Today we are initiating coverage of a company that might be the perfect answer to a market correction, given its industry and asset class. At its peak, the stock carried a market cap of $200M. Today the dual-listed stock is a fraction of that level yet the model is better than ever. That is why we are projecting a triple from current levels.
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North Country Gold Corporation (TSX:V – NCG, OTC:QX - NCGSF) controls the gold-rich Committee Bay Greenstone Belt located 180 km northeast of the Agnico Eagle's Meadowbank gold mine in Nunavut Canada. This 300 km (185 miles) belt contains five additional gold exploration projects and more than 50 high grade gold occurrences and is one of the largest under-explored greenstone belts in Canada. The Company holds a 100% interest in 243,620 acres along the along belt and has identified 5 distinct exploration centers with numerous high-grade gold drill targets, including its flagship property, Three Bluffs.
Image I. North Country Gold Properties
North Country Gold was founded in 2010 and is headquartered in Edmonton, Alberta. The Company’s primary near term focus is to expand and develop the Three Bluffs property which management believes represents a large untapped resource that could emerge as a significant gold deposit. In the past few years, the Company has doubled the resource on this property. The deposit currently hosts a resource of 4.30 Mt at 4.91 g/t gold for 683,000 ounces gold (indicated) and 5.52Mt at 5.43 g/t gold for 965,000 ounces gold (inferred). A key competitive advantage of the property’s resource is its unusually high grade subset. In fact much of the drilling has been from the surface down to 250 meters with some depths as low as 550 meters where mineralization still persists. To date, more than $80 million has spent on all five projects, with an estimated $40-50M spent on Three Bluffs.
Image II. North Country Gold Geological Indications by Site
North Country Gold uses state of the art geological modeling tools as well as modern and efficient drilling methods. Moreover, drilling costs could decrease 140% over traditional methods from just two years ago, as management estimates it has reduced the drilling cost to $500 per meter versus $1200 per meter.
North Country Gold’s property rights to vast Arctic lands clearly offer vast mining potential. To leverage the high grade resource further, the Company has executed a series of initiatives that serve as additional differentiators in the region. For example, North Country Gold has extended the season for work on these sites by two months through innovative projects such as the construction of an ice airstrip, housing for personnel and equipment, and a heated drill water system for the winter drilling season, which extends the Company’s exploration season.
In the near term, the Company seeks to execute a series of milestones including the engagement of bulk sampling permitting by year end for Three Bluffs and executing the first stage of the sampling in mid-2015, pending the timing of the receipt of a capital for the project.
It should be noted that there is a great history of mining success in this Arctic region. In fact, the Company’s ideal model is the Lupin Arctic Gold Mine used by Elgin Mining, Inc. (TO – ELG). This site started production with 2.7Mt grading 11.82 g/t with a planned 7 year mine life, produced 3.36 Moz averaging 8.9 g/t over its 22 year life. With a similar grade to Lupin, North Country Gold could emulate much of the success enjoyed by the Lupin mine.
Although there are strong indications that the favorable monetary policies of the United States and other industrialized nations is coming to an end, gold remains a key tool in hedging stock portfolios, combating inflation, and protecting downside risk for fixed income.
With respect to pricing, the timing could not be better for North Country Gold. A renewed physical demand in the yellow metal especially by emerging markets has occurred, driving gold prices incrementally higher of late. Although gold prices tend to move largely based on macroeconomic themes, emerging markets players tend to have a long term approach toward their physical investment in gold. Clearly, this bodes well for North Country Gold and its investors.
Chart II: 1-Year Gold Spot Price
Chart II: 1-Year Gold Spot Price
The figure belowpresents a sample of the latest estimates for the price of gold over the next two years from some leading Wall Street banks. The consensus seems to indicate a stable environment where prices remain somewhere in the $1,200 - $1,400 per ounce range. It should be noted that earlier this week Bank of America Merrill Lynch and other major market prognosticators have declared that the worst is over for gold. Therefore, we can expect incrementally higher pricing, especially next year.
Figure I. Recent Gold Forecasts
THE NORTH COUNTRY GOLD TEAM
The C-Level management and Directors of North Country Gold have nearly 150 years of experience in mining, mineral exploration, marketing, management, technology, finance, real estate and law that will enable the Company to maximize shareholder value and optimize the firm’s resources.
John Williamson – Chief Executive Officer & Chairman
Brian Budd – President & Director
Sean Mager – Chief Financial Officer & Director
Peter Kleepsies – Vice President of Exploration
Toby Pierce – Director
Craig Bentham - Director
As with most pre-production companies, North Country Gold’s biggest overall risk factor is not achieving success in “striking gold” in its primary project. However, in our view, this risk is largely mitigated by the project’s large indicated and inferred high grade resource and the associated tens of millions put into the project for infrastructure and other purposes. Looking ahead, the Company’s bulk sampling initiatives should provide investors with confidence in this earlier stage of development. When considering the relative size of the region and site’s production history and data, we deem it unlikely that mineralization will not occur. Still, given that the need for capital exists is a risk but it represents a fraction of the typical requirements for a property of this size due to management’s clever approach.
Investor risks include the small capitalization of North Country Gold, its relatively low trading volume, and low investor awareness at this early stage. In its favor, North Country Gold’s market value shares could result in a greater degree of future recognition and value by investors as the Company achieves its objectives.
A COMPELLING VALUATION
In our view, North Country Gold is a compelling opportunity that has significant competitive advantages over its peers. These include the unique Arctic site, multiple high grade targets, a higher grade of resource than most comparable companies, a recent doubling of the resource size, and its 100% ownership stake, which can provide it with future joint venture flexibility. Moreover the stock’s valuation pales in comparison to the peer group below, despite the fact that in most cases the North Country Gold is further along in its business model. Clearly, these shares offer significant upside at current levels.
Figure II: Peer Group Analysis
Figure III. NCG Resource Estimate Source: North Country Gold Corp.
1 Please see “Technical Report on the Three Bluffs Project, Nunavut Territory, Canada” filed on SEDAR May 18, 2012 and press release dated 23 April 2013
2 Please refer to press release dated 10 July 2014.
*Underground high grade subset constrained by applying strict 5.0 g/t block cut-off to the existing 1.0 g/t wireframe block grade estimation. This subset is not in addition to the current open pit and underground indicated and inferred resource but rather is that portion of the 1.0 g/t Au mode resource that reports to the higher block grade cut-offs.
Trading at a big discount to its peers despite holding a 100% interest in 243,620 acres along the 300km long belt and has identified 5 distinct exploration centers with numerous high-grade gold drill intercepts, we believe that North Country Gold offers investors huge upside going forward. In the past few years, the Company has doubled the resource on the flagship Three Bluffs property. The deposit currently hosts a resource of 4.30 Mt at 4.91 g/t gold for 683,000 ounces gold (indicated) and 5.52Mt at 5.43 g/t gold for 965,000 ounces gold (inferred). A key competitive advantage of the property’s resource is its unusually high grade subset, which sets the Company apart from peers in the region.
With a combined $80M invested in its properties, North Country Gold has significant competitive advantages over its peers. These include the unique Arctic site, multiple high grade targets, a higher grade of resource than most comparable companies, favorable drilling costs and its 100% ownership stake, which can provide it with future joint venture flexibility. Near term milestones include bulk sampling which should serve as a catalyst for the shares. The bulk of the resource is from the surface down to 250 meters. Separately, as noted by comments by Wall Street firms, gold may have bottomed and is coming back into favor. It should be noted that at its peak, the stock traded at a market value of around $200M, yet is currently valued at 410 million, despite its more advanced asset.
Given the sheer number of competitive advantages and its low valuation, we believe that North Country Gold’s share could triple in the next 6-12 months. Even if the stock were to trade at $0.21 per share, the shares would trade at a roughly 50% discount to the Company’s peer group. As a result, we believe that NCG.V offers investors a compelling, once-a-year opportunity to buy an undervalued stock potentially poised to move substantially higher. We rate these shares Speculative Buy.
Recent Trading History For NCG.V
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SENIOR ANALYST: ROBERT GOLDMAN
Rob Goldman founded Goldman Small Cap Research in 2009 and has over 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund.
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