RCKS Talk – Mar 16, 2017 – AuRico Metals Inc. & Otis Gold Corp.

A recent article by RCKS Talk highlighted AuRico Metals Inc. (TSX:AMI) and Otis Gold Corp. (TSXV:OOO).
As quoted in the article:

AuRico Metals Inc. (TSX:AMI) announced today it has obtained a positive environmental assessment (EA) decision for its Kemess Underground project in British Columbia. We view this very positively as we believe it is an important catalyst for AuRico to unlock Kemess’ value. AuRico’s current EV of ~C$157.8 million implies an EV/EBITDA for royalties only (based on 2017 guidance) of ~22.0-23.7x, which is slightly higher than royalty peers that trade at 19.2x (2017e EV/EBITDA). This suggests the market currently allocates a value of ~C$20-30 million to Kemess. However, similar development stage peers trade at 0.56x NAV or C$48/oz, which suggests that Kemess on its own could be ascribed a value of ~C$115 million. In our view, with the completion of the Environmental Assessment, AuRico should now be positioned to unlock this value, providing investors the potential for meaningful near-term upside as the market prices in the viability of Kemess.
Otis Gold Corp. (TSXV:OOO) announced it has reached an agreement to bring its interest in the Oakley gold project in Idaho to 100%. Otis expects to acquire the remaining 20% stake in the Blue Hill Creek and Matrix Creek properties, which together with the Cold Creek property, comprise the Oakley project. In addition, the agreement entails a reduction of a NSR royalty on Blue Hill Creek and Matrix Creek from 2.5% to 2.0%. The total consideration of the transaction consists of 380k Otis shares, implying a total value of C$112.1k based on Otis’ close price on March 14, 2017 (C$0.295/sh). Blue Hill Creek has a 163k oz Au (11Mt at 0.51 g/t Au) inferred resource that is hosted in a shallow epithermal system which remains open in several directions. Previous drill results have intersected gold mineralization over +100m wide intervals. Limited exploration has taken place on the adjacent Matrix Creek property which hosts a mineralization distinctive from that of Blue Hill Creek. In our view, the consolidation of Oakley, a secondary project, is mildly positive and may help accelerate exploration on this project. At C$37/oz, Otis currently trades at a discount to peers (C$50/oz). We believe the market does not appear to fully account for the potential resource growth at the company’s flagship Kilgore project which is located in Idaho, a stable jurisdiction, and in the vicinity of infrastructure. Coupled with the recent strategic ~C$5.05 million investment by Agnico Eagle Mines Ltd (TSX:AEM, NYSE:AEM), we expect the pending resource update (Q2 2017) and PEA (Q3 2017) for Kilgore to be important catalysts for the company, allowing it to close the valuation gap to peers.

Red Cloud Klondike Strike Inc. connects mining companies with suitable investors that qualify under available regulatory exemptions. RCKS Talk aims to provide unique investment ideas for everyone. Red Cloud KS may hold long or short positions in companies mentioned and/or may have provided or provide in the future services to these companies. See their full disclaimer for details.