted with champagne in the high alpine air where it snows money.
 
While united by a common sense of “resource sector pain”, there were basically three camps around the time of SUNM’s Stardust discovery announcement late last year. The first camp said, “These guys aren’t going to be drilling until May (which at the time was 6 months away), and this is dead money in the meantime, so I’ll sell it/not buy it now and come back to it when they’re closer to drilling again.” The second camp said, “This is a skarn deposit and skarns can be small and irregular, so I’ll sit on the fence until I know more”, while the third camp said, “Ummmm, these guys just drilled 100 metres of 5% copper equivalent in a newly defined carbonate host rock, and it shows evidence of upwards of a dozen phases of mineralization in textures that suggest this probably still isn’t the guts of the system. Sign me up. I can wait.”
 
What has changed since then? Not a thing from a drilling perspective. There’s still just that 100m of 5% Cu Eq staring the market in the face and the faint sound of crickets in the air as the market waits for the drills to start up later this month. Oh how time flies though... Those buyers who were willing to hold “dead money” for six months have been rewarded with a 100% gain for their patience, which I think reflects where the stock should have been in the first place, but that’s the market for you. Some things just take time. From a corporate perspective, Sun Metals was recently successful in merging with its partner, Lorraine Copper, in order to simplify the project ownership into a single, 100%-interest vehicle. For a number of reasons, I think that deal was a good one… to name a couple, it cleaned up a messy deal structure and eliminated royalties that would have been payable to Lorraine. Oh, and of course Teck Resources (TECK.B.TO, last at $30.22) subscribed for the entire back end of a flow through financing just before Christmas that saw them pick up 12,500,000 SUNM shares and fully fund this summer’s delineation program. Teck now owns ~11% of SUNM.
 
Now, with six months gone in what seems like the blink of an eye, it’s getting close to show time and it’s going to be interesting watching the share price leading up to drilling and the first assays from the 2019 program. Truth be told, no one knows what’s coming next. When SUNM pulls back the curtain for the second act at Stardust, even they don’t know what awaits the drills at depth. Hole 421 was the definition of a “game changer” from an exploration standpoint. The mineralization intersected was more intense and far, far thicker than anything encountered on the property before. It was hosted within a carbonate rock unit at depth that was previously unrecognized as a target and is open in all directions. While caution is always warranted in a “one hole” discovery due to the inherent uncertainties in geometry, there are other indicators that might suggest that the system could have scale. For one, the mineralizing system at Stardust can be traced for some 2.2 kilometres… all the way from the igneous intrusion at depth that drove the mineralizing events, through the porphyry, skarn and manto components above and adjacent to the intrusive, to the distal epithermal veins at surface. Overall, the mineralization in hole 421 shows a multiphase, complex history with alteration textures (e.g., remnant garnets) that suggest it may still not represent the heart of the system… or so goes the theory. 
 
Fortunately, Dr. Peter Megaw largely developed the deposit model/theory for this kind of CRD-skarn system. Perhaps by serendipity, much of Dr. Megaw’s model for CRD-skarn systems was developed as the result of his many years of work on the Stardust property years and years ago. Dr. Megaw’s enthusiasm is clear in the video on the Sun Metals website as he walks through some of the core from hole 421. It’s like he’s giving you a spin in his news sports car as he walks through some examples of rocks that illustrate some characteristics of the mineralization and alteration. If a veritable expert on this kind of system like Megaw suggests that this could be a game changer, I think that one has to at least consider the possibility... right? 
 
My sense is that patient money has been accumulating SUNM for some time now and that those players are sensing big dollars on the table should the drills continue to deliver. The scale of the system is the big question that can only be answered by the drill, but I’ve seen multiple exploration stories in recent years attain market caps in the $200-500 million range without results nearly as good as what Stardust has already produced in hole 421. The only question that remains is whether or not it’s a one hole wonder, because if step-out holes start hitting more high grade rock over wide intervals, human nature will take over and the only question will be, “How big could this be?” The dream scenario might eventually see something like last year’s Arizona Mining takeout by South32 for around C$2 billion. Note that I say eventually. These things do not happen overnight… if they happen at all. Tonnage builds by drilling holes and a combination of step-out and delineation drilling will paint a picture one hole at a time. It's sure to make for an eventful summer.
 
I guess my point in all of this is that while the vast majority of the market isn’t watching SUNM, I think that in the next couple of months, the story could see a step change in interest and valuation. In my view, anyone that is serious about speculating on junior mining stocks is going to be hearing a lot more about SUNM over the next month or two because I personally have a hard time believing that 100 metres of high-grade, multi-phase mineralization isn’t going to be attached to more of the same and that’s going to be something to talk about. Not everyone is following the story yet, far from it, but if this isn’t what junior mining speculation is about, then I don’t know what is… If I’m going to speculate, I want to do it on what could be a Tier 1 discovery that would be of real interest to the majors. That’s not to say that any of this is without risk (quite the opposite is true in fact), but this is the kind of bet that I will take every... single... time.
 
Now it’s up to the drills.
 
Happy hunting.