By The Gold Report – Source: Ron Struthers for Streetwise Reports 02/12/2020
Ron Struthers of Struthers’ Resource Stock Report shares his thoughts on gold and the coronavirus, and profiles Rockridge Resources, a company with an advanced-stage copper project and a high-grade gold prospect, both in Canada.
Gold is about to soar in price because of a worldwide misinformation campaign. So far the effects from the coronavirus are being mostly ignored by the markets. There seems to be hope that this virus will be contained or maybe it is denial of economic damage it will, and could cause.
Furthermore we are getting statistics from a government that is notorious for a lack of transparency.
The Chinese government probably does not even know how bad it is. The reported amount dead already exceeds SARS and the death rate of 2.5% may compare low but it is not if multiples more contract the virus. There is a website in China called Tencent, it is like Google or Facebook here. Tencent posted some numbers about 10 times greater that government statistics. Why would they be so far off, fake news but within hours the post taken down.
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The Lancet in UK, a prestigious medical journal, did a study and used a model based on city population and travelling, etc. Based on hard data and a past reliable model, it came back 5 to 10 times worse than official China government statistics. We have two separate entities that produced results way higher than government stats. Also looking at what the people are seeing there and reporting sounds far worse than government stats.
They cannot even keep up to the death count as bodies are disposed of without confirmation testing. I have no doubt the situation is far worse than government reported stats. Remember, it is the government’s job and best interest whether here, Europe or China to promote stable economies and markets.
The best solution is a vaccine, but that usually takes two or three years, even if they get it in six months, there is the distribution and administering. China’s biological warfare weapons lab is in Wuhan, which is ground zero. What are the possibilities this is a leak from that lab? Let’s hope not, but China is not co-operating with the World Health Organization either, and that does not help the situation.
Symptoms don’t show for 10 to 14 days, which makes the whole containment initiative very difficult. The current estimate has 60 million people under quarantine and most travel is at a standstill. You have probably heard of some of the effects like Starbucks closing half their stores in China.
China is the manufacturing engine of the world and we are relying on them for so many goods that few realize. Practically all the smartphones are made there and what happens to a company and stock like Apple when they have a severe shortage of products to sell? This is just one example out of thousands. China is a manufacturing hub so it relies on transportation of goods into the country to assemble, then shipping finished goods out. If factories close or transportation halts, it does not just slow things down, it grinds it down to zero.
The economic impact could be catastrophic. What if markets start to price in the worst? China’s and the world economy were already slowing ahead of this. The U.S. is doing the best in the world but still GDP is only around 2%. This coronavirus is going to get much worse before it gets better and it is happening in an already weak economy. We are a few months away from seeing any impact; that could start showing with Q1 data.
Slowing economies will results in more QE and a quicker move to zero interest rates. U.S. stock markets are frothy at record levels and the balloon is seeking a pin. These factors are all positive to gold and the price chart is just itching to break to the upside. I commented previously that I wanted to see a close above $1600 to confirm a break out, but let’s call a spade a spade. Since gold broke higher in early January the chart looks like a consolidation above the previous high. This usually results in higher prices. Now is an excellent time to add both producers and quality junior gold companies to our portfolio.
This underpriced junior has an advanced stage copper project in the Flin Flon VMS belt of Saskatchewan and a high-grade gold prospect in the Timmins gold camp, Ontario. The gold project is the current focus as they are just starting a drill program. The company’s strategy is to acquire projects in historical and prolific mining districts, apply modern exploration techniques to test new geological models and prove discoveries.
Recent Price $0.16
52 week trading range $0.13 to $0.39
Shares outstanding 33.9 million, Fully diluted 50.3M
- Knife Lake Project – Flin Flon district of Saskatchewan which is ranked #3 in the world by Fraser Institute
- Over 300 drill holes for 43-101 resource estimate
- Near surface Indicated resource of 3.8M tonnes at 1.02% Cu Eq and Inferred resource of 7.9M tonnes at 0.67% Cu Eq
- Raney Gold project SW of Timmins, best drill intercept 6.5 g/t Au over 8.0 meters
- New geological model indicates south dip (previously thought north)
- Very limited drilling and open on strike and depth
- Strong management with extensive experience, some highlights below
Management – highlights
Grant Ewing, P.Geo, CEO, is a geologist with over 25 years of experience in the mineral industry and the last 10+ years in senior executive roles. His extensive knowledge base covers the entire mine development cycle, from early stage exploration through to production, in several different commodities. Strong merger and acquisitions, corporate development, and capital markets knowledge complement his mineral industry experience.
Recently, he was president and CEO of Kiska Metals (2014 to 2017) until it was acquired by AuRico Metals, where he continued as vice president exploration of AuRico Metals until it was acquired by Centerra Gold for approximately $300 million. Prior to that, he was president and CEO of Acadian Mining (2010 to 2014) until its sale to an international mining company. Atlantic Gold later acquired and is currently developing the projects that Acadian advanced through the discovery and resource development stages.
Jordan Trimble, president and director, has worked in the resource industry in various roles with numerous companies specializing in management, corporate finance/strategy, deal structuring and capital raising. He is the president and CEO of Skyharbour Resources Ltd., and was previously the corporate development manager for Bayfield Ventures, a gold company with projects in Ontario that was successfully acquired by New Gold (TSX: NGD) in 2014. Bayfield made a high-grade gold and silver discovery at its Burns Block property in the Rainy River district, which is now a part of the producing Rainy River Mine. Through his career Trimble has founded and helped manage several public and private companies and has been instrumental in raising substantial amounts of capital for mining companies with his extensive network of institutional and retail investors.
Ron Netolitzky, strategic advisor, has had an illustrious career in the mining and exploration industry with over 40 years of experience and having been directly associated with three major discoveries in Canada that subsequently went into production: Eskay Creek, Snip and Brewery Creek. Netolitzky has been honored with the Prospector of the Year award from the PDAC, and Developer of the Year award from the BC & Yukon Chamber of Mines. In 2015, he was inducted into the Canadian Mining Hall of Fame.
Joseph Gallucci, MBA, B.Comm, director, is a capital markets executive with over 15 years of experience in investment banking and equity research focused on mining, base metals, precious metals and bulk commodities on a global scale. Gallucci is currently the managing director and the head of mining investment banking at Laurentian Bank Securities Inc. His career has spanned across various firms including BMO Capital Markets, GMP Securities, Dundee Securities, and he was a founding principal of Eight Capital where he recently led their Mining Investment Banking Team.
Richard Kusmirski, P.Geo, M.Sc., director, has over 40 years of exploration experience in North America and overseas, and has actively participated in the discovery of a number of uranium, gold and base metal deposits. For several years, in his capacity as exploration manager, he directed Cameco Corporation’s (TSX: CCO) uranium exploration projects in the Athabasca Basin. In 1999, Kusmirski joined JNR Resources becoming VP of exploration in 2000. Subsequently, he directed the exploration program that led to the discovery of the Maverick Zone on the Moore Lake uranium joint venture in the Athabasca Basin in Saskatchewan with partner Kennecott Canada. Kusmirski became JNR’s president and CEO in January of 2001. In February of 2013, Denison Mines Corp. (TSX: DML) successfully acquired all of the outstanding shares of JNR by way of a friendly all-share take-over bid.
Raney Gold Project, Timmins, 100% option
The property is located in Ontario, 110 km SW of Timmins, on the eastern side of Raney Lake. The property is accessible by highway and secondary roads. It is in the Archean Swayze Greenstone Belt, which is a part of the Abitibi Greenstone Belt that hosts the world-class Timmins and Kirkland Lake gold mining camps.
The property has excellent access and infrastructure and is accessible by paved and forestry roads. Work by MPH Ventures in 2009 and 2010 consisted of trenching and sampling, induced polarization (IP) surveys, followed by drilling. MPH Ventures completed four separate phases of drilling on the Raney Project between early 2009 and early 2010. Hole R-09-08 returned 6.5 g/t Au over 8.0 meters, and established a 50-meter strike length for gold mineralization, extending from historical hole 99-01 to RAN-08-04.
- Hole R-09-011 intersected 4.7 g/t Au over 3.0 meters, including 11.5 g/t Au over 1.0 meters.
- Hole R-09-14 intersected 1.43 g/t Au over 2.25 meters, extending mineralization 100 meters west of the original discovery.
This zone needs to be tested for continuity with additional drilling, at and below the 150 meter level. The presence of a gold system as identified on the Raney Gold Project would suggest that the remainder of the project should be explored for additional gold structures. This graphic from the company’s presentation will give you a good picture of the limited area drilled and potential for expansion.
If The Rock’s new geological model proves correct we could see much longer drill intersects and higher grades at depth.
Last week The Rock announced plans to mobilize and commence an exploration drill program at its Raney gold project. Chenier Drilling Services Inc. has been contracted to conduct the drilling program and will mobilize its equipment for the program in mid-February. Chenier Drilling has carried out drill programs for IAMgold at the nearby Cote project. An exploration permit for the program is in hand that provides for exploration activities including geophysical surveys and diamond drilling to be conducted over three years.
Planned drill program summary
Historical drilling at the Raney gold project focused on identifying near-surface gold mineralization along an extensive alteration zone. Three sub-parallel and closely spaced mineralized zones of quartz carbonate alteration with quartz veining, pyrite, pyrrhotite and occasionally visible gold have been outlined. The drilling to date suggests the possibility of steeply plunging shoots of mineralization with reasonable widths open along strike.
A compilation and interpretation of historic data have resulted in the development of a new geologic model for the project. This new model indicates that the mineralized zones may have a steep south dip orientation versus the historical model that showed a steep north dip. Continuity between the mineralized zones correlate better along strike and down dip with the new model. The strike potential of the mineralized zones may be expanded as some of the historic exploration drill holes would have missed the target zone with the new geologic model.
The planned phase 1 exploration drill program will entail approximately 2,000 meters in 7 to 10 holes. The initial drill holes will target the zone that produced the best historical intercept of 6.5 g/t gold over eight meters. This zone occurs below the 100-meter level and is open for expansion. Mobilization of the drill will occur in mid-February with the drilling program expected to take approximately 60 days to complete. Updates from the field and drill program will be provided as the program progresses.
While the Raney gold project is the near-term focus, The Rock’s other asset is substantial and provides a solid base valuation for the company even if the current stock price is showing little value.
Knife Lake Project, Saskatchewan, 100% option
The 85,197 hectare Knife Lake Project is 130km north-northwest of Flin Flon and 45km north of Sandy Bay. A new power line 16km from the deposit area greatly enhances the project’s infrastructure. Since the initial discovery of mineralization in 1915, the Flin Flon camp has produced over 170 million tons of sulphide ore from 31 VMS deposits worth in excess of $25 billion dollars (2002 NRC, Current Research). Over 50% of deposits in the camp have been advanced to production, which have led to 86 consecutive years of mining. More recently, activity in the region has picked up including Rio Tinto’s $30 million earn-in option on the Janice Lake project northeast of Knife Lake, Glencore helping advance the McIlvenna Bay project through a feasibility study, Hudbay’s new high-grade discovery near the Lalor mine, and Greenstone’s $29 million strategic investment in Rockcliff Metals to advance and develop several VMS deposits around Flin Flon and Snow Lake.
The Knife Lake Project area is an advanced-stage copper, silver, zinc and cobalt exploration property with extensive exploration completed from the late 1960s to the 1990s. Prior to The Rock’s involvement, the last documented work program was completed in 2001. Over 300 holes provided data for the first NI 43-101 resource estimate.
Knife Lake NI 43-101 resource estimate provides excellent anchor for the project:
- Indicated resources: 3.8 MT @ 1.02% Cu Eq.
- or 3.8 MT @ 0.83% Cu, 3.7 gpt Ag, 0.097 gpt Au, 82 ppm Co,1740.7 ppm Zn.
- Inferred resources: 7.9 MT @ 0.67% Cu Eq.
- or 7.9 MT @ 0.53% Cu, 2.4 gpt Ag, 0.084 gpt Au, 53.1 ppm Co, 1454.9 ppm Zn.
Rockridge completed the first work program in the last ~20 years in 2019. Results included 2.03% Cu, 9.88 g/t Ag, 0.19 g/t Au, 0.36% Zn, and 0.01% Co (2.42% CuEq) over 37.6m beginning at 11.2m in hole KF19003.
The deposit is a remobilized portion of a presumably larger “primary” VMS deposit; most of the historical work has consisted of shallow drilling at the deposit area with little regional work carried out and limited deeper drilling below the deposit. There are 11 highly prospective priority targets and numerous second priority targets. The 2019 summer field exploration focused on refining three priority targets noted below. The field program included geological mapping, geochemical sampling and soil sampling.
Gilbert Lake target area is west of the Knife Lake deposit and is +14 km of highly prospective VMS stratigraphy, shallow EM conductors with favorable alteration and mineralization.
Scimitar Lake target area is east of the deposit and is 3.4 km of prospective VMS stratigraphy with EM conductors. The majority of conductors are untested along strike and at depth.
Machete is located north-northwest of the deposit and is +10km of prospective VMS stratigraphy with ab airborne EM anomaly. There is no documented exploration on this target.
There is strong discovery potential in and around the deposit as well as at regional targets on the property. The Rock plans to use modern exploration techniques and methods to make new discoveries.
Last financials as of October 2019 show almost $400,000 cash and no debt. Since then The Rock raised $1.04 million in a private placement with 3,210,000 units at 12.5 cents per share and 4,572,715 flow-through units at 14 cents . Each unit has a 1/2 warrant with a whole warrant exercisable at 25 cents for three years. The company is well funded for the current drill program and beyond.
I have nicknamed the company “The Rock” not just because of the symbol but I believe the company is rock solid and so is the investment. The management team is extensive and has experience with juniors that were bought out for their discoveries. The stock value is underpinned by its advanced copper VMS deposit, Knife Lake in Flin Flon, and also has upside there given it is a remobilized deposit. There is more upside with the Raney gold project the company is about to drill, as well with the new geological model. The company is relatively new as it acquired its first project, Knife Lake, in November 2018. The share structure is very good with just 34 million shares outstanding and with strong insider ownership.
The company is focused on copper and gold, which I believe is a good combination. Large copper deposits have become very hard to find and copper has a bright future as the world becomes electrified, especially the growing demand for electric vehicles. With years of inflated markets, easy monetary policy and heading to zero interest rates, the bull market in gold has a long way to go.
Given the large land package The Rock has northwest of Flin Flon, additional discoveries are likely. The stock was about double the current price last year based on Knife Lake. We will soon have news flow from drilling at the Raney Gold project and since a discovery has already been made, the odds of good drill results are high. If the company’s new geological model proves correct there could be some very pleasant upside with the drill results.
The stock chart looks very good. The stock broke the down trend channel in early January and the recent pull back from the 23 cent high is a very good entry level. It is also not much above support I see around 14 cents so it appears there is very little downside.
Ron Struthers founded Struthers’ Resource Stock Report 23 years ago. The report covers senior and junior companies with ample trading liquidity. He started his Millennium Index of dividend stocks in 2003 – $1,000 invested then was worth over $4,000 end of 2014 and the index returned 26.8% in 2016. He retired from IBM after 30 years in customer service, systems and business analyst, also developing his own charting software. He has expertise in junior start-ups and was a co-founder of Paramount Gold and Silver.
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