Another way undervalued Junior: Trillion
Look what you can buy for $5/16 now:
The following is from the June 1997 Resource Indicator.
TRILLION RESOURCES LTD.
ACCUMULATE (TLQ.t/$4.50) Suggested Investment Time Frame: 18 months
Associated Risk Level: Medium
Maximum Mental Loss: 20%
Symbol & Exchange: TLQ on the TSE
12 Month High/Low for Common Shares: $7.75/$4.15
Issued/Outstanding Shares: 27.5 million
Fully Diluted Shares: 31.5 million
Cash: $14 million plus $13 million in escrow
Contact: Michael Halvorson, Director
Phone #: 1-403-488-6789
Web Site: www.trillion-resources.com
E-Mail Address: trillion@ottawa.net
Declaration: I do not own any shares but maintain an option to accumulate after May 14,
1997 (as per minimum one week declaration policy).
PLAYING WITH LEGO
Trillion is an investment in Africa. They have properties and joint ventures in Zimbabwe,
Botswana, Zaire, Mozambique, and the Ivory Coast. In addition to its exploration
properties, it also has one producing mine and options on two others. Within two years,
Trillion will be producing approximately 100,000 ounces of gold a year to become self
financing. By the year 2003, they will also have 40% interest in a producing Nickel mine
in partnership with Falconbridge.
Its liquid assets include $27 million cash (with a burn rate of $700,000 per month, this
should last them more than two years), 1.5 million shares in Oliver Gold (OGO.v)
currently worth about $3 million, CMC West Africa (25% direct interest) is worth about
$40, and a 17% interest in Consolidated Mining Corporation (South Africa), a
Johannesburg listed mining finance house, currently worth about $43 million. Few
Canadian companies can claim a management team with better technical qualifications or
well rounded experience than Trillion. Jens Hansen and Ron Netolitzky are the principals
of the company.
Trillion Resources has established itself as one of the leading exploration companies in
Africa and has an excellent mix of producing mines, advanced exploration projects, and
early stage exploration properties (some with recommended Greenhope) with significant
upside. Trillion's management team has an excellent track record for major discoveries, as
well as significant experience and contacts in many African countries. With
approximately 27.5 million shares issued, it is fairly valued and should be considered a
core holding.
THE LEGO PIECES
Jena Gold Mine in Zimbabwe
Trillion acquired its 50% interest in this mine approximately four years ago and operates
this small producer in partnership with ZMDC, the state mining company. Production will
total approximately 20,000 ounces in 1997. A $4 million exploration program is planned for
Jena with a goal of expanding additional reserves and consequently production by about
50%. Current production costs are approximately US$270 per ounce.
The existing regulations in Zimbabwe permits foreign investors to repatriate their capital
and recoup direct investment upon approval. TLQ has approval for 100% dividend
repayment for the Company's original $1.3 million investment in Jena. Trillion also has a
tax loss carry forward of $3.3 million. A conservative value for the Jena operation is
approximately $45 million without allocating any value for an increase in reserves.
Indarama Mine, Zimbabwe
Trillion owns 20% of this 15,000 ounces per year producer with an option to acquire the
remaining 80% for a payment of US$21 million. Indarama has a gold resource of 500,000
ounces but TLQ plans to spend US$4.5 million on exploration and development with the
goal of a major increase in reserves. The Globe and Phonix Mine, with past production of
4 million ounces is located near the Indarama properties.
In June 1996 Strathcona Mineral Services completed an independent audit of the
Indarama Mine Property, noting that it "does offer considerable opportunity to increase
the resource and reserve base. Strathcona have assisted Trillion in formulating a
two-year, comprehensive exploration program..." Indarama has the potential to become a
40,000-80,000 ounces per year producer within two years. Success at Indarama will make
Trillion a medium-sized African gold producer. Three drills are currently working the
property. Based on acquisition cost, a very conservative value for Indarama is
approximately $20 million without allocating any value for an increase in reserves.
Nickel Project, Ivory Coast
Trillion has a 15% carried interest until the completion by Falconbridge of a bankable
feasibility study. Falconbridge will spend US$7.8 million this year to conduct infill
drilling. This plant may produce 40,000 tonnes per year of nickel, generating C$30 million
cash flow annually to Trillion. Production is not likely to start till 2003. This project is an
important long term asset to Trillion. Based on a similar acquisition, a conservative
current value for the Nickel Project is approximately $20 million. This will increase
substantially upon a production decision in 1988.
Copper-Cobalt Project, Zaire
Trillion has signed a joint venture agreement with Gecamines, the state mining company,
to explore a 2.8 million square kilometre area in the Shaba Copper Arc., representing
one-fifth of the entire belt. In order to share the political risks presented in Zaire, Trillion
has farmed out 50% of the project to Melkior Resources (MKR.m). This property
represents a potential long term asset to Trillion when political conditions improve. I am
not going to give any value to this property.
Zimbabwe Exploration Properties
Trillion has established its exploration office in Harare, Zimbabwe. The group is
responsible for 24 exploration programs in southern Africa. The company has one million
acres of gold exploration and 1.5 million acres of diamond exploration properties in
Zimbabwe.
The majority of the gold exploration projects are in their field work stage and I will
highlight them as they become more interesting. TLQ recently acquired an option to
purchase the Step Lively Mine which currently produces 5,000 ounces per year. This
project will most likely see some drilling in 1997. The gold projects are very grass roots
and thus should be valued at no more than $5 million.
Trillion and its 50% joint venture partner Nickelodeon Minerals (NKM.v) embarked on a
regional exploration program for diamonds in southwestern Zimbabwe and eastern
Botswana roughly three years ago. At Sansukwe, Zimbabwe, the company found and
bulk-sampled six kimberlites in 1996. A recently completed geophysical survey will lead
to an escalation of field activities in 1997. This area is very prospective for diamonds and
a systematic search for an economic pipe provides Trillion with a enormous wild card.
Venetia and Orapa, the second and fourth richest diamond mines in the world, are
located within the same geological region. Based on NKM, the diamond properties can
be conservatively valued at $5 million.
Kalahari Gold Project, Botswana
The Kalahari Gold Project is seeking a target geologically analogous to the
Witwatersrand Basin of South Africa which currently produces 25% of the world's gold.
Anglo American has been working in the area for about two years. They have made a
special arrangement with the government of Botswana and thus have not had to released
any results. They are believed to be drilling very deep holes near the Trillion border.
Trillion's 50% partner in the project, Bushman Resources (BHM.v) has drilled 60
shallow-holes to date in order to gather geological information. Deep drilling is planned
for May. This project is a long shot and requires very deep and expensive holes.
Bushman is picking up the cost of the program to earn its 50%. I am going to assign a
value of $5 million to this project.
Mozambique Gold Projects
Trillion is a 50% partner to Greenhope Resources (GRH.m). GRH was recommended in
this letter in late February. Please refer to that issue for more details. Based on the
current value of GRH, the Mozambique properties are worth about $5. This could change
when drill results come out in June.
LOOK AT WHAT CAN BE BUILT OUT OF LEGOS
Totalling all the cash, investments, and properties as listed above, I come up with a
conservative estimated current worth of Trillion at approximately $208 million. At 28
million shares outstanding, the current market capitalisation of Trillion is $126 million.
The stock is trading below its breakup value. It is worth at least $7.00 without accounting
for success in any of their programs, and penalizing it a little bit for lack of focus.
YOU CAN ONLY BUILD PIECE BY PIECE
Accumulate Trillion below $4.50.
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