17th June 2021
I don’t like rushing ideas out. But when I contacted the CEO about this one, he came back very quickly with answers and I don’t really see the point in sitting on it for a few more days.
It’s a small company with a very volatile share price, so if you and your financial adviser are comfortable with these kind of opportunities, then I’d rather tell you about it sooner rather than later.
Don’t worry, I’ll soon be giving you some updates on previous ones, but when I hear about something I want to tell you about. That takes priority.
This week it’s the turn of Stakeholder Gold.
About 15 years ago I was working with a gold fund. Two very smart guys ran it. Out of the blue one of them contacted me on LinkedIn. He’s the Financial Director of a small but interesting cannabis business. We had a good catch up and he asked what I was doing. Naturally I told him and he suggested I take a look at Stakeholder Gold. He had invested in it and the other guy from the gold fund was on the board.
I took a look. It was very interesting. So I set up a call with the CEO. I liked what he had to say….which is why I’m telling you about it.
Who are Stakeholder Gold?
Stakeholder Gold holds a 100% interest in the Ballarat Gold Project located in the heart of the White Gold District of the Yukon Territory (Canada). The Ballarat Gold Project covers 7,442 hectares of ground situated directly north of the Newmont Corp. (NYSE: NEM) Coffee Mine Project, and south and west of the White Gold Corp. (TSX-V: WGO) White Gold Project.
White Gold are already in our portfolio – so please look at previous issues to find out more about them.
They also hold a 100% interest in Victoria Mining Corporation (“VMC”). An exotic blue quartzite quarry project which is already generating some decent cashflow.
Ballarat Gold Project White Gold District, Yukon Territory (Canada)
Stakeholder’s 100% owned Ballarat Gold Property is located 120 km southeast of Dawson City in the heart of the White Gold District of the Yukon Territory.
Ballarat Creek, which is fed from headwaters located on the Company’s Ballarat property, has been one of the most prolific placer gold producers of the White Gold District. Topographic surveys conclude that the source of that placer gold can only be located on the Company’s Ballarat claims. This means there are almost certainly gold deposits on Stakeholder’s claims – the question being – “are they economic?”.
There are several gold occurrences on the Ballarat Gold Project which have been the focus of preliminary survey work, and which merit exploration follow up. In addition, more than 10 km of the Northern Gateway Road, which is being developed to traverse and service the Yukon’s White Gold District, is being constructed across Ballarat’s claim area. This road construction across their claims can bring material advantages for Stakeholder shareholders (more on this later).
The Company’s Ballarat Project claim group also includes title to 10 claims located within the nearby Coffee Project which is being developed by Newmont Corp. (NYSE: NEM) south of the Yukon river.
The Coffee Project south of Ballarat sold for $536M CAD in 2016. Stakeholder is the only company that owns claims within Newmont’s Coffee Project claim group. While Newmont is of course protective of their exploration information, the exploration that is currently being undertaken by Newmont may yield a windfall for Stakeholder shareholders at any time and the upside potential from this outcome is impossible to quantify – but you would hope there’s something!
VMC exotic blue quartzite is found in a geological structure known as a Batholith. These structures are sizeable, generally intrusive bodies comprising billions of tonnes. VMC holds the rights to 3,000+ hectares of land covering the Batholith and surrounding claims. The mine life is projected for many years (50+).
Cash costs for production average $300 USD per cubic metre. The sale prices are currently averaging $1,900 USD per cubic metre. The Company has so far received return orders from four buyers and envisages producing at a rate of 400 cubic metres per month.
Why do I like them?
There are really two reasons. Firstly, I think there’s a lot of potential with Ballarat – that, as far as I’m concerned, is the big prize. But they’re also generating cash flow from the sale of exotic blue quartzite from their wholly owned Brazilian subsidiary, Victoria Mining Corporation (“VMC”). Cash flow received from blue quartzite sales permits them to restrict treasury share issuance and serves to protect shareholders from dilution. The CEO affirms that dilution protection is the key to development of per share value and share price performance.
Both the Ballarat Project and Victoria Mining Corporation (“Victoria”) are 100% owned.
If you look at where Ballarat is located, it looks like it could be very appealing for either Newmont or White Gold to acquire. This is obviously highly speculative. Today there is no land available or ‘not already claim staked’ in the White Gold District. The CEO claims that:
“holding Ballarat claims is like having hectares of prime Manhattan land ownership before the development of New York City.”
Let’s take a look at them using our B.RI.D.G.E. system.
With no debt and quickly advancing towards CAD$5M EBITDA from the quartzite (determined by management discussions and recent progress reports as well as public filings), they are unusual. Although I would essentially view them as an explorer (so a forward in our portfolio) they are VERY unusual because they’re generating cash.
Because their market value is currently about $9M CAD and the projected EBITDA is about CAD$5M for the upcoming financial year, it looks like they’re cheap - without even taking into account the Ballarat project. Shareholders are reluctant to sell so you will probably have to pay the market rate if you want to get involved.
I would still suggest you place a limit order, but if you want to do something (having discussed it with your financial adviser), it may make sense to move reasonably quickly.
I was very surprised at the valuation when I heard the EBITDA projection.
The Ballarat Project and their 10 claims tenements within the Coffee Project do not have a resource. There are multiple gold in soil and gold anomalies on the property. I take comfort from the earlier exploration and gold discovered in the Ballarat Creek riverbed.
Looking at the nearby Coffee Project, this covers 22,000 hectares and so 10 claims is relatively small within the total package, but recent exploration has been to the east of the Coffee Deposit in the direction of Stakeholders 10 claims. The original staking was made as a result of gold detections on those claims. Newmont will not be able to develop any deposits found on those claims without acquiring them from Stakeholder and the total contained gold value will be determined by geology.
If those claims are critical to a mine plan or open pit design, then significant premiums to valuation may be paid by the acquirer and mine developer. The good news is that Newmont is a major player in the gold business and can afford any such payments if required. Stakeholder shareholders may benefit accordingly.
As you can see from the map below, the road that is scheduled to be built to the Coffee Project runs through Ballarat. This road could quite literally halve the cost of exploration. Where today helicopters are used to bring drills, road access will provide direct transport. Road construction will provide 10km of free trenching exploration and will ultimately reduce significantly costs for power, water and logistics.
The road through Ballarat is a significant investment paid for entirely by other parties (Government of Canada and Newmont), and brings very meaningful long term logistical and cost benefits to Stakeholder Shareholders. (“it’s like water and utility development in Manhattan”, according to the CEO).
Coffee has a 43-101 resource of over 2 million ounces. The average grade is 1.45 g/t but the cash cost is forecast to be in the mid $500/oz. It’s low because of superior leach kinetics for White Gold District gold deposits.
This is a play with two projects. Given its market value, I feel comfortable that if one project had an issue, then the other would still help to support the revaluation potential.
Grades and leach kinetics for White Gold deposits are superior to most in the industry. This is evidenced by the compelling economics for the Coffee Gold project. So, it’s not unreasonable to believe that there could be a significant amount of gold at Ballarat at a similar grade. Albeit this is a major risk until it is found.
As you can see from the map above, Ballarat sits close to both White Gold and Newmont properties.
There are multiple untested gold anomalies on Ballarat and Newmont, Agnico Eagle and Kinross (three major players in the gold market) have a proven interest in the White Gold District (Agnico and Kinross are both significant shareholders in White Gold).
Ballarat Creek (part of the Ballarat Project) produced about 20,000+ oz of gold extracted from riverbeds.
I’ve been told by the management that:
“The source of this gold can only be located on the Ballarat claims. Exploration will only be funded by non-dilutive cash flow and will be materially enhanced by the significant capital outlays being scheduled for the Northern Gateway Route construction”.
White Gold trades at a valuation of around $80M (with Kinross and Agnico Eagle each owning c.20%). Stakeholder which is located between these two and which holds undiluted gold potential of the Ballarat claims trades at c.$9M valuation.
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Written by, Simon Popple