Contributed Commentaries
The Urban-Windfall Area Play in Quebec Gets Major Support
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
In mid February, I alerted readers to an area play on the Abitibi Greenstone Belt (ABS) in Quebec, which has recently enjoyed an influx of an enormous amount of capital via early stage exploration companies. Headlining the Urban-Windfall district is Osisko Mining (OSK), who has decided to fast-track exploration and development at its flagship Windfall deposit in the Urban-Barry Township of Quebec.
In this piece, I suggested the Urban-Windfall district had a good chance of being consolidated in the future by a major miner.
On March 22nd, global miner Kinross Gold Corp. (KGC) purchased almost 14.9 million shares (9.5%) of BonTerra Resources (BTR.V) at a price of C.35c each in a private placement which should close this week. The announcement came a day after BonTerra issued a press release stating they had cut more near surface, high grade gold at their Gladiator deposit which lies just southeast and on trend of the OSK Windfall deposit.
Meanwhile, the recent staking rush continues in the Urban-Windfall micro-cap explorer land grab sweepstakes. On March 23, Secova Metals (SEK.V) announced they more than tripled their Eagle River deposit which also lies southeast and on trend of the OSK Windfall deposit. This acquisition has increased the Eagle River deposit by approximately 370% from the original size.
David Harquail, the Chief Executive Officer of the largest global streaming company Franco Nevada (FNV) recently stated: “After a downturn that squeezed capital investments, most gold producers have no choice but to invest in new projects as existing mines are depleted”.
Many of the global miners over-paid for underwhelming deposits with cheap paper near the top of the last gold bull market while the shareholders bared the brunt of losses during the vicious bear market of 2011-2015. Global miners had to cut their exploration down considerably, and in some cases completely. Most of the majors’ uneconomical deposits remain on their books so they still need to acquire high grade ounces. Therefore, they are now forced to buy future ounces on Bay Street, as opposed to being able to replace them from within.
A few of these miners have been buying large chunks, via bought-deal or private placement, of small-cap junior explorers as the race to replace has begun. I believe this to be a very sound strategy going forward. A major makes a minimal investment in an early stage micro-cap explorer (usually 10-20%). Then the company either writes it off if they strike out, or buys it out if they hit a home run.
During the infancy of the new gold bull, this has been the investment strategy of a select few major miners in their quest to possibly add rapidly depleting, high grade ounces for the future. I strongly believe that if you are searching for a junior with take-out potential, you should seek out companies with high-grade ounces within district scale land packages.
On November 18, last year at the London Investor Day conference, major miner Randgold gave a presentation titled “Planning for the Next 10 Years”. Pages 2 & 4 are very informative for resource junior miner speculators as it lists what the necessary requirements are for Randgold to consider taking out a junior. (Randgold is considered one of the pre-eminent major global miners as well as a leader in the sector).
On page 4 of the PowerPoint presentation there were two very important factors which have been highlighted by the presenter:
- Does it have a reserve potential greater than 3 million ounces of gold?
- Can it produce an IRR (Investor Rate of Return) in excess of 20%
Osisko Mining has stated publicly their belief of the Windfall deposit as having 5 million ounce potential and has also backed up this claim by making the decision to fast-track with a 400,000 meter drill program which continues to produce a steady stream of very good step-out drill results.
Now that all of the micro-cap players in the Urban-Windfall district are cashed up and ready to drill, we should find out soon enough if the Windfall trend is indeed worthy of more major support. I will most assuredly keep an eye on the space as I have placed my bets accordingly.
Full disclosure: I own shares in BonTerra Resources which I purchased in the open market and have also participated in the recently completed Secova Metals private placement. Please do your own due diligence before purchasing shares in any of the companies mentioned in this article.
