Note: I was going to post this on Friday 17th May. But i felt today was a good day to do so after, SBM.ax acquires Atlantic Gold for 41% premium cash offer at $2.90 per share. This is the third in a few months, after Newcrest acquisition of 70% Red Chris mine in Canada recently and the Northern Star purchase of Pogo in Alaska.; See SBM acquisition https://ceo.ca/@newswire/st-barbara-to-acquire-atlantic-in-friendly-offer-for. I think the TSX Gold sector is about to start heating up,
Disclosure: I am long Matador and this is for educational purposes only.
Original Article from the 13th May; The Canadian Gold sector is one of the most compelling and undervalued sectors in the mining speculation world. A tier one jurisdiction, with world class mines, excellent workforce, infrastructure and favourable conditions for mining investment, yet it trades at a massive discount to ASX Gold miners. As of today, 13th May, XAUCAD is trading at 1745 per oz which is approx 8.5% off it’s 2011 highs, when it reached 1900 per oz. Yet the mining Canadian based miners XGD are trading near 60% off their highs. There are number reasons for this, including mismanagement, capital destruction, poor return of capital etc.
Canada is on track for exponential growth in becoming the world’s second largest Gold producer by 2024. And i am looking for ways to participate in the new gold rush. Looking at Australian assets, there isn’t anything ‘cheap’ anymore. Most of sectors best assets are in the hands of the majors or have the majors backing thus controlling the asset and limiting the upside i.e NST with major strategic stakes i.e EAR.ax, as any discovery will lead to a takeover. The rest are either optionality plays or very early stage explorers looking for small deposits. A few old assets have been put together and repackaged into new companies, latest being Bardoc Gold BDC.ax with the old Zoroastrian mine. This is a sign of times in Australia. When i look across the ASX list of any explorers / developers that can build a 3moz+ resource with a production profile exceeding 150kpa+, i don’t see many. Today’s opportunity provides just that, a fairly cheap entry into Canada via the ASX listed explorer looking for very large resource base and a large production profile.
MZZ.ax Matador Mining
- Share Price 20cents AUD
- SOI 97m
- 19.5m AUD / 13m USD Market Cap
- Cash 5m after Capital raising
- EV 14.5m AUD / 9m USD
- Options circa 31m (ex Directors) strike 23c expiry 04/2022
Matador Mining flagship project; the Cape Ray gold project is located in Newfoundland, a large island east of the Canadian mainland. Located in the south of Newfoundland, the Cape Ray gold project is about 25 kilometers northeast of the coastal town of Port aux Basques. Hosts approx 1.02m oz known resource across multiple pits.
What is the companies objective;
The Cape Ray Shear Zone hosts numerous gold occurrences including Marathon Gold Corporation’s (TSX:MOZ) Valentine Lake Gold Project which has current resources of 4.2Moz Au. Matador believes that Cape Ray offers an exciting potential to replicate Marathon Gold’s Valentine Lake Gold Project in the creation of a multi-million ounce high grade gold project.
Before i start discussing why i am speculating in Matador Mining, i will write about the negatives first;
- Currently multiple small pits containing Gold resource.
- Low liquidity average daily volume near 100k.
- Departure of ex MD, Paul Criddle was without a reason. He was an attraction for alot of investors, who lost interest on his departure.
- Canada Gold sector massively out of favour, but could be viewed as an opportunity.
- Very early stage explorer, and like all explorers carries the risk of not finding additional resources, dilution, and capital destruction.
- Currently 31m options ex Directors on issue with a 3 year expiry at 23cents AUD. They will act as a pseudo raise for the company at some point, in my opinion, they were priced too low. Hence price point entry is crucial into Matador.
- Slave to the CAD Gold price but all commodity juniors share the same fate.
With that out the way, why i am speculating in Matador Mining;
- Last round of offering saw MZZ attract two former Regis Resources executives and very successful ventures at RRL.ax and EquiGold which was taken out by Lihir before NCM took out Lihir. Both went long at 16c placement with 23c options conversions. Both tipped in 3.5m aud at 16cents Aud. Nick Giorgetta is one of Australia’s top 50th Rich list. So not a name to sneeze at. https://www.businessnews.com.au/Person/Nick-Giorgetta and https://www.businessnews.com.au/Person/Mark-Clark
- As part of the previous consolidation to 100% of Cape Ray and the capital raising to Giorgetta and Clark, Grant Davey gave up his remaining 20% in Cape Ray for 13.5m shares. I see this as a good sign of confidence. He has bought more on open market, well over six figures in previous months and now controls circa above 15%+. Near 500k aud @ circa 27c average. A great sign. Currently he is in a black period and cant buy more.
- https://www.bentonresources.ca/ Benton resources ex TSX owns 6m shares.
- And due to new management changes both new starters, Adam Kilney and Keith Bowes own a 170k units combined, but have options incentives of 1.7m shares strike 40c expiry 3 yrs. I have been told they will be upping their stake in the next raise, second trance of the raise.
- Insider ownership not as high as i would like it to be seeing the new change from February, but considering Grant Davey and ex RRL team control 20%+ of MZZ ex options, i consider it generally a positive sign.
Matardor mining acquisition of Cape Ray; all the infrastructure, geology, past work in this announcement: https://hotcopper.com.au/threads/ann-matador-acquires-the-cape-ray-gold-project.4117423/?post_id=32236396
IPO Price of MZZ in 2017 was 20c. They have done 2 capital raising placements for 5 million. First at 25c to acquire 80% Cape Ray and second at 16c for 5million to 100% and start a 10,000m drill program. Hence buying in this range makes perfect sense.
- Matador has an established resource base of 1m oz near Marathon Gold, MOZ-tsx which is sitting next door hosts on a 4.2m resource base and is showing many similarities according to the Matador team. The discovery cost thus far for both Matador and Marathon has been between $7- $10 open pit. Matador are targeting resource base of 3moz-4moz. So at discovery $10, they would require approx $20m+ in capital. Currently 5m at bank and 6m if options to be converted at 23c.
- Matador will start a 10,000meter+ drill program in June, 2019. The program budget is 3.5million and will take four months to complete. This should allow steady news flow as well as a better understand of the tenement. Their main focus, is closing the the gaps in the central between the deposits.
- Central zone is shallow and open at all widths, if they can close the central zone, and make it a 1m+ stand alone, the metrics will begin to look alot better.
- Second part of the drilling will be at ; Window Glass Hill. This is a lottery ticket which Matador will drill in this coming season, It last had work done by Cornerstone in 2004. Matador believe it has alot of similarities to Valentines, Marathons flagship project. See notes;
No drilling in this area has been completed, however a number of rock chip samples,which yielded results greater than 5g/t Au2,have been collected with sample locations highlighted in Image 4below.The target area is also located at the contact between the Window Glass Hill Granite and the Windsor Point Group, a major rheological contrast and control on mineralisation
untested anomalies represent an excellent opportunity and will be investigated further during the upcoming field season;initially with additional rock chip sampling and mapping. Positive results from this work with result in drilling later in the season.
- Growth in the region and on the belt looks solid if MZZ can prove up the Gold. If Matador can match their neighbours, Marathon MOZ, they could be able to triple their resource in a few short years at a very low discovery cost. Thus boosting their profile and their valuation.
Current PEA from Marathon Gold shows very long and large mine of 225k pa for 11yrs + on known resource on 1250usd Gold. Reading through Marathon’s presentation, they have scope to upgrade and extend LOM. Not many ASX developers can host these numbers and no wonder why, ASX majors with cash are looking outwards.
Now looking at the fundamental driver, is the Canadian Gold price. Looking at the chart, it appears to be in a large rising wedge and a monthly close above 1790CAD, could trigger the next leg higher in both Gold and the junior miners.
Despite the strong Gold price, the TSX – XGD Gold mining index appears to be in a continuous downtrend, and has not confirmed the start of a new leg higher.
With the sector in a downtrend and unloved, so are valuations. I consider Marathon to be very cheap, but my thoughts mean nothing, in this market. If a PEA stage 225kpa / 11yr developer is priced at circa $30usd / 140mUSD MC (SP has risen since chart below) then you can’t expect much out of an explorer at this stage. But doing the math with the current drill campaign of $3.5m AUD discovery $7-$10 an ounce, i suspect Matador will have a 1.3-1.4m resource base by the end of Q4 2019, when it will update is JORC. If valued at $20usd/30$aud which is that the very low end, still gives Matador a 100% upside target from 20c. I believe eventually these valuations will rise back to normal levels of 50usd/oz+ at PEA stage. Today’s take out of Atlantic Gold by SBM.ax cements my thinking, that the value in the sector lies outside of Australia and in Canada. Looking at these valuations and if Canada is going to be on track to become second largest Gold producer in the world, it means it will have to attract alot more capital. Maybe the time has come to start buying early TSX assets in anticipation.
Disclosure: Currently holding, not financial advise. Do your own research and above article is for educational and illustrative purposes. Best of luck with your trading.