Resource Insider Monthly: Deal Time!


PDAC 2019 is over. I’ve been back in Vancouver for a few weeks, most of which has been spent sorting through gathered information, reviewing & cataloguing deals, and following up with new contacts. February was a busy one, with more time spent in an airplane, and a meeting room then I would like. I’ve been glad to be back at my desk collating the information. With that said, through much of this process I found myself frustrated. Despite the dozens of deals that I was pitched over the past 2-months, I struggled to find something that resonated. Most “opportunities” consisted of a mildly desperate management team (with a pleading look in their eye), pitching a questionable asset with little plan beyond “we’ll drill it! …and then take it from there”.

The problem with this mentality is that we’re not operating in a market that forgives a “roll-the-dice strategy”. Unless you land on sixes you’re probably not going to get another roll, and, if you do, it’ll be expensive.

But then something interesting happened…

How Deals Happen

On the final day of the Prospectors and Developers Association Conference I was sitting in a BBQ restaurant with a friend of mine we’ll call John. John is a tremendously well-respected geologist in his 50’s. He’s the type of geo I like, which means he’s spent the majority of his career in the field; he always looks slightly “caged” in an office (this is a good sign in geos). Before going out on his own he spent decades with a major mining company exploring for gold on 4 continents. Today he consults quietly, and lucratively, to some very successful groups.

John couldn’t stop talking about a company his friend had started, that (apparently) had an incredible land package in southern Africa. My ears perked up. John has spent many years in that corner of the globe, and I take his opinion on its geology very seriously. What made this story particularly interesting is that I’d heard it a few months before from Nick Germain, a friend with a knack for finding great micro-cap exploration stories before anyone else. I pay attention when I start hearing about the same thing from multiple independent sources that I respect… so I decided to dig deeper.

This led to the birth of what could be out next deal: Project Dune.

Project Dune

Due to restrictions placed on me by the company, I’m limited on what I can share at this point. But I can say this:

The Team

Project Dune’s CEO has consolidated, explored and sold multiple gold assets, including a highly successful gold mine that is currently operating only 20km away from his current project. Participants would be investing in a proven team that has sold two previous companies for ~C$200m.

Smart Money

The company’s largest shareholder is one of the most successful mining entrepreneurs in history (and a billionaire). The next biggest shareholder is one of the world’s largest mining private equity firms. Both of these groups, and the management team, have committed to participating in the company’s next financing, on the same terms as members.

The Project

Project Dune is a high potential gold exploration project located, on a proven gold belt, in an accessible, stable, jurisdiction in southern Africa (NOT South Africa). Assets include several thousand kilometers of highly prospective ground in close proximity to multiple million Oz gold deposits.

The Deal

This is the primary sticking point. Management has not yet finalized the terms of the deal. I expect the financing to be completed at a discount to market price. I also anticipate the inclusion of some form of warrant. Though, none of this has been finalized. I will only be participating in this opportunity if I can get the terms I want for myself and RI Members.

Table 1: Project Dune summary

You may be asking yourself: Why is Jamie bringing me this deal when it hasn’t been finalized yet?

That’s a very good question. Chris and I started RI to get access to the best opportunities in the mining & energy sectors. In truth I intend it to provide much more than that. RI has quickly grown into a powerful community of competent investors capable of bringing real value to the deals we cover. To foster this community my top priorities are education and transparency. I want Members to understand how the sausage is made, and how these deals get done. Where do we find opportunities? How do I conduct due diligence? How do I negotiate prices?

For you to really know you are getting great deals, I need to provide this information. It will also help you become a better resource investor.

No other research service, or newsletter, comes anywhere close to providing the level of transparency and information we do at RI. Often that’s because they don’t want their subscribers to see how little work goes into their picks, how cozy they are with management teams, or that they personally invested at a far lower price.

We are building a very different platform here at RI, one for educated investors searching for truly asymmetric deals. No sheep here.

An essential aspect of every deal we do is negotiating on terms. This is a process. Unlike many of our competitors we don’t blindly accept the price dictated to us by a company. I see this happen all of the time; it’s incredibly naive yet understandable for folks unfamiliar with how this sector works.

Chris is a seasoned investor, having built a venture capital firm where he negotiated on well over 400 deals, and I’ve been involved both directly and indirectly in dozens of mining deals. This is the depth of expertise and experience our Members are paying for. What it means is that during the course of the next few weeks there will be some scowling, back and forth, arguments, counter arguments and finally terms being agreed upon… or not.

Part of the reason other newsletter writers don’t pursue such a course is because they are pressured to provide a “product”, that product being a “deal”. For them making sure they have a deal to sell is often more important than making sure the deal is sound, reasonable and on terms that a professional investor would accept. This is what you pay us for, it also means we do things a little differently around here. If you have any questions, feel free to reach out. The next few weeks are likely to be fun.

What’s Next

This will be a somewhat brief monthly report, as I’m currently focused on what you pay me to focus on, conducting due diligence on Project Dune. Next will include:

  • Continuing to dig through technical and financial information. As well as ongoing discussions with other technical experts familiar with the project.
  • April 13th I’m off to Africa. Whilst there, I’ll be visiting the site, getting to know management better and inspecting the rocks and drill core. I’m also in the process of arranging site visits to two mines that border Project Dune – one of which is apparently spitting out cash, while the other is struggling. Visiting surrounding operations is a particularly valuable exercise as it helps to put a project in context. Surrounding projects help to clarify what we’re looking for and can telegraph future operating conditions.
  • Conducting detailed interviews with and management.
  • Getting a better feel for operating conditions in the region.

For more info on Project Dune please check out this short video on the project.       

Portfolio Review

Progress Minerals

Earlier this month I sat down with Adam Spencer and Scott Ansell from Progress to get an update on what’s happening next.    

They are in the process of righting the ship after Kirks’ death. The Burkina properties have essentially been frozen, meaning that they still own them and have full right/title to the project but should not be obligated to do any work or spend any money on the properties until the security situation in the region has been adequately addressed by the government. Additionally, Progress continues to work with the government, and security specialists, to address this. The government is, apparently, optimistic on nullifying the risk in the region, though I don’t expect Progress to be able to begin work in Burkina Faso again for the remainder of 2019.

In better news, the projects in Cote d’Ivoire continue to move forward. The company’s field team remains intact and they are currently interpreting/preparing drill data from the most recent drill program as well as continuing light exploration on site.

The next step for the company is finding the right person to come on as the technical lead and fill the role of VP Exploration. After that, they will need to re-double their efforts in Cote d’Ivoire and get the company back on track for a go-public event.

I think that Progress has done a poor job at communicating the last two months, but I’m also cognizant of the fact that they are being pulled in a lot of directions right now and that there is a tremendous amount of work going on behind the scene. I’m still confident that we’ll see this company back on the right track and moving forward by the second half of 2019. I’m also talking to Adam about putting together more in-depth info for RI members, which I expect to be able to release in the next month. 

Resource Insider Uranium Fund SPV

This has been a productive month for the RI Uranium fund:

  1. We took a 4.5% position in Azarga Uranium Corp. ($0.23 with full warrant for 36 months);
  2. We took a 2% position in Goviex Uranium ($0.17 with a full warrant for 36 months);
  3. We will be also starting to quietly build a position in 3-4 stocks on the market this month, per Mike’s recommendations;
  4. As promised, you now have access to monthly updates prepared by Sachem Cove (please see here); and
  5. Finally, as a bonus, please check out this RI Member exclusive conversation that I had with Mike where we discuss the current state of the uranium space and upcoming catalysts that he expects will impact the sector.  

The Peru trip that we have planned has been bumped to the first half of May due to scheduling conflicts. As you may have guessed, we’ll be checking out Plateau Energy. There has been a lot of rumours and accusations flying around about this company the past few weeks. I’ve spoken with management at length, and I am currently of the belief that that’s all they are – rumours. But, I‘ve been wrong before, and we won’t know for sure until we get on the ground and track down the truth. Which I intend to do.

Northern Vertex

I don’t have too much to say regarding NEE this month. Things have progressed as anticipated, and they recently shipped their largest shipment of gold to date. This is a good sign and is representative of their efforts to optimize the operation. Now, they just need to keep doing it – increase output, control costs, and get access to the surrounding area so they can grow their resources.

On the whole I’m pleased to with how things are proceeding at the Moss Mine, and I’m planning on heading down for another visit in the coming 2-3 months to provide an on the ground update for Members.

I have not yet had the chance to discuss the details of the recent options issuance with CEO Ken Berry, as he’s been on site a lot recently, but I will over the next 2 weeks. One of our members sent Ken a very thoughtful email explaining his concerns as an investor and suggesting possible alternatives for the next time NEE considers issuing options.  I’ll keep you posted on what I learn.    

What We Are Looking At

The main focus at the moment is, of course, Project Dune, but here are some other companies on my radar: 

Royal Roads Resources (TSXV: RYR). Exploration company focused on Colombia and Nicaragua. Very good backers. Very interesting ground. Proven team. What makes this story particularly interesting is that RYR are in the process of collaborating very closely with what was previously the FARC. If they can do this successfully, they will be able to access some very prospective land packages that would have previously been impossible to explore.  I’m keeping an eye on this.

Plateau Energy Metals (TSXV: PLU). As noted above, I’m still very interested in this company. There are numerous accusations of mismanagement/incompetence afoot that I still have to get to the bottom of. Allegedly, Plateau lost 2 of their mineral claims, representing a significant portion of their property package, because they forgot to pay the annual fee. The company claims that they did pay it and the apparent discrepancies are a clerical error on the part of the government, some pundits and investors are claiming management is incompetent and deceitful. Having spent quite a bit of time in Peru myself the clerical error story seems entirely plausible. Time will tell. If the accusations turn out to be false and Plateau has maintained their land package, it could represent an excellent buying opportunity and good exposure to both lithium and uranium. More to come.  

Sun Peak Metals (Unlisted). I am already a tiny (~$2,500) shareholder in this Ethiopian exploration company and would very happily increase my allocation. East Africa is truly one of the last great frontiers for exploration. Massively under explored, when compared to West Africa, it holds tremendous discovery potential. Sun Peak is led by a team that I respect. They are explorers who know the area extremely well, having cut their teeth for years next door in Eritrea, and have made two discoveries at Sunridge and Nevsun. An exciting project lead by guys that know their stuff.

Pucara Resources (Unlisted). Gold in Peru. Potential for a massive discovery. I’m interested in two reasons: 1) Marcel de Groot is one of the major investors, and 2) my friend, Keith Laskowski, is on the board. Keith is one of the best geologists that I’ve ever met. He’s highly critical and a born skeptic. For him to put his name on something makes me sit up and take it very seriously.

What We Passed On

Pass might not be the right term for these two, but certainly delay for the near-term.

Rio2 (TSXV: RIO).The Fenix Gold project is probably ~5 years from production, and this part of the mining life-cycle represents a very difficult time for any company. They will definitely be back to the market next year for more money and, given where they are on the development curve and where we are in the cycle, I’m not convinced they will be trading higher than they are today. I could be wrong, but I think there will be a better time to buy RIO.

Other. There were so many horrible deals pitched to me at PDAC that I can hardly keep track. Most had no plan, little money, no meaningful backers and very little understanding of how to create value for shareholders. Pass!

That’s all for this month folks. Expect to be receiving lots of info over the next few weeks on Project Dune. Next stop for me: Africa!

PDAC, Toronto Not a bar, but everyone is heading to one

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