Japan Gold.
Has a nice ring to it.
For the first time, an international mineral exploration company is being formed to focus solely on exploration opportunities in Japan.
This according to joint news releases from junior explorer Southern Arc Minerals ($SA, ~$6 mil market cap) and shell company Sky Ridge Resources ($SYR.H, ~ $4.63 mil market cap), both TSXV listed companies.
Southern Arc Minerals, led by capital markets entrepreneur John Proust, is spinning out its Japanese exploration portfolio, which Proust says it has spent the past three years developing in “stealth-mode”, to Sky Ridge, a Frank Giustra and Gord Keep affiliated shell company, in exchange for Sky Ridge shares valued at approximately $10 million. The deal is a Reverse Takeover of Sky Ridge, which plans a name change to Japan Gold and $5 million financing at a roughly $15 million pre-money valuation. Proust will lead a new management team and board as Chairman and CEO of Japan Gold. Assuming receipt of necessary approvals, it could be up and trading by the end of Summer.
Japan Gold’s portfolio is to consist of 80 mineral exploration licenses in 8 distinct project areas in Northern Honshu and Hokkaido. Several historical high-grade gold mines are on the projects. In a telephone interview, Proust tells CEO.CA the old mines were shuttered during WW2 or the early 1970s gold depression. He says the Japanese kept meticulous records, and have not really conducted a modern, regional exploration program in these areas, which Japan Gold plans to do. Proust says many Japanese believe there are no new mines left to be found in the country, a view he is keen to challenge.
The projects appear to be at relatively early stages of exploration. Ikutawara is the most advanced, with some mapping/sampling and orientation ground mag completed last year, according to the news release. A detailed exploration program has been submitted for government review. Upon receipt of the prospecting license, Japan Gold could commence drilling and trenching at the targets with preliminary exploration at the other projects.
A geologist friend of CEO.CA has visited some of Southern Arc’s Japanese projects and returned excited about the opportunities there. He said it was unexpected to see a large and prospective land package in a first world jurisdiction, with many historical mines, without much modern exploration. It would be a substantial undertaking to perform a thorough exploration of the project areas, according to the geo, which could pose serious financial and human resources challenges. The same can be said for any substantial mineral exploration however.
The deal is potentially an act of value creation for Southern Arc, which only briefly mentions the Japanese projects in its latest financials. Southern Arc has a roughly $7.3 million market cap based on a Tuesday closing share price of 48 cents. It holds ~$6.1 million worth of Osisko Mining shares (2,475,000 OSK shares, last at $2.46), an Indonesian mineral exploration portfolio, and the tentative $10 million Japan Gold position.
Southern Arc has fallen hard from the go-go mining days of late 2010-early 2011, when the company consistently traded above $16 per share (accounting for share consolidations), and was focused on other projects. It was most recently financed in January 2016 at 24 cents.
Proust is no stranger to high-flying resource plays. He was CEO of New Zealand Energy in 2012 when it ran all the way up to $3.50 per share. Proust left in 2014 and the stock is now 5 cents. The volatile performance of Southern Arc and New Zealand illustrate the extremely high-risk nature of resource exploration, but speak to Proust's skill at identifying and marketing early-stage resource plays.
By reputation, Proust is a driven individual with a high-degree of experience operating in capital markets and founding public companies.
Proust says Japan Gold is looking to develop its team and is open to replacing himself in the CEO role, especially for a fluent Japanese speaker. The company will have Japanese representation on its board and management team. Proust’s wife, who is fluent in Japanese, is an asset to the CEO.
The first and only (so far) Japan gold exploration story provides a powerful marketing differentiator for the company. They will need the visibility to help finance a sustained and high-quality exploration effort over time in order to develop a discovery, assuming they are lucky enough to find one.
Mining entrepreneur Frank Giustra will control roughly 8.4% of the pro-forma Japan Gold and Lithium X founder Brian Paes-Braga will control about 5.2% through their shareholdings in Sky Ridge, assuming the exercise of warrants. Neither are board or management appointees at this time.
On a quick call with Giustra Wednesday morning, he cautioned Japan Gold is early stage and high-risk exploration, but he’s excited by the concept of building the first Japan focused exploration story.
“Nobody has ever done this in a public deal. If we can ever get some decent results, I think it’s going to be something the Japanese will want to buy. In this gold market, who knows what can happen. We need a Japanese face and we need to get in there right away and doing a lot of work. And we’re going to have a lot of money to do it right,” Giustra said. He expects the $5 million financing is already over-subscribed.
Tao Feng, an influential Chinese entrepreneur and asset manager with business interests in Japan, is joining the board of directors. So is Bob Gallagher, the recently retired CEO of New Gold.
There’s additional background information on the Japanese projects and the proposed management team in the news releases.
Author is long a relatively small Sky Ridge position purchased in 2015 and has a personal and business relationship with insiders from the company, which makes him biased. Mineral exploration companies including those discussed in the above article are highly speculative endeavours and are not suitable for most investors. This is not intended to be investment advice or a recommendation of any kind. Always do your own due diligence and consult a licensed investment advisor prior to trading securities. It’s your money and your responsibility.
