Coral Gold (TSXV:CLH) locked a big win by selling the Robertson project to Barrick Gold under a creative deal in 2017 after sticking with it for 30 years. There's been $20-$25 million spent on the project in the Cortez Trend of Nevada since it was first mined as a heap leach in 1988 and a lot has happened over those 30 years.
The turning point for the Robertson from an exploration perspective was probably in 2007 when drilling encountered the "Lower Plate of the Roberts Mountain overthrust", since these lower carbonates are key geological units in the Cortez Trend. Coral Gold followed on with a PEA in 2012, but "Our market cap was basically decimated during the downturn because we had no news flow," said CEO Mr. David Wolfin in interview with Jay Taylor in July, 2016. Apparently the Bureau of Land Management did not consider Robertson an exploration property because of the old leach pad, which meant they faced more stringent environmental rules that slowed things down.
However, if you check the sensitivity of discounted cash flow to gold price as shown below then you will see that the project was estimated to breakeven around $1,000 gold. An open-pit, heap-leach can have very low operating costs, but they can also have very high capital costs. This may have also hurt the shares and framed the project as an "optionality play" with marginal economics. Thankfully, that was not the end of the story.
Coral Gold had a relationship with Barrick going back 20 years. Barrick actually had a prior earn-in agreement for the Robertson and completed some drilling on the Gold Ridge section of the Robertson project, but Barrick terminated the agreement in the depths of bear market. This left Coral Gold facing cap-ex of $100 million on its own, which was just not going to happen.
As the gold market started to rebound and Barrick stopped it's aggressive divesting activity, they came back to the table with Coral Gold. Turns out the economics of the Robertson look very different when considered as part of Barrick's massive Cortez Hills Complex compared with the PEA because Barrick already has large amounts of the plant, property, and equipment required to mine the Robertson!
Barrick's Cortez Operations include four open pit deposits, four zones in one underground deposit, and surface stockpiles. Together, they contain approximately 1 million ounces of gold (proven) and 10 million ounces gold (probable) at grades around 0.065 ounces per short ton or 2 grams per tonne. This humongous amount of ounces on the books is augmented by the infrastructure required to mine a million ounces a year from the Cortez Trend.
Nevada is arguably the jewel in the crown of Barrick Gold. The Carlin Trend is about 30 miles away and Cortez Operations produce a million ounces of gold annually at around $500-$600 an ounce, which are some of their lowest costs globally. Check out this 43-101 report from Barrick in March 2016 for much more information on what is going on there.
In the 2016 interview with Jay Taylor, Mr. Wolfin said that Barrick did not consider the entire 2.7 million ounce inferred resource at Robertson when assessing the project -- they just looked at what they could mine immediately to exploit synergies with their operating mine right next door. If just half of the resource could pass Barrick's test, then imagine what could happen if they have success with the drill bit following the potential expansion shown below?
Coral benefited from having a good project in the right neighbourhood. It helped that they did high-quality field work at Robertson, such as their flooded RC holes in 2007, since reliable data is so important to the majors and may be a reason why it is so rare for juniors to close these types of deals. But, how is that Coral managed to close this deal this time after Barrick walked before?
The key consideration for Barrick's business development committee is the IRR against a baseline gold price. When negotiating the sale of the Robertson, Barrick needed the project to meet a 15% IRR at $1,250 gold. In the 2016 interview with Jay Taylor, Mr. Wolfin describes how he negotiated for the royalty to be set as high as possible at $1,250 gold and then to increase with each $200/ounce increase in the gold price up to a maximum 2.25% NSR. This was a win-win that allowed the committee to sign-off on a deal that passed the hurdle rate at the baseline price, but also allowed Coral Gold to keep some excitement.
With the geological upside and local infrastructure to get Robertson into production, this could be a company maker for Coral. And soon!
A key issue for investors in Coral Gold is what kind of information we can expect about the Robertson now that it's inside Barrick. I am confident the necessary funding is there, but uncertain if it is a priority.
Although we can expect less timely information about the Robertson from Barrick because they have so much else going on, Mr. Wolfin noted in 2016 that Barrick will start covering the Robertson in their quarterly MD&As. Coral Gold reports that Barrick working on Pre-feasibility, Plan of Operation, EIS simultaneously, which is encouraging. Furthermore, the deal with Barrick provides Coral an annual payment starting in five years if the mine is not producing and that should give some encouragement for the patient speculator.
Mr. Wolfin also mentioned that Barrick is putting an award-winning exploration team in charge of the Robertson. That is, the team who found the Goldrush deposit, which has 15-million ounces of gold nearby the Robertson in the Crescent Valley. This team won the Thayer Lindsley award in 2014 from PDAC (http://barrickbeyondborders.com/mining/2014/03/striking-the-golden-mother-lode-in-the-silver-state/ and https://www.youtube.com/watch?v=EDjFzie2Amw).
What happens if Barrick starts drilling the Robertson in earnest -- could they double the total resources to five million ounces? At that point, royalty companies like Franco-Nevada or Royal Gold would surely take notice. The value of this royalty to them could be greater than the enterprise value of Coral Gold itself!
After Coral sold the Robertson to Barrick, they were able to cancel 4+ million shares. That is approximately 8.7% of all shares outstanding for Coral Gold. They have also implemented a buy-back program in 2017. The shares are tight and getting tighter all the time.
Management owns 30% of Coral Gold and the large cash balance means there is no need for an immediate equity financing, so any buyers will be forced to wade into the public market. Shares have recently traded up to C$0.38, which is still a discount to cash.
Of course, they have other projects too. The geology is beyond me at this point, but their JDN and Norma Sass projects are strategically located and it may be possible for them to repeat their success with the Robertson. In the meantime, they will be able to maintain a low burn rate and wait for Barrick to provide news that will give them a share price.
Much of speculating in the gold exploration business seems to be about second guessing the technical merits of a project, so it is a treat when a major comes in to help with your due diligence. And even more so when they make it clear that this is a special situation by walking away from it in a bear market and coming back to buy the thing outright when things improved! Thanks, Barrick.
Please note that I was not compensated by the company to prepare and distribute this promotional material. I hold shares in the company and may buy or sell at any time.
