SmallCapInvestor
- Nov 18, 2020
- 6 min read

Drill Spec in the Blackwater Neighbourhood - Independence Gold (TSXV:IGO)

I was first introduced to IGO a few months ago before the company had began its 2020 drill program at the 3T’s project. At that time, the stock was trading for around $0.15 and I was unsure about whether or not the drill program would be successful. Fast-forward to today… the company has released FOUR out of a total TEN holes from the 3T’s drill program which all intersected mineralization of significant grades over wide intervals…. yet the stock is still trading for $0.15. Although, I am not too surprised to see the market’s relatively mute reaction to the news, considering the lack of promotion the company has done. The focus has been on getting results from the drills, which I do like to see. I think the lack of response to these great results is presenting a great opportunity for new investors to get in on the action before the other six drill holes are released.

I won't lie.... it takes a lot for me to bite on a junior mining stock without the AugustaGroup 'stamp of approval', but I am willing to make an exception in the case of IGO, mostly because of Randy Turner's integrity and track record in addition to the quality of the 3T's asset.

Before taking a swing at this, I suggest everyone read up on the full story in order to understand what is at stake but MORE IMPORTANTLY to understand the risks. While there is a value cushion of ~600k ounces at 3T's, this is not really enough for a standalone mine, so it is essentially a leveraged bet on the drills.

HIGHLIGHTS

Multiple Properties
Proximity to Blackwater (Owned by ARTG)
Heavily Undervalued (~$18/Oz Au)
Promising Drill Results from 3T’s Project (4/10 holes completed; SIX REMAINING).

Independence Gold’s operates in two different provinces within Canadian borders: BC and the Yukon Territories. There are three projects in BC: 3T’s (our favourite), Merit, and Nicoamen; and there are two projects in the Yukon: Boulevard and Moosehorn. Given that the drilling season in the Yukon is so short (due to cold weather), it is nice to see that the company has projects in BC for which the drill season lasts a little longer. The company’s portfolio of projects is diversified, consisting of early stage grassroots exploration to advanced-stage resource expansion projects. To put things bluntly, in my opinion, the blue sky potential for IGO lies within the 3T’s project, considering its proximity to the Blackwater gold project; forget about the other projects.

THE 3T’S PROJECT

The 3T’s project is located just 20km away from the Blackwater Project, owned by Artemis Gold (‘ARTG’). ARTG purchased Blackwater from New Gold in mid-2020 for over $200 million. The project has over 9 million ounces and some juicy economics to go with it. ARTG now trades at an $800 million market cap while the market cap of IGO sits at a mere ~$11 million. While the blue sky potential for the 3T’s project lies in the drills, it is nice to know that there is already an NI 43-101 compliant resource containing 441,000 ounces of gold and 12,540,000 ounces of silver; this is 619,200 ounces of gold equivalent at an average grade of ~2.5 g/t. This would imply an EV/ounce multiple of around $18/oz. It may not be enough to justify a large-scale mine build, but it is nice to have a value cushion and an existing resource to build upon.

RECENT DRILL RESULTS

On October 15th, IGO released results from the first two drill holes from the 10-hole drill program at the 3T’s project. The mineralization was pretty good, but the length of the intersections was not as long as I was expecting to see. The length is important because the mineralization could just be a tiny little vein that does not extend anywhere else on the property. These were decent results; the important thing is that they were not dusters. After the release, the stock rose from $0.14 to $0.15.

On November 10th, IGO released another two drill holes from the 3T’s drill program. This time, the grades were just as good, but more importantly, the length of the intersections was much larger. 67.6 meters of 3.63 g/t is a fantastic drill intersection. The markets reaction was not so dull this time as the stock opened at $0.20, up from the previous close of $0.13. However, the market seems to have come back to reality as the stock now trades for $0.15. To be honest, if you showed me that drill result a month ago and asked me to guess the price of IGO, I would have guessed al ot higher than $0.15. The fact that it is still trading here despite the positive results is not something I can explain… it doesn’t make sense. Especially considering that the company has only completed FOUR out of TEN of the total drill holes; there is more to come.

Another point to note here is the silver credits, which are not to be overlooked, and will ultimately be beneficial to the economics of the deposit. The table above shows the recent drill intersections converted into gold equivalent values. We see the 67.6 meters drill intersection was actually closer to 5.36 g/t Au Equivalent using today’s gold and silver prices. The silver credits clearly make a difference to the gold equivalent g/t values, especially for values above 100 g/t silver.

MANAGEMENT TEAM

IGO has a strong management team with mining-industry legend, Randy Turner, in the driver’s seat. Randy Turner has quiet the resume. In 2000, he sold his Winspear Diamonds to DeBeers for $305M. In 2011, he sold SilverQuest to New Gold, to consolidate ownership of the Blackwater Gold Project. Blackwater is now owned by Artemis Gold ($ARTG) which has a market cap of $700M. So... one home-run in 2000, another home-run in 2011, and now he is back on the horse with Independence Gold. Not only that, but Randy knows the area like the back of his hand. Randy was the one actually responisble for the discovery of the Blackwater project via SilverQuest Mining. Not many know this.

While he has had a long history of success in mining, he does not seem to be overly promotional. In terms of strategic shareholders, there is Newmont Corporation (initial investment made by Goldcorp) as well as New Gold ($1.7B market cap; previous owner of Blackwater). Newmont Mining and New Gold are both major mining companies. They are not interested in IGO for the established 620k ounce resource. Clearly they feel that there is more discovery potential in the area and are using IGO as a prospect generator in hopes of adding another big project to their pipeline.

CAPITAL STRUCTURE

Looking at the last financing, we were relieved to see that the amount raised was quite minimal. Just enough to finance the current drill program. It seems IGO wanted to raise as little money as possible, which is good to see, considering the financing occurred at a low price and would have been highly dilutive, if larger. It was a commendable move on the part of managements to finance the current drill program without diluting the capital structure too heavily. Considering the small, tightly held float (under 70 million), the stock should rise quickly if these next few reported holes are successful, at which point the company should be able to raise money again at higher prices.

DILUTION + LIQUIDITY RISK

The most obvious drawback with IGO is the inevitable dilution risk. The last raise they did was only $1M, just enough to cover the 2500 metre drill program. While I do like to see this "take only what is needed" financing approach as it avoids necessary dilution, they will undoubtedly need to do another financing after this drill program in order to continue exploring 3T’s in years beyond 2020. I would imagine they would like to get the stock up to higher prices before doing so, as to avoid diluting too heavily, which the next set of results may help with.

It is also important to be aware of the illiquid nature of the stock. Although the volume has been picking up in recent days, the average daily volume on the stock for the last few months is just 175k shares (~$25,000/day).

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