3 Resource Companies That Have Increased In Value 30% This Year

TGR: We know there is gold at the Lamaque gold project and Integra has a mill, but does this company have the cash it needs to continue development?

DM: Obviously, being a pre-production company, Integra will need to raise some additional capital to complete its advanced exploration work and move into production. But the company has proven in the past that it is capable of doing that. Good assets attract money even in tough markets and the advanced exploration stage is important for investors, since despite being in a historic camp and being near the Sigma-Lamaque mines where the geology is well understood, advanced exploration is the next de-risking step for the project. It should provide a greater understanding of how the ore body is relative to what the drill results predict. That knowledge will be used to develop a mine plan, refine the current resource and move the project to the prefeasibility/feasibility stage.

TGR: Does Integra have the team it needs to accomplish its near-term goals?

DM: The company has been very good at adding strong technical people at different stages, both at the management and board levels. Recently it has added some technical expertise at the project level, which is very important for moving the project forward.

TGR: Is there more upside left in those three names?

DM: Certainly. All three have been on a good run but we think that they are still relatively undervalued.

TGR: What are your targets on those three names?

DM: We have a $5 target on Klondex, $8 on Kirkland Lake and $0.90 on Integra Gold.

TGR: What are some companies under coverage that haven't performed year-to-date but could rebound in H2/15?

DM: We cover two companies that certainly could. One is Timmins Gold Corp. (TMM:TSX; TGD:NYSE.MKT). Timmins started off the year strong and then, after the proposed acquisition of Newstrike Capital Inc. (NES:TSX.V) was announced, fell out of favor. The market's objection to the deal appears to be that Timmins didn't necessarily need a second development asset because it just closed the acquisition of Caballo Blanco. Our view is a little different. We think that Timmins is poised to build itself into a midtier mining company. It can generate free cash flow from the San Francisco mine, and use that as a platform to build these other two assets. Caballo Blanco is a relatively simple project. Timmins certainly has the expertise to put that project into production. While Ana Paula is slightly more complicated and is in a jurisdiction with elevated security risk, it is unlikely to be developed until after Caballo Blanco is brought into production.

TGR: Is Caballo Blanco the right asset for right now?

DM: Caballo Blanco is a good fit for the company. Timmins was able to pay a reasonable price because of the permitting challenges experienced by the previous operator. Timmins has an advantage over the previous owner in that its operating team is Mexican and has a good understanding of the social and political issues surrounding the project. As well, the project is a technically simple heap-leach project, which Timmins has the technical ability and experience to bring into production. Ana Paula is an asset for the future. With security risk elevated in Guerrero, Timmins has the luxury to wait and see how things develop over the next couple of years for Torex Gold Resources Inc. (TXG:TSX) as it moves through the final stages of building its project there.

TGR: There has been considerable unrest in Guerrero. Have you put out any notes on what's happening there?

DM: There are some security risks in Guerrero, but Goldcorp Inc. (G:TSX; GG:NYSE)operates a mine there, and Torex is building one. Guerrero has a history of security issues, but part of our view is that as the area develops, that security risk could be reduced. We model construction starting in 2017 and production starting mid-2018. The security risks in Guerrero could be different when Timmins needs to make a production decision on Ana Paula.

TGR: What are some others that could perform in H2/15?

DM: Another one is West Kirkland Mining Inc. (WKM:TSX.V). The company has a development-stage asset in Nevada. It's a simple heap-leach project with the potential for a relatively short timeline to production. The company is working on a prefeasibility study that should be published in Q2/15. West Kirkland's approach is likely to be for a smaller scale, higher grade mine than the one envisioned by the previous operator.

Until now, the only economic study on the project was Allied Nevada Gold Corp.'s (ANV:TSX; ANV:NYSE.MKT) preliminary economic assessment (PEA), and that PEA envisioned a higher throughput, lower grade project than West Kirkland. The pending prefeasibility study should provide some clarity to the market. As well, in the near-term we expect a ruling on whether the Three Hills deposit can be developed via an economic assessment, a shorter permitting process, which if used would reduce the project's time to production.

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Disclosure: 

1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences ...

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