july 2011,lundin on CKB
New
Recommendations
Calico Resources
CKB.V; CVXHF.PK
604-681-6855
calicoresources.com
Calico Resources is an earlystage
company that was built from
the ground up around a great management
team and a good share
structure. It then went out looking
for a good property to match those
two attributes.
They found it, and it was bigger
and better than anyone expected
they’d find.
It all started with a mission
statement, one that would allow the
company to “create shareholder
value by acquiring projects that give
the [Calico] a ‘pipeline’ of opportunities
ranging from advanced exploration
projects to properties with
near term production potential and
significant exploration upside.”
With that goal in mind, along
with a desire to accumulate projects
in North America, they promptly
took an interest in Oregon’s Grassy
Mountain property, a good-sized,
potentially open-pittable gold project
in the western part of the state.
The company
notes that deposits
with similar geologic
models to Grassy
Mountain have contained
anywhere
between two million
and five million
ounces of gold, so
there’s significant
exploration upside
here.
Calico’s geologists
view the epithermal-
style mineralization
on the main target
as the discovery
model for the 17 other
targets that have been
identified so far on the property.
The current NI 43-101 compliant
resource at Grassy Mountain
stands at 924,000 ounces of indicated
gold and 61,000 ounces of
inferred gold. All this on a property
position that spans 3,800 acres of
claims and 1,300 acres of fee land.
The deal for Grassy Mountain
was made with Seabridge Gold Inc.
It calls for low initial, non-cash
property payments of two million
shares at the outset, four million
shares on the first-year anniversary
of the agreement, and holding costs
of $165,000 per year. There are no
minimum expenditure or timeline
requirements.
The deal is very back-end
loaded, with a payout of eight million
shares upon Calico receiving
mining and operating permits. In
addition, Seabridge will also receive,
at Seabridge’s election, either a 10%
Net Profits Interest (NPI) in any
mine built at Grassy Mountain or a
$10 million cash buyout of that NPI.
There is also a third-party royalty
buydown available for $2.0 million
— this purchase price would take
that royalty from 6% to 1%.
The property has been extensively drilled, with 412 reverse circulation
and diamond drill holes for a
total of 76,000 meters. The main discovery
alone has been pockmarked
with 228 holes and 56,000 meters of
drilling.
All of which begs the question,
how was Calico able to pick up such
a plum project (in a raging gold market,
no less) on such attractive
terms? The answer is the perceived
jurisdiction risk associated with
Oregon.
Notice my emphasis on the word
“perceived.” As Calico’s corporate
presentation amply demonstrates,
fears that a project in Oregon will get
roadblocked are decidedly
overblown.
An independent reviewer of the
situation commented: “Although
numerous permits are required, and
Federal, State, and local regulatory
agencies are involved, it is the opinion
of Telesto that, the permitting
process for a chemical mining project
in Oregon does not differ significantly
from similar requirements for
precious metal mining projects in
other western states like Nevada,
Idaho, or Arizona.”
The company goes on to note
that numerous placer operations exist
throughout the state and that Oregon
Resource Corp. operates a mineral
sands operation that produces
chromite, garnet and zircon.
The company’s plan for 2011 is
to increase resources through in-fill
drilling of the established resource
and the potential feeder zones that
may surround this deposit. In addition,
Calico also plans to make as
many of Grassy Mountain’s previously
identified targets drill-ready
and to evaluate the project for additional targets.
Alongside a 15,000-foot drilling
campaign will be metallurgical, geochemical,
geological and mapping
work. Before it engages in its 2012
Phase II drilling program, it will use
the results from this year’s program
to update the resource at Grass
Mountain.
I was first attracted to Calico
when the group was being formed a
couple of years ago around Buck
Morrow, who, as president and CEO
of Northland Resources, made a lot
of money for Gold Newsletter readers
who invested in that highly recommended
stock. Because of
Morrow’s involvement, I personally
participated in a private placement as
the company was coming public, and
put it on my watch list as it began
looking for its first project.
I set a high bar for recommendations
in this newsletter, and frankly
the bar is higher for companies that
I’m invested in. But with Grassy
Mountain, Calico clears that hurdle
with room to spare.
One of the reasons why is that,
despite about a million ounces in
gold resources, Calico currently
sports a market cap of only around
$8 million. Granted, the company
will face some challenges in overcoming
investors’ perception of
“country risk” for the project, but
gold is gold...and the prospects for
expanding the resource are very
good. In addition, this is only the
first project in the company’s projected
pipeline.
In short, Calico is the kind of
bargain I’ve been looking for at this
low point of the market. The price is
cheap and, although it could get a bit
cheaper in the dog days of summer ahead, it’s at an attractive entry level
right now.
Calico Resources
Recent Share Price:...............C$0.32
Shares Outstanding:......23.5 million
Market Cap:................C$7.5 million
Shares Outstanding
Fully Diluted:................29.0 million
Market Cap
Fully Diluted: ...........C$9.28 million |
