It’s that time of the year again. Tax loss season in the Canadian junior mining sector. For some investors this is a dreaded time of year, however, for others it is a time of opportunity to take advantage of low liquidity and the resulting dislocations in price action. Some traders go as far as to put in bids at $.01 and $.005 on many stocks because amazingly enough these bids occasionally actually get filled on the least liquid stocks!
It is truly tax loss silly season in the junior mining sector right now, and it is this absurd wanton selling which creates tremendous opportunity for those who are ready and willing to deploy dry powder in the most beaten down stocks. I have carefully selected six stocks that share many common themes including strong insider buying, tight share structures, down 50%+ year-to-date, unusually promising projects, and some sort of unfortunate/unforeseen event (death of CEO or VP of exploration) which has contributed to poor share price performance recently. ½ of the stocks on my list (Cantex, Fireweed, and Skyharbour) are in the most hated micro sectors (zinc and uranium) of the hated mining sector which made them especially appealing to me.
Remember, the biggest long term investment gains come from buying what is extremely out of favor and waiting for it to come back into favor again. I have no doubt that mining stocks will have their day in the sun again, and those who were able to provide liquidity in the least liquid, and most out of favor stocks should profit handsomely when they return to favor again.
Without further ado here is my 2019 tax loss silly season shopping list….
ATC.V – ATAC Resources (TSX-V:ATC) is arguably my favorite tax loss buying candidate on this list due to a combination of highly prospective gold projects with established resources of nearly 3 million ounces of gold. In addition, ATAC has nearly C$10 million in its treasury which negates the need for raising money into a weak market anytime soon.
While the winter is long and cold in the Yukon, ATAC is working on a couple of key updates this winter including:
Q4 2019 or Early Q1 2020: Exploration results from outside Bobcat and Tiger target areas, as well as results from other portfolio properties in Yukon;
Q1 2020: Proposed updates on Tiger, etc. Also probable release of 2020 exploration and corporate strategy framework.
ATAC has recently shifted its focus to the Rau Project which hosts the Tiger Gold Deposit. Here are some key facts on Tiger:
- Discovered and defined carbonate replacement style oxide and sulphide gold mineralization at the Tiger Deposit from 2006 to 2010
- Completed 26,844 m of drilling in 150 holes at the Tiger Deposit
- Total measured and indicated oxide and sulphide resources of 5,680,000 tonnes at a grade of 2.66 g/t gold containing 485,700 ounces of gold
- ATAC has begun the process of permitting an all-season tote road to the Rau Trend and Tiger Deposit
- 2,500′ private airstrip located 8 km from the Tiger Deposit and 40 person all-season camp
- Studies and geophysical evidence suggests that much of the 35 km long Rau Trend may be underlain by a large intrusive complex that is responsible for the extensive gold mineralization
- NPV(5%) of $106.6 million and an IRR of 34.8% before tax, and an NPV(5%) of $75.7 million and an IRR of 28.2% after tax, with an all-in sustaining cost of US$864/oz
- Pre-production capital cost of $109.4 million and life-of-mine (“LOM”) sustaining capital costs totaling $8.3 million
- Total project life increases to approximately 9 years, including 1 year of construction and pre-stripping followed by 6 years of owner-operated open-pit mining and 2 years of reclamation
- Approximately 302,307 ounces of gold produced at an average undiluted grade of 3.81 g/t gold
I believe that Tiger is the key for ATAC to unlock shareholder value over the next 12-24 months. With an updated PEA at Tiger including holes drilled since 2016 the company will be able to significantly increase the size of the resource and using US$1,450 gold and a C$1.30 USD/CAD exchange rate suddenly the project economics look extremely robust (after-tax IRR near 40%). The important thing to understand about Tiger is that once ATAC has approval to build the all-season tote road to Mayo, Tiger suddenly becomes much more accessible and advancing to the PFS stage becomes a compelling next step.
At Friday’s closing share price of C$.175 ATAC has a C$27.7 million market cap with C$9.5 million in the treasury – this equates to an C$18.2 million enterprise value. It would literally be impossible to replicate ATAC’s portfolio of projects anywhere in the world for C$20 million. Simply put the stock is absurdly cheap and could easily become a 5-bagger from recent share price levels over the next year.
CD.V – Cantex (TSX-V:CD) is focused on its North Rackla Project in the Yukon Territory of Canada. North Rackla hosts a massive sulphide zone that stretches for 2.4 kilometers and hosts elevated lead, zinc, and silver values.
Cantex bulls have been touting a “Broken Hill” analog to describe the potential size and grade of the high-grade lead/zinc/silver deposit at North Rackla. Meanwhile, bears have argued that Cantex got way ahead of itself while reaching a market cap peak of over C$300 million in August. Since topping at C$6.99 per share on August 22nd Cantex shares have plunged nearly 90% as concerns have mounted that Cantex is not having success with recent drilling.
What makes Cantex so interesting to me right now is that the company is cashed up with nearly C$12 million in the treasury and insiders have been loading up around a major technical support level (C$1.00):
Cantex continues to drill – and CEO Chad Ulansky recently told me he expects that Cantex will finish up drilling in mid-December. He also anticipates that Cantex will have in excess of 100 holes worth of results to put out in Q1 2020. Mr. Ulansky is also expecting one or two news releases prior to the end of the year and continued releases through the remainder of the winter as samples make their way through the lab.
There will be no shortage of news flow and the recent crash in Cantex shares might have delivered investors an early Christmas present.
CORE.V – Canadian Orebodies (TSX-V:CORE) is probably tied for first (with ATAC) as my favorite buying opportunity on this list, simply because it’s been beaten down so hard since peaking at C$.445 per share in February of this year. Friday’s closing price of C$.08 represents a more than 80% decline from that February peak.
Aside from a generally weak environment for junior miners why have CORE shares performed so poorly? The stock was sitting around the C$.20 area in early August when company founder and CEO Gordon McKinnon passed away in a car accident. This unfortunate accident seems to have generated even more selling as downside volume really accelerated towards the end of August and the stock has been gradually sliding lower ever since.
CORE has a tight share structure with 53.9 million shares outstanding, and options and warrants total less than 5 million which gives CORE a fully-diluted share count below 60 million. In addition, less than ½ of the outstanding shares are actually out there in the market due to the fact that Rob Cudney of Northfield Capital owns 19.9% of CORE shares and he has been buying actively on the open market in recent months. Mr. Cudney (via Northfield) is likely to be a lead order on any upcoming private placement financing. Moreover, management and other insiders own roughly 20% of the outstanding shares and Osisko Mining holds another 12%.
So we have a tight share structure with strong insider buying and a deeply oversold stock with a market cap below C$5 million – what about the company’s projects? You might be surprised to learn that CORE has some highly prospective projects in one of the most prospective mining districts of Western Ontario (Hemlo). Canadian Orebodies is the largest claim holder in the Hemlo Greenstone Belt (310 square kilometers) and drilling at the company’s Smoke Lake Project recently discovered (June 2019) a near-surface high-grade structure in the SLGS (Smoke Lake Gold System) – hole BR-2019-013 contains 5.4 grams/tonne gold over 10.4 meters including 12.0 grams/tonne gold over 4.3 meters only 17 meters from surface.
CORE’s flagship Pic Project features a large low-grade gold system with a known strike length of 3,000 meters, as well as a high-grade quartz vein system over a strike length of 400 meters. CORE has been active on the property for three years, and each year regional exploration has led to the discovery of additional new areas of mineralization. The focus of exploration this year was on constraining the geological boundaries of the Wire Lake Gold System (WLGS), and the controls on higher grade mineralization to more efficiently target high-grade zones in the system. The company believes it was successful in doing so, and CORE is looking forward to testing this by drilling in 2020. In addition, CORE is awaiting final results from the regional prospecting program.
FWZ.V – Broadly poor markets for mining combined with some specific hostility towards zinc juniors has left the vast majority punished over the last year. That creates a target rich environment when looking at tax-loss bargains, but no zinc junior stands out more than Fireweed Zinc Ltd (TSX-V:FWZ) not just because of the deep value present, but because they announced game-changing drill results from a new zone just recently and the market hardly responded.
Fireweed’s Macmillan Pass project in Yukon, Canada, already boasted a massive resource, but the potential to integrate the new “Boundary Zone” in the west of the property could mean a complete rethink of the upper limit of what this project could achieve. With results like 100 meters of 7.94% Zinc drilled from surface (including 6.4 meters of 42.49% Zinc), it is easy to see why more people now have their eyes on the story, and all the more of an opportunity as tax loss sellers keep this share price depressed as we approach the end of the year.
FWZ shares are cheap and it’s rare to find the combination of top tier management combined with a top tier project at a barely more than C$20 million market cap. To put Fireweed’s C$22 million market cap into perspective, even after falling ~80% Cantex still has more than 2x the market cap of Fireweed. Moreover, Cantex’s North Rackla Project is not nearly as advanced and well defined as MacPass. One could also argue that MacPass is more accessible and permittable than North Rackla which could make a big difference as both companies advance their respective projects over the coming years.
While I think both Cantex and Fireweed offer attractive buying opportunities at current levels, I view Fireweed as a more conservative deep value opportunity while Cantex is more speculative and the assays that will be reported over the coming months could generate significant volatility in Cantex shares (both on the upside or the downside).
NRN.V – The second half of 2019 has not been kind to Northern Shield (TSX-V:NRN) shareholders as NRN shares been more than cut in half since their June highs:
NRN is exploring an epithermal gold project in Nova Scotia called the Shot Rock Gold Property. In addition, NRN acquired an epithermal gold project in Newfoundland called the Root & Cellar Gold Property. Both projects are being explored for epithermal gold mineralization and Northern Shield can earn up to an 80% interest in the Shot Rock and 100% in Root & Cellar.
After a promising NR on June 24th, 2019 which included the highest gold grades from rock samples reported to date, investors appear to have gradually lost patience with NR as the year progressed. I believe this loss of patience and subsequent tax loss selling offers an opportunity to accumulate NRN shares near major long term support between C$.04 and C$.05 per share. At Friday’s closing price NRN has a C$11 million market cap, a modest valuation for a company with two potential home-run epithermal gold projects. The NRN story could end up playing out very similar to another epithermal gold story, Westhaven Ventures (TSX-V:WHN), which had a similar market cap to NRN about 18 months ago just before the company made a major new discovery at its Shovelnose Project in southern British Columbia and saw its share price subsequently rally more than 10x in a matter of a few months:
WHN.V (April – December 2018)
With NRN on the verge of receiving its first set of drill permits for Shot Rock, the company is planning a 2,000 meter maiden drill program (roughly 7 holes) which will likely begin just after the New Year. This sets up considerable news flow at the beginning of 2020. In addition, NRN is arguably even more excited about its Root & Cellar Project in Newfoundland. In an NR dated October 10th, 2019 Northern Shield CEO Ian Bliss offered the following on Root & Cellar:
“The soil sample results at Drop Zone paint a compelling case of a series of three or four sub-parallel zones that could host further mineralization to that already exposed at the Drop Zone discovery,”
NRN Chairman Russell Richard has bought more than 1.5 million shares since August, clearly becoming a lot more interested in buying shares on the recent dip to the C$.05 area:
“Northern Shield is focusing on epithermal gold in the Canadian Maritimes, chiefly Nova Scotia and Newfoundland. Nova Scotia was never targeted for low sulphidation epithermal until NRN optioned the Shot Rock project from a local prospector who had found gold in float boulders in a riverbed that NRN management recognized epithermal textures in. While some NRN shareholders are frustrated with the “slow” pace, the company has made remarkable progress in one year. Shot Rock is now known to host extensive areas of silica cap and gold bearing quartz stockwork, both hallmarks of the top of a gold bearing epithermal system. The targets defined so far are quite large and the predominant trend remains open. NRN has applied for drill permits for Shot Rock that should be received in the next month or so. This is classic greenfield exploration of the type few juniors are willing to undertake anymore and its generated low sulphidation epithermal gold targets with large scale potential.
NRN picked up the Root and Cellar project on the Burin Peninsula in Newfoundland from another local prospector. Root and Cellar has already reported very high-grade gold, silver and copper values in surface grab samples across several showings. The gold silver values are hosted in low to medium sulphidation type veins while the copper may be a different deposit style that happens to be nearby. Mapping and soil sampling by NRN has expanded the showings and placed them in larger trends in areas of shallow soil cover but poor outcrop exposure. Northern Shield is awaiting trenching permits to exposed larger areas of subcrop and will probably follow up trending with drill permitting early in 2020. Some of the chemical affinities noted in the soil geochemistry point to the mineralized system possibly being Alkalic in origin, similar to some very large gold systems worldwide.
Early stage exploration is never low risk, but it’s impressive that NRN has uncovered two completely new mineralized systems that have large scale potential and high gold grades, basically starting from scratch just over a year ago. Investor impatience is normal, but Northern Shield remains a very high potential play for those willing to play the early stages of the exploration cycle.”
SYH.V – Considering how beaten down this sector has been, I felt that it would only be fitting to add one uranium exploration name to this list. Skyharbour Resources (TSX-V:SYH) fits the bill as the stock is down more than 50% year-to-date and Skyharbour CEO Jordan Trimble has been stepping up with some large open market purchases of stock – since the beginning of October insiders have purchased ~300,000 SYH shares on the open market:
The weakness in SYH shares in 2019 has as much to do with poor sentiment on the uranium sector as it does with anything else (the average uranium exploration stock is down 20%+ in 2019).
Other factors which have likely contributed to a poor 2019 for SYH:
- Funds dumping the entire uranium sector across the board due to the Section 232 Petition in the US not going the way they anticipated.
- Spot pricing for uranium has been soft since running into resistance near US$30/lb.
- Financing overhang (which will now lift as Skyharbour is about to announce that it has completed the C$1.2 million PP).
- Tax loss selling.
It looks to me that the uranium spot price (U3O8) has double-bottomed near US$24/lb and has begun to turn higher, recently closing above US$26/lb. This creates an attractive setup to bottom-fish high quality uranium explorers during tax loss silly season. Skyharbour fits the bill nicely and a 2,500 meter drill program at the company’s flagship Moore Uranium Project will target high-grade uranium in the basement rock along the Maverick corridor in Q1 2020. Skyharbour CEO Jordan Trimble offered the following comments on SYH’s upcoming drill program at Moore:
“We are keen to continue exploring and drilling our flagship Moore Uranium Project as we have recently discovered new high grade uranium mineralization in the underlying basement rock along the Maverick corridor, and have made new regional discoveries requiring follow up work. I have personally been buying more shares of the Company in the market recently. We are well positioned to benefit from an improving uranium market with strong discovery potential and ample upcoming news flow from our drilling at Moore, as well as recently announced and upcoming exploration programs from our partner companies’ Orano Canada Inc. and Azincourt Energy.”
SYH shares are cheap and the uranium sector is broadly disliked by investors, this combination of factors makes SYH a compelling contrarian buying proposition during the 2019 tax loss silly season.
Disclosure: The author of this article owns shares in ATC.V, CD.V, CORE.V, FWZ.V, NRN.V, SYH.V , and WHN.V at the time of publishing and may choose to buy or sell at any time without notice.
The article is for informational purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. Readers of the article are expressly cautioned to seek the advice of a registered investment advisor and other professional advisors, as applicable, regarding the appropriateness of investing in any securities or any investment strategies, including those discussed above. Skyharbour Resources Ltd. is a high-risk venture stock and not suitable for most investors. Consult Skyharbour Resources Ltd.’s SEDAR profile for important risk disclosures.
EnergyandGold has been compensated for marketing & promotional services by Skyharbour Resources Ltd. so some of EnergyandGold.com’s coverage could be biased. EnergyandGold.com, EnergyandGold Publishing LTD, its writers and principals are not registered investment advisors and advice you to do your own due diligence with a licensed investment advisor prior to making any investment decisions.
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