Perspective: Expanding the universe of exploration capital

Perspective Issue Twenty Five - September 15, 2017

Conference Season Expected to Spark More Activity

By: Gary Baschuk, Managing Director, Mining and Senior Geologist

The recent rise in metal prices coinciding with renewed tensions with North Korea (although subsiding??) and a seasonal renewed interest in the mining sector, has created a positive environment for financings, especially within the gold sector. Recent large financings include:

  • $242.8 mln for Hudbay Minerals Inc. (HBM-TSX),
  • $80 mln for Osisko Mining Inc. (OSK-TSX) increased from $50 mln,
  • $35 mln for Barkerville Gold Mines Ltd. (BGM-TSX.V) increased from $28 mln,
  • $8 mln for Osisko Metals Inc. (OM-TSX.V),
  • $15.9 mln for Aurion Resources Ltd. (AU-TSX.V) with Kinross Gold Corp. (K-TSX) to own 9.98% of Aurion,
  • $56 mln for Novo Resources Corp. (NVO-TSX.V) with Kirkland Lake Gold Ltd. (KL-TSX) subscribing for all the shares to take an 18.19% issued and outstanding on a non-diluted basis (25.53% interest in a partially diluted basis).

In conjunction with the financings, majors and mid-capitalization companies are taking an interest in juniors and other mid-cap companies in safe jurisdictions. Alamos Gold Inc. (AGI-TSX), with operations in Mexico and Ontario plus advanced-stage projects in Turkey, announced a friendly merger with Richmont Mines Inc. (RIC-TSX). Richmont’s key asset is the profitable, high-grade Island Lake Gold Mine in northern Ontario. All of Richmont’s Quebec assets, the Beaufor Mine, 1,200 tpd Camflo mill plus exploration properties, are being acquired by Monarques Gold Corp. (MQR-TSX.V). Richmont indicated that negotiations for the Quebec assets had been on-going since early 2017 and were not considered during the Alamos acquisition talks. Richmont had recently announced positive drill results at depth and a positive “Expansion Economic Assessment” that proposed the mine increase production to 1,100 tpd and gold production to 125,000 per year commencing in 2019. The interest in the Wawa Area is positive and could put Argonaut Gold Inc’s (AR-TSX) adjacent Magino Property onto the radar screen as an acquisition target.

The interest-level timing couldn’t be better as the Precious Metals Summit in Beaver Creek, Colorado ( and the Denver Gold Group Conference in Colorado Springs ( are just around the corner. These conferences are the largest in the US and attract the major, mid-capital and junior companies plus investors from all over the world. In early October, Toronto hosts the Mines and Money Americas Conference (

We expect a flurry of news prior to and during the conferences, especially on the next two Mondays -the starting days of each conference.



PearTree Spotlight

Department of Finance Consultation Paper regarding Tax Planning Using Private Corporations: Why the mineral exploration and development industry should be concerned.

By: Lisa Davis, CEO, PearTree Securities

Significant funds have been raised for pre-construction capital through flow-through share financings. Peartree alone has facilitated in the neighbourhood of $150 million of such financings. The subscribers for flow-through shares sold to fund Canadian Development Expense (CDE) generally are Canadian private corporations. We believe that, if implemented, certain of the proposals in the Consultation Paper will create a significant disadvantage to investment by a private corporation relative to a direct investment by an individual. This could deplete a critical source of risk capital for exploration and development beyond the grass-roots stage* since most flow-through limited partnerships and retail flow-through investors do not invest in pre-production mining projects which need to fund expenses that are not eligible expenditures for the Mineral Exploration Tax Credit (METC). The proposed changes would also result in unfairness to mineral industry corporations seeking to raise flow-through funds in comparison to companies seeking to raise risk capital in other economic sectors.

The Government recognizes the substantial economic contribution resulting from the discovery and construction of mines which rely extensively on flow-through shares for funding and has recently signaled its continued support for the Canadian minerals industry by announcing the renewal of the METC along with the maintenance of the flow-through share tax system. We believe that the scope and complexity of Finance Canada’s proposals have inadvertently cast too wide a net. We need to let our Government know that the implementation of certain of these proposals is inconsistent with policies that will maintain Canada’s position as a global leader in mining.

As co-chair of the Finance & Taxation Committee of PDAC, I am leading an initiative to ensure that the Department of Finance understands the unintended negative consequences for our industry. The comment period on the Finance Canada proposals closes on October 2nd so please get in touch with us at the contact information on the side panel as soon as possible if you would like more information about how to add your voice to this important issue.


*The proposals are not expected to impact flow-through financings to fund expenses incurred in conducting mining exploration activity from or above the surface of the earth for the purpose of determining the existence, location, extent or quality of a mineral resource.

Agnico Eagle’s Meadowbank Mine

PearTree is proud to feature the Agnico Eagle METC Meadowbank case study video. The Meadowbank open-pit gold mine in the Kivalliq region of Nunavut – approximately 300 km west of Hudson Bay and 110 km by road north of Baker Lake – is Agnico Eagle’s first Low Arctic mine. This Canadian success story originated as a result of METC / flow through financing.

To learn more about the Meadowbank mine, click here.

Equity Research

By Gary Baschuk, VP Senior Mining Analyst

First Cobalt Corp. (FCC-TSX-V)

First Cobalt Site Visit

Event: Last week we had the opportunity to visit First Cobalt Corp.’s (FCC-TSX.V) assets in Cobalt, Ontario. Trent Mell, President and CEO of First Cobalt and an Advisor to PearTree, hosted the visit for investors and analysts.

Impact: Positive. Re-examining a historic, high-grade, narrow vein mining camp with a bulk-mining perspective.

Analysis: First Cobalt is in progress of amalgamating a large land package in the historic Cobalt, Ontario Silver Mining Camp. The merger of First Cobalt with Cobalt One Ltd. (CO1.AX) and CobalTech Mining (CSK-TSX.V) is progressing and expected to close in Q4/17. Attributes of First Cobalt include:

  • Aggressive, experienced team looking at the Cobalt Camp in a new light
  • Quickly acquired the Frontier and Keely Mine properties in Cobalt, Ontario
  • In progress of amalgamating a large land package in the Cobalt Mining Camp
  • Commenced surface exploration and diamond drilling on the Cobalt Properties
  • Reached agreements to acquire properties in the world’s largest cobalt producing country – Dem Rep. of Congo

Figure 1. Amalgamated Land Package in the Cobalt Mining Camp

Source: First Cobalt Corp.

Access to the large property (10,516 ha) was easy – directly off Hwy #11 in northern Ontario within a short drive of the Earlton airport. Access around the property was also readily available by dirt roads.

The Company’s exploration concept is new for the Cobalt area. Cobalt was Canada’s largest silver producing District reportedly producing over 600,000,000 oz of silver with by-product cobalt, nickel and copper. As the focus was always on silver, the mining was very selective and focussed on the high-grade, structurally controlled veins. First Cobalt plans to search for bulk-mineable, disseminated cobalt mineralization in areas with a high density of calcite/quartz stringers containing cobalt +/- silver. Most of the past silver mining was hosted in the Nipissing diabase, but First Cobalt intends to search beyond the traditional hosts and test older sediments and volcanics.  Although the silver grade of the material left behind may have been uneconomic at the time, the cobalt mineralization may be economic at today’s prices with today’s bulk mining methods and costs. The model is reminiscent of many resurrected gold properties. Barrick Gold’s (ABX-TSX) growth, prior to the acquisition of the Goldstrike Property on the prolific Carlin Trend in Nevada, included open-pit mining the Mercur Mine in Tooele, Utah, a former underground operation run by Getty Minerals. Similarly Detour Gold’s (DGC-TSX) Detour Lake open-pit mine was previously an underground operation operated by Placer Dome. Why not bulk cobalt mining with silver by-product in an old underground silver mining camp?

Figure 2. Water-filled stope – an example of historic narrow-vein mining at Drummond.

Source: PearTree Securities Inc.

The proposed combined property hosts 11 past producers and a number of prospects. Production details are tabulated below.

Figure 3. Historical Production on pro-forma First Cobalt Property

Source: First Cobalt Corp.

The company has commenced drilling, prospecting, geological mapping and 3D – geophysical mapping and expects the first assay results to be released in September. Drilling is underway at Keeley and Frontier where historically, the most cobalt was produced.

Figure 4. Drill rig at the Frontier Site

Source: PearTree Securities Inc.

The company also owns a permitted 100 tpd mill plus crushed stockpiles awaiting processing. The plant, although too small for the scale of production anticipated, includes a ball mill, shaker tables and a Knelson concentrator. First Cobalt also owns a permitted refinery with a small tailings pond that has room for expansion.

In addition to the large property position in Cobalt, the company has secured agreements on a number of properties (19,000 ha) in Democratic Republic of the Congo, the largest cobalt producer in the world.

We expect results from the 2017 work program to provide ample news flow for First Cobalt in 2017.



Alamos Gold Inc. (AGI-TSX) and Richmont Mines Inc. (RIC-TSX)

Alamos – Expanding Further North

Event: Alamos Gold Inc. (AGI-TSX) and Richmont Mines Inc. (RIC-TSX) have entered into an agreement whereby Alamos would acquire all issued and outstanding shares of Richmont.

The Terms: Richmont shareholders are to receive 1.385 Alamos common shares for each Richmont share valuing each Richmont share at C$14.20 based upon the C$10.25 Sept 8, 2017 closing price of Alamos. The offer price represents a 22% premium to Richmont’s closing price of C$11.62 and a 32% premium on both companies 20-day volume-weighted average price. The offer implies an equity value of approximately US$770 mln for Richmont. Since the announcement, Alamos share price has declined with declining gold prices and closed at C$8.99 on Sept 13th implying a value of C$12.45/sh of Richmont (which closed at $12.40/sh). The lack of a premium on Richmont’s share price implies the market does not anticipate a competing offer for Richmont.

Prior to closing, the merger requires court approval and approval from 66 2/3% of Richmont shareholders and a majority of Alamos shareholders. Special meetings of the shareholders of each company is expected to be held in November with the final transaction anticipated to be completed by the end of November. A reciprocal break fee of C$35 mln would be payable in the event of the transaction being terminated by either party.

The Assets: Richmont owns the Island Lake Gold Mine near Wawa, Ontario. The underground, high-grade operation is profitable and has room for growth. Richmont recently released drill intersections down-plunge of the main orebody intersecting 19.85 g/t gold over 8.4m (true width), 11.67 g/t gold over 9.42m (true width) and 8.86 g/t gold over 6.39m (true width). The intersections support the model, like many Archean shear-hosted gold deposits, that mineralization continues to depth and may extend to great depths similar to the Red Lake, Timmins, Kirkland Lake and Val-d’Or camps. In addition, Richmont released positive results from an “Expansion Case Preliminary Economic Assessment” completed in May. The study supported a mill expansion to 1,100 tpd (from 900 tpd) with low capex of C$28.2 mln. The expansion would result in estimated annual production increasing to 125,000 oz per year (after the 2017/2018 ramp-up years) at a low all-in cost of US$675/oz.

Figure 1. Richmont’s Island Gold Mine Reserves and Resources


Source: Richmont Mines Inc.

Richmont’s other assets, the Beaufor Mine, 1,200 tpd Camflo mill, Wasamac Development Project and exploration properties are being sold to Monarques Gold Corp. (MQR-TSX.V). Richmont commented that the Quebec asset sale with Monarques had been in negotiations since the spring and was not considered in the Alamos agreement and is not a condition of the merger.

The Benefit to Alamos:

  • Boost Alamos’ production past the 500,000 oz/yr level at low industry costs (estimated all-in sustaining costs of ~US$900/oz)
  • Increase production profile in politically stable jurisdictions. Alamos will have two underground operating mines in Canada (Young-Davidson and Island Gold), two open-pit mines in Mexico (Mulatos and El Chanate) plus advanced stage projects in Turkey (Agi Dagi, Kirazli, Camyurt) and Canada (Lynn Lake).
  • Island Gold Mine has excellent expansion potential at depth for a long-life operation
  • Acquisition using shares leaves Alamos with strong balance sheet and cash and securities position of approximately US$229 mln.
  • Immediate earnings and cash flow benefits with increased gold production. No time lag as with development projects.
  • Potential purchasing and manpower synergies with two operations in Ontario, Canada

Figure 2. Assets of Combined Alamos and Richmont

Source: Alamos Gold Inc. and Richmont Mines Inc.

Conclusion: We believe the acquisition by Alamos’ for Richmont is positive. It provides Richmont shareholders with more diversity of operations and exposure to significantly higher leverage in a rising gold price environment. Alamos benefits from an all-share deal with instantaneous accretive gold production with expansion potential in a stable political environment.


Important Information and Legal Disclaimers

This report has been prepared for general information purposes only and should not be considered either a solicitation for the purchase or an offer of securities. This research report does not constitute a recommendation. The securities mentioned in this report may not be suitable for all types of investors. The information contained in this report is not intended as individual investment advice and is not designed to meet any particular investment objectives, financial situations, or needs. Nothing in this report constitutes legal, accounting or tax advice.

Information, opinions and statistical data contained in this report were obtained or derived from sources believed to be reliable, but its accuracy cannot be guaranteed. PearTree Securities Inc. (“PT Securities”) and/or its affiliates and/or any of their respective officers, directors, and representatives (collectively “PearTree”) does not represent that any such information, opinion or statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report provided by PearTree or individual research analysts). Any opinions or analysis herein reflect the views of the Analyst as at the date appearing above, and are subject to change without notice. The Analyst writing the report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in this report.

PearTree may, in exchange for remuneration, participate in the financing of companies mentioned in this report. PearTree analysts are salaried employees who may receive a performance bonus that may be derived, in part, from corporate finance income. PearTree and members of their families may hold positions in the companies mentioned in this report and may buy and/or sell these stocks on the market or otherwise.

PearTree shall not be held liable for any loss or damage resulting from the use or the implementation of the information contained herein, except to the extent that liability may arise under specific statutes or regulations applicable to PearTree. The investments to which this report relates can fluctuate in value.

Dissemination of Research

Research reports are disseminated through electronic medium or in printed copy. Clients may access reports on our website, or receive publications directly via email. PearTree strives to ensure all recipients receive research in a timely manner and at the same time.

For Canadian residents: PT Securities is registered as an Exempt Market Dealer, a Registered Portfolio Manager and Investment Fund Manager pursuant to NI-31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. PT Securities is a subsidiary of PearTree Financial Services Ltd., an unregistered firm that consults to charities on tax and other matters related to a flow through share donation program.

For US residents: The information provided herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country including the United States, where such distribution or use would be contrary to law or regulation or which would subject PearTree to any registration requirement within such jurisdiction or country.

Analyst Certification

I, Gary Baschuk, hereby certify that the views expressed in this report accurately reflect my personal views about the subject and the issuer.


Important Disclosures

Of the companies included in the report the following Important Disclosures apply:

Ticker Company 1 2 3 4 5
AEM-TSX Agnico Eagle Mines Ltd.
AGI-TSX Alamos Gold Inc.
AR-TSX Argonaut Gold Inc.
AU-TSX.V Aurion Resources Ltd.
BGM-TSX.V Barkerville Gold Mines Ltd. x
ABX-TSX Barrick Gold Corp. x
CSK-TSX.V CobalTech Mining
CO1.AX Cobalt One Ltd.
DGC-TSX Detour Gold Corp.
FCC-TSX.V First Cobalt Corp. x
HBM-TSX Hudbay Minerals Inc.
K-TSX Kinross Gold Corp.
KL-TSX Kirkland Lake Gold Ltd. x
MQR-TSX.V Monarques Gold Corp. x
NVO-TSX.V Novo Resources Corp.
OM-TSX.V Osisko Metals Inc.
OSK-TSX Osisko Mining Inc. x
RIC.TSX Richmont Mines Inc.
1 The Analyst(s) preparing this report (or a member of the Analyst’s household) have a financial interest in this company.
2 PearTree has managed or co-managed or participated as selling group in a private placement for the issuer’s in the past 12 months.
3 As of the end of the month immediately preceding the date of issuance of this research report or the end of the second most recent month if the issue date is less than 10 calendar days after the end of the most recent month, PearTree collectively beneficially owned 1% or more of a class of the issuer’s equity securities.
4 PearTree has visited projects of the issuer and a portion of the expenses for this travel may have been reimbursed by the issuer.
5 PearTree, the analyst or an associate of the analyst responsible for this report or any individuals directly involved in the preparation of this report hold or are short the issuer’s securities directly or through derivatives.
The research analyst is not aware of any other material conflict at the time of publication.

This newsletter is dedicated to providing insight and analysis on Canadian mineral exploration and development stories. We welcome your feedback.

PearTree Securities is the largest provider of mining flow through capital in Canada. As an exempt market dealer and portfolio manager, PearTree Securities has approximately $250 million available for investments annually.

Upcoming Conferences & Events

Precious Metals Summit in Beaver Creek, CO – September 18-20, 2017

Denver Gold Forum in Colorado Springs, CO – September 24-27, 2017

Mines and Money Toronto – October 2-4, 2017

Contact Us

David Donato
Email David

Lisa Davis
Email Lisa

Gary Baschuk
Managing Director, Mining and Senior Geologist
Email Gary

Ricky Chan
Vice President
Email Ricky

Danny Mah
Managing Director, Oil & Gas
Email Danny
C: 403.615.4917

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