Multiple Companies Announce Upcoming Catalysts · TSX: GCM $5.15 $6.63 Oct-7-2019 ... GCM had beat...

Analysts' Ideas of the Week Multiple Companies Announce Upcoming Catalysts

October 7, 2019

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Mining / Exploration

Company Name: Ticker Symbol Current Share

Price:

FRC Fair Value

Estimate:

Date of PR:

Premier Gold

Mines Limited

TSX: PG $1.88 $3.35 Oct-2-2019

Oct-3-2019

PR Content

An updated resource estimate on the

Hardrock deposit in Ontario (50/50

partnership between Premier and Centerra

Gold Inc / TSX:CG) showed measured and

indicated resources of 7.11 Moz (1.50 gpt), a

11% increase from the previous 2016

estimate. Inferred resources are 3.10 Moz

(3.77 gpt), up 25%. The resource included a

measured and indicated resource of 5.87 Moz

(open-pit potential).

FRC Opinion

Positive – This increase further enhances

Hardrock’s already attractive economics as

suggested in a Feasibility Study, which showed

an After Tax – Net Present Value (“AT-NPV) at

5% of C$709 million at US$1,250 per oz gold.

Centerra is committed to spend approximately

C$185 million to earn a 50% interest in the

project, of which, we estimate approximately

C$80 - C$85 million has been spent to date.

Premier’s Q3 results are likely to be released in

November. In our last week’s report, we had

mentioned how Premier is ramping up

production at its 40% owned South Arturo mine.

Based on gold sales (from two mines) of 77 Koz

and silver sales of 237,500 oz in 2019, we

estimate 2019 revenues of US$108 million.




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Price:

FRC Fair Value

Estimate:

Date of PR:

Gran Colombia

Gold Corp.

TSX: GCM $5.15 $6.63 Oct-7-2019

PR Content

Announced further details of a previously

announced plans to spin-out one of its

producing mines (Marmato) into a separate

listed vehicle, while maintaining a major

stake in the new company. GCM has entered

into a LOI with Bluenose Gold Corp. (TSXV:

BN.H) to pursue this transaction. GCM is

likely to also invest $5 million in BN. In

addition, BN will pursue a $10 - $15 million

equity financing. In total, upon completing all

of the above, BN will likely have 47 million

outstanding shares, of which, GCM will own

31 million (67% of the total / 73% prior to

equity financings), investors of the new equity

financing ($10 million) will own 5 million,

and the existing shareholders of BN will own

11 million shares. The current management of

GCM will take over management of BN. We

are also expecting an update on the spin-off

transaction associated with its Venezuelan

assets, announced in September.

FRC Opinion

Neutral – The deal valued Marmato at C$57.5

million. In our most recent update report

(August 2019), we valued Marmato at C$100.2

million. Although we would have liked to see a

higher valuation assigned to Marmato, we

believe the deal is not unreasonable for GCM

considering that Marmato will require

significant funding to expand operations and

fully develop its resource (3.84 Moz M&I plus

4.19 Moz inferred at the end of 2018). The spin-

off will isolate the impact of any future

financings on GCM’s existing capital structure /

balance sheet. We expect Q3 results to be

released in November. GCM had beat our

expectations in Q2 when it reported a 13% YoY

increase in revenues to US$78 million. EBITDA

was up 27% YoY to US$33 million. Our 2019

production forecast (Segovia + Marmato) is 235

Koz, with a net profit forecast of US$39 million

(EPS: US$0.80).




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Price:

FRC Fair Value

Estimate:

Date of PR:

Lumina Gold

Corp.

TSXV: LUM $0.58 $0.93 Oct-2-2019

PR Content

Announced results of the final eight holes of a

resource expansion / upgrade drill program in

Ecuador. The results included seven holes

from Gran Bestia, which is located just 1 km

west of the current resource. Best results

were:

• 537 m of 0.56 g/t gold and 0.10% copper

(595 m of mineralization over 705 m)


(562 m of mineralization over 610 m); 92

m of 0.92 g/t gold and 0.06% copper

from 36 m deep


(577 m of mineralization over 675 m)

FRC Opinion

Positive - These final set of holes continued to

confirm Gran Bestia’s potential to be an

attractive satellite deposit. The company expects

to complete a maiden resource at Gran Bestia,

and upgrade / expand the inferred resource of

the Cangrejos deposit by November 2019. The

existing resource estimate is inferred of 8.5 Moz

gold (0.65 gpt) and 1.03 Blbs copper (0.11%) –

making Cangrejos one of the largest

undeveloped gold deposits held by a junior

globally. Note that a 2018 PEA showed an AT-

NPV at 5% of US$920 million at US$1,300 per

oz gold, and US$528 million at US$1,170 per oz

gold. The current Enterprise Value (“EV”) of

Lumina is just C$173 million.


Price:

FRC Fair Value

Estimate:

Date of PR:

Corvus Gold Inc. TSX: KOR $2.02 $3.75 Oct-2-2019

PR Content

Entered into an agreement with BMO Capital

Markets for a bought deal financing of $20

million at C$2 per share.

FRC Opinion

Positive – This is a positive sign considering

that we are expecting an updated resource

estimate in early 2020 on the Mother Lode

project. Drilling since the previous resource has

not only extended mineralization (primarily

towards the north and west of the existing

deposit), but also indicated potential for a deeper

sedimentary hosted deposit. The updated

resource will likely result in a significant

improvement in the already robust economics

displayed by a PEA completed in 2018. Corvus’

neighboring properties, which are held by Coeur

Mining (NYSE: CDE), AngloGold Ashanti

(JSE: ANG), and Kinross Gold (NYSE: KGC),

are undergoing active exploration.




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Price:

FRC Fair Value

Estimate:

Date of PR:

Avrupa Minerals

Ltd.

TSXV: AVU $0.03 $0.20 Oct-1-2019

PR Content

Signed a LOI with a private Spanish miner,

MATSA, to form a joint venture on AVU’s

Alvalade copper-zinc massive sulfide project

in Portugal. MATSA is a 50:50 JV company

of Mubadala Investment Company (a UAE

state-owned holding company) and Trafigura

(a global commodity trading company).

MATSA can earn a 51% interest by paying

AVU C$0.58 million, and C$0.15 million per

year in operating fees, and spending C$3.5

million in exploration over a three year

period. MATSA can increase ownership to

85% by fully funding a bankable feasibility

study. AVU will then have the option to

participate as a 15% owner or sell its interest

for C$14.5 million for staged payments.

FRC Opinion

Positive – We were pleased to see this major

vote of confidence from two reputable global

firms. Alvalade is located in the Iberian Pyrite

Belt - one of world's largest copper-zinc-iron

massive sulfide belts. Lundin Mining’s (TSX:

LUN) Neves – Corvo copper-zinc mine is

approximately 70 km from the Alvalade license.

Antofagasta / LSE: ANTO had previously

funded US$7.65 million on exploration during

2012 – 2015. This deal also allows AVU to

channel its capital to other projects in its

portfolio. Note that AVU is the only TSXV

listed prospect / project generator (“PG”)

exclusively focused on Europe.


Price:

FRC Fair Value

Estimate:

Date of PR:

Guyana

Goldstrike Inc.

TSXV: GYA $0.075 $0.33 Oct-3-2019

Oct-4-2019

PR Content

Chip-channel assay results from the Marudi

gold project at the Mazoa Hill zone returned

values of up to 47.6 g/t Au across 3 m, within

9 m of 21.2 g/t Au. The company is planning

a drill program (up to 2,500 m) at a recently

discovered Toucan Ridge zone and other

targeted areas identified by geophysics,

trenching and outcrops.

FRC Opinion

Neutral - Toucan Ridge is located in between

two previously identified zones, Mazoa Hill and

Marudi North. Mazoa Hill has an initial NI 43-

101 resource estimate of 270 Koz indicated and

88 Koz inferred. Previous trenching at Toucan

Ridge has returned good intercepts, including

44.5 m of 1.22 gpt, 19.8 m of 1.87 gpt, 18.9 m of

1.22 gpt, and another 18.9 m of 2.03 gpt. Barrick

Gold (TSX: ABX) recently formed a 50:50 joint

venture on Reunion Gold Corporation’s (TSXV:

RGD) early stage (pre-resource) properties in

Guyana, which we believe is an encouraging

sign for smaller juniors such as GYA.




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Technology


Price:

FRC Fair Value

Estimate:

Date of PR:

iSignthis Ltd. ASX: ISX A$1.07 A$1.30 October 2, 2019

October 7, 2019

PR Content

Announced that actual annualized GPTV in

September 30, 2019 was A$1.9 billion, up

360% from June 30, 2019.

Announced that shares of the company have

been suspended for trading by the Australian

Securities Exchange (“ASX”). Subsequent to

this announcement, the company provided an

update on the suspension, as follows: “… can

confirm to shareholders that the reason the

Company was suspended from trading on 2

October 2019 under ASX Listing Rule 17.3

was due to share price volatility over recent

months”.

FRC Opinion

Positive – This implies that the total GPTV in

September 2019 was A$158.33 million (A$1.9

billion divided by 12), a 72.72% increase over

the total GPTV in August 2019 of A$91.67

million (A$1.1 billion divided by 12). As stated

in our previous notes, it seems like the company

will beat our 2019 revenue forecast of A$34

million. The company is expected to report its

quarterly results in the coming weeks, to which

we will revisit our valuation on the company and

adjust projections accordingly.

Neutral – Although we are not in a position to

speculate on the outcome, we have so far not

seen any red flags. We will closely monitor the

company for updates and provide our opinion

accordingly.

Update on Coverage:

1. Terminating coverage on Newgioco Group, Inc. (OTCPK: NWGI) upon completing a

term of coverage.

2. Suspending coverage on The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) due

to lack of communication from management.




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Cannabis

Going forward, we will start providing commentary on sentiment of the cannabis market. As

such, we will use the Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ / “HMMJ”) as

a proxy for sentiment of the cannabis market. HMMJ is an exchange-traded fund (“ETF”) that

seeks to replicate the performance of the North American Marijuana Index (“NAMI”). Shown

below is the performance of HMMJ.

Horizons Marijuana Life Sciences Index ETF

Source: Google

HMMJ posted a week-over-week return of 1.43%. Year-to-date (“YTD”), HMMJ lost 20.33% in

value. Currently, HMMJ is trading at $11.83; 3.23% over its 52-week low of $11.45. Cannabis

market sentiment has been poor, largely due to a public health crisis regarding vaping and

electronic cigarettes (“e-cigarettes”). A mysterious lung disease linked to vaping first surfaced in

April 2019. Vaping refers to inhaling vapor created by an e-cigarette or other vaping devices.

These devices are battery-powered and have cartridges filled with a liquid that can contain

nicotine, flavourings and chemicals. The first death was reported on August 23, 2019, in Illinois,

and as of October 1, 2019, there have been more than 1,080 cases of vaping-related lung

illnesses. Concerns over the safety of vaping products for cannabis has caused a drag on the

overall sentiment of the cannabis market.

With Canada set to legalize cannabis edibles in the coming weeks (with products expected to hit

shelves mid-December 2019), we believe this may improve sentiment of the cannabis market if

demand for cannabis edibles by Canadians are high. As stated in previous AIWs, cannabis use

nationwide in Canada has dropped from 17.5% in Q1-2019, to 16.1% in Q2-2019. We expect

this to increase as cannabis edibles become readily available to consumers. With Aphria Inc.




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(TSX: APHA) expected to report earnings on October 15, 2019, investors will be able to gain a

clearer picture of the Canadian cannabis market.

The following chart shows the valuation multiples of select Canadian Licensed Producers

(“LP”).

Valuation Multiples of Select Canadian LPs

Source: FRC, S&P Capital IQ

The average TEV/Revenue, as of October 7, 2019, was 24.71x. As a number of companies are

not EBITDA positive, we have refrained from taking the average TEV/EBITDA as we believe it

does not currently offer much insight. In subsequent weeks, as we gather more data on the

companies above, we will provide commentary regarding the week-over-week change in

valuation multiples that Canadian LPs are trading at. As of this week, we do not have a reference

week to base comparisons on.

CannTrust Holdings Inc. (“CannTrust”) is currently trading at a huge TEV/Revenue discount to

its peers. This is primarily due to the fact that the company recently had its cannabis licenses

revoked by Health Canada. As a result, this stripped CannTrust of its ability to sell and grow

cannabis. There have been headlines that the assets of CannTrust may be acquired by other

companies. However, we believe that potential buyers may be reluctant to purchase the assets of

CannTrust due to uncertainty on how Health Canada may handle the situation. For example, it is

plausible that Health Canada could ban CannTrust from being able to sell its assets to an

interested buyer(s).




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The following summarizes provincial cannabis pricing across Canada as of October 7, 2019:

Source: FRC, Online Provincial Cannabis Store

Average price per gram decreased nominally nationwide from $12.04 to $11.93 – a 0.90% week-

over-week decrease. The nationwide cannabis price decrease was primarily driven by cannabis

price decreases in Ontario, Alberta, New Brunswick and Yukon. This was slightly offset by

cannabis price increases in British Columbia and Nunavut.

British Columbia (“B.C.”)

Average price per gram increased nominally from $11.00 to $11.07 – a 0.62% week-over-week

increase. The minimum and maximum price remained the same, with the number of available

cannabis products increasing nominally from 116 to 123. British Columbia’s cannabis pricing

change is in-line with our expectations.

In our AIW last week, we outlined that a highly established black market for cannabis has

resulted in poor retail sales of cannabis in B.C. (compared to other provinces). On October 1,

2019, the Georgia Straight (a news website) reported that the B.C. Royal Canadian Mounted

Police (“RCMP”) has cracked down on an illegal cannabis facility in southern B.C. Such actions

taken by the B.C. RCMP falls in-line with our statement that the province of B.C. has begun a

stronger crackdown on illegal cannabis operations. Given the need to displace the black market

for cannabis in B.C., we do not anticipate pricing of cannabis to increase materially in the short

or medium-term.




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Ontario

Average price per gram decreased from $12.25 to $12.08 – a 1.34% week-over-week decrease.

The minimum price decreased from $7.50 to $5.59, while the maximum price remaining the

same. The number of available cannabis producers increased nominally from 116 to 120. We

were unable to find relevant news that contributed to the week-over-week decrease in cannabis

pricing. Given that the minimum price decreased week-over-week, we suspect that the week-

over-week price decrease was attributed to a cannabis sale in the province of Ontario.

Continuing with the backlash regarding Ontario’s lottery system for retail cannabis licenses,

Chris Damas (a Cannabis industry analyst) outlined that the province of Ontario has “single-

handedly created a black market for licenses” and stated that the winners of the lottery are

actively selling their licenses on the black market. With that said, we are unable to comment on

the validity of this statement. We believe that the lottery system for retail cannabis licenses has

not been an efficient method of distributing licenses. For example, a considerable number of

winners from the lottery system have been disqualified for not meeting requirements. We expect

this to negatively impact retail cannabis sales in Ontario. We anticipate pricing for cannabis in

Ontario to remain at similar levels in the short-term but believe that cannabis pricing will come

down in the long-term as more retail stores are operating, and more greenhouse facilities from

LPs come online to satisfy cannabis demand in Ontario.

Alberta


The minimum price decreased from $8.17 to $7.85, while the maximum price remained the

same. The number of available cannabis products increased nominally from 185 to 188. We were

unable to find relevant news that contributed to the week-over-week decrease in cannabis

pricing. Following a similar line of thinking as to why pricing decreased in Ontario, we suspect

that the week-over-week price decrease was attributed to a cannabis sale in the province of

Alberta.

On October 5, 2019, the Calgary Herald (a news website) reported that the province of Alberta is

expected to regulate vaping in its province given the public health crisis regarding vaping

(mentioned above when discussing cannabis market sentiment). A review is to begin by

November 1, 2019, and is expected to be completed by year end (end of December 2019). It was

indicated that the review would provide an opportunity to strengthen restrictions around

advertising and promotion of vaping products. As this would affect demand for cannabis vaping

products, we believe this may resultingly decrease demand for cannabis products and cause the

price of cannabis in Alberta to decrease over the medium-term.




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New Brunswick


The minimum and maximum price remained the same, with the number of available cannabis

products increasing from 84 to 89 (a 5.95% week-over-week increase). We were unable to find

relevant news that contributed to the week-over-week decrease in cannabis pricing. Given that

the number of available cannabis products increased week-over-week, we suspect the price

decrease was a result of greater cannabis supply in the province of New Brunswick.

No material cannabis news was published in the province of New Brunswick this week.

Yukon


The minimum price decreased from $10.97 to $10.28 while the maximum price remained the

same. The number of available cannabis products increased from 21 to 26. We were unable to

find relevant news that contributed to the week-over-week decrease in cannabis pricing. Given

that the minimum price decreased, and the number of available cannabis producers increased, we

suspect that the week-over-week price decrease was attributed to greater supply of lower-cost

cannabis products in Yukon.

No material cannabis news was published in the territory of Yukon this week.

Nunavut

Average price per gram increased nominally from $12.30 to $12.42 – a 0.97% week-over-week

increase. The minimum and maximum price remained the same. In addition, the number of

available products remained the same as well. Nunavut’s cannabis pricing change is in-line with

our expectations.

No material cannabis news was published in the territory of Nunavut this week.

The below chart shows average price per gram nationwide since we began price coverage:




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Source: FRC, Online Provincial Cannabis Store




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Multiple Companies Announce Upcoming Catalysts · TSX: GCM $5.15 $6.63 Oct-7-2019 ... GCM had beat...

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