A Golden Opportunity – IDM Mining (TSX-V: IDM)
Like many people, I have learned how to invest in the resource sector by making mistakes and paying for them. I believe this experience is necessary to help investors filter through a lot of the marketing hype. Have you ever come across a promoter or an executive who has told you they have a bad or even mediocre project? I doubt it.
I have done a lot of research in the junior sector and dug down to the information that really matters. This work allowed me to identify several quality companies that are currently undervalued. One impressed me so much, that I became their Investor Relations manager. I would be a hypocrite if I didn’t tell you why I believe this company stands above many of the others.
Very few companies will succeed in a bear market. That’s why timing is so important. Investing in quality companies in an emerging bull market is one of the key secrets to success.
New Emerging Gold Bull Market?
In 2016, we saw resurgence for gold stocks; we saw mining companies with development-staged assets being financed, projects moving forward and companies appreciating in shareholder value with good news.
In December, 2015, gold hit $1,054 (U.S.) per ounce – the lowest price it had been since the fourth quarter of 2009. We then saw a rally to $1,364 (U.S.) per ounce in August, 2016, an increase of almost 30% within a period of nine months. At that point, sentiment was strong that gold would continue to move higher and many gold analysts speculated that we might see $2,400 (U.S.) per ounce within three to five years. Gold dropped to $1,128 (U.S.) per ounce in December, 2016, and at that point, gold pundits were split on which way the gold price was going to trend. Luckily, it did not re-test the low of December, 2015, and we have seen it rally back to $1,266 (U.S.) per ounce in April, 2017, a 12% move in 3.5 months. Producers as well as companies with advanced staged projects and even some explorers, have moved up with gold’s rally.
Gold 10 Year chart
I believe we are in the beginning stage of the next gold bull cycle. I have been deploying my capital back into this sector, which we all know can show explosive returns on investment if you get the timing right.
After attending the Cambridge House VRIC, Round UP and PDAC in 2017, I can tell you that it was very busy – bustling with retail investors, more mining companies showcasing and most importantly, people were smiling and optimistic about the mining and commodities sectors.
As an investor relations and corporate communications professional working in the industry for 12 years, I have cultivated a very strong and extensive network with investors, brokers and institutions, and I can tell that their attitude toward the mining and commodities sector has completely changed to where it was a few years back. There is a buzz back on the streets of Howe and Bay once more.
If indeed we are in the beginning of the next great gold bull market cycle, then we all want to be looking at investing into gold producers and companies with advanced-stage projects with near-term production or M&A (merger and acquisition) potential.
When we are officially into a full-blown gold bull market again, we can start to take some punts on proven and successful exploration mining management teams.
To make real money in this sector and to reap the greatest reward, you must be a contrarian and place your bets when the sentiment is changing and stocks are still cheap.
The TSX and TSX Venture Exchanges
The TSX took a bit of a dive when gold started to fall in 2011, but started an impressive rally in Q4 2013, and now historic highs in 2017.
TSX 10-Year Chart
The TSX Venture made an incredible rally back from 2008’s market crash following gold into a new high in 2011 when all mining stocks were flying. Then the Venture continued to go down until January, 2016, when it finally started to turn around with gold moving higher.
In last 12 months, the TSX Venture has gone from a 52-week low of 517 to 848 – a 63% move.
TSX Venture 10-Year Chart
If are going to invest into a mining company, make sure that the market for the commodity or commodities it is looking is in a bull cycle. The point is that both gold and the TSX Venture are trending higher and look very bullish. The sentiment amongst investors, media and analysts is very bullish on precious metals, the mining sector as well as the TSX and TSX Venture exchanges.
We have a growing population that needs metals to sustain growth, a current political situation in the US and abroad certainly creates a lot of volatility and uncertainty which is usually good for gold.
Gold is a finite, real and historic currency that will always have value and become harder to find.
If our volatile and toxic race doesn’t blow each other up in a nuclear holocaust, it appears that gold will go to all-new highs in the next three to five years.
IDM Mining [TSX-V: IDM]
The most important thing when investing into a mining company is to look at who is making the decisions and spending shareholders’ money.
IDM Mining is led by Robert McLeod, a third-generation miner who grew up in Stewart, B.C., next to their flag ship project Red Mountain. This highly successful geoscientist has been working in the mining industry for 23 years and in the last gold bull market in 2010, his last company Underworld Resources was bought out by Kinross for $140-million for the White gold 1.4-million-ounce gold deposit.
Robert named IDM after his father Ian and uncle Don McLeod. IDM acquired Red Mountain near his hometown of Stewart for IDM in 2014, which he worked on early in his career and believed it could be developed to be next high-grade gold deposit to go into production in B.C. Not only does Robert wish to bring business back to the historic mining town of Stewart, which will provide jobs and opportunities to its citizens of Stewart and the Nisga nation, but he is doing it to honour his father and uncle.
Who better to run a development mining company then someone that has this much heart, experience and reason to make this company and project a success for his hometown, the great Nisga nation and for IDM shareholders.
Now, as we know in sports these days, it doesn’t just take one superstar to win championships – you need a few of them – Cleveland Cavaliers, Golden State warriors…. You need a strong team to prevail.
IDM Mining also has another superstar Executive Chairman Michael McPhie who has a 20-year career leading financing, permitting and development of resource projects on four continents. He is a specialist in regulatory, permitting and governance issues in the mining sector globally. His last deal Curis Resources was taken over in 2014. He is the CEO of the Mining Association of B.C. and a Policy Director with Canada’s Department of Natural Resources.
Michael has a strong reputation in the mining industry with the right experience and connections to move Red Mountain forward. Michael is also very passionate about responsible development, sustainability and good practice in business globally.
To see all the management, go to the website. https://www.idmmining.com/corporate/management_directors/
Clearly this management team has the right people behind it with the experience to move the Red Mountain project forward through development and feasibility. They also have the right experience and connections to move it towards production.
RED MOUNTAIN GOLD PROJECT
Red Mountain is a high-grade gold deposit located in the famous and prolific Golden Triangle of British Columbia, Canada, and only 15 km east of the port/mining community of Stewart.
The ‘Golden Triangle’ of northwestern B.C. hosts multiple large and high-grade past-producing mines and deposits, several of which are approaching potential development. High-grade past-producing gold-silver mines include the Premier, Eskay Creek and Snip operations. Seabridge’s KSM project and Pretivm’s Valley of the Kings deposit host very large previous metal deposits in the same belt of rocks as Red Mountain.
Access and Infrastructure
The 17,125-hectare project is located about 15 km east of Stewart, in northwestern B.C. The project is located at elevations ranging between 1,500 and 2,000 metres above sea level between the Cambria ice field and the Bromley glacier.
Access to the site is currently by helicopter from Stewart with flight time of only 10 to 15 minutes. An existing road extends for about 13 km along Bitter Creek Valley, but stops about 7 km from the proposed mine site. The project is located approximately 32 km from the BC Hydro sub-station north of Stewart, B.C., at the project site, a surface tote road network, basic surface structures (camp buildings, helipads, waste-rock storage areas) and used mobile equipment remain from previous exploration activities. Water is readily available from both surface and underground sources.
Under the terms of the option agreement, IDM Mining can earn a 100% interest in the Red Mountain project:
- Issuance of 4,955,000 shares to Seabridge
- $2 million cash payments in first 2 years
$1 million due within 90 days of signing DONE
$1 million due within 18 months of signing DONE
- $7.5 million in property expenditures
$2.5 million on or before the 1st anniversary
$2.5 million on or before the 2nd anniversary
$2.5 million on or before the 3rd anniversary
- Upon commencement of commercial production (target 2019):
$1.5 million cash payment to Seabridge
Seabridge will have the right to acquire 10% of the annual production from Red Mountain at a cost of $1,000 (Canadian) per ounce for up to a maximum of 50, 000 ounces.They can elect to receive a one-time cash payment of $4 million at commencement of production in exchange for the buy-back of the gold metal stream.
The main deposit is a high-grade gold-silver deposit, with a NI 43-101 measured and indicated resource containing 583,000 ounces averaging 8.75 g/t gold contained within 2.07 million tonnes of mineralized material. As per the most recent Preliminary Economic Assessment (PEA) the project can potentially be a low-capex, low-operating cost underground mine
Highlights from a PEA published in July, 2016, include:
- After-tax NPV (5%) of $120.4-million (U.S.)
- After-tax IRR of 32.3%
- Payback period of 2.0 years
This promising economics were based on the following mining assumptions:
- Gold price $1,250 (U.S.) per ounce
- Silver price $15 (U.S.) per ounce
- Metallurgical recoveries of 88% Au and 82.7% Ag
- Mine life 5.0 years
- Milling throughput rate – 1,000 tons per day
- Average gold head grade of 7 g/t (head grade = the diluted grade entering the mill)
- Average silver head grade of 21.45 g/t
- Operating costs $109.08 (Canadian) per ton mined
- Gold cash cost (net of silver byproduct $446.45 (U.S.) per ounce
- Pre-production capital cost $111-million (Canadian).
These economic results are based on an earlier resource estimate. Nevertheless, these numbers clearly indicate the robust nature of this potential mine – even based on only 5 years of production!
Since the company has already increased the resource by 32% and that the deposit has excellent expansion potential down dip, I believe the ultimate mine life will be significantly longer!
Significant exploration upside
The company has identified new zones of mineralization in the main deposit that they plan to drill to add to the existing resource. There is at least 800 metres of down-dip gold mineralization that requires infill drilling that is not contained in the current resource estimate.
IDM plans to continue an aggressive underground drilling campaign with the goal of adding ounces and mine life to the deposit.
A feasibility study is expected to be completed and submitted in the spring, 2017.
Red Mountain is a huge 17,000-hectare property with numerous showings with favourable geological prospectively. The ice retreat has exposed many new areas of barren rock which has led to the discovery of promising new prospects.
One such prospect, dubbed the Lost Valley was tested by five short drill holes last year. Drilling targeted two new mineralized structures identified in 2016, the Money Rock and Randell veins. Three holes from a single drill pad were completed at the Money Rock zone, where channel sampling averaged 18.7 g/t gold and 61.4 g/t silver over 0.84 metre along a 33-metre-long trench.
Drill hole LV16-01 intersected 1.0 metre of 3.0 g/t gold and 23.80 g/t silver, and LV16-02 intersected 1.2 metres averaging 4.63 g/t gold and 90.90 g/t silver. Results warrant additional drilling to test other targets in the Lost Valley
IDM’s management plan to take Red Mountain into production in 2019 and will continue to explore and develop the project that has tremendous exploration upside with a lot of strong prospects already that could become new deposits down the road.
Recently the Environmental Assessment Office (EAO), with the support of provincial, federal, Aboriginal and regional authorities, have approved and finalized the Application Information Requirements (AIR) for the proposed Red Mountain Underground Gold Project.
The AIR sets out detailed guidelines for information to be included in IDM’s application for an Environmental Assessment Certificate/Environmental Impact Statement (the application/EIS).
This milestone is the last significant step prior to submission of the application to the EAO and Canadian Environmental Assessment Agency (CEAA). The application is scheduled to be submitted by IDM in the second quarter of 2017. If the application is determined by the EAO to include the information set out in the AIR, the legislated 180-day review period of the application will begin.
“This is a key step in the environmental assessment of the Red Mountain project,” said Michael
McPhie, Executive Chairman of IDM. “We are very happy with our progress in advancing this
aspect of the project in a timely and efficient manner. The environmental assessment and permitting timeline for the Red Mountain project remains fully on track and we look forward to submitting the application/EIS later this spring.”
Risk and Reward
As a company moves its asset closer to development and ultimately production, the company’s risk profile decreases and its share price should appreciate (provided there is not significant dilution of the stock with no significant increase in value of the asset). Think of it like a tread mill – if the value of the asset increases as fast as the number of shares of the company are issued, the share price will not move. – As a shareholder, you are on a treadmill going nowhere.
So, what do you look for? What are the sources of potential dilution?
When evaluating a company, you must balance the asset’s value and its upside potential with the number of shares the company has and potentially will have.
Ask yourself what the company could look like when it goes into production. Specifically, how many shares will be required to be issued to finance the mine into production? From an investor standpoint, you can only make an educated guess.
This is where net asset valuations come in handy. What is the company’s peer group getting on a comparative basis?
This chart shows the average valuation for both development companies like IDM and producers on a price per net asset valuation. This chart clearly shows that IDM is below the average in its peer group valuations and still has significant upside potential.
Provided the company does not dilute its share structure into oblivion (which I highly doubt) given management’s experience and dedication), I believe this company is currently undervalued and will provide shareholders with a nice return if the company continues its current path to production.
What’s Next? Potential Stock Catalysts
IDM plans to achieve the following milestones, all of which I believe will improve the project’s economics and ultimately make its shareholders happy:
- Q2 2017: Publish 43-101 Feasibility Study
- Q2 2017: File Project Application EA Report
- Spring Summer 2017: Surface exploration and drilling
Early 2018: Environmental Assessment Certificate received
Share Structure and Significant Shareholders
Shares Outstanding – 353,500,000
Options – 27,600,000
Warrants – 111,900,000
Fully diluted – 493,000,000
Recent share price – $0.17
Institutional Shareholders (48%):
- Delbrook Capital, RBC, Sentry Select, Gold2000, Libra, Earth Resource, Mackenzie, U.S. Global
Corporate Shareholders (31%):
- Osisko Royalties, Osisko Mining, Premier Gold, Kinross
IDM Mining now owns and exercises control over a total of 10,500,000 common shares of StrikePoint Gold (TSX-V: SKP)
In March, 2017, Osisko Gold Royalties acquired 29.4 million common shares of the company at $0.17 per share plus 41 million flow-through common shares of the company at $0.25 per share. Osisko holds 19.9% of IDM shares on a non-diluted basis and represents a strong vote of confidence for the project and IDM’s management team.
I believe we are in the early stages of a precious metals bull market cycle. The TSX and TSX Venture exchanges look strong. IDM Mining’s Red Mountain Gold Project is low-capex high-grade gold deposit with strong economics in a politically safe jurisdiction near a historic mining town. They plan to submit feasibility spring, 2017, and move toward a final investment decision to take Red Mountain into production in 2019. They have an elite management team with the right experience to move this project forward.
IDM Mining has strong backing from smart investors including Osisko Gold Royalties, which now holds a 19.9% stake in the company. Compared with the company’s peer group, IDM mining looks like it is highly undervalued and best positioned for P/NAV market gains as it advances its Red Mountain asset toward production.
I believe Red Mountain is one of the most exciting gold development mining projects in the world and IDM Mining (TSX-V: IDM) deserves your close attention.
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Mr. Horsley is an insider and investor relations for IDM Mining. Mr. Horsley owns 140,000 common shares and 500,000 options. This is not a paid promotion but Mr. Horsley is a paid consultant of IDM Mining. The information received is for their personal use. Investing involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. Nothing contained herein should be construed as a warranty of investment results or advice. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. All information provided or contained in this communication should not be reproduced, copied, redistributed, transferred, or sold without the prior written consent of the sender. This communication including any information transmitted with it is intended only for the use of the addressees and is confidential. If you are not an intended recipient or responsible for delivering the message to an intended recipient, any review, disclosure, conversion to hard copy, dissemination, reproduction or other use of any part of this communication is strictly prohibited, as is the taking or omitting of any action in reliance upon this communication. If you receive this communication in error or without authorization please notify us immediately by return e-mail or otherwise and permanently delete the entire communication from any computer, disk drive, or other storage medium.