Atlantic Gold Corporation (AGB.V) continues to execute on its long term plans to create shareholder value.  Yet while its high margin low cost operation in a favorable jurisdiction is an attractive value proposition, the resource potential remains the key to unlocking further value going forward.  

Fifteen Mile Stream, one of 4 pits in Atlantic’s production growth pipeline, is worth nearly C$200M from an NAV standpoint according to a recent Raymond James report.  The company recently announced the potential discovery of a new target with their Phase 4 exploration efforts.  The new target, Prospect 149, has similar characteristics as Egerton-MacLean within FMS.  While it is still early days and will require more drilling, it’s quite encouraging because this was Atlantic’s first attempt at evaluating their prospective 45km land package in Nova Scotia.  They are doing up to 100k meter drilling and are initially targeting high priority areas.  Before this Phase 4 work and beyond current pits, Atlantic had not previously explored this potential prospective land package and historically was never mined for disseminated gold with current technology.  There should be updates on Phase 4 exploration regularly but with the Sprott conference this coming week, one has to wonder if the next release is imminent.  Regardless of the timing of the next release, there will be plenty of catalysts in 2H 2018 as ongoing updates from these efforts are communicated to the market the culmination of which will result in an updated resource statement at the end of the year.

What is impressive about this large land package is that they have already found 4 pits.  Prospect 149 could be the fifth one.  What’s even more intriguing is how prospective the land package is, which could result in the potential discovery of a few more pits.  They would all be within trucking distance of central processing facility.  Given the shallow nature of these deposits, and being that it is open pit and medium grade, the margins are quite high.  As a result, resource accretion is an important driver of future growth and the central theme to the value proposition.  Managment has indicated the feeling that they will find at least 2 more pits.  Given the average of the pits that they have already found to date, National Bank put out a research report in April of this year stating that for every new pit discovered with similar characteristics it could mean C$100M of valuation upside.  Under this framework, 2 new discoveries alone with average characteristics would represent nearly half of Atlantic’s current market cap today.  As such, with two drills working, the potential remains for future exploration success.  

One final development is that they are finding more ore at the Touquoy pit than they anticipated.  While this is of lower grade, the cut off was reduced as a result from .5gpt to .3gpt.  The question now is whether this new ore is economical and what impact if any would it have on reserves.  More broadly, could this also happen across their other pits?  This is a good problem to have and this development could get very interesting and one to keep a eye on.  Finally, Atlantic is going back to FMS and CH pits later this year as they believe they have more ounces there to uncover as mineralization remains open, including a higher grade discovery made at CH recently below current exploration work.  Note that the recently announced Phase 3 exploration results and any additional work there as well as the ongoing Phase 4 exploration work is NOT included in the updated LOM plan that was completed in January 2018.

In closing, due to the prospective nature of the deposit, the high margin ounces, the lower risk open pit nature of the operation, the high quality jurisdiction, and with supply of these operations fairly limited, the prospect of Atlantic being an M&A target, while not a central theme, would be a very nice complimentary bonus.  

Disclaimer: I am not an investment advisor nor am I lic/registered to give investment advice.  This article is not investment advice and is for informational and educational purposes only.  Please do your own due diligence.  I did not receive any form of compensation for writing this article.  I own the stock.