HOW TO SEARCH FOR UPSIDE IN MINERAL EXPLORERS
Investing in the mineral exploration industry on the TSX Venture is unlike any other investment opportunity you have come across on the broader stock markets; TSX, NYSE, Nasdaq, as the discovery potential on the TSXV can be life changing.
Selecting which venture explorer stock is a daunting task though as the TMX Group’s last update showed 989 venture listed mining issuers.
It is important to know what questions to ask and what criteria a resource explorer must meet before you consider allocating time and capital towards this investment.
Key questions and criteria are:
1. Does management have a track record of discovery success?
2. Are management’s interests aligned with shareholders?
3. Is the company’s exploration program funded?
4. Does the flagship project offer exploration upside with potential for district scale?
5. Are there near term catalysts that are going to lift the stock?
You have heard these criteria numerous times from institutional investors, resource focused portfolio managers, and sophisticated mining professionals because they are all true. These are preliminary investment considerations you must make with any mineral exploration company.
By using the above approach this has led to the identification of an undervalued gold explorer which is following up on a newly made discovery with this season’s drill campaign.
Westhaven Ventures (TSXV: WHN, OTC: WTHVF, FSE: 1W5) is exploring British Columbia’s newest gold belt and is led by veteran mine finder Gren Thomas, President, CEO, & Director and a team of seasoned financial and technical professionals.
MANAGEMENT TRACK RECORD
Investing with management teams that have had prior discovery success is a fundamental criterion when evaluating mineral explorers. This tilts the odds in your favor as you want to invest alongside successful explorers. Westhaven Chief Executive Officer Gren Thomas (Pictured right) is most famous for founding Aber Resources which discovered the Diavik Diamond Mind in Lac de Gras, Northwest Territories which is now one of the world’s richest diamond mines producing 6-7 million carats of large, white gem-quality diamonds.
The discovery of Diavik took Aber Resources and successor company, Harry Winston Diamond Corporation from C$0.50/share to a peak of C$50.00/share, a 100x return starting in 1994. Diavik is now operated and 60% controlled by Rio Tinto and the remaining 40% was recently held by Dominion Diamond Corp. until The Washington Companies Group which is controlled by billionaire Dennis Washington bought out the 40% interest for C$1.2B in 2017.
MANAGEMENT ALIGNED WITH SHAREHOLDERS
It is key for management of junior mining companies to own shares in the company they are running. That ensures management will act in the best interests of shareholders. The outcomes that benefit management will also benefit you as a shareholder.
Westhaven management which includes Directors and officers of the company own 40% of the equity, which is a strong indication they are believers in the prospectivity of this venture. After all, there are many reasons for management to sell a stock, but only one reason for them to buy it, which is that they think the stock is going to rise.
LOCATION, LOCATION, LOCATION
“The best place to find a mine is beside one” – Old Mining Adage
Westhaven has 100% control of a 30,000 hectare land package in the Spences Bridge Gold Belt which is underexplored and contains gold mineralization throughout the belt. Management has good reason to believe this region has district scale potential.
In the region there is Teck’s Highland Valley Copper Mine, New Gold’s New Afton Mine, Copper Mountain’s Copper Mountain Mine, and 4 historical reclaimed mining operations. The region is an area rich with current and historical operating mines.
Westhaven’s current geological thesis is to discover a high-grade underground gold epithermal deposit. What Westhaven is targeting is a giant gold system similar to Yamana Gold’s El Penon epithermal high-grade underground gold and silver mine located in Chile which produced 161koz Au and 4.28Moz Ag in 2017.
Another analogy to what Westhaven is targeting is the giant epithermal system which formed Newmont’s Cripple Creek gold and silver mine in Colorado. This mine has produced 23Moz Au and has a current production profile of 451,000oz Au per year. Cripple Creek has been in production since 1976, employs 700 staff, and is the largest gold mine in the state of Colorado.
Westhaven is hunting for elephants here, which is a term often used when management is going after a giant mineral system, in this case, a gold epithermal system in Southern BC.
APRIL 2018 DRILL PROGRAM
The focus of the upcoming drill campaign will be following up on the new discovery at the Alpine South Zone on the 100% owned Shovelnose Gold Property, located within the prospective Spences Bridge Gold Belt. The Company is fully financed and permitted for this drill program.
The discovery was just announced on January 16, 2018 after the Company completed a 7 hole program totaling 3,269 metres of diamond drilling which involved an intersection of 85 metres of 0.52 g/t Au (Drill hole SN17-06) and 5.7 metres of 2.5 g/t Au (Drill hole SN17-07), intersections worth investigating.
Gren Thomas, President & CEO of Westhaven stated, “The newly discovered Alpine South zone is approximately 1,000 metres in potential strike and is open to the northeast and southwest where the ground magnetic survey ended in June of 2017. This is the most significant discovery made to date at Shovelnose and we are keen to get back there as soon as practicable. The property borders the Coquihalla Highway and is only 35 kilometres from the city of Merritt, allowing for low cost, year-round exploration.”
Thomas goes on to say, “This new discovery comes after ten years of persistent exploration for the source to a number of epithermal showings and a gold bearing silica cap. This is a large geophysical and topographical feature previously untested and contains considerable widths of auriferous veining which could be a feeder for the previously found gold showings. This discovery marks an important milestone in understanding the property geology and should lead to considerable future exploration.”
Westhaven’s properties are all within the government designated pine beetle area. As such, the Company is able to claim 30% of applicable exploration expenses back as a tax credit. This incentive saves the Company from further shareholder dilution. Furthermore, this means Westhaven’s effective after tax cost of drilling the Shovelnose project is a mere C$115/metre of diamond drilling all-in, once the company considers that it receives 30% cash back.
NEAR TERM CATALYSTS
The Westhaven narrative is a discovery story, they are just at the beginnings of the life cycle of a mine. The Company has already identified a new high-grade feeder zone on the Shovelnose property and is positioning a drill rig right now to follow up on this prospect.
The best time to buy a discovery oriented stock is right before they are about to drill or follow up on an area of known mineralization as news flow is critical with junior explorers. This will position you, the investor, at a relatively low cost basis if a potential discovery is made.
As astute investors you are aware mineral exploration is one of the highest risk asset classes one can invest in, but the rewards for being a part of a discovery are tremendous. This is due to the industry probabilities of 1 in 3000 prospects actually becoming a mine. But when there is speculation over a potential discovery, these tightly held stocks, such as Westhaven can multiply in share price with minimal capital due to a bottleneck in liquidity.
Below you will see a handful of discovery type stocks from 2017 which demonstrate the potential returns that investors have seen this past year in this asset class.
GOLD & JUNIOR GOLD EQUITIES
As an investor, you want to own stocks that are going to outperform its peers in its asset class. Westhaven is one of those stocks.
Since the end of the commodities bear market at the beginning of 2016, gold has risen approximately 25%, gold majors 57%, gold juniors 66%, and Westhaven is up 125%.
Westhaven as a junior gold equity is outperforming its peers (GDXJ) on a 2:1 basis and a 4:1 basis compared to gold itself. The returns have been good so far, but as gold continues to rally, this will correlate into new 52 week highs being made. Resource investors buy the equity of an underlying commodity because they want leverage to the commodity and upsized returns.
Westhaven will provide investors with leverage to gold and has been since early 2016 but the fundamental value for Westhaven shareholders will come from the discovery potential of this year’s drilling campaign at the flagship Shovelnose project.
COMPARABLE COMPANY ANALYSIS
A valuation methodology often used by mining analysts is a comparable group analysis to see where the underlying company being analyzed sits in the value range when compared to its peers. This is one tool used to determine if a company is over-valued, fairly valued, or under-valued relative to others.
Westhaven is a junior gold explorer based in British Columbia, Canada. Therefore, it makes sense to select its peers also exploring for gold or developing gold projects in BC.
Westhaven currently has an enterprise value (Market Capitalization – Cash + Debt) of C$9M based off the September 30, 2017 financial statements posted on SEDAR. The Average enterprise value of the peer group is C$20M. Based on this factor we can consider Westhaven at these levels an under-valued investment opportunity. Applying the theory of mean reversion we would expect Westhaven’s enterprise value to revert to the mean of C$20M, which would imply over a 100% return from current levels.
The green highlighted companies are companies developing gold projects in British Columbia. For a company to be considered development stage they have to have a defined resource combined with an economic study. We can see those development stage projects trade at a premium to the average of the peer group and a significant premium to Westhaven.
As Westhaven is still working towards a resource the company will be looking to receive a re-rating to the level of their development stage peers. But if the management team sets out to accomplish what it plans this field season on the Shovelnose project of defining the high grade feeder system at the Alpine South Zone, the valuation of Westhaven could be multiples of the highest valued peers shown above. This is due to the rarity of discoveries and the anticipation resource investors have who are waiting for the next big find.
For more information visit: http://westhavenventures.com/
Disclaimer: All statements in this report, other than statements of historical fact should be considered forward-looking statements. These statements relate to future events or future performance. Forward-looking statements are often, but not always identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. Much of this report is comprised of statements of projection. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Risks and uncertainties respecting mineral exploration companies are generally disclosed in the annual financial or other filing documents of those and similar companies as filed with the relevant securities commissions, and should be reviewed by any reader of this newsletter.
Nothing in this article should be construed as a solicitation to buy or sell any securities mentioned anywhere in this newsletter. This article is intended for informational and entertainment purposes only.Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer.
The Author shall not be liable for any damages, losses, or costs of any kind or type arising out of or in any way connected with the use of this article. You should independently investigate and fully understand all risks before investing. When investing in speculative stocks, it is possible to lose your entire investment.
Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction, and should only be made after such person has consulted a registered financial advisor and conducted thorough due diligence. Information in this report has been obtained from sources considered to be reliable, but we do not guarantee that they are accurate or complete.
