By James Kwantes
Published first at Patreon.com/jameskwantes
It’s a familiar albeit rare story: a junior strikes it rich with a spectacular discovery and gets taken out by a major. Happy ending for all.
Swinging for the fences can be one component of a junior mining investing strategy. As a guiding philosophy, it’s hazardous to your portfolio’s health. Sad endings are the baseline.
I like home runs AND base hits. The longer I invest, the more I’m drawn to junior companies built for sustainability. A newer one is Nevada-focused Ridgeline Minerals (RDG-V, RDGMF-OTC), whose CEO Chad Peters ran Nevada exploration for Ewan Downie’s Premier Gold back in the day. Ridgeline recently optioned its Selena CRD project to South32 (market cap $12.2B CAD), after optioning its Swift and Black Ridge gold properties to Nevada Gold Mines (the Barrick/Newmont JV).
This is junior mining moneyball: investing in companies that know how to increase the odds of discovery success while carefully managing their share structures. Buying a business, not a lottery ticket -- one with pretty terrible odds).
Kenorland Minerals (KLD-V, KLDCF-OTC) co-founder Francis Macdonald did an interesting study a few years back about which business model has better odds: project generator or exploreco. It’s on Kenorland’s website under Presentations and Media and well worth a watch. (Macdonald has since left to run an exploration company and remains a large KLD shareholder. There’s no single formula for investing success in this sector.)
An increasing number of junior resource CEOs employ a hybrid project generator/exploration model. Despite the remote odds of a discovery on wholly owned ground, the “project generator” label is still seen as a kind of retail death knell – despite Virginia Gold Mines, despite Arequipa, despite Kaminak ...
The diversity of share-structure-preserving approaches is reflected in the companies I’ve touched on in this space:
Kenorland
Generating royalties and valuable equity stakes while earning management fees for top-shelf discovery exploration. Converted a 20% JV stake in the Frotet gold discovery into a valuable 4% NSR royalty.
Price: $1.03
Shares out: 75.23 million (84.1M fully diluted)
Market cap: $77.5 million
Altius Minerals (ALS-T, ATUSF-OTC)
Built a dividend-paying $1-billion royalty powerhouse from humble roots as an optioner of grassroots exploration projects (which they continue to do). Metals focus but ALS also owns a valuable 1.5% royalty on Anglogold Ashanti’s Silicon-Merlin gold discovery and 58% of Altius Renewable Royalties (ARR-T), market cap $320M.
Price: $23.40
Shares out: 46.47 million
Market cap: $1.09 billion
Orogen Royalties (OGN-V, OGNRF-OTC)
“Royalty generator” Orogen is collecting royalty cheques from its 2% NSR on First Majestic Silver’s Ermitano orebody. Longer-term, Orogen’s 1% Silicon-Merlin gold royalty is shaping up as the flagship asset.
Price: $1.45
Shares out: 201.5 million (212.1M fully diluted)
Market cap: $292.2 million
Rather remarkably for companies with plenty of exposure to mineral exploration, Kenorland, Altius and Orogen have little need to finance by selling shares going forward.
Aurion Resources (AU-V, AIRRF-OTC)
Aurion has a vast position in Finland’s emerging Central Lapland Greenstone Belt and JVs with B2Gold and Kinross, as well as 100% owned ground with gold and base metals discoveries and prospects. Aurion owns 30% of a joint venture with B2Gold that
Rupert Resources (RUP-T)
is eyeing in order to optimize their planned mine at the 4M-oz Ikkari gold discovery.
Price: 0.53
Shares out: 148.9 million (159.4M fully diluted)
Market cap: $70.2 million
Mirasol Resources (MRZ-V, MRZLF-OTC)
Mirasol is a long-life project generator that has preserved its share structure and is pivoting towards exploration on its 100% owned Sobek properties. That ground is in Vicuña near the Lundins’ Filo del Sol and Lunahuasi discoveries – probably the world’s hottest discovery district.
Price: 0.49
Shares out: 69.8 million (71.8M fully diluted)
Market cap: $34.2 million
Ridgeline Minerals (RDG-V, RDGMF-OTC)
As for Ridgeline's JV deal with South32, the base metals major can earn a 60% stake in Selena by spending US$10M over 5 years. South32 can earn a further 20% (80% maximum) by spending another US$10M in a subsequent 3-year period.
Ridgeline’s option deal with South 32 has two unique features. The first is a requirement that if South32 decides to option the full 80%, the company must arrange a debt facility (on fixed, favourable terms) allowing Ridgeline to fund its 20% share of the JV to commercial production. Ridgeline’s option deals with Nevada Gold Mines have a similar debt financing proviso in the case of mine development.
The second feature: Ridgeline will remain the operator of the Selena project during the 60% earn-in phase and collect a 10% management fee on exploration expenditures. The favourable arrangement follows the Kenorland operator model, which has seen $77.5M-market-cap KLD rack up working capital of about $31M (as well as royalties and equity stakes).
Chad initially bootstrapped Ridgeline out of the garage of his Nevada family home in a gruelling bear market. I’m a long-term shareholder who has followed along as he and his team acquired and disposed of properties, snapped up data on the cheap, made discoveries at Selena and now another deal with a major. The stock has been a dud but that could change quickly if Ridgeline hits with the drill at new flagship Big Blue, a copper-gold porphyry project.
Share price: 0.155
Shares out: 109.7 million (140.7M fully diluted)
Market cap: $17 million
Disclosure: I own shares of Ridgeline Minerals, Aurion Resources, Altius Minerals, Kenorland Minerals and Mirasol Resources. No current business relationship with any company mentioned; I've worked with Aurion and Ridgeline in the past.
