Weekly Volumes :Pinnacle Digest march 2012
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Everyone knows junior gold stocks can offer investors amazing opportunities to make a lot of money. But even when a great junior gold stock is found, one has to position-in before the rest of the market learns of its story.
Once the masses find out about a junior gold stock’s cheap price point in comparison to its peers, or strong drill results are released, it’s likely too late. Its price can skyrocket in value very quickly and the opportunity to profit can be lost. When it comes to selecting our Featured Companies, we aim to get ahead of the curve.
And it can be very difficult to sort through the ‘weak hands’ to find the true opportunities that make sense from a risk/reward standpoint. However, when you know how to evaluate junior gold companies properly, one can mitigate the inherent risk associated with these stocks. Eventually, the fundamentally sound opportunities begin to stick out like a sore thumb.
We’ve found our new Featured Gold Company after several months of research and meetings. And its story, for reasons we will explain in detail throughout this report, stood out from every company we researched during this lengthy selection process.
In just over two and a half years since its IPO, our new Featured Company has gone from a grass roots play to controlling 100% of its flagship asset, on which it has already discovered 860,000 ounces of gold (NI 43-101 compliant – 763,276 ounces gold inferred and 96,400 ounces gold indicated) from its first resource calculation. Most telling, is the fact that the company didn’t have to drill deeper than 200 metres to come up with that first resource calculation, as the gold starts from surface or very close to surface (0 to 5 metres of overburden).
As for the timing of our introduction, the company’s share price trades at $0.135 after coming off its high last year of $0.325 (in 2010 it hit a high of $0.90 per share). The company will be releasing drill results from its latest 4,000 metre program any day. And its market cap is roughly $7.4 million. That means that its gold in the ground is being valued at roughly $8.50 an ounce by the market… more on the significance of this later.
It is worth mentioning that during our selection process, which involved hundreds of hours of research, we found several junior gold companies who had no resource calculation whatsoever and little to no drill program results with higher market caps than that of our new Featured Company!
Our new Featured Gold Company is Foundation Resources (FDN:TSXV) and you heard about it here first.
Foundation Resources currently trades at $0.135 per share – close to the level it was trading at when it first went public. The company’s share price has spent most of its existence trading above $0.20 per share and even as high as $0.90 back in early 2010. As you can see from the chart below, its share price and trading volume has seen dramatic upswings shortly after certain drill results were released. During the 2011 market crash of the TSX Venture, Foundation’s share price dropped significantly. It currently sits near historic lows. This is the timing component to our selection of Foundation Resources.
As mentioned, Foundation Resources went public just over 2.5 years ago and its management team has been working on its 100% controlled Coldstream Gold Project at an exceptional pace. Since going public, Foundation has drilled roughly 27,000 metres on its Coldstream Gold Project. In the fall of last year, the company released an NI 43-101 compliant resource of 860,000 ounces of gold and mineralization remains open both laterally and at depth (763,276 ounces gold in the inferred – 30.5 million tonnes at 0.78 g/t gold – and 96,400 ounces gold in the indicated categories – 3.5 million tonnes at 0.85 g/t gold). Foundation Resources was able to discover this resource without ever drilling more than 200 metres deep. That is quite a significant statistic to take note of.
And because of this discovery, Foundation Resources has been selected by industry peers as a nominee for the ‘Discovery of the Year’ which is awarded by the NWOPA (Northwestern Ontario Prospectors Association). The “Discovery of the Year Award” recognizes an exceptional discovery in northwestern Ontario during the previous calendar year. The winner of this prestigious award will be selected in April.
What’s also very interesting to consider about Foundation’s resource calculation is that the 860,000 ounces of gold discovered thus far was derived from just one of the 5 gold targets on its Coldstream Project. On top of this, only 13,000 metres of Foundation’s drill results were used to calculate the resource. There are still a few thousand metres of drilling results yet to be calculated into an updated resource planned for later this year. In addition, the company will be releasing results from its most recent 4,000 metre drill program any day now.
Foundation Resources’ Flagship
Foundation Resources’ flagship asset is the Coldstream Gold Project (Foundation has a 100% interest in the project). The project has 5 main gold targets within it. And on just one of the 5 gold targets, known as the Osmani Gold Deposit, Foundation discovered 860,000 ounces of gold within 200 metres of surface. The Osmani Gold Deposit is less than a kilometre from the decommissioned North Coldstream Mine, operated by Noranda from 1955 to 1967. These facts immediately had us hooked on the company’s story given Foundation’s market cap of roughly $7.4 million.
Foundation Resources’ Coldstream Gold Project has over 35,000 metres of drilling completed on it, of which 27,000 meters was conducted by Foundation.
There are currently five known significant gold mineralization areas occurring within the claim boundaries of the Coldstream Project that are currently subject to aggressive exploration and development campaigns by Foundation. The exploration targets include: Osmani Gold Deposit, Iris Zone, Goldie Zone, Span Lake deposit and the Burchell West prospect.
As mentioned, the Osmani Gold Deposit is the most advanced of all other targets for which a NI 43-101 resource estimate of 763,276 ounces gold in the Inferred and 96,400 ounces gold in the Indicated categories has been calculated and reported on September 20, 2011. The 6,410-hectare Property, located along the Trans-Canada Highway 115 km west of Thunder Bay in northwestern Ontario, occurs within the western Shebandowan Greenstone Belt of the Wawa Subprovince, which is host to some of the richest gold mines in Canada (e.g., Hemlo gold camp).
The Hemlo area in northwestern Ontario has been regarded as the land of riches thanks to the 20 million ounces of gold produced in the region since the early 80’s. Some of the world’s industry leaders, such as Barrick and Goldcorp, are leading the charge in the area with joint venture partnerships as well as large production mines already in place.
It certainly doesn’t hurt Foundation by having a President (Ike Osmani), a one-time Sudbury resident, who knows this neck of the woods intimately. The Northern Ontario Business paper recently stated that Ike Osmani “worked in the Pre-Cambrian section of the Ontario Geological Survey (OGS) during the early to mid-1990s.”
Osmani explained to the paper in an interview that “I mapped this area, the Shebandowan-Greenstone belt, from 1991 to 1995. I spent five years and mapped half of the belt from Inco’s old Shebandowan Mine, west to Quetico Park.”
The Northern Ontario Business report goes on to state that “the Shebandowan-Antikokan-Rainy River area has become a thriving gold district. It’s attracted mid-tier gold producer Osisko Mining, which is preparing the Hammond Reef project for an eventual open pit, as well as other players like Lake Shore Gold: Rainy River Resources and Moss Lake Gold Mines, the latter is working a 1.5-million-ounce property just southwest of Foundation.”
Emerging Gold District
The Osmani Gold Deposit (OGD), one of five known targets within the Coldstream Gold Project, occurs in the northeastern part of the property. The OGD is the product of aggressive drilling programs carried out over the last two years by Foundation’s management.
A total of 16,888 metres has been drilled on the OGD by Foundation – of which the assay results from only 13,000 metres, along with 9,868 metres from historical drilling, totaling 22,868 metres, were utilized to calculate the initial resource estimate (860,000 ounces of gold – largely inferred). 3,977 meters of drilling (15 holes) already completed by Foundation Resources were not included in the 43-101 resource calculation on Osmani; however, those results will be included in the planned resource update expected later this year. Also included in the updated resource will be the added metres from the current ongoing and planned drill programs. This is what we mean by ‘ahead of the curve’.
Foundation Resources is a company that has added hundreds of thousands of gold ounces to its resource extremely fast, in a very cost effective manner and in a famous gold mining region with low political risk.
Foundation Resources plans to continue drilling the OGD with the goal of expanding the current resource, both laterally and down-dip and potentially come up with a much larger updated NI 43-101 compliant resource estimate. Keep in mind, Foundation has only ever drilled the OGD to a 200 metre depth, so there is much to be drilled yet. In many gold deposits, the higher grade gold is discovered once deeper drilling has been completed.
Another Key Gold Target
Another significant target within Foundation’s Coldstream Gold Project is the Span Lake Prospect. The Span Lake prospect consists of 27 claims (442 ha) representing the southern-most part of the Coldstream Project. These claims are underlain by a regionally extensive belt of intermediate and felsic metavolcanic rocks, which is host to a number of gold occurrences/deposits both within and adjacent to the Moss Lake Gold Mines property, which contains roughly 1.6 million ounces of gold (1.1 million ounces in the ‘Indicated’ and 520,000 ounces of gold in the ‘Inferred’ categories).
The above is a key statistic to take note of. On the north-east end of Foundation’s Coldstream Gold Project lies the Osmani Gold Deposit where the company has identified 860,000 ounces of gold. On the southern end of the project is Foundation’s Span Lake gold prospect, which the company believes is an extension of the Moss Lake Gold Deposit. In other words, Moss Lake and Span Lake are connected at certain points (see map below).
This interpretation is based on the recently delineated geophysical IP targets by Foundation and historical drilling results (e.g., 8.51 g/t gold over 1.7 m, 1.04 g/t gold over 7.30 m and 1.5 g/t gold over 3.5 m) reported by Inco Ltd. (now “Vale”) in the late 1980s. Together, these results suggest a potential extension of the Moss Lake Gold Deposit (QES and Main Zones) onto the southern-most Span Lake claims. Results from Foundation’s latest drill program at Span Lake will be released any day now – a key reason for our introduction at this time.
The Iris Zone
The Iris Zone is the third of five significant gold targets within Foundation’s Coldstream Gold Project. It is located 1.5 km north of the OGD in the most northeastern part of the property.
Foundation discovered the high-grade gold mineralization (8.39 g/t gold over 11.0m) southwest of Iris Lake during its 2011 winter drilling program. Further drilling in the summer 2011 returned bonanza-grade ( e.g., 254.0. g/t Au over 0.50m) to high-grade (e.g., 7.05 g/t Au over 3.20m) gold and expanded the Iris Zone to approximately 25 to 70 metres in width and 630 metres in length. You better believe the company will not be leaving this zone quietly and approximately 3,849 metres of drilling has been carried out here, with further drilling planned in order to potentially expand the zone.
The Coldstream Gold Project is a multi-pronged gold property with a large gold resource already discovered by Foundation, despite only drilling to depths of just 200 metres. Being in such a gold rich historic area, with already close to 900,000 ounces discovered, potentially takes some risk out of the equation when it comes to finding additional ounces. The company has an exploration plan in 2012 to include 12,500 metres of drilling and an updated resource calculation which could change the dynamics of its flagship asset significantly.
Coldstream is a project with gold mineralization starting at surface in many areas. On top of that, being located in Northwestern Ontario, the property has excellent infrastructure. This isn’t some gold project located in the middle of nowhere. It is located in a region which is host to some of the richest gold mines in Canada.
In addition, Foundation’s Coldstream Gold Project is located along the Trans Canada Highway, is road accessible and has excellent infrastructure with a major power line and CN rail line passing just north of the property. Skilled labour is readily available locally. All of these factors help significantly with the economics of the property and fit our low political risk criteria nicely.
The fact that the entire 860,000 ounce resource already discovered is located between the surface and 200 metres, provides a potential advantage over deposits with mineralization starting 50 or 100 metres below surface. When evaluating junior gold stocks, one must consider future issues that may arise with the potential economics of certain assets; or more importantly, how a major might view a project and the costs involved.
So now that we’ve explained Foundation’s Coldstream Gold Project and the compelling geology associated with it, let’s talk numbers. Let’s assume the market isn’t giving Foundation one penny in value for the company’s Span Lake Gold Prospect (despite historical results, work completed to date and the fact Foundation believes that the Moss Lake Gold Deposit, which is 1.6 million ounces, extends onto the southern-most claims of this zone).
Let’s also assume no value is given to its Goldie Zone, Iris Zone and Burchell West Zone. So to clarify, for this evaluation, we are assuming the market is only giving Foundation value for its Osmani Gold Deposit/Zone. That means, that considering Osmani has roughly 860,000 ounces of inferred and indicated gold ounces in the ground (from a 43-101 compliant standpoint), the market values those ounces in the ground at roughly $8.50 per ounce (based on Foundation’s tiny market cap of roughly $7.4 million).
And that doesn’t include any speculation value for the nearly 4,000 metres of drilling on Osmani that wasn’t included in the 43-101, but will be included in the planned updated resource calculation. Nor does that include any value for the cash Foundation has in its treasury.
Casey Research released an interesting article on its due diligence in trying to find a rough guide for the value of inferred gold resources and what an ounce in the ground is worth, on average. The report states:
“So, what does the market give a company, on average, for an Inferred ounce of gold? M&I? P&P?
To answer this, we combed through every company listed on the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSX-V) and pulled out the ones with 43-101-compliant gold resource estimates (or mostly gold) – no silver, copper, etc. Of these, we kept only those with resources that fall almost entirely into only one of our three broad groups: Inferred, M&I, and P&P.
In other words, we did not include companies with half Inferred and half M&I resources (though we did include companies with mostly P&P reserves, because most are producers – or soon will be – and are regarded that way). That left us with about 90 companies to calculate some averages on.
That’s not a large sampling universe, and we had to make some judgment calls when it came to defining what companies should fall in each category, but it’s what we have. So take these averages with a large grain of rock salt, but here they are:
* US$20 per ounce Inferred
* US$30 per ounce for M&I
* US$160 per ounce for P&P”
Right now, Foundation Resources is being given roughly $8.50 in value, from the market, for every ounce of gold it has discovered in its 43-101 resource calculation (in the ground gold and largely inferred).
That total is calculated simply by dividing the number of ounces Foundation has discovered in its 43-101 by the company’s market cap. From our own research, and all third party research we came across, including the above, Foundation’s $8.50 an ounce valuation is well below the industry average.
It is a known fact that Ontario is one of the most mining friendly regions on the planet. It is also a fact that Foundation is operating within the western Shebandowan Greenstone Belt of the Wawa Subprovince, which is host to some of the richest gold mines in Canada (e.g., Hemlo gold camp). It is a fact that Foundation’s Coldstream Project is largely un-drilled despite already having a large gold resource (haven’t drilled deeper than 200 metres).
It is a fact that Foundation’s market cap is comparable to many grass roots junior gold stocks, despite being much more advanced. It is also a fact that only last year Foundation traded roughly 150% higher than where it currently trades.
The market cap, price point, rapid development of project, strong existing infrastructure and management’s fiscal responsibility led us to our selection of Foundation Resources as a Featured Company and client. Introducing it to our members at this time makes sense to us from a risk/reward standpoint. We are bias when it comes to Foundation Resources and will be purchasing a significant share position in the company following the release of this report.
Foundation’s management team can be summed up in one word: Professional. They are methodical and very aggressive in their exploration and development approach, while putting the bulk of the company’s money into the ground and not their salaries. The company’s administrative burn rate (including salaries) is roughly $45k per month – a modest amount. In recent months, the president and the CEO have accumulated shares in Foundation Resources on the open market.
Their dedication to advancing the Coldstream Project can be seen by simply looking at how quickly they came up with a substantial gold resource since going public just over 2.5 years ago – as well as the amount of drilling completed (27,000 metres).
President & Director
Mr. Osmani has over 28 years of mineral exploration and management experience in Canada and internationally. He has worked in various capacities for Homestake Canada Inc., Cameco Corporation, Aurora Platinum Corp., North American Palladium, Lake Shore Gold Corp. and a number of junior exploration companies. He has also worked for the Ontario Geological Survey, helping facilitate the discovery of numerous precious and base metal occurrences, which are documented in over 38 publications.
Chief Executive Officer
Mr. Chung has over 20 years of experience in mineral and oil and gas exploration internationally and in North America. Mr. Chung’s expertise in the management of public companies over the past 20 years makes him a valuable asset to Foundation’s Board of Directors. He is directly involved in the day-to-day operation of the Company and has worked for Teck Cominco, Sunridge Energy and currently sits on the board of directors.
Chairman of Board
Mr. Hiner has more than 30 years of experience in worldwide resource exploration and management. Mr. Hiner has managed projects from the conceptual exploration stage to positive feasibility and finance level studies on proven deposits in South America, North America, and Africa.
Just last year Foundation Resources‘ share price traded nearly 150% higher than where it currently sits. This is a company who has developed its flagship gold project faster than any company we have ever featured. It has drilled 27,000 metres in just over 2.5 years since going public. It has already released a 43-101 resource calculation of 860,000 ounces of gold (763,276 ounces gold in the Inferred and 96,400 ounces gold in the Indicated categories) on just one of its 5 gold zones within its flagship project.
Foundation’s work and rapid development of its flagship is starting to receive serious recognition. Results from its latest 4,000 metre drill program are expected any day. The company has an exploration plan in 2012 to include 12,500 metres of drilling and an updated resource calculation which could change the dynamics of its flagship asset significantly – all this from a company with a market cap of roughly $7.4 million…
Our team at Pinnacle is proud to introduce you to Foundation Resources (FDN:TSXV) at this time in its growth curve. We will be relaying Foundation’s development to you over the coming weeks as this spring will be a crucial time for this quickly evolving junior gold company.
All the best with your investments,