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 Mon Jan 28, 2019
Tracker: Spec Value Rating for Serengeti Resources Inc (SIR-V)
    Publisher: Kaiser Research Online
    Author: Copyright 2018 John A. Kaiser

Serengeti Resources Inc (SIR-V: 0.33)

Tracker - January 28, 2019: Spec Value Rating for Serengeti Resources Inc (SIR-V)

Serengeti Resources Inc is rated Fair Spec Value based on its hybrid status offering optionality on copper and gold upside through the advanced Kwanika project and discovery exploration from earlier stage projects such as the Atty play. Kwanika is a medium sized copper-gold porphyry deposit (less than 200 million tonnes) discovered in late 2006 when Serengeti tested a blind IP chargeability anomaly. The gold grade improved with depth but tonnage growth was limited by the adjacent Pinchi Fault. After spending $21 million Serengeti delivered a PEA in 2013 for a 15,000 tpd combined open pit underground operation that did not clear key development hurdles at base case prices of $3.63/lb copper and $1,427/oz gold. In late 2014 the Korean conglomerate Posco Daewoo began due diligence that finally led to a deal in Mar 2016 to acquire 35% through an investment of $8.2 million. The first $1.2 million was spent in 2016 to update the PEA in April 2017 according to which Kwanika was still not viable. Posco Daewoo decided to proceed anyways and put up $7 million in late 2017 towards a PFS expected in June 2019. The 2018 drilling program was designed to test two avenues for improving the economics in the absence of better metal prices. The first was a suspicion that the domain model on which the direction of historical drilling was based did not fully capture the grade potential, in particular for gold. So drilling in 2018 included holes drilled in a north-south direction. An updated resource estimate expected in mid February 2019 will reveal to what extent grade has improved. The second avenue was to push the capital cost of underground development for block-caving farther down the road by increasing the open-pittable resource which under the discounted cash flow model would boost the NPV and IRR if there was not much grade loss during the open-pit years. Part of the 2018 drilling was designed to test the near surface limits of the deposit. We will not know how this worked out until the PFS is delivered in mid 2019. So while there is reason for optimism that the PFS will justify development on a 65:35 basis with Posco, Kwanika is best viewed as a bet on higher metal prices, especially gold. There is some discovery exploration potential related to a deep IP anomaly to the north of the Central Zone which was not adequately explained by drilling in 2016, but Posco has no interest in pursuing this target near term. The discovery exploration upside comes from Serengeti's history as a north-central British Columbia focused prospect generator since CEO David Moore and Myron Osatenko got involved in late 2004. In early 2018 Serengeti parlayed its work on the UDS project into a 100% deal on the adjacent Atty project from Finlay Minerals. Both sit to the northeast of the Kemess copper-gold project now owned by Centerra Gold which is developing the Kemess Underground zone and exploring the Kemess East Zone. The Atty has an IP anomaly that may be the fault offset continuation of the Kemess East zone. Serengeti will drill test the Atty target in the summer of 2019. During 2018 Serengeti revisited the Croy Bloom gold-copper project with an IP survey which it plans to extend in 2019 and possibly drill test. Serengeti is a KRO Favorite based on the potential for the PFS to show that Kwanika is viable at prevailing copper and gold prices, Kwanika's upside sensitivity to stronger gold prices, and the discovery exploration potential at Atty which would turn Serengeti into an acquisition target for Centerra Gold.


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