Wednesday, December 4, 2013

Klondex Acquires Newmont's Ken Snyder "Midas" Mine and Mill Complex

Klondex Acquires Newmont's Ken Snyder "Midas" Mine and Mill Complex 

"Vancouver, British Columbia - December 4, 2013 - Klondex Mines Ltd. (TSX: KDX | US: KLNDF("Klondex" or the "Company") is pleased toannounce that it has entered into a definitive agreement to acquire the Midas mine and related ore milling facility located in the State of Nevada (collectively, "Midas") for approximately US$83 million (the "Acquisition") from a subsidiary of Newmont Mining Corporation ("Newmont").

The purchase price, which is subject to customary adjustments, is comprised of (i) approximately US$55 million in cash, and (ii) the replacement of Newmont surety arrangements with Nevada and federal regulatory authorities in the amount of approximately US$28 million. In addition, Klondex will issue to Newmont 5 million common share purchase warrants of the Company with a 15-year term, subject to acceleration in certain circumstances, and an exercise price to be specified on the closing date of the Acquisition.

Paul Huet, President and CEO of Klondex, commented, "This acquisition is transformational for Klondex, during a pivotal point in our company's development.  I am confident that Klondex's management team can leverage past experience, with some of the core leadership team having previously worked at Midas, to vastly benefit from the synergies and to unlock continued value in Klondex for shareholders going forward.  Our team is extremely pleased to be working alongside Newmont to bring together two excellent epithermal deposits with a high-quality central mill."

Please click on Image to view corporate video

The Acquisition is anticipated to close in early 2014, subject to the fulfillment of various closing conditions, including the receipt of requisite regulatory approval and other third party consents, and entry into certain ancillary arrangements with Newmont for the provision of transition services. 

In addition to acting as exclusive financial advisor with respect to the Acquisition, GMP Securities L.P. has also been engaged by the Company to coordinate the financing of the Acquisition, which is expected to consist of a combination of equity, secured notes and a secured gold loan. Further details on the financing of the Acquisition will be provided once determined..."

A replay of the conference call will be available until January 4, 2014.

Conference Call Replay Numbers:        1-800-319-6413
Canada & USA Toll Free:                     1-604-638-9010
Code:                                                3599#

Johnston-Sequoia Commentary:

I first met President & CEO Paul Huet at the 2013 Las Vegas Money Show while assisting the only other gold company at the show (Terraco Gold Corp.).  After spending time with Paul, learning of his (and equally as important his teams) past experience and success I quickly became intrigued.  Paul was the Mine Manager, Mine Superintendent & Chief Engineer at The Ken Snyder "Midas" Mine dating back to the early 2000's.  He was also the General Manager of the Hollister Mine for Great Basin Gold and Chief Operating Officer for Premier Gold Mines.  

As some will suggest it was the Ken Snyder "Midas" Mine that kept Newmont profitable in the early 2000's even at $250-$350 per ounce gold.  This, as many of our readers know is because of the freakishly high grades of these low-sulfidation, epithermal, hot spring type systems.  

In the humble (33 year old) opinion of this writer - Paul and his team are simply put the best operators of these types of systems anywhere on the planet and I would encourage our readers to keep an eye on this emerging small cap company.  

As an aside - these types of grades become more and more important the longer this current market environment exists.

I own shares in Klondex Mines Ltd. - however, I am not an advisor of the company.

I own shares in Terraco Gold Corp. and am an advisor of the company - Johnston-Sequoia owns shares in Terraco Gold Corp. 

As always, please do your own due diligence.

Thursday, September 19, 2013

The Economic Renaissance of Côte d’Ivoire, West Africa

Le Plateau District - Abidjan, Côte d’Ivoire
The Economic Renaissance of Côte d’Ivoire, West Africa
The revolution in the economy of Côte d’Ivoire

Rafael Araujo, from Abidjan September 11th, 2013

"For the second year, growth reaches 9% and the country recovers with the improvement in the economic environment and new investments in oil production, infrastructure and agriculture.

With a high forecast of 9% this year, the economy of Côte d’Ivoire is among the fastest growing in Africa. This growth projection ranks it in fourth place among its African peers, behind Libya, Sierra Leone and Chad, according to a survey conducted by the Organization for Economic Cooperation and Development (OECD). Côte d’Ivoire leads the West African economic bloc, ahead of neighboring Ghana that should advance 8.4% this year. The significant growth, comes, however, from a small base. The nominal value of $24.6 billion GDP (Gross Domestic Product) puts Côte d’Ivoire in 101 in the world ranking.

In 2012, the Ivorian GDP has already shown a performance above expectations, with 9.8 % high in the previous year, marked by a serious political crisis in which the economy shrank 4.6%.

The resumption of mining contributed to the acceleration of economic activity
Photo: Kambou Sia / AFP (Click on Image to Enlarge)

It is clear that the end of the civil war and the return to normality had a mechanical effect on the chart, but other factors have contributed to accelerate the economic activity in a sustainable way: the resumption of mining (gold, oil and gas), the investment in infrastructure and the improvement of the business environment.

In June this year, the government signed four new sharing contracts for exploration of oil and gas along the coastline. Only one of the blocs has an estimated investment of $120 million. Although oil production has decreased, the extraction of mineral gas is expanding, rose 9% in 2012 and, by June of this year, surpassed last year’s production on the same period by 30%. This increase is partly due to investments in the sector, but mainly to the increasing demand for electric power generation. The energy generated in power plants is around 60% of total national consumption and the surplus is exported to neighboring countries.

The investment increase also helped boost the economy. The investment rate increased from 2.8% of GDP in 2011 to 4.9% in 2012, and can close the year at 7.8% of the total wealth produced in the country. Even highly indebted, is the state investment that has led the growth of Côte d’Ivoire after the political crisis, benefited by the plan of expanded access to credit from the International Monetary Fund (IMF) and the debt relief mechanism for poor countries.

The minister of economy Nialé Kaba believes that, with the program of debt reduction, investments may reach 23.5% of GDP in 2015, close to the level of the first 20 years of Côte d’Ivoire as an independent nation. At that time, known as ‘ Ivorian miracle ‘, the average rate of GDP growth was 8%.

Investments can reach 23.5% of GDP and mostly goes to infrastructure works
Photo: Rafael Araujo 
(Click on Image to Enlarge)

Most of these investments go to construction of urban infrastructure. The construction industry recorded an increase in the activity of 52% last year in the wake of the recovery process and public buildings vandalized during the conflict, as was the case at the University Félix Houphouet – Boigny , which took the name of the first Côte d’Ivoire president. The cost of the university rehabilitation was estimated at $220 million.

In the service sector, the effects of the economic recovery are already being noted. The occupancy rate of the hotel came to 57% last year and generated revenues of $110 million. The transit of passengers on commercial flights increased by 46% in the same period and urban transport and road also recovered, a phenomenon observed in the increase in fuel consumption of 55.4% in the year.

More jobs

Mason Mamadou Doumbia receives equivalent of $ 70 per week
Photo: Rafael Araujo 
(Click on Image to Enlarge)

Since 2010 a temporary worker, the confectioner Laurent Kouakou-Diby, 35, has just been hired by one of the four star hotels in the Plateau – the central district of Abidjan, where businessmen and international missions usually stay. Kouakou-Diby is one of 35 thousand hiring made by the private sector since the end of the crisis, in April 2012. Including the public sector, the National Fund for Social Security reported 49 thousand new jobs in this period and now has 742 thousand subscribers.

This number of formal jobs seems negligible compared to the total population, estimated at 20 million people. It turns out that most of the occupation and income comes from informal work, unregistered, including in the government’s great infrastructure projects construction work.

The mason Mamadou Doumbia, 28, receives 36 thousand CFA francs ($ 70) per week to work , without a contract, in the construction of the third bridge overpass intersection. With an estimated cost of $300 million, the bridge is an alternative to the choked traffic to central Abidjan, who grew up around a pond. Satisfied with your new job possibilities, Doumbia and his colleagues face the delay in wages. The subcontractor of the Iranian construction company responsible for the construction is not paying the workers in the right time.

Strength of the agricultural sector

Despite the good results, economic analysts have shown skepticism about the direct impact of investments in construction work in people’s lives. In the economist Souleymane Ouattara view; the agricultural sector has greater ability to translate the increase in wealth in real improvement in people’s everyday lives. In a recent reform of the coffee and cocoa sector, the government reinstated a presale program that guarantees a minimum sale price for the farmer. In the 2012-2013 harvest, reserve price stabilization secured $160 million more in income to the farmer.

With harvest quarterly Côte d’Ivoire is the largest cocoa producer in the world
Photo: Issouf Sanogo / AFP 
(Click on Image to Enlarge)

Ousseni Sawadogo , 32, grows coffee , cocoa , rice and yams with the help of three brothers on five acres of land 35 km from Daloa in the center – west of the country . The house is masonry, but has no electricity, refrigerator, or stove. The light comes from a fire lamp, television transmits the channel state in a connected car battery and the meat is cooked preserved in water and salt in a wood burning stove. In Côte d’Ivoire, the cocoa harvest is quarterly, with a great one in December. Summing up the production of the year, Sawadogo estimates a 500 thousand CFA francs ($1000) earning from the cocoa sale. The income is to buy fish, cooking oil and salt. Everything else needed to ensure the sustenance of the nine adults living in the property, besides children, is the land provides. At the time of Ramadan, the neighbors gather to buy an ox and split the meat.

Christine Lagarde believes in new Ivorian miracle
Photo: Issouf Sanogo / AFP 
(Click on Image to Enlarge)

Even though quite urbanized, half Côte d’Ivoire population is established in the countryside. The country remains the largest producer of cocoa in the world, but also produces coffee, vegetable oil (palm), cashew nuts, rubber, cotton, sugar cane and banana. Almost all cultures have increased production since the end of the crisis, driven by exports, but mainly by demand from the food industry represents around 5 % of GDP and gathers multinationals such as Nestle, ADM and Cargill.

The excitement surrounding the growth infected even the director of the IMF, Christine Lagarde, who announced the arrival of a second ivoirien miracle, referring to the 70′s and 80’s great prosperity in the country ‘s cocoa. The risk is that this ‘miracle’ is being linked exclusively to the exploitation of natural resources and foreign debt, leaving most of the population out of the calculation of GDP, warn the experts.”

Côte d'Ivoire: Glencore-Xstrata Nickel will be able to develop the deposits and Sipilou Biankouma

“Swiss mining company Xstrata and Glencore Ivorian government will join forces to create a joint venture in charge of exploration and exploitation of nickel deposits and Sipilou Biankouma in the west.

The exploitation of nickel deposits and Sipilou Biankouma in western Côte d'Ivoire, will finally begin. "In the cabinet of the day, the state and Xstrata Nickel, a subsidiary of mining giant Glencore Xstrata, agreed to create a joint venture in which the state has a 10% shareholding, the national society Sodemi 5% Xstrata and Glencore 85%, "said Bruno Kone, the spokesman for the government at the end of the traditional weekly meeting of the Council of Ministers. In a first phase, investments are estimated at 35 million.

Long legal battle

The agreement ends a long legal battle between the two partners. Canadian Falconbridge bought by Xstrata in 2006, continued the Government of Côte d'Ivoire since 2010 to the unilateral withdrawal of its license and exploration of nickel in the region Sipilou of Founguesso and Samapleu in the west of the country. The Anglo-Swiss company had reached March 30, 2012 to condemn the Ivorian government to pay as damages, about 200 million euros before the tribunal of Paris. According to the spokesman of the government, this agreement ends the dispute definitively.

The reserves in the deposits of nickel laterite Sipilou and Biankouma are estimated at 259 million tonnes grading 1.4% nickel.”

Glencore Xstrata (GLEN.LN) 3yr Stock Chart - Moving above 200 day MA & upper Bollinger Band
(Click on Image to Enlarge)
Johnston-Sequoia Commentary:

As many of our readers know - I've been following the development of Côte d'Ivoire, West Africa since March of 2010.  Last week I had the privilege to visit this evolving economy that has been "reset" since the dark days of 2008-2009.  It's truly remarkable to see the developments and "incubator economies" of the villages directly tied to the growth of the mineral exploration & energy expansion of Côte d'Ivoire.

The First & Perhaps a Second Ivoirian Miracle:

The Ivorian Miracle was the name given to a period of economic prosperity occurred in Côte d'Ivoire in the years 1960 - 1970.
The country benefited from several concurrent factors:
  • The rising price of commodities , including coffee and cocoa whose country was the world's largest producer.
  • The fact that France needed a showcase of its Africa policy.
  • The lack of stability of surrounding countries (slump in Guinea of Sekou Toure, instability in Ghana, etc..) which refer to the Ivory Coast economic activity.
  • Strong growth overall in industrialized countries.
  • The dismantling of the French West Africa .

Basilique Notre-Dame de la Paix de Yamoussoukro - 9th largest basilica in the world completed in 1989

(Click on Image to Enlarge)

Managing Director, International Monetary Fund
National Assembly, Abidjan, 2013

"...This brings me to my third topic this morning—how Côte d’Ivoire can fulfill its destiny.
The government already has an ambitious plan to turn Côte d’Ivoire into a full-fledged emerging market by 2020. This is not just wishful thinking—it is based on concrete policies laid out in the National Development Plan and generous financial support promised by Côte d’Ivoire’s partners and friends at the Consultative Group meeting in Paris in December 2012. Your goal is to generate enough growth to double national income by 2020.
In reality, you are seeking a second Ivoirien miracle. It can be done—of that I have no doubt...
...First, investment. This is the first building block of growth and prosperity. It is fitting that capital investment and upgrading infrastructure feature heavily in the National Development Plan...
...This country has already seen the rise and fall of its first Ivoirien miracle. Now is the time to lift the pickaxes and trowels and rebuild your nation once again, to create that second Ivoirien miracle, to do again what your forefathers have done before—with patience and perseverance, with courage and confidence, with faith and fortitude.
Let me assure you that the IMF will continue to stand with you along the way..."
--- Christine LagardeToward a Second Ivoirien Miracle
Managing Director, International Monetary Fund
National Assembly, Abidjan, 2013

As the the world's largest cocoa producer and simultaneously in the midst of a mining, energy and infrastructure renaissance - Côte d’Ivoire is on pace to be one of the fastest growing economies in the world and perhaps be considered an "emerging market" as early as 2020 according to the Managing Director of the IMF. The trajectory and velocity of the rise will of course be heavily dependent commodity prices (in particular agricultural commodities) and overall global growth.

Cocoa 5 year (weekly) Chart

It's anticipated that strong growth will occur in cities like Yamoussukro (the capital of Côte d’Ivoire since 1983), Bouake' and the port city of San Pedro not just the financial capital of Abidjan.

Photo taken in between the Presidential Hotel, the future two lane divided highway and Basilique Notre-Dame de la Paix - the site of Sama Resources future Ivorian Headquarters in Yamoussoukro, Côte d'Ivoire (Matt Johnston - Corporate Advisor, Koffi Michel Marc Kouadio - Exploration Geologist, Dr. Marc-Antoine Audet - President & CEO, Bakayoko Bouake - Exploration Manager, Bryan McKenzie - CFO)
(Click on Image to Enlarge)

Integration to the Local Community:

It is the opinion of this author that Sama Resources (TSX.V:SME | US: LNZCF) has done more for the local people of Yorodougou than any other nano-cap company operating in Africa today.  Even at pre-production/advanced exploration Sama is one of the largest employers in the Western most portion of Côte d’Ivoire.  Sama employs no expatriates and has integrated Falconbridge/Xstrata's exploration and development team dating back to the mid 1990's.  This effort has been led (as many of our readers know) by Sama's President & CEO Dr. Marc-Antoine Audet who spent 22 years with the mining giants (a large portion of which was spent developing the now Glencore project summarized above as head of exploration).  Needless to say this area in Côte d’Ivoire is very dear to Dr. Audet's heart and anyone who visits the project easily can understand why.

Sama Resources Chief Financial Officer Bryan McKenzie taking a moment with children from Yorodougou Village (Click on Image to Enlarge)

The work ethic, drive, ingenuity and warmth of the Ivorian's of the Western most portion of Côte d’Ivoire is obvious and apparent to anyone fortunate enough to visit.  What Dr. Audet's team has been able to build in just 3 years is truly remarkable.

Kate Hannan, CA greets local village children in the new Yepleu Discovery Camp
Even at the current pre-production stage of development the village of Yorodougou in Côte d’Ivoire has benefited greatly from Sama's presence in the area.  Building schools, clean water pumps, infrastructure and a waste management program.  It's fascinating to witness the incubator economy that is being developed in this remote village.

Local market in the village of Yorodougou: Côte d’Ivoire, West Africa
As a visitor you begin to sense a community and society that's becoming the beneficiary of the resurgence in exploration and development activity taking place in this area.

Local villagers playing soccer just outside the Sama Resources compound: Côte d’Ivoire, West Africa

Potential World-class Discovery in Côte d’Ivoire, West Africa:

Samapleu nickel-copper-palladium Project - Côte d’Ivoire, West Africa

Project Highlights:
  • Potential for multiple world class nickel-copper-palladium deposits
  • Near-surface massive sulphide mineralization
  • Low-cost core drilling using company’s 100% owned Coretech CSD 1300G drill rigs
Samapleu drilling intersections have returned assays up to:
  • 3.71% nickel, 2.84% copper and 2.47 gpt palladium over 6.65 metres (massive sulphide)
  • 3.65% nickel, 2.60% copper and 2.89 gpt palladium over 7.70 metres (massive sulphide)
  • 1.95% nickel, 1.95% copper and 1.50 gpt palladium over 17.60 metres (massive sulphide)

Current NI 43-101 Resource: 
  • Indicated: 14,159,000 tonnes grading 0.24% nickel (74,500,000 lbs), 0.20% copper (61,200,000 lbs), 0.29 gpt palladium (128,316 ounces)
  • Inferred: 26,480,000 tonnes grading 0.24% nickel (134,000,000 lbs), 0.18% copper (107,200,000 lbs), and 0.31 gpt palladium (256,525 ounces)

Sama Resources Compound in the village of Yorodougou Côte d’Ivoire, West Africa

Dr. Audet's team has built (from scratch) a development operation that could easily be confused with that of a major (though it currently sits with a market cap of just $21,000,000).  Using the companies 100% owned Coretech CSD 1300G drill rigs (both of which can touch depths of up to 750 metres) Sama with it's current no debt treasury can do a tremendous amount of discovery and development drilling at an estimated $30 per metre ($9.15 per foot).

Sama Resources 20,000 litre fuel tank : Côte d’Ivoire, West Africa
Thanks to the work of Dr. Audet and his team from my perspective Sama now has everything it needs to establish itself as an elite nano-cap development company. As the company is about to commence drilling at the newly discovered Yepleu Prospect (please see video below), Sama's future could prove to be very bright indeed.

Sama Resources 100% owned Coretech CSD 1300G drill rig testing one a multitude of HTEM targets: Côte d’Ivoire, West Africa
Sama has utilized innovative exploration techniques including 3D Mag, Radiometric, HTEM and InfiniTEM survey's to identify potential ultramafic targets and will begin to test these new targets this fall.

Large Anomoly HTEM targets: Côte d’Ivoire, West Africa
We've put together a short (3:45 sec) HD video to highlight the potential of the new Yepleu Prospect - hope you enjoy!:

The Yepleu Discovery Côte d’Ivoire, West Africa: HD Video (Click on image to play)

Finally, Sama's largest institutional shareholders are impressive as well - MMG Limited at 17.74% and IFC (World Bank Group) at 12.09%.  It's worth noting this is the first time the IFC has ever invested in Côte d’Ivoire is in this little $21,000,000 market cap company.

Sama Resources 3 year chart
We will watch the economic renaissance of Côte d’Ivoire, West Africa with keen interest and have front row seats for perhaps the "Second Ivoiren Miracle".  I am a paid advisor of Sama Resources Inc. and own shares in the company.  Johnston-Sequoia owns shares in Sama Resources as well.

Your editor standing near one of Sama Resources new discovery zones: Côte d’Ivoire, West Africa

Sunday, June 16, 2013

Barrick Hits 361 Meters of 1.47 gpt Gold at Spring Valley, Nevada

The Humboldt Range West-Central Nevada
Barrick Hits 361 Meters of 1.47 gpt Gold at Spring Valley, Nevada

Midway Reports 361 Meters of 1.47 gpt Gold by Barrick at Spring Valley, Nevada

"Denver, Colorado – Midway Gold Corp. ("Midway" or the "Company") (MDW:TSX-V; MDW:NYSE-MKT) provides an update on progress at the Spring Valley Project, Pershing County, Nevada. Development drilling, designed to upgrade the quality of the resource, continues to produce excellent intercepts.  Barrick Gold Exploration Inc. ("Barrick") is earning into the project and their 2013 budget for Spring Valley includes $10 million for exploration and development.

Ken Brunk, Midway’s President and CEO said, “Barrick continues an accelerated pace to earn-in at our Spring Valley project. Based on their 2013 budget, we expect Barrick to earn a 70% interest in the fall of this year. We were very pleased to receive yet another set of positive results from their current exploration work and we anticipate this year will bring additional good news as the project advances through scoping and into pre-feasibility.”

Development Drilling

Development drilling in the resource area is designed to expand the resource within the estimated pit perimeter and to upgrade the quality of those resources for future engineered reserve calculations. Additional expansion potential remains at depth and to the north of the deposit.

Recent drilling highlights include:

  • SV13-621: 361 meters of 1.47 grams per tonne (gpt) gold starting at 35 meters depth. The interval included 21 meters of 7.54 gpt gold and 23 meters of 3.02 gpt gold
  • SV13-620: 120 meters of 0.75 gpt gold including 18 meters of 2.43 gpt gold 35 meters of 0.79 gpt gold including 1.5 meters of 4.08 gpt gold and 21 meters of 1.20 gpt gold including 1.5 meters of 5.59 gpt gold

During the first quarter, Barrick completed 4,552 meters of reverse circulation (RC) and 3,148 meters of core drilling. This drilling included nine core holes and six reverse circulation holes. An additional five holes were in progress at the end of the first quarter. Assays remain pending for most of the 2013 drill holes.... Barrick has reported the internal scoping study is still in progress by the project’s evaluation group. This will advance into a prefeasibility study if approved by management after a peer review. Work underway includes:

  • Resource modeling
  • Metallurgical testing
  • Hydrologic data for dewatering studies
  • Core drilling for waste rock and ore geochemical characterization
  • Design and evaluation of initial mine layout alternatives
  • Initial pit slope stability studies
  • Initial base line surveys

Earn-In Update

In April, Barrick reported that they had exceeded the cumulative expenditure requirement of $30M to earn a 60% interest in the property. They also exercised their option to spend an additional $8 million to earn a 70% interest.

The Barrick budget for Spring Valley in 2013 includes $8.0 million for exploration, primarily drilling, and $2 million for development work. Development work includes completing the scoping study and initiating a prefeasibility study if supported by the scoping study results. Midway anticipates by the end of 2013 Barrick will complete cumulative expenditures of $38 million to earn a 70% interest in the project, which would be a full year ahead of the contractual requirements."

Significant Drill Results at Midway Gold’s Spring Valley JV with Barrick Gold Confirm Potential for Terraco’s Royalty Interest
--- Chris Berry – Morning Notes 2013-07-05

Terraco Gold Update (TEN :TSXV, TCEGF :OTCBB)

"Last week, Midway Gold (MDW :NYSE.MKT, MDW :TSX) updated their investor base with news highly significant to Terraco Gold, their neighbor to the south of the JV’s Spring Valley project. MDW reported several results from development drilling underway at Spring Valley. Two intercepts were of note:

- Hole SV13-621 returned 361 meters of 1.47 grams per tonne (gpt) goldstarting at 35 meters depth. The interval included 21 meters of 7.54 gpt gold and 23 meters of 3.02 gpt gold

- Hole SV13-620 returned 120 meters of .75 gpt gold including 18 meters of 2.43 gpt gold; 35 meters of .79 gpt gold including 1.5 meters of 4.08 gpt gold and; 21 meters of 1.20 gpt gold including 1.5 meters of 5.59 gpt gold.

Furthermore, MDW’s joint venture partner on the project, Barrick Gold (ABX :NYSE), has completed its requirement for a 60% earn-in on the project (by having spent $30 million on the property) and will be spending at least an additional $8 million in 2013 to attain a 70% share of the project.  It appears to us that these drill results indicate a major structure at Spring Valley.

We offer our congratulations to the team at ABX / MDW for their many successes, particularly Ken Brunk. We want to draw your attention to the potential benefits this news has for TEN and their royalty interest in Spring Valley. As a brief refresher, TEN has up to a 3% NSR on the Spring Valley property, so as the resource grows, so, too, does the value of the royalty. This is a crucial point of potential wealth creation to remember.  Make no mistake, we believe these new intercepts may significantly increase the potential for wealth creation Below we include a map of the Spring Valley deposit (outlined in black) showing TEN’s royalty interests. The drill results mentioned above are located in the red shaded area.
Terraco Gold's Royalty on the Barrick-Midway Spring Valley Gold Project (Click on image to enlarge)

What is important here is that the two holes we mentioned above, SV13-620 and SV13-621 are located right in the middle of the claim block where TEN holds the net smelter returns royalty interest. The implications of this are straightforward – as Spring Valley continues its development and ostensibly becomes a larger more valuable deposit, the royalty interest TEN has on the property also increases in value.

In an era where junior mining finance is more than challenging, to say the least, a royalty such as this provides TEN CEO Todd Hilditch flexibility (we have called this “optionality” in the past) in terms of how he and his team choose to push forward with their two properties – Moonlight in Nevada and Nutmeg Mountain in Idaho.

Based on our conservative “back of the envelope” math, the royalty interest could be worth as much as $80 million to TEN today. We want to stress that we are using data provided from MDW’s NI 43-101 on Spring Valley and adding our own assumptions to arrive at this number.

The Disconnect

What is notable is the value of the royalty interest ($80 million) versus the current market capitalization of TEN: ($19.22 million fully diluted). We believe there is a very clear disconnect between the intrinsic value of the company and its market value.

The Rationale for Considering TEN as an Investment

We view the rationale for owning TEN as straightforward. As the global economy struggles to get back on its feet, Central Bankers are adamant in fomenting economic growth and inflation through expansion of their balance sheets. As we have demonstrated in recent editions of Morning Notes, this policy has not had its intended effect.

Recent discussions of “tapering” quantitative easing programs in the US are likely just Chairman Bernanke “jawboning” the markets and do not appear to be realistic. As a result, additional balance sheet expansion and printing of money seems likely which means a weaker dollar in the long run. This bolsters the case for gold in a portfolio as a hedge against eventual inflation and as a store of value.

This would include ownership of gold junior mining shares where the possibility exists to profit from share price leverage. Those juniors that can demonstrate financial sustainability and profit from production in a non-dilutive manner should be given consideration by you in your own due diligence processes. We continue to believe Terraco Gold is one such opportunity and have valued it thus on the DiscoveryScoreboard. It is a true contrarian play at this point because we think it is sustainable.”

Chris Berry, MBA – Morning Notes 2013-07-05

Chris Berry Bio:

With a life-long interest in geopolitics and the financial issues that emerge from these relationships, Chris founded House Mountain Partners LLC in 2010. House Mountain firmly believes that the emerging Quality of Life Cycle emanating from Asia is a "game changer" which will affect every one of us throughout the world for decades. With that in mind, the firm focuses on the intersection of three topics: the evolving geopolitical relationship between emerging and developed economies, the commodity space, and junior mining and resource stocks positioned to benefit from this phenomenon. Chris spent 13 years working across various roles in sales and brokerage on Wall Street before founding House Mountain Partners. He also co-authors a newsletter with his father Dr. Michael Berry, "Morning Notes by Dr. Michael Berry". He holds an MBA in Finance with an international focus from Fordham University, and a BA in International Studies from The Virginia Military Institute.

Thursday June 6, 2013, 4:30pm PDT
By Andrew Topf - Exclusive to Gold Investing News

"A gold junior with a net smelter returns royalty on a property in Nevada joint-ventured between Barrick Gold (NYSE:ABX, TSX:ABX) and Midway Gold (TSXV:MDW) has been getting traction in the market and is on the radar of at least one influential commodities analyst/ newsletter writer.
In a note to shareholders published on May 30th, Terraco Gold (TSXV:TEN) said that Barrick (NYSE:ABX, TSX:ABX), the world’s second largest gold company by market cap, now holds a 60 percent interest in the Spring Valley project located in Pershing County, Nevada — which it earned by investing over $30 million in exploration expenditures.
That is significant for Terraco because the Vancouver-based junior has a net smelter returns (NSR) royalty at Spring Valley whereby Terraco has the option to acquire up to a 3 percent NSR on claims covering the ore body.
The latest drill results published by Midway Gold on May 29th showed high-grade gold at Spring Valley, including intercepts of 1.47 grams per tonne including 21 meters of 7.54 g/t and 23 meters of 3.02 g/t.
“The Barrick path to production and therefore potential future cash flow from the project should create sizeable value with Terraco’s (up to) 3% NSR royalty and royalty option on claims covering the known ore body at Spring Valley,” Terraco said, noting that Barrick plans to spend another $8 million to further drill the property, which would hike Barrick’s interest to 70 percent.
“Barrick’s continued great work at Spring Valley is a definite highlight for the mining space and the project is one of the fastest advancing path to production gold stories in Nevada.”
The deposit contains an NI 43-101 compliant 4.1 million ounces of gold, with Barrick’s 2009 and 2010 drilling confirming gold mineralization open to the north and at depth.

Terraco drilling approximately 3,400 ft north of the Barrick discovery along the Blackridge Fault (Click on Image to Enlarge)
The market has rewarded both Midway Gold and Terraco for their recent progress at Spring Valley. Midway’s stock has risen 6 percent over the past three months and 20 percent over the past month, while Terraco’s has done even better, with an 11 percent and 25 percent gain over the same time frames.
Terraco has not escaped the notice of House Mountain Partners founder Chris Berry, who wrote in a recent edition of Morning Notes that the growth of the resource at Spring Valley also means significant upside potential for Terraco:
“It appears to us that these drill results indicate a major structure at Spring Valley,” wrote Berry. “Make no mistake, we believe these new intercepts may significantly increase the potential for wealth creation.”
How much wealth? Berry estimates in the note that the royalty interest could be worth as much as $80 million, which is roughly four times the market cap of Terraco, making the company significantly undervalued: “We believe there is a very clear disconnect between the intrinsic value of the company and its market value.”
Berry also observes that the NSR provides Terraco with options to move forward on its other main projects, Moonlight in Nevada and Almaden-Nutmeg Mountain in Idaho. Of those two properties, Almaden is the more advanced, with 864,000 ounces of gold in the measured and indicated categories. Moonlight is about 8 kilometers north of the producing Coeur d’Alene Rochester silver-gold mine and has been minimally explored.
Securities Disclosure: I, Andrew Topf, hold no direct investment interest in any company mentioned in this article."

TEN Chart June 2010 - Present (Click on image to Enlarge)

Johnston-Sequoia Commentary:

As many of our readers know - I've tracked the development of this Humboldt Range in West-central Nevada since May 27th of 2008.  I've never believed more in the potential and significance of the this evolving precious metals district as I do today.  Midway and Terraco will both benefit (from my perspective) greatly from this discovery as Barrick continues to refocus Nevada.  

As the premium paid for physical gold continues to decouple from the paper market (which is seemingly happening at an alarming pace) - new discovery's will be the only place left to capture a position if (or more realistically - when) paper markets and precious metals ETF's become exposed.

A picture as they say is worth 1,000 words:

10,000 people line up to buy gold in China - submitted by Zerohedge (Click on Image to Enlarge)

Just as a frame of reference Barrick's and Midway's latest hit at 1.47 gpt gold would be the equivalent to the Almas Tower in Dunbai from top to bottom.

Almas Tower - Dubai

Finally, as you see in the chart above - TEN's share price has declined by - 48.28% (since December 22nd 2011) in the same time period that the company acquired approximately $80,000,000 in assets and $6,000,000 in cash without issuing a share. 

Johnston-Sequoia Capital Corp. owns shares in Terraco Gold - I own shares in Terraco Gold and am an advisor of the company.

To all of our readers both young & "distinguished" - Happy Fathers day and hope you're all enjoying the weekend. 

As always, please do your own due diligence.

Your editor standing on the Blackridge Fault approximately 3,200 ft north the Barrick discovery (Click on Image to Enlarge)