Tracker - April 7, 2020: New Spec Value Rating for Aurion Resources Ltd
Aurion Resources Ltd was initially assigned a Bottom-Fish Speculative Value rating on December 14, 2018 at $1.10 based on a strong working capital position in excess of $10 million and the potential of its 100% owned Risti project in the Central Lapland Greenstone Belt (CLGB) of Finland to turn into a rich high grade gold vein district similar to the Timmins district of Canada. The rating was shifted to Fair Speculative Value effective July 10, 2019 following a 50% price increase in H1 of 2019 arising from initial drill results whose bonanza grades were flashy but very short and still lacking a structural framework that allows one to start visualizing tonnage. Today, in light of the double market whammy Aurion suffered in the wake of disappointing drill results in February and the subsequent Covid-19 related blowout, I am making Aurion Resources Ltd a Fair Speculative Value rated Favorite based on the expectation that in 2020 Aurion will deploy an exploration strategy designed to demonstrate sufficient scale potential for its flagship Risti-Launi projects in the CLGB of Finland to attract a pre-emptive buyout from a major gold producer keen to control an emerging gold district with geological similarities to the Timmins district of the Abitibi Greenstone belt. At 91.4 million fully diluted the 100% owned Risti and Launi projects are carrying an implied value of only $68 million, less than half of what the market was willing to assign last year while the gold price was lower than today without any inkling of the fiscal response the world's governments would feel compelled to muster in order to reverse the fallout from the suppression strategy response to the Covid-19 pandemic. Aurion has spent 10% of what Osisko Mining Inc has spent to double its Windfall resource to 6 million ounces, and is trading at less than 10% of Osisko's market valuation. Windfall may indeed be a mis-understood Timmins district, but more in the order of a third or fourth cousin that nobody knows about. Aurion's landholdings are early stage and large enough with sufficient geological context to still qualify as a potential sibling to the Timmins District. The Launi East drill results setback and the Covid-19 related sell-off are bad news for existing shareholders but good news for Spec Value Hunters who understand that a shift in exploration strategy by Aurion in 2020 will scale this story bigger and that a rising gold price will attract new audiences to this sort of story where "district-scale" language is about as close as you can get to a "sky is the limit" narrative for a resource play story.
Aurion, under the leadership of chairman Dave Lotan has, raised $42 million since 2017 from parties including Kinross, Goldcorp (now Newmont) and Eric Sprott, all attracted by the possibility that the 125 km Sirkka shear zone within the CLGB is akin to the Timmins district that straddles the Porcupine-Destor Break portion of the Abitibi greenstone belt which hosts 83.6 million oz of medium to high grade gold.
Aurion used to be a Nevada prospect generator but shifted its focus to Finland in 2014 through the acquisition of a major land package covering 80 km of the CLGB, much of which it has farmed out to B2Gold and Kinross. Ignoring the farmout dogma Aurion kept the southeastern segment for itself 100% and in 2016 discovered a field of high grade quartz boulders traced back to what is now known as the Aamurusko Main zone of the Risti project which kicked off market interest in 2017.
Since then Aurion has spent about $25 million, mostly on the Risti project where the topography associated with the Aamurusko area and the nugget nature have proved challenging. In late 2019 Aurion shifted its attention to the Launi East claim block to the southeast of Risti where surface sampling established a system of high high grade gold mineralization in outcrop at the northern end of 7 km straddling the Sirkka shear zone. The veins as mapped at surface appeared to have a sub-vertical dip and the topography was flat and drill accessible. Testing the Christmas Deformation Zone was going to be logistically simple compared to the Risti targets.
The 400 m Christmas Deformation Zone (DFZ) became the focus for an initial 7 hole drill program in November 2019 whose disappointing results were reported on February 20, 2020. The stock, which had held steady in the $1.50-$2.00 range since July 2019 during which $11 million was raised at $1.50 with no warrants, including $5 million from Eric Sprott, collapsed into the $1.00-$1.10 range, and in the subsequent weeks succumbed to selling pressure related to the Covid-19 market crash.
According to Lotan Aurion had $16 million working capital left at the end of 2019, and if Aurion continues with its 2020 plans, will have $5 million left at the end of 2020. In addition, the project is in the remote northern part of Finland, and Finland has not imposed a lockdown which treats mining and exploration as "non-essential" such as Mexico and Quebec in Canada have done. Aurion is thus financially and functionally well positioned to deliver results in 2020 which support the vision of a prize with a size representing multi-million ounce medium to high grade gold potential.
Results are pending for a drill program that finished in mid February at the Aamurusko target on the Risti project, and a new drill program designed to test multiple surface targets along the 7 km strike of Launi East will resume in April 2020. During the summer Aurion will return to Risti with a focus on the Notches target located about 4 km east of Aamurusko Main (the area between is covered by rubble). The ultimate goal is Aamurusko Main and Notches are part of the same mineralized high grade quartz vein system.
At this stage one has to wonder what another $10 million in exploration spending can accomplish if $25 million has not delivered a zone that allows a back-of-the-napkin resource estimate? Dave Lotan admits that the exploration strategy has been somewhat timid, trying to establish zone continuity through small stepouts from pinpoint targets, a strategy made difficult by the topography at Aamurusko and the nugget effect in this area. He also admits that the drill strategy at the DFZ on Launi East, encouraged by expectations of gold disseminated within the alteration zones surrounding the veins, was prematurely focused on delivering a discovery throughh 7 holes testing 400 m of strike to a depth of 270 metres.
A contrasting approach would be what Jean-Marc Lulin undertook at the Patwon target at his Elmer project in Quebec's James Bay region where a 7 km shear structure was recognized, juicy values showed up in outcropping bedrock, but Azimut Exploration Inc undertook a cautious 7 hole drill program along a 200 m segment with maximum vertical depth of 100 m in an effort to discern the structural context. With the help of subsequent IP surveys Azimut is now in a position to test the geological model in a very focused manner - the chargeability and resistivity highs proved not to be quite where a pencil crayon bearing geologist might have drawn trend lines and become the basis of disappointing drill results, though we will have to wait until summer to find out about Elmer because Azimut was stopped from starting its drill program just as the rigs arrived on site.
Aurion's strategy in 2020 will be geared to demonstrate the scale of the story by testing multiple surface showings at Launi East starting in April with the goal of mapping out geological context for mineralized zones in the third dimension for future followup when a tsunami of risk capital floods the junior resource sector. In the summer Aurion will return to Risti where the goal will be to drill the Notches target and ideally demonstrate that it is part of a mineralized structure that stretches 4 km westwards to join up with Aamurusko. Given the restrictions many resource juniors will face in 2020 in their project jurisdictions, it makes a lot of sense to turn Aurion Resources Ltd into a Fair Spec Value rated Favorite at $0.74.