We are committed to helping investors come to grips with the resources sector and learn how to interpret news releases made by companies. In these Analyst’s Notes we illustrate how news from companies affects the investment case for the stock, and how it can affect peers as well. The topics are selected based on what the analysts think is both relevant and informative to you, the investor.

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This week, we have chosen to focus on Max Resources Corporation. 


Max Resource (“Max”) (TSX:MXR) is a company that divides opinion. According to Otto Rock and many of the voices on the bulletin boards it is a pump and dump scam, with a crook for a CEO. According to the TSX, it is a go-forward company, having been awarded a “Top 10 Ranked Company in the Mining Sector on the TSX Venture 50™ for 2021” accolade. Which of these opinions is true, and could the two possibly co-exist? We dig deeper to find out.

Max Resources currently has two projects, one in Peru and another in Colombia. The company is interesting because it has all of the hall-marks of a serial under-achiever, with many Red Flags, and yet it has a project that might well be the real deal. 

The project in Colombia, which is called Cesar, is the one that has caught our attention. Cesar is beginning to look like a South American version of the good parts of European Kupferschiefer mineralisation, which in Poland at least is mega-scale, high grade, and geologically predictable along strike. There is much to like about Cesar, and much to not like in the Company as a whole, and we feel it is worth investigating. So here goes…

Background to Max Resource Corporation

Max Resource Corporation has survived through the years, and taken on many forms, exploring for various projects under various management teams. The Company emerged from the aftermath of the resources downturn 2011-2017 with an eye on new projects in Colombia, having previously turned its hand to exploration in Nevada.

In early 2018 Brett Matich joined as the new CEO, and so began a project-fest. That may be the fate of many exploration companies as it is hard to find a good project, but the challenge is to establish whether the company lacks focus, or whether the projects are actually no good. What emerged was lots of noise and light, but not much substance. 

Max Resource Corp met with early success in Colombia, doing deals, picking up projects and regularly announcing that it had found ‘the next best thing’.

A roll-call of projects includes El Choco, North Choco, Gachala Copper, platinum, palladium, gold, copper, and then Cesar copper, the Kupferschiefer analogue. The share price rose to a brief peak of C$2.5 per share in 2019, but the value did not stick. If you look on the bulletin boards you will come across the phrase “pump and dump scam”. Whether that is true or not, the Company has a habit of moving on to the next ‘next best thing’, and traction is dissipated. A particular low point was an April 2019 news release explaining how poor results were due to the gold being washed away in sample processing. 

But that is not all, suddenly in the middle of 2020 there was the RT Gold in Peru acquisition which was a massive diversion, and appears to be a case of strategic incontinence. Red Flag alert. Where is the focus and what is the strategy? It was the RT Gold asset acquisition that triggered the IKN Blogspot tirade as it is apparently a deeply compromised asset in Peru. From Analyst's HQ it looks distinctly like an unnecessary divergence, symptomatic of a company that lacks focus. We ask again, where is the focus, and what is the strategy?

Fast forward to 2021, with the share price 90% down, at 25 cents, and that is after a six-for-one consolidation. It looks like a mess. But we need to assess how bad is bad. The financing of 26 October 2020 (C$6.5 M, at a unit price of 24c, with a ½ warrant 40c, 1 year, 80c accelerator) means that the four-month hold period expired on 23 February, but it does give the company some cash.

Equally it is no surprise to see share price weakness as punters that backed the issue are selling free-trading stock after the four-month hold period, locking in some gains and sitting with the half warrant in the back pocket, so they will not miss out on the upside should it come. Ker-ching. Very nice doing business with you. A cursory glance at the most recent MD&A reveals a grisly record of unit placings, attracting quick money into the stock, and burdening the share register with abundant future sellers as investors look to cash-in on their warrants. 

Table 1: Max Resource recent financings

Let’s not be naïve here, that is a lot of in-the-money-warrants, that are effectively ‘free money’ for the warrant holders. It is hardly a promising situation, but are there some positives?

Vancouver Financing Model

In case you are unfamiliar with the Vancouver Financing Model, here is how it works: In a bull market stock prices tend to go up. Therefore, a CEO calls his broker buddies, and they do a “unit” financing, which is Stock plus a Warrant (either half warrant or full warrant).

The brokers call their mates, and they cobble together the requisite C$5-10 Million, whatever, which is locked up for 4 months – the hold period. Given that it is a bull market, there is every chance that the stock will be trading at a higher level in four months.

Once the hold period is over, everyone sells their stock (hopefully for a profit as it is a bull market), and keeps the (1/2) warrant in their back pocket, and uses the funds from selling the proceeds from the sale of the stock to invest in the next unit offering. In this way, anyone who is on the inside of the magic circle gets to build up an ever-increasing portfolio of warrants which, in a bull market, will be valuable. The process is largely risk-free (in a bull market) and it is always possible that one of the companies will actually make a real discovery, in which case everyone makes out like bandits. Rinse and Repeat.

Well, the positives that jump out are that the Company has enough money to do meaningful exploration in 2021. Also, Brett Matich (CEO), has been involved with corporate successes in the past and that would indicate that he knows how to repeat a corporate success again. It is good to see that Max has a small nimble Board, and it has appointed a capital markets specialist (Rahim Kassim-Lakha) to assist with corporate development. We feel, however, that the company would benefit from a steady additional non-executive director to focus on developing the shareholder register with institutions that can back the company on a multi-year development path. Finally, the company appears to have caught a tiger by the tail at Cesar. What follows is a more detailed look at the Cesar project. 

The Cesar Project

Geological Background to Kupferschiefer Deposits

Kupferschiefer (German for Copper Shale) occurs in Central Europe and is an extensive and remarkable sedimentary unit as is shown in Figure 1 which shows the extent as a red outline, covering an area of 600,000 km². 

Whereas the unit is typically between 0.3 m and 0.6 m thick, it can reach up to 2 m.

Analyst's Notes: Good Geological Potential vs Doubts About Management Strategy. Which Will Win? Figure 1: Extent of the basin with Kupferschiefer
Figure 1: Extent of the basin with Kupferschiefer Source: Wikipedia

The unit comprises shales, mudstones, marls (calcareous mudstone) and limestones that were deposited in a marine environment that was enclosed leading to conditions without oxygen, because of stagnant conditions. 

Sedimentation rates during Kupferschiefer deposition were low, estimated at 5 mm per thousand years and with a high organic content of up to 30%. In these conditions iron was bound as pyrite (FeS₂) in addition to sulphur being present in organic matter.  

The Kupferschiefer mineralisation resulted from upward and laterally flowing fluids which oxidised the originally sulphur and organic matter-rich sediments to form iron oxide rich (hematitic, or Fe₂O₃) areas referred to as Rote Fäule (German for red decay), and which emplaced base and noble metals into the reduced sediments.

As almost always with geological genetic models for mineralisation, there exist a number of theories, but the preferred one encompasses circulation of metalliferous solutions that were oxidising and rich in sodium, calcium and chlorine. These fluids reacted with the sulphur and organic rich horizon by oxidisation and the deposition of metals such as Cu, Pb, Zn and precious metals such as Au, Ag, Pt and Pd.

The metal deposition varies with clear zonation evident from oxide rich (Rote Fäule) with high Cu-precious metals grades passing first into lead, then zinc, and finally iron sulphide-bearing sediments. Figure 2 shows the metal zonation in Poland with the pyrite rich sediments in the northeast and degree of oxidation increasing towards the southwest with the Rote Fäule zone indicated as the stippled area in the bottom left.  

Figure 2: Metal zoning of the Kupferschiefer in Poland Analyst's Notes: Good Geological Potential vs Doubts About Management Strategy. Which Will Win?
Figure 2: Metal zoning of the Kupferschiefer in Poland

The importance of the Kupferschiefer deposits in Poland is evident from its current annual production of approximately 400,000 tonnes, and which was the foundation to make KGHM Polska Miedž S.A. (“KGHM”) into one of the largest global copper producers by funding its expansion elsewhere.

The Cesar Project Geology

Figure 3 shows the location and extent of the Cesar project in Northern Colombia, approximately 420 km north of Bogota. It has been extracted from a press release dated 27 January 2021 after it had added yet another area to the project, this time Cesar West encompassing approximately 2,000 km², followed by an addition of 500 km² in the north.

Analyst's Notes: Good Geological Potential vs Doubts About Management Strategy. Which Will Win?
Figure 3: Location and Extent of Cesar Project Mineral Rights

The project now covers the major portion of over 200-km long Cesar Basin with, according to Max, identified stratabound sediment-hosted copper-silver mineralisation.

Figure 4 shows an older version with only the Cesar North and Cesar South blocks to illustrate a number of key aspects for exploration (copper showings indicated as red stars, seismic lines and historic holes) and target sizes (40 km strike extent at Cesar North and 15 km strike at Cesar South). 

In the latest corporate presentation Max claims to have already found at AM South, located within Cesar North, 16 km² of continuous copper-silver mineralisation, open along strike and down dip. In addition, also at Cesar North, the company claims to have identified 29 km² of continuous copper-silver mineralisation, again open along strike and down dip.  

Analyst's Notes: Good Geological Potential vs Doubts About Management Strategy. Which Will Win?
Figure 4: Geology of the Cesar Project

Mapping of the Herradura Zone at the AM North area in June 2019 showed the mineralisation to be present as a low angle continuous copper-silver mineralised horizon striking 265º (i.e. trending E-W) and dipping gently 15-21º NNW.  Figure 5 shows a picture of the outcrop at Herradura.

Analyst's Notes: Good Geological Potential vs Doubts About Management Strategy. Which Will Win?
Figure 5: Outcropping Herradura Zone Mineralisation

The picture shows the mineralisation to be present of an impressive width, in particular as a “continuous rock chip channel sample” over 4 m by 1 m had yielded a grade of 24.8% Cu plus 230 g/t Ag.  By the end of June 2019, the company announced the Ventana Zone discovery at AM North, 11 km to the southwest of Herradura (see Figure 6).

Analyst's Notes: Good Geological Potential vs Doubts About Management Strategy. Which Will Win?
Figure 6: Relative Location of the Herradura and Ventana Zones

According to Max, the Ventana Zone lies within a broad 11 km continuous zone of copper-silver mineralisation, trending north to the Herradura Zone. Three outcrops along an open-ended 300 m horizon, returned composite grab sample with values of up to 2.7% Cu and 4 g/t Ag over 2 m.

In addition to the Herradura and Ventana zones in the AM North area, the company announced in early July good grades of 1.7% - 4.7% Cu and 13 g/t Ag – 40 g/t Ag from rock chip samples at AM South from the AM-1 horizon with even better results from the AM-2 horizon one week later. More positive announcements for AM South followed, each time finding another horizon or extending existing discoveries.  

On 3 March, the company announced the discovery of a new type of copper mineralisation at a prospect called Conejo (rabbit in English), shown in Figure 7. This newly identified prospect and mineralisation is considered to be related to the sediment copper-silver system, but hosted in an igneous (volcanic) unit. It is associated with fracture-controlled primary chalcocite mineralization that becomes more continuous as fracture density increases. Assays are due back in April.

Analyst's Notes: Good Geological Potential vs Doubts About Management Strategy. Which Will Win?
Figure 7: Location of Grab Samples at Herradura

We note an announcement in late October that stated the company had collected a series of “25 m representative grab samples collected over 250 m” from the Herradura Zone that yielded 3.0% Cu and 29 g/t Ag (see Figure 8).

Figure 8: Location of Grab Samples at Herradura

We dislike the language, even though the geology is interesting. There is no such thing as a set of “representative grab samples”, but we take it that the company tried to take systematic rock chip samples every 25 metres. Also, the manner in which the samples were collected is strange as the geology appears to be as a dip-slope where the mineralised bed runs close to - and parallel to - the surface. The company could have much better tested the horizon over a considerable distance by pitting at regular intervals, or trenching, augering or drilling. This could have been done over the width of the mineralisation, instantly giving a very good understanding of the economic potential for very little effort and cost.  

Indeed, a trend is emerging within the newsflow at a project level that seems to be mirrored in the newsflow at a corporate level, and given weight by the past three years of history. The company seems to continually move on to the next best thing, without consolidating what it has under its nose. Max is chasing growth without proving the quality of what it has, by de-risking the geology on a technical basis.

Having said that, the scale of the geological potential of Cesar is clear. It is good to see KGHM-style grades and lithologies, which is indicative of enriched mineralisation and a necessity for economic development. It is good to see copper minerals in the volcanics at Conejo, which is indicative of a large and hydrothermally active system. It is good to see the regional scale of the mineralisation, highlighting the potential of the region, and clearly an important factor needed to attract mid-tier or larger acquisition interest. All of this we like. More technical information please.

We agree that Max Resources should review historical oil and gas drill core and drill logs for copper mineralisation and judiciously add to its land holdings. It is always sensible to carry out a low-cost data-gathering exercise using available information sources. As Sun Tzu remarks in the Art of War, “time spent in reconnaissance is seldom wasted”.

Conclusion on the Geology

Max has, in the Cesar project, a potentially very large copper-silver deposit, or possibly even a series of deposits.  However, at this stage it is still very early and the released results must be seen as teasers. In particular we would like to see signs of testing in three dimensions, either through drilling, or through test work that is systematic and representative.

We therefore recommends potential investors to hold back until the results of the first representative sampling exercise are available and show consistent economical grades over widths that make them practically mineable. Once the geological fundamentals are established, then the risk / reward profile of the investment changes. Geologically de-risked, but with misgivings about the lack of a coherent corporate strategy, and an ugly capital structure.

Red Flags and Green Lights

Red Flags

  • Corporate-level lack of focus on a potentially company-making project
  • Country-level lack of focus on Cesar as a potentially company-making project
  • Project-level lack of focus on Quality, and excessive focus on Growth. More testing and geological de-risking of known prospects please
  • Hand-to-mouth financing strategy, with low-quality unit offerings during 2020, rather than attracting long-term equity investors through well-priced straight equity offerings
  • Persistent ‘pump and dump’ accusations that will linger for as long as the company lacks focus

Green Lights

  • Cesar could be a company-maker
  • Shifting focus to concentrate on Cesar can be achieved immediately and at zero cost
  • Shifting focus to concentrate on delivering results that underpin the quality of Cesar rather than focusing on growth can be easily achieved in the short term, at almost zero cost
  • Focusing on improving the shareholder register can be achieved IF the company sharpens up its strategy and decides it wants to become a lasting success

Conclusion on the Company

Wrapping up this report, we believe that if the geology shapes up Max Resource Corporation could be a serious company. Geological opportunities like this do not come around very often. What is clear is that Max needs to develop a coherent strategy and focus. The Herradura results were first announced in October, and six months later a technical follow-up has not been prioritised. At a macro-level, even after Cesar was announced as a discovery and potential company-maker, the Company was chasing RT Gold in Peru. And the capital raising history is a sign of small-time players not addressing the potential seriously. The red flags are clear, but easy to fix.

At almost no cost, and with very little effort Max can:

  • Develop a proper plan of attack. Focus!
  • Bring in a proper independent Board Director or two. Focus! 
  • Bring in some proper institutional investors. Focus!
  • Do all of the above and you will start to make real money for retail shareholders. Focus!

Retail shareholders, you can take the punt now if you like your drink hairy and scary. Or you can wait a few months, to see what the results from Herradura and Conejo will bring. You can also wait to see if Max develops a credible action plan that is succinctly presented to the market. Irrespective of what the share price will be, if the grades are confirmed, and a strategy is confirmed, you will have an investment thesis in front of you, not a punt.

If you are a Family Office investor, or an Institutional investor, and you would like the full report behind this article, please contact matthew@cruxinvestor.com

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