Copper-Gold Explorer Needs Some Luck

At the PDAC, I had a nice chat with Terry Lynch. He's the Chairman of Chilean Metals (TSX-V: CMX). This is a copper-gold explorer with some juicy potential upside.

Chilean Metals is focused on drilling its Zulema property, located in a rich mineral belt in Chile.  There is gold, too. It's also barren, rainless, and looks like the surface of the moon, but you go where the metals are, eh?

It has another property to the south called Palo Negro ("Black Stick"). This is very prospective as well.

Chilean Metals found a nice copper-molybdenum project before. It sold that project, Copaquire, to Teck Resources. In return, it received $3 million and a 3% Net Smelter Return (NSR) royalty on any production from Copaquire.

Copaquire is near another working Teck mine called Quebrada Blanca ("White Ravine"). Teck is fast running out of mineable ore at Quebrada Blanca. The odds of it bringing Copaquire into production are fast improving.

That's important, because Terry Lynch guesstimates that the royalty on that property would work out to between $6 million and $8 million per year.

Chilean Metals recently had a market cap of just $8.47 million.

There's some "wow" factor for you.

You can watch Terry tell that story, and more, in this video interview we did on Sunday at the PDAC ...

Teck has the right to buy back one third of the royalty at any time for $3 million. For reasons I'll explain, I think Chilean Metals would like that deal.

Terry explains that Chilean Metals has yet another interesting property. It's called Bass River, it's in Nova Scotia, and it has one heck of a metallic anomaly on it. Chilean Metals didn't want to dilute its stock to raise the cash for drilling, so it farmed out the project to someone else.

That someone else is a private company, Tejas Gold. Tejas will have 14 months after signing of a JV Agreement to earn a 35% working interest in the joint venture. To earn the interest Tejas has paid a non refundable deposit of $25,000, issued 100,000 common shares of Tejas stock and agreed to expend $400,000 in exploration work including drilling on Bass River.

If Tejas spends the money by June 30, its participation rises to 40%.

That's a good way to do some drilling when you don't have a lot of money. Chilean Metals does want to drill its Zulema property in Chile. So, it issued 4,070,680 common shares at C$0.15 per share to raise $610,602.

No one wants to issue shares at C$0.15 per share. So, money is tight for Chilean Metals. It has other debt, too. 

Importantly, Chilean Metals recently added a debenture of $210,000. It's due October 31 2018. 

From the press release: 

The terms are as follows: 14% interest annually in arrears at loan repayment, secured on a pari passu basis with the previously granted debentures ($150,000 Face Value of debentures currently outstanding) by the shares of the Company’s Chilean subsidiary that contains a 3% royalty.

Dang. So that royalty isn't free and clear.

Here's the bottom line for me: Chilean Metals has some interesting projects, and royalty potential. It is hard at work, trying to find a big ore body at Zulema. But it sure looks like the market is betting that Chilean Metals is going to run out of money before it gets lucky.

Let's look at the chart ...

You can see that the stock recently gapped lower. This is due to drill results. Terry says the market misinterpreted those results. 

To the stock's favor, volume remained light, and did not confirm the breakdown. This is a light-volume stock anyway. So don't read too much into volume.

Finally, looking at RSI at the bottom of the chart, we can see CMX briefly entered oversold territory. It is now trying to rise from that. 

It should be good for a bounce. And if the market is wrong about luck not favoring this plucky explorer, this stock could blast higher on good drill results.

I'm not a buyer because A) it's outside of my risk profile and B) I found SO many good companies at PDAC. But those who don't mind a heady mix of risk and reward -- and a heck of a potential royalty, considering this company's tiny market cap -- might want to take a closer look.

A Waking Giant: One of the Largest Undeveloped Gold-Copper Deposits Left on Earth

At the PDAC, I checked in on Exeter Resources Corp. (NYSEMkt: XRA). It owns one of the largest undeveloped gold/copper deposits in the world. That deposit is in Chile in the rich Maricunga gold district. The project is called Caspiche, and I've visited it before.

The company has done a lot of work since then, defining options for development, securing water rights and more. And now, Exeter is ready to take Caspiche to the next level. CEO Wendell Zerb gives me the scoop:

I want to highlight two important things about Exeter. 

The first is a slide I inserted in the video showing the development options for Caspiche.

So there's different ways to skin this cat, as the saying goes. The oxide cap, which is easy to mine, will probably go first. Then, whoever Exeter sells this to -- because that's the company's probable game plan -- will likely go after the higher grade core. That's 23.5 million ounces of gold equivalent.

The other chart is also provided by Exeter, but is not included in the video.

It shows the value of known gold assets you get for every dollar you invest in Exeter Resources Corp., compared to other companies. Naturally, you'd expect companies like Goldcorp and Yamana to give you less gold per dollar because they're producing miners. But International Tower Hill Mines? Chesapeake Gold? Seabridge Gold? Gabriel Resources? Nope, they're explorers/developers, too.

A few more points:

A number of directors of Exeter accumulated shares over the past 6 months. The latest was an acquisition of 21,400 shares.

The company has C$15 million (US$11.9 million) cash on hand. It will have to raise more cash at some point. It has a strong circle of friends for a private placement, if that's how it goes.

One thing that big companies may not like is there is no blue sky at Caspiche. They know how many ounces there are. Most of the acquisitions I see, where big miners snap up a little fish, involves the potential for the resource to expand.

However, that doesn't mean this project won't be bought. So much work has been done, it may be a refreshing change for big miners still nursing burned fingers from other projects.

One more thing: Exeter's share price has been very resilient during the recent correction. Here's a performance chart of the four juniors with the biggest deposits on the chart above ...

Since the bottom in December, all four stocks went higher. Three of them rocketed (better luck next time, Chesapeake). Since the recent peak in February, the gold and silver industry generally has been in a correction. Not Exeter. Exeter has traded sideways.

What's that mean? That means this stock isn't just being supported by directors buying the shares. Others see value in the stock as well.

Just something to keep in mind. And Exeter is a fascinating find from PDAC 2017.

Do your own due diligence. I'm not your investment advisor.

PDAC Video & Chart -- Exeter Resources (XRA)

At the PDAC, I had a chance to sit down with Yale Simpson, co-chairman of Exeter Resources (XRA on the NYSE).  When I worked for Weiss Research, I recommended Exeter before it spun off Extorre, a gold project in Argentina that it sold to Yamana.  My subscribers at that time had the chance to make money on Exeter and Extorre, and more than once.

Now, we've seen three years of a down market.  Time has been cruel to juniors like Exeter.  But it still has the same great management, it has an interesting project in Chile (and is busy getting water for that project, always a goal in that part of Chile). That project is called Caspiche.  Exeter has shifted from trying to JV/sell the entire project to just mining the oxide cap (which could produce 100,000 ounces a year) and then perhaps targeting a high-grade underground core. Caspiche holds both gold and a lot of copper. And it also has lot of cash for a junior ($38 million).

Exeter is working on things that should be a steady news stream for the rest of the year. In the past, when the market was so bearish on gold, good news was not a driver of price.  One test of if we're really moving into a different stage of this gold market is if the market reacts differently to Exeter's news releases this time around.

Here is a video I filmed with Yale Simpson ...

Sorry about the sound, but the PDAC is a wee bit crowded.

And here is a weekly chart of Exeter (XRA) ...

(Updated chart)

The stock is still in a big downtrend, but MACD (momentum) has turned positive. This is not a recommendation. Do your own due diligence before buying anything.