A Stock Primed for a Surge in the Copper and Gold Markets
By June 17, 2019– Published on
TSX: AUG NYSE-A: AUG
Remember my acronym for investment success:
Cambridge House – Small Cap Spotlight
Auryn Resources (AUG)
Some of you may recall from my previous articles that the people behind a company are what initially get me to open my chequebook.
Winning creates a rush of dopamine in your brain – a natural high.
The serial winners that chase that rush become the outliers that deliver stellar returns for both themselves and investors.
This is exactly why I’m excited by this management team –it has serial winners with a track record of success. And I know they’re hungry for more…
Ivan Bebek, Executive Chairman & Director
Of the new mining moguls in-the-making, Ivan Bebek is one of the best and brightest.
Still in his early 40's, you’d be forgiven for thinking Ivan is a young gun in the traditional mining industry. But Ivan’s got a track record that would make most other executives with a decade or two on him green with envy.
A decade and a half ago, Ivan and Shawn (President & CEO of Auryn) co-founded Keegan Resources (now known as Galiano Gold) and they discovered 5 million ounces of gold.
Shares went from $0.49 to over $9 in 2008-2011 during the discovery phase.
Galiano not only survived the same financial crisis that dealt a deathblow to countless other junior mining companies, but thrived, going from a junior explorer to full blown producer in the years following the crisis.
Galiano’s mine (now co-owned with Goldfields) is on track to produce 250,000 ounces of gold this year.
Ivan and Shawn’s next deal was Cayden Resources. Founded in 2010, the company would eventually be acquired in 2014 by Agnico Eagle Mines for $205 million, $3.58 per share – and if you held the Agnico shares after the transaction, they would have doubled 14 months later.
Both companies brought early investors 500%+ returns.
And both deals were completed before Ivan even turned 40.
With his past performances, and now Auryn, Ivan has placed himself at the forefront to become one of the next resource industry superstars like Ross Beaty and Robert Friedland.
Shawn Wallace, President & CEO
The other half of the dynamic duo, Shawn Wallace, also relatively young at 50, brings 32 years of relevant experience to the team. He cut his teeth at the famed Hunter Dickinson group and in 1989 began work at the Mt. Milligan project (subsequently taken over by Placer Dome).
By the time Ivan and Shawn co-founded Keegan, Shawn had already worked in almost all capacities in the junior mining space.
He has exposure to a huge variety of operational scenarios, advanced financially, and executed successfully under all market conditions imaginable.
His experience perfectly complements Ivan and his massive ambitions.
Michael Henrichsen, Chief Geologist & COO
Formerly the global structural geologist at Newmont, Michael has extensive experience in South America and Canada, where Auryn’s projects are located.
Michael is a strong choice to head Auryn’s operations on the ground as he takes exploration to the level of quality and scale that you would see in a major.
He’s assembled many of his former Newmont colleagues, all global experts with different technical disciplines and created a technical team unparalleled amongst juniors.
Russell Starr, SVP of Corporate Finance
Russell Starr joined Ivan and Shawn during the Cayden days and has been an integral partner in the group. He brings a wealth of experience from working for global investment banks and independent boutique investment dealers to the table.
Russell’s involvement on the banking side of the business has complemented and strengthened Auryn’s market presence and the group’s ability to raise capital and monetize discovery success.
Let’s look at the structure of Auryn to see what kind of shareholder base is behind the curtain.
It’s rare to see a list of insider filings where insider transactions are all buys. At Auryn, the management team and insiders are putting their money behind this company.
Auryn recently set out to raise $10M - but due to a surging demand for the offering, they closed the private placement at $15M, and many legendary financiers jumped on board again.
For a junior mining company like Auryn, the most important resource is cash – as well as the ability to raise it.
This is definitely not a problem for Auryn. The company closed a hot, oversubscribed $15 million private placement as the COVID pandemic began to grow.
Many other juniors were not that fortunate.
Many companies have had to reprice their private placements, or add in extra kickers, like full warrants or metal upside entitlement certificates.
Despite all of these efforts to entice investors, many have had their raises fall through and are now in a cash crunch.
Auryn has enough cash to weather the storm and global shutdowns.
Ivan has stated that they have up to three years of runway with the flexibility to reduce their burn rate should long-term shutdowns become a factor.
Ivan and his team are one of the most strategic finance planners in the business.
And Auryn can count some serious big-timers amongst their shareholders – names like Ross Beaty, Rob Sali, Marin Katusa, and Newmont (through its acquisition of Goldcorp) all have money invested.
With those kinds of names on board, the Auryn team will have no trouble drumming up additional cash when necessary – and that won’t be anytime soon.
With their fresh $15 million, they’re geared up to put drills in the ground as soon as COVID-19 restrictions relax and they can complete their final phase of permitting.
A strong management team is fine and all, but don’t think for a second that luminaries like the ones named above would’ve jumped on board if that was all Auryn had.
In addition to the names behind the company, Auryn also owns projects in safe, mining-friendly jurisdictions with tier-one potential. The combination of these projects, together with the management team developing them, are what truly make Auryn stand out from the pack.
These assets can be broken down into three tier-one exploration opportunities, each with the potential to yield world-class discoveries.
Flagship Project #1 – Sombrero
Sombrero is a massive 130,000-hectare copper-gold land package that has turned out to be the western extension of the Andahuaylas-Yauri porphyry and skarn copper belt of southern Peru.
As a first mover, Auryn screened 7,000 square kilometers to cherry-pick the most prospective land in the region. Since they’ve been there, major mining companies like Rio Tinto, Sumitomo and Freeport-McMoran have started to stake land around their claims.
Though very little historical work has been done at Sombrero, the project has geology and characteristics similar to both the Las Bambas and Tintaya skarn deposits, both considered world-class mines.
By being first movers on the western extension a world-class copper belt, Auryn believes it has the opportunity to find multiple deposits in this under-explored region of Peru.
Only eight holes have been drilled on the project by a previous explorer looking for iron in a small area of approximately 400 by 150 meters.
Due to increasing copper content at depth, they stopped drilling, as copper is considered an impurity for iron production.
Auryn re-assayed the historical core and discovered that all the historical drilling intercepted copper and gold, with one-hole intersecting 116 meters of 0.58% copper equivalent.
This is considered an encouraging hole and gives Auryn a great deal of confidence in terms of discovering other large bodies of mineralization.
They now have the ‘mineralized fingerprint’ that is very similar to the large-scale, multi-kilometer-long targets they plan to drill.
The historical drilling is also very significant because they provide the first look into the third dimension of the project – and confirm the potential of a system at depth.
We’ll be looking for Auryn to replicate that same interval length and grade throughout this target area - a realistic goal, given the continuous surface sampling results, as well as the magnetics and chargeability over the area.
It’s all pointing to something significant.
But this is just one target – and with such a large land package, Auryn has identified three additional large-scale targets within 12 kilometers of their initial drill program area.
Two of these targets, Nioc and Good Lucky, outcrop on surface and are characterized by high-grade copper and gold. The Huachana target is buried under thin volcanic cover.
Together, they represent a cluster of mineralized intrusives similar in scale to what is found at the Las Bambas mine, the 10th largest copper producer in the world.
These targets need to be drilled for discovery, but early exploration results have Auryn very excited by the prospects.
The Good Lucky target is worth looking at in detail as it shows the vertical extent of these mineralized intrusives and their potential at depth. The target includes a cliff that provides a cross-section of the mineralized body that extends 400 meters vertically.
Sampling results include up to 5.12g/t gold and 4.29% copper on surface and there are historical mining adits into the cliff. Good Lucky represents a small portion of a much larger magnetic anomaly (2 km x 1 km), and is a target that Auryn plans on drilling.
Usually, exploration companies only have access to the surface of a project until putting drills in the ground, but Auryn is exceptionally fortunate, not just with large scale targets on surface, but with a free look at the potential third dimension.
With success of finding clusters of targets in the north of the Sombrero district, Auryn continued to screen ground, and has recently found the highest copper values in stream sediments from across the whole Sombrero district.
That area is called Macha Machay. It was staked in 2019 and has the potential to deliver another set of mineralized targets.
Here are the stream sediment survey results at Macha Machay:
The surrounding infrastructure is excellent, with roads, power lines and two towns nearby.
Despite all of its potential, it’s important to keep in mind that Sombrero is still an extremely early-stage exploration project. Auryn hasn’t even drilled the project themselves yet. But while a drill still has to confirm whether the high-grades on surface extend to depth, brand new discoveries, like what Sombrero may represent, are often the most rewarding for shareholders.
It’s reasonable to expect a long line of interested buyers if Auryn begins to put out strong drill results. The majors will be watching too…
Currently in the last stage of permitting to drill their first target, Sombrero Main / Fierrazo where the historical drill holes are located, Auryn expects to drill in Q4 of 2020.
And while the COVID lockdown has caused some delays, in the long-run, it could actually move the ball way down the field.
This early stage project might find its progress advancing quicker than expected as the Peruvian government looks to kickstart their economy in the wake of the pandemic.
The world needs to keep up with the demand for copper going forward. This could be the large, high-grade copper deposit that helps fill in the gap.
Speculators looking for a potential big return must have Auryn on their watch list.
Flagship #2 – The Canadian Assets
The second exploration opportunity to look at is comprised of the two assets that Auryn has in Canada.
Project Number One:
Committee Bay is in elephant country for high grade Canadian gold projects. It’s a 300-km greenstone belt, located in Nunavut, and has high-grade gold sampled in rocks and drill core from targets across the belt.
The challenge has been the ground cover, 95% of the rocks are covered by 5-40 meters of dirt or glacial till.
Auryn has put $60 million into the ground at Committee Bay, with a group of world experts, in an effort to make multi-million-ounce high-grade discoveries.
When you include total historical exploration and infrastructure spending, the total investment into the project is around $160 million.
That’s A LOT of data with no major discovery yet, but at Cambridge we think they are getting close.
Select drill results from Committee Bay Gold Project: Intercepts were calculated using a minimum of a 0.25 g/t Au cut off at beginning and end of the intercept and allowing for no more than six consecutive meters of less than 0.25 g/t Au. Minimum length of the composite intercept allowed was one meter.
So what do you do with all that data? You do what Auryn did and feed it to a machine.
Auryn introduced a proprietary machine learning technology to process the vast amounts of data from the project and to ultimately generate new drill targets that are based off of signatures from Committee Bay’s existing resource.
The Three Bluffs deposit has over a million ounces of high-grade gold indicated and inferred at approximately 7.7 grams per tonne.
While a one-million-ounce deposit is a good start, more is needed to create an economical mine in Northern Canada and Auryn is not looking to just be ‘good’. They are working to find five-million-ounce-plus deposits, or bigger, and suggest their targeting is leading towards that possibility.
And they’re in the right area for it – just look at Agnico Eagle’s nearby Meliadine and Amaruq mines.
Project Number Two:
Homestake Ridge is another high-grade gold project, this time in British Columbia’s sought after ‘Golden Triangle’. It was picked up by Auryn for $8.9 million in 2016.
A resource estimate based on drilling from the previous owner was released in 2017, but Auryn has since expanded upon that with the unlocking the metallurgy which resulted in a recently released a PEA that included an updated resource estimate.
Homestake Ridge Mineral Resource by Zone:
The PEA also indicated the net present value of the project (after-tax) to be US$173 million with a US$1,620 gold price…and gold is now inching closer to US$1,750. More details of the PEA can be found in the company’s April 15th news release.
Since putting out the PEA, Ivan has recently discussed the possibility of further drilling at Homestake Ridge.
Both Canadian projects represent world-class exploration opportunities and value in prolific gold regions. They’re solid prospects that could individually serve as the flagship project of any other junior mining company.
And that’s the key.
Exploration Opportunity #3 – Curibaya
Auryn’s Curibaya project is located at the southern tip of Peru.
Curibaya is an early-stage silver-gold exploration project sitting on the border of a copper porphyry belt that hosts world-class mines like Cerro Verde and Cuajone, and an epithermal gold belt, with projects like Buenaventura’s Chucapaca mine.
What has investors so excited about Curibaya? Auryn’s initial sampling programs have yielded values up to 9,180 g/t silver, 42.6 g/t gold, and 6.97% copper.
These samples are taken from individual veins spread out over a 4 x 4 kilometer alteration system. Auryn’s team is now working on the targeting process to identify areas where a critical density of these veins exists at the margins of volcanic domes. Curibaya has never been drilled and the metal endowment over a large alteration system provides Auryn with a low sulphidation precious metal discovery opportunity.
2020 Gold Sampling Results:
2020 Silver Sampling Results:
As I mentioned previously, with its combined assets, you can think of Auryn as three distinct opportunities for quantum success comprised of:
- Sombrero, the flagship Peruvian project,
- The Canadian assets Committee Bay and Homestake Ridge, and
- The Peruvian lottery ticket Curibaya.
Now, why am I breaking it down like this?
When a project looks as promising as the Sombrero project, which is my favorite of Auryn’s three, it’s easier to attract interest from a major when it’s the only asset in the company.
That’s why I think it’s highly likely that Auryn’s management team will sell off, or spin out, one or multiple assets. If it’s the latter, investors would get a windfall – free shares in each new company.
Setting aside how Auryn will handle splitting up their assets, where will they go from here from an operations standpoint?
The Peruvian projects are my focus here as they both contain the potential for world-class copper deposits, with added precious metal components, which the global copper market will sorely need if it wants to keep up with future demand.
For the upcoming year, Auryn will be focusing on its drill programs in Peru – and given all the operating mines around where the projects are located, both Peruvian assets could draw serious attention if they hit good holes.
If so, there’s a good chance that Auryn spins out the Canadian assets into a separate junior gold company, which would mean additional shares for investors which would help unlock value that may be hidden when all the assets are in the one basket.
It would be the smartest way to fully realize the potential of all of Auryn’s assets for investors.
(I) Investors / Investments
Auryn has about 104 million shares out, which is reasonable for a junior its size.
Especially when you consider that management, insiders and friendly investors own approximately 35% of the company.
Ivan himself owns nearly 5 million shares, which is some serious skin in the game, and something I like to see. His average cost base for roughly 5 million shares is $1.25 CAD, and that includes his founder shares.
And don’t forget – Auryn counts amongst its shareholders names like Ross Beaty, Rob Sali, and Marin Katusa.
They’ve even already attracted the interest of former major Goldcorp, who acquired 12.5% of the company back in 2017 before Goldcorp was later acquired by Newmont.
In other words, 46%, or almost half of the company’s shares, are closely held. Of the remainder, another 17% is held by institutional investors.
So, Auryn has a much more solid share structure than it may appear at first glance.
This past February, Auryn closed an oversubscribed private placement for $15 million at $1.60 per share. The financing was originally slated to only be for $10 million, but the extra interest allowed Auryn to place a second allotment for the additional $5 million.
A large portion of the float is locked up by management, insiders and institutions. That’s exactly what you want to see.
The biggest catalyst currently in play for Auryn is their 2020 drill program.
Management plans to use the bulk of the recently raised $15 million in capital to fund drill programs at Sombrero and Curibaya.
The big triggers that could come into play in 2020 are:
- The potential spin-out of assets into separately traded companies,
- Major discoveries in Peru, and
- Interest from a major.
These are all on the table if we can see some strong intercepts.
I’m confident that Ivan and Shawn have built the right team to get us the results we want to see.
After all, they’ve done it before – twice. And that was before they had the track record and connections they have now.
Delivering returns in the multiples to shareholders is the easiest way to open doors to interested capital. Ivan and Shawn will have no shortage of cash to drill with.
And with the sheer size of the land packages and number of attractive targets at Sombrero and Curibaya, there’ll be plenty of drilling, which means plenty of news flow – and plenty of catalysts for the share price – in the months to come.
CEO - Cambridge House International