How to Identify a True Turnaround Story
We recently highlighted the importance of being able to identify a true turnaround story amongst the many tired ‘retread’ stories which get dusted off and re-presented to unsuspecting investors.
We define a retread story as a previously failed project that still has the same flawed basic characteristics, but has been repackaged to look shiny, new and appealing to investors. The problem is that even though it looks on the surface like a good investment (experienced PR team, fancy marketing campaigns, a compelling new story), the fundamentals (economics, management team, geology) are still the same as they were the first time around. Nothing important has changed.
A turnaround story, however, is a company that begins to make active changes to refocus the project. This could be: putting money into the right things, changing the direction of the exploration or a new, more experienced management team. These are the stories you should be looking for and adding to your portfolio.
It can often be hard to spot the difference between a ‘retread’ story and a ‘turnaround’ story, so we have identified 5 companies that have caught our eye.
5 Turnaround Stories
Treasury Metals Inc. (TSX: TML; OTCQX: TSRMF; FSE: TRC1)
Treasury Metals Inc. focuses on gold exploration and development, with 100% ownership of the Goliath Gold Complex in Ontario, Canada. The Complex includes the Goliath Gold Project, Goldlund Mine Project, and Miller Mine Project. The estimated resources of the Goliath Project open pit mine and processing mill stand at over 1.2 million ounces Measured and Indicated (M&I), with over 226,000 ounces inferred. Treasury Metals also holds some mineral claims in the Lara Project in Vancouver Island, BC, which focuses on copper, lead, zinc, gold, and silver.
The Treasury Metals story has been around for a long time but hasn’t really gotten anywhere. However, a new management team was brought in with skills in building projects, so the new strategy is now focused on getting the Goliath complex into production. The acquisition of the neighbouring Goldlund project from First Mining Gold last September has brought about critical mass for Treasury Metals. With a combined Measured & Indicated resource of 2Moz and 0.5Moz Inferred, the recent PEA demonstrates a mine life of 13 years at 100,00oz a year. But with previous management making promises they couldn’t deliver, investors were rightly asking ‘how are you different from the last team?’.
President & CEO Jeremy Wyeth joined the company in December 2020. Jeremy brings over 35 years of international experience in development and operating mines. He led the construction of the Victor Mine for De Beers, ahead of schedule and under budget. CFO, Orin Baranowsky brings more than 20 years of finance and capital markets experience. He was instrumental in raising $1Bn for the construction of the Renard Diamond mine in Northern Quebec, again ahead of schedule and under budget. Maura Kolb has been brought on as the new Director of Exploration. With over 10 years of regional exploration experience in Northwestern Ontario, she has been tasked with leading the exploration of the Goliath and Goldlund projects with a plan to grow the resource. Recent additions also include Steve Woolfenden to a newly created role of VP of Environment & Regulatory Affairs and Eben Visser as Director of Projects, both effective early September. Steve’s background in permitting projects in Northwestern Ontario will be critical to helping take the company through to production, and Eben has been involved with several PFS and FS projects, going all the way to commissioning. These are mine builders, who are here to build a mine.
Under Jeremy’s guidance, a new approach has also been taken to show continuity in the resource. With the PEA, the team took a more ‘statistical’ and ‘probabilistic’ approach, rather than a geological one. Having recognised some discontinuity in certain areas of the resource, a 60,000m drill program has been put together for Q4 2021 which will help facilitate an updated resource.
Jeremy had this to say: “We started a new journey in early 2021 to take solid fundamentals in the PEA, complete the 60,000m drill program to add to our resources and mine plans, hire a world class team to set ourselves up for success and complete all the trade off studies to finalize the project description and improve the overall financial position of the project that we are getting ready to build. Six months in and we are on track in all of these areas. This is for sure an exciting journey ahead to build a gold mine in NW Ontario for Treasury Metals.”
The new management at Treasury Metals seem to be making all the right decisions to help get the Goliath Complex into production. By hiring key strategic personnel with build experience, the team is there to take this to the next phase. Treasury is setting itself up for success. With a recent raise of $17.6 M in March 2021, they are now fully funded for their 60,000m drill program. Further permitting, community work and a PFS are all underway with a target to complete project financing and a construction decision at the end of 2023. With critical mass now achieved, the company has all of the pieces of the puzzle in place for the first time allowing them to be successful in advancing the project.
Troilus Gold Corp. (TSX: TLG; OTC: CHXMF; FRA:CM5R)
Troilus Gold is a Canadian-based junior mining company focused on developing and advancing the past-producing gold and copper Troilus Mine back into production. Until 2010, the Troilus mine produced over 2 million ounces of gold and almost 70,000 tonnes of copper. Located in Quebec, one of the world's most attractive low-risk mining jurisdictions, Troilus also holds a strategic land position of 1,420km2 in the Frôtet-Evans Greenstone Belt. Being a past producer also came with the benefit of significant pre-existing infrastructure, including a fully permitted tailings facility, power lines, water treatment facility and well maintained roads.
Since acquiring the asset in 2017, the management team has demonstrated an impressive track-record of resource growth. From 2018 onwards, the resource has grown from 2.75Moz to 8.11Moz. The resource Troilus inherited was mostly underground below the former pits so the plan was to initially develop an underground mine. This changed following 2 years of successful drilling and resource expansion, now with a PEA that proposes 14 years of open pit mining. New zones have also been discovered, namely the Southwest Zone discovered and initially drilled in late 2019 which is now returning some of the best grades and widths seen so far. Expansion and infill drilling is ongoing at a rate of ~10,000m per month and the company intends to deliver an updated resource estimate and inaugural reserve by the end of 2021. The company is also advancing a PFS expected in late 2021/early 2022.
CEO Justin Reid and the team have shown fast-paced advancements since acquiring the asset, which they look to continue until the Troilus property is back in production. You may ask yourself why the mine was shut down if there is such a large mineral system on the property, and the answer would be: the mine operated in a weak gold environment and the former operator (Inmet) was focussed on their South American operation (which became the world’s 6th largest copper mine globally). Troilus’ reserves were exhausted and there was no plan in place to continue work to extend the mine life - in fact, Troilus property had not been explored for 25 years. Which as it turns out, was a great opportunity for Troilus Gold.
With a recent influx of support from the Quebec government through its strategic investment of CAD$11 M, the company sees this a huge de-risking event.
Canada Nickel (TSXV: CNC)
Canada Nickel is the 100% owner of the Crawford nickel-cobalt sulphide discovery in the Timmins mining camp in Ontario, CA. Crawford is the largest nickel discovery since the 1970s, which puts Canada Nickel in the right position to explore its potential alongside 5 other targets in the Timmins area. The company already has the major infrastructure needed in mining and the support of the local First Nations communities in larger-scale mining plans. In addition, Canada Nickel recently launched NetZero Metals Inc. to create zero-carbon mining, milling and concentrate processing for nickel, cobalt and iron across multiple jurisdictions.
Canada Nickel's Chairman, CEO, and Director is Mark Selby, recognised as a leading authority in the nickel market across the mining industry. In his last position as the President and CEO of RNC Minerals (Royal Nickel Corporation), Mr Selby successfully led his team to raise over $100 million and develop the Dumont nickel-cobalt project from exploration to a construction-ready project. Mr Selby is now in charge of exploring a resource of about 1.9 billion pounds of nickel in a potentially 25-year mine-lifecycle. His main aim is to make Crawford the largest base metal operation in Canada and among the world's top 5 high-grade and standard-grade nickel producers.
The beauty of investing in nickel is that it links directly to the development of electric vehicles. As demand for green energy increases, nickel continues to be in very high order. A new nickel supercycle might come in the mid-2020s to correspond to the increasing global demand for stainless steel. Outside of Indonesia, there are very few nickel suppliers, which gives Crawford a highly favourable market position in the future. Investors can anticipate growth in nickel share value in the next 10 to 20 years.
Cabral Gold (TSX.V: CBR; OTC: CBGZF)
Cabral Gold operates in Brazil with its key asset, the Cuiú Cuiú project, in the Tapajos region. This region alone produced 20-30 million ounces in the 1980s, becoming the world's largest gold rush in history. Cabral’s project is right next door to Eldorado Gold’s fully permitted +2Moz TZ deposit which is in the process of being acquired by Gmining for US$110m. Cabral Gold has already defined two open-pit gold deposits (MG and Central) at Cuiú Cuiú that hold 1 million ounces and 43 other targets within an 8km radius of these deposits. The company recently discovered a gold-in-oxide blanket at MG, which makes mining and processing so much easier - a potential game changer for Cuiú Cuiú. Typically, gold deposits come from hard rock, but with an oxide blanket, the gold deposits are in unconsolidated material close to the surface of the underlying hard rock gold deposits. This adds a significant endowment of gold ounces to the overall expected output. Recent drilling has identified a second gold-in-oxie blanket at the PDM target and there could be more.
Alan Carter is the President and CEO of Cabral Gold. He has a PhD in gold geochemistry and structural geology and over 30 years of experience in the minerals exploration industry. He has co-founded several mining exploration companies, notably Peregrine Metals Ltd. and Cuprum Resources Ltd., which were both bought by larger companies, before starting Cabral Gold in 2016. The company went public in November 2017. Alan Carter himself is the largest shareholder in the company. He has so far invested $1.7 million of his own money into Cabral Gold and throughout his career, he has been directly involved in discovering 5 gold deposits, 4 of which are in Brazil. Alan Carter’s investment in Cabral Gold is a clear signal of his certainty in the company's success.
Out of the two open known gold deposits at Cuiú Cuiú, the newly discovered initial gold-in-oxide blanket at MG covers an area of 400x500m and is up to 50m in thickness. The Central Gold deposit is the largest hard-rock deposit discovered so far. It is 1.2km long and up to 100m wide. Cabral has discovered over 940 high-grade intercepts of over 10g/t on the property. With significant upside at depth and with 5 drill rigs currently turning, Cuiú Cuiú is shaping up to be a district scale play with significant upside.
Karora Resources (TSX.V: KRR)
Karora Resources, formerly Royal Nickel Corporation (RNC), started operating in 2006 with headquarters in Toronto, CA. Its primary operations are in Western Australia, reaching a 100,000-ounce gold output in 2020. Karora Resources has met its production and cost targets for 7 consecutive quarters, even with significant restructuring in terms of its executive team and shareholders. Karora Resources focuses on reducing costs and royalties while improving its Good Neighbour Agreement (GNA) productivity, the results of which have been consistent since the company's inception.
CEO, Paul Huet, is at the centre of Karora's recent success and turnaround. Mr Huet took over as Chairman and CEO of the company in July 2020, only to find a chaotic business with poor direction. It was making no money but spending millions on a mill, and it had no clear definition of the mineral assets the company intended to explore. Mr Huet has worked nothing short of a miracle to transform RNC into Karora Resources by increasing production and exploration projects, raising funds, renegotiating royalty agreements, and steadily decreasing the company's debt. All this should come as no surprise: Mr Huet has served in virtually all levels of mining engineering and operations, with proven expertise in capital markets as well.
The Karora Resources turnaround story is more than just a name change. Karora's recent financial reports and news releases exemplify what good management can bring to a junior mining company. The company delivered a record Q2 2021 performance in gold production and sales, a 5% reduction in consolidated all-in-sustaining costs (AISC), and an 18% increase in cash flow. That said, investors might be puzzled by Karora’s low share price of CAD$3.23 despite these excellent results. We believe that with Mr Huet at the helm, it's only a matter of time until investor confidence is fully restored, and the share price will reflect that. With the pivot towards gold production, Karora Resources sold its 28% interest in the Dumont nickel project for up to CAD$48 million, redirected into gold exploration and mining. This should inspire investors to consider Karora Resources for their portfolio over the long term.
Good Management Is Everything
2020 was a fun year for investors. Sentiment drove the market to highs in most categories. Companies found it easy to raise capital, even those companies with poor assets. As 2021 draws to a close and rubber hits the road, there is a dawning realisation that not all those companies will be able to get into economic production. They will not be able to produce revenues to pay back investment or loans. And that will very quickly become a very big problem for those holding shares in those ‘promotional plays' or sentiment driven stocks.
It’s now time for investors to switch out of those ‘hope & a prayer’ stocks and get into companies driven by strong fundamentals: those that can get into economic production.
These 5 junior mining companies above all have one thing in common: they have management teams that have built mines. They are destined to get into economic production. Of course, there are challenges ahead for every one of them, but their performance is promising so far. Whether that's a complete management overhaul or the discovery of new assets that require a shift in management style, these junior mining companies are all on the right path towards successful mining and healthy returns for their shareholders.