Peter Epstein of Epstein Research takes a look at Nicola Mining, which has a new gold property, as well as a modern, permitted mill and tailings facility.
Nicola Mining Inc. (NIM:TSX.V) has methodically built a diversified mining enterprise in southern British Columbia (BC), Canada. Today, it announced an exciting addition. Management signed a letter of intent (LOI) with High Range Exploration to acquire 50% of the Dominion Creek property, ~110 kilometers (km) east-southeast of Prince George.
Nicola will have an effective 75% economic interest in the 1,950-acre project. The two companies will work toward a 10,000-tonne bulk sample next year. In 1992, eighty tonnes of concentrate was shipped to a smelter. The mill head grade was 14.1 g/t gold and the recovery was 93%.
Source: August 2003 Dominion Creek Project Technical Report for XMP Mining Limited, David K. Makepeace, P.Eng. (Section 4.6: page 18)
In the early 1990s, Noranda Exploration drilled 53 holes, totaling 3,484 meters (average depth ~66 meters). Results included 18 intercepts of 1 to 10 meters (m) in thickness, with grades ranging from 4 to 40 g/t gold. There are two clear mineralized areas that include a small bulk sample pit and a mineralized outcrop containing multiple distinctive veins.
As impressive as the historical drill results are, even better might be the more recent surface samples. As can be seen below, 23 select samples from July averaged 61.3 g/t gold. That’s ~2.0 ounces. The top five averaged 113.3 g/t gold (~3.6 ounces). These blockbuster grades are quite impressive, rarely seen anywhere in the world. Note: High-grade samples are nice, but the truth is in the drilling. Grade + interval width + depth + continuity will tell the tale.
The Golden Triangle in northwestern BC has pockets of very high-grade gold/silver. However, management points out that all-in drilling costs in southern BC are typically half as much.
Earlier this month, Nicola and High Range announced a strategic mining and milling profit sharing agreement calling for 0.5 ounces/tonne (15.55 g/t) gold equivalent material to be delivered to the mill from High Range’s Dominion Creek property.
Note: Grab samples are selected samples, not necessarily representative of the mineralization hosted on the property.
Typically, Nicola splits profits 50/50 with third-party miners that provide ore to feed the Merritt Mill. Since the company will own half of this high-grade gold/silver deposit, total economics for Nicola increase to 75%.
This is a tremendously attractive deal. The exact deal terms are not terribly important because Nicola will be fully reimbursed for all partnership start-up costs, expected to be about $525,000.
How profitable could this deal be? As a frame of reference, from an initial 10,000-tonne bulk sample, at the agreed upon 15.55 g/t gold minimum, about 4,500 ounces could be liberated (assuming a 90% recovery).
That would generate ~CA$11.4 million (~CA$11.4M; at spot) in gross revenue and take 60 days to process at 166 tonnes/day throughput (nameplate capacity = 200 tonnes per day). If the operating margin were 25%, that suggests annualized cash flow potential of ~CA$17.1M, of which 75% (~CA$12.8M) would belong to Nicola.
Three increasingly valuable mining assets in southern BC
Would it be an exaggeration, or overly aggressive, to say that Nicola Mining has three potential company-making assets? I think not. Consider the facts.
1) A modern, permitted gold/silver mill and tailings facility: Nicola has one-hundred-percent ownership in a modern (2012) gold/silver mill facility in BC, with a fully-lined tailings facility that has had $32M invested in it, and is the only mill in BC permitted to process feedstock material from anywhere in the province.
That’s a great provision to have in your back pocket as gold and silver prices rise (increasing the distance third-party ore can economically travel to Nicola’s mill). The strategically important Merritt Mill is worth significantly more at $1,900-per-ounce (oz) gold than it was at $1,261/oz gold (the average price from 2014–2019).
With a larger universe of prospective customers and higher gold prices, operations could be optimized (selecting higher grade feeds, less mill downtime) like never before. The value of this scarce mining asset is probably twice Nicola’s entire market cap. It would be nearly impossible to get a new mill permitted in BC in under five years, if at all.
2) Craigmont copper project; host of former high-grade Craigmont Mine: The 100%-owned, 10,913-hectare, permitted Craigmont copper project is a brownfield site adjacent to Highland Valley Copper, North America’s largest copper (Cu) mine. From 1961–1982, the Craigmont Mine produced 34 million tonnes, (nearly a billion pounds), averaging 1.3% copper from underground and open pit operations.
In recent years, both porphyry and skarn mineralization have been encountered. The best recent drill results at Craigmont are 85.6m at 1.1% Cu in 2016, and in 2018: 1) 150m at 0.54% Cu, including 5.0m at 9.6% Cu; 2) 100.6m at 1.3% Cu; and 3) 71.4m at 0.6% Cu, in 2018.
An estimated 53.5 million pounds of copper are contained in above-ground waste piles. Management has had success using ore sorting technology in trials, upgrading low-grade ore by a factor of five, with a modest loss of copper.
The outlook for copper is strong. It’s one of the very few metals that benefits from high-tech green energy, renewables, new grid-scale power systems, electrification of transportation, 5G network buildout, and trillion-dollar infrastructure spending (boosted by debt-funded stimulus plans).
The copper price, at $3.08/lb., has held up remarkably well given the ongoing global pandemic. Average copper grades at mines across the globe continue to fall. Some top copper-producing countries, like Chile, are experiencing (to varying degrees) rising costs, local community/non-governmental organization (NGO)/environmental opposition, political trends toward populism, and water concerns.
High-grade copper in southern BC, where deep, open pit mines are running on fumes, (grades of 0.25%–0.30% Cu), will be increasingly valuable, especially if/when copper rises above $4.00/lb. in coming years.
3) High-grade, permitted Treasure Mountain silver mine project: The 7,000-acre Treasure Mountain silver mine has near-term (2021) cash flow potential from reopening and mining Level 1, Stope 2 of this 100%-owned silver-lead-zinc project. However, the real blue-sky potential is in exploring. Some of the best historic soil samples range from 2,250 to 9,221 g/t silver (72.3 to 296.5 oz/tonne), 0.30% to 1.02% copper, and 0.59 to 0.81 g/t gold.
In August, Nicola announced that it had completed the first phase of a soil sampling program, including 304 of a planned 530 samples collected over the MB zone and to the southwest. Five outcrops were identified hosting mineralized vein material, which were grab sampled. Some shallow drilling was also done.
The locations of sampling indicate a potential strike length of ~1.2 km. This area had not been previously investigated by the company. Soil samples are undergoing lab analysis. Westhaven Gold Corp.’s (WHN:TSX.V) nearby Shovelnose project has been reporting high-grade drill results since 2017.
Management believes that Treasure Mountain’s results are very encouraging, as they identify the potential for other mineralized structures outside of Treasure Mountain’s underground mine workings, which were under-explored by prior operators.
Until just a few months ago, Treasure Mountain was an interesting out-of-the-money call option on the underlying price of silver. Above $20-22/oz silver, it’s time to start thinking of the possibilities. Above $24-$26/oz, active exploration and the possible development of low-hanging fruit is warranted. Six weeks ago, silver traded as high as $29.90/oz, but has settled back to $24.45/oz.
Nicola Mining offers the relative safety of near-term cash flow and 100% ownership of a valuable hard asset (the Merritt Mill), plus substantial blue-sky exploration/development upside in copper at Craigmont and silver, lead, and zinc at Treasure Mountain.
Near-term investment catalysts and news flow should be plentiful. I recognize that the company has experienced delays in achieving meaningful cash flow from its mill, but the world has changed this year. Gold, at $1,900/oz., is 8.3% below its all-time high of $2,073/oz., and the silver price has doubled since mid-March, even after recently pulling back from $29/oz to $24/oz.
Yes, $1,900/oz is a far cry from $1,200–$1,400/oz, the price in place for most of 2014–2019, where miners had difficulty funding start-up costs and working capital swings to mine and supply ore to the Merritt Mill.
There are dozens of larger companies that might want to partner on Craigmont or Treasure Mountain if Nicola Mining’smanagement team wanted to move in that direction. Or, self-funding with operating cash flow could be the chosen path forward. Bull markets provide a multitude of options. Either way, the future looks bright.
Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University’s Stern School of Business.
Disclosures: The content of the above article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Nicola Mining, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc., is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, professional trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Nicola Mining are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making investment decisions.
At the time this article was posted, Nicola Mining was an advertiser on [ER].
Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts and financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events and news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.
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( Companies Mentioned: NIM:TSX.V, )
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