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 Thu Dec 4, 2014
Bottom-Fish Comment: Bottom-Fish Strategy for Amarc Resources Ltd
    Publisher: Kaiser Research Online
    Author: Copyright 2014 John A. Kaiser

Amarc Resources Ltd (AHR-V: $0.07)

Bottom-Fish Comment - December 4, 2014: Bottom-Fish Dtrategy for Amarc Resources Ltd

Amarc Resources Ltd was adopted on December 4, 2014 as a bottom-fish watch below $0.10 based on the emergence of what appears to be a major new copper discovery in southwestern British Columbia called IKE on which the Hunter-Dickinson group will focus much of its effort during 2015. Amarc, a past multiple bottom-fish recommendation since the late nineties when it ended up as a cash rich junior after a foray into Mexico on the heels of Farallon's Campo Morado play, has been a chronic disappointment, largely because it served as HDI's BC exploration vehicle during a period when the market and management's attention was focused on demonstrating the feasibility of existing deposits such as Northern Dynasty's Pebble project. Bob Dickinson thought he had a major bulk tonnage gold discovery on his hands in 2009 with the Newton project, a time when low grade, open-pittable gold was all the rage as gold assaulted $2,000. The Newton discovery play ran the stock as high as $0.78 in 2010 but the projected scale of the overburden covered system fizzled, possibly due to faulting. Newton yielded only a 1.6 million ounce inferred gold resource at a paltry grade of 0.44 g/t in 2012, just in time for gold's smackdown. With about $5 million working capital left Amarc decided to go back to HDI's copper porphyry roots and scoured BC for an under-explored copper system with a large potential footprint. In late 2013 Amarc optioned 80% of the IKE project from a junior that in 2011 drilled several interesting holes in the vicinity of a couple historical holes for which it got no market mileage. A clue as to why that was the case lies within the reason Amarc was able to boost the option to 100% for an extra $40,000 just as a 9 hole 5,400 m drill program was getting underway in July 2014. The program was completed in late September, but results were not reported until November 24 through a detailed news release that barely stirred the market despite language that historically signaled a "back up the truck" moment. I checked the insider reports which showed no activity during the past year, but revealed that Amarc insiders still owned nearly 15% of Amarc's 138.8 million issued with Bob Dickinson at 13.3 million shares, now boosted by 2.5 million shares as a bonus for making a $1 million loan to Amarc. What struck me was that the third quarter financials filed at the same time included all the news release details, and the web site hosted a brand new 57 slide presentation focused exclusively on IKE and the additional district ground Amarc has optioned 70%-100%. With regard to the lack of insider buying, newly promoted president Diane Nicholson pointed out to me that insiders have been blacked out for much of the year. She also pointed out that work cannot resume until June, the 2014 program cost about $2.5 million, the 2015 program would be much bigger, but based on the September 30 financials Amarc had only about $1 million working capital left. Furthermore, there appeared to be little danger of the market bidding the stock higher, especially with another month left for resource sector capitulation selling.

The drill program has established copper-molybdenum grade continuity within a 1,200 m by 600 m by 500 m deep zone with copper, molybdenum and silver grades of about 0.3%, 0.03% and 2 g/t respectively representing a substantial portion of the 900 million tonne footprint (2.6 SG). Amarc's geologists have observed that the zone sits within a 6 sq km "very active, multi-stage hydrothermal system that was extensive and robust" as "two coalescing porphyry mineralizing systems". Furthermore, the zone so far outlined by drilling coincides with an area of magnetite destruction that extends to the north and south of the drilled area, with another area showing up in the southwestern part of the inferred porphyry system. When asked why Amarc limited its drill plan to an east-west orientation, Nicholson conceded that the junior was trying to connect the historical holes and only conducted geophysical surveys after the drilling was done. If the magnetite destruction correlation holds up, the implication is that next year's delineation drilling has potential to boost the mineralized zone substantially. There is also the possibility that the highest grade sweet spot of this porphyry system remains to be discovered. Although the general area has received exploration in past decades, it has been sporadic, hampered by limited road access. In my view IKE will emerge as the most important discovery delineation play in British Columbia during 2015, with the goal of establishing a resource comparable to the Highland Valley where the copper grade is higher at 0.4% plus, but the molybdenum grade lower than at IKE. There is a strong likelihood that I will elevate Amarc Resources Ltd to a formal Good Relative Spec Value Buy recommendation in 2015 if the junior comes up with a funding strategy that does not involve heavy dilution at the prevailing bottom-fish price level.


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