Denis Laviolette: Eyes On Junior Explorers As Market Turns

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Includes: CRCUF, EXK, GG, KL, LATNF, NEM, NHVCF, XTGRF
by: Palisade Radio

Summary

Majors need to replace ounces in the ground.

Some companies are in it for their salaries.

Things are very much heating up in the Yukon.

As promising companies are all brought out, new juniors are emerging.

Sentiment is changing and many smaller prime companies have been 'gobbled up' leaving room for smaller explorers to come in. Many projects that had been put aside in the downturn will be coming back online with the upturn.

Look for management teams that can conserve capital and use it efficiently, using small amounts of money and creating value with it and that have accessible deposits that are big enough to be worth it. The company's story is very important right now too as new investors look to the sector.

Exploration is never certain but there are certain geochemical indicators and historical successes that can help with the evaluation. Some companies are basically in it to earn salaries and have a lifestyle and others are keen on developing real potential. Determining which is which is where an investment manager can prove their worth.

Denis also describes Xtra-Gold (OTCQB:XTGRF) Resources in detail, telling it's 'story' as an example of a promising, well managed and resourced investment opportunity. He also describes several other very promising companies, especially in the Yukon.

Palisade Radio Host, Collin Kettell: Welcome back to another episode of Palisade Radio. This is your host, Collin Kettell. On the show with us today is Denis Laviolette. He is a geologist. He is new to the program. Just a little background on Denis, he has worked with some major companies including Kirkland Lake (OTCPK:KGILF), Lake Shore Gold, Goldcorp (NYSE:GG), Xtra-Gold. He then moved over to the capital market side of the business with Pinetree Capital and he has now been doing quite a bit of work with us here at Palisade Global. Denis, welcome to the program.

Mining Analyst, Pinetree Capital Ltd., Denis Laviolette: Thanks, Collin, happy to be here.

CK: We were having a discussion over the last couple days just talking about all of the consolidation that we have seen in the sector. The junior market and the gold market as a whole is a cyclical business, but each cycle as they come and go differs slightly and there are things to look for. You had identified to me the other day how much consolidation you have seen. A lot of the primo projects have been picked up by majors or larger companies leaving a bit of a vacuum for smaller companies coming to make new discoveries. Can we start off by just talking about what you have seen with a lot of the consolidation going on?

DL: Yeah, I mean there are a lot of names and we used to watch it. I think back at Pinetree when things were still kind of weaning down and we were looking at production profiles and PA-staged projects and stuff, and you know- a lot of the those companies are gone now. You had Gold Canyon; you had Carlisle Gold; Mega precious, some of those kind of projects, just to name a few. But basically, slowly but surely, we saw these projects get gobbled up, and now that sentiment is changing and things are improving- you know, everybody is looking to, sort of the next bracket outside of the majors to invest and play the cycle or what is seemingly like an up and coming cycle here. But basically, yeah, a lot of that is gone.

Same thing in the junior space, actually tons of blood has been spilt in the junior explorer space. You have got tons of those companies are now weed companies and a lot of those assets are nowhere to be found. A lot of those claims have been dropped etc, etc, and overall basically, yeah, that is what I have been noticing anyway at least. There is some great stuff out there. There are still a lot of companies that have survived. They may not have been the sweetheart names that people thought in the last cycle at the tail end. There are a lot of those names that are gone now. But there is a lot of kind of sleeper names that sort of were able to keep the wheels on the bus and get a little bit of work done and have a great story coming back into this the market. I guess to talk on that we have been seeing some stuff. There are a few players in West Africa that have some good stuff that are coming back into this with strong, strong targets. A lot of grass roots, a lot of reconnaissance work has been done; cheap stuff. These are really things that unlock value on projects and really help to guide drilling.

There is going to be a lot of companies ready to sandbag some projects and put out some nice numbers. I think it is a good chance to kind of keep our eyes peeled for the newsreel and see what people are doing and jump on some of these names because there are lots of good ones out there. But I am sure we are going to see tons sprout up; lots of these projects that were gone and were actually worth quite a bit of money back in 2010, 2011 sort of area. They will be back.

CK: Yeah, there are just so many factors that go into to the changing of the cycle. Of course you have the cycle itself which at a certain point one thing just get over sold enough. Money comes in, contrarian money, and things turn around. That is probably one of the major driving factors on this bear market where we had a full five years of depressed markets. You then have the commodities, certain things of the commodities starts to move up that is going to start to lift the market. Then you have factors in individual bull markets such as a lot of the companies, a lot of the good assets are already taken and majors always need to replace ounces in the ground. We have just had such a traumatic past four or five years that like you said a lot of things have been wiped out; companies have even shifted their attention to other sectors like medical marijuana.

Now that money is coming back in you are seeing just- what looks like tremendous movements of some of these small stocks. Some of them are up a 100, 200, 300%, and yet that is really a very small movement off the bottom. So, my next question for you is what are you looking for or what should investors look for coming from a background in geology? There is lot of semi-advanced projects. What do you look for to invest in that might be the next takeover target but something still quite far away from that so there is a lot of value to be created for investors coming in now?

DL: Well, a couple of things. You gotta look at it from a financial perspective, I think you want to look at companies that their management teams are able to conserve capital and deploy that capital in the ground and I am showing a track record for that. I mean obviously in the last cycle as we say there are a lot of greedy executives and sort of misguided management teams that were sort of throwing money frivolously at these projects and wild cat drilling, everything. There were a lot of teams that really took their time and did their homework in soil sampling and trenching, and whatever sort of low-hanging fruit they could do before going and throwing the big bucks behind a drill to sort of tackle these projects.

Often times when I look at these things I like to talk to the management teams or at least get a sense of what they are all about. I like to look at the burn rate, a lot of these junior companies. Like what are their overheads? Do they have massive offices that they do not need right now? I do not want to see somebody who is burning $60 - $70,000 a month just in corporate G & A. I could just imagine if we are going to bolt on a camp somewhere whether it is a foreign country or whether it is here or who knows? But I could just imagine if they have a big, elaborate camp, etc, a couple of drills churning, they are going to be burning $200,000 to $400,000 a month. Obviously we are not seeing $10M, $15M private placements closing for junior explorers right now.

So, I want to see teams that are capable of using small amounts of money $2M, $3M and really unlock value with that- like is there blue sky? That is something important to me when I am looking at a project. Is there size potential? Is the blue skies or targets? What kind of story have they hobbled together? The story is super, super important right now not only just to help propel the market, I think - the junior market - and get some more investment dollars into it. I want people telling good stories. Look at the stories. See if they have something there, if they have some kind of tested theories or something that they have worked on for the past few years, kind of grind it through. Yep- they are pretty sure this is there or this would be a good thing to test, and that they have got the capital. They have the capability of getting the capital to do so. I mean are we talking about drilling thousand meter holes, or 800 meter holes or something try to get down into some big, massive geophysical target? No, I think those ones- you kind of got to be careful with those. But if they have a whole bunch of soil grading that they have done, soil sampling that they have done and some nice, geochemical anomalies as a result of that outside of what they have previously explored that they are looking to potentially check out. Maybe the first time around they had half a million ounces or less and right away from the footprint of these geochemical targets or whatever else that they have done. You can see a chance that they can really unlock something here.

Exploration is a funny business. It is never a sure thing, but you just want to see- it is a combination of teams. It is a combination of the financial, I guess- state of that company and also the project itself. Is it big enough to be worth it? Has all their hard work yielded something, some sort of target that is worth looking after? That to me is the exciting part of this business and it makes investing a lot more fun because it is less of a crap shoot and you actually get to see the story unfold. If your favorite target gets drilled and nothing comes out of it, well, maybe it is time to walk away from that one.

A lot of people last time did not do that. They over promoted these things and often times, too, companies did not want to test these things, test these targets. They wanted to save them. They did not want to kill the project. I guess I am rambling on a little bit about this, but ultimately, yeah, I look at all these things. It is a combination of all the factors. When evaluating a junior explorer it is a risky business. It is all about the teams. It is all about the people, the projects, what have they done. Are they the type that roll up their sleeves, get into it get passionate about a project or the type that does not really care or they just want to raise $10M - $15M and go hog-wild drilling and have a nice big office and all that?

CK: Well, we started a wildly successful series called Palisade Mine Tours via Palisade Research, www.palisade-research.com and Denis, you have been helping out with that doing some of the site visits putting together some of the stories. The first one that we did was on a company called Canarc Resources (OTCQB:CRCUF) which is a good timing for us on that. They just had their project acquired, in fact, last week by Endeavour Silver (NYSE:EXK). You also made your way down to Paraguay for Latin American Minerals (OTCPK:LATNF), and more recently a great company called Northern Vertex (OTCPK:NHVCF) which is based near Las Vegas actually in Arizona. Maybe let us talk quickly just about Northern Vertex because you were just out there. They have a nice sized deposit but it is a little small. Talk to us about the upside potential on something like that.

DL: Yeah, I think that is a good example. I mean Northern Vertex a lot of people quickly dismiss the project as not big enough. It had a few hundred thousand ounces at a fairly modest grade for a heap leach project. It had a five-year mine life and that was that. They said, "Well, it is too small." When you really get down there, you get boots on the ground, you talk to the guys, you see the project, I mean they have got parallel structures that has cropped right out of the desert. They have done their homework. These things, it is so amazing like that project alone- I remember we went there and the quartz veins are very resistive to erosion so they kind of stick out like spines out of the landscape. I think I showed a picture of that in the article so feel free to read that whoever is listening that wants to check out a little bit more about the story.

But, basically, in a nutshell, you can really see the veins sticking out of the ground and they stuck to the patented claims which was the core sort of claims of their overall ground package, very small posted sample on what they actually own over there. It is just that it is easier to move patents at. It is easier to get them permitted. It is easier to move things closer towards mining and get things permitted so they focused on that. Yeah, it is a small resource on that. They have moved it ahead to PFS stage or feasibility stage and they are ready to go on that stuff. But if you look just to the south of it there is an equally large trend of exactly the same stuff, same sort of veining sticking right out of the desert. It is on their property. There you go. Is that a double? I do not know. If the grade holds up and from what sampling they have done on that stuff it seems like it is pretty much analogous to what they had on the Moss vein which is their core stuff of the patents.

There are all kinds of stuff in between. This area is just riddled with these little tiny old mines from a couple hundred of years ago, the 1800s and stuff like that, high grade stuff that are basically little off shoots to the main sort of vein systems that they are seeing, these little high angle skinny things. But, hey, you never know. You might be able to make some high grade pockets out of that, some little high grade cherries and add another couple 100,000 ounces on these things. To dismiss it as a 300,000 ounces deposit that is it- that is all, five year mine life and whatever is kind of silly.

Now have they been able to display to the market that they have this massive upside potential? Well, that is a different story. I think the management team is going to do that. They are pushing to do that and show that size potential. That is something that is on their list of things to do. But they have done a great job of what they have done. They focused on what they needed to focus on first. Once you really peel the petals off of this thing you really see that, yeah, it is a bigger story. There is more there and could be a huge project.

CK: Much of your background in geology you spent some time in Africa, in West Africa. You were mining gold there. You even had your own company, your own gold mine. It is a story for another day. But a couple other stories - and these are companies we are invested in and working with - that have defined substantial resource kind of in line with Northern Vertex, a little bigger in fact, Xtra Gold, Asante Gold, maybe you can use those as examples the different jurisdiction. Just briefly talk on that, what you see the upside potential in something like that. And, of course, if you do build up enough ounces that becomes a potential target for a bigger company to take over or a nice sized mine to be built.

DL: Yeah, I mean- speak on some past experiences in terms of Xtra Gold. I am a director of Xtra Gold, just FYI, so maybe a little biased here. But Xtra is a great example. It is a good story. We were working hard out there drilling away; Yves, Jim, and the whole team, everybody working hard and basically we started that. It was total grassroots bush and it was found with soil geochemistry. We did a regional VTEM over the whole thing and really honed in and vectored in on some great targets.

The first couple targets we checked out ended up being what we spent 90% of our money on. At the time there was a big push for let us find ounces, let us define ounces, what is your resource guys? Let us get us a resource. We left a lot of targets untouched. In the past few years Yves has done a fabulous job of keeping the trenches going, keeping the guys going and Jim and stuff. The things moved ahead substantially, and a lot of these other soil anomalies were things that we obviously knew or had a good chance of being something interesting to follow up on and possibly add ounces. We just did not have the time or the budget to get to them at the time. But over the past few years those have been massively developed into some exciting targets. Xtra Gold is going to come in to this with a great plan and really some awesome stuff to drill from day one here.

The other thing, too- what is interesting about Xtra in small scale mining in West Africa; Xtra is a cash flowing company. It has all the G & A and everything has been paid for via mining and not a lot of junior exploration companies can tilt that they have cash flows. I think everybody is pretty proud of that and Jim has done a fabulous job of organizing that. Overall, projects like that, those are the ones that you want to invest in I think. I am not just saying that just because I am a director or I am biased in any way- which I should maybe disclaimer or something. But I think those are the ones that you want. They have toughed it out. They have really developed the targets going back into this with some cash in our jeans and ready to drill it out the cash flow from the alluvial stuff that some subcontracted out. We take some residuals on. That is a great little model. It is a good company. It has got huge ground package.

I mean this is a completely underexplored greenstone belt in Ghana. No one has ever found anything there until we came in there really. That is one to watch. You are right there. You are right around all kinds of majors. Newmont (NYSE:NEM) is just up the road like there are all kinds of stuff, and another one that just threw this out there- Another one we are looking at, too, is Savary Gold. I think that is a great little story. You have Don Dudek up there. Those are the Avion guys that had Hounde and they sold that to Endeavour. And just to the south they have got the whole extension of that belt, tons of targets, tons of stuff. They had been plugging away at that with his team and they found something before. They sold it to Endeavour just north. They know that they are rocks. They know the area. They have done their homework. They have found all kinds of stuff down there and they are going to go at it. I mean those are the ones that I feel safe and can sleep easy at night if I am investing in those companies. They have good little targets. If they miss, well, it is too bad, it is so sad, I guess. But I would rather bet on that.

CK: Yeah, maybe one good thing to sum the interview up here, Kaminak, obviously, just got bought out last week. The Yukon has been an area that has been heating up quite a bit. One company that we have talked about in the past, also a disclaimer, we are invested in and working with is Northern Freegold (NFRGD). You cannot necessarily compare two deposits just because they are in the same area, but that seemed like something that was picked up for the ounces in the ground. Northern Freegold has got 2 to 3 million ounces up in Yukon next to infrastructure road electricity and you will get evaluation discrepancy between what Kaminak had picked up for $500M in a $10M market cap with similar amount of ounces in the ground. That is pretty interesting to look at.

DL: Hey, Yukon, Yukon, Yukon. That is pretty cool. Yukon never got a lot of love. I think it had a couple years of love, but never saw the premiums, right? You had Ryan gold. He has some other things out there, some were remote discoveries that were really not given- I guess they never really got the value that they probably should have and that has something to do with infrastructure or seasonal mining. There are all kinds of restrictions and kind of things, pitfalls I guess, to mining up in the Yukon, in remote areas though they are priced and discounted because of all that stuff, but, ultimately, I think this bodes well for the Yukon. There are a lot of great projects, a lot of great geology and stuff that is there and to see this acquisition I think really is a great catalyst for something like Northern Freegold. That is one that we have identified as a great undervalued target ounces and everything.

But, yeah, overall an acquisition in the Yukon is going to help the whole thing. There are a lot of good teams out there that have worked really hard to find projects. They have been plugging away with this for a while and they do not get a lot of love because no one has been interested in the Yukon, no major companies go there and whatever, and all kinds of stigmas, right? Until something like this happens you never know. Lucky for us we are in there first, right?

CK: There you go. Well, that is another interview for you. I just wanted to say for any of our audience members listening, Denis and I are currently in Toronto and our teams always all over Canada and other places. We actually just met up and had some drinks with some listeners from Palisade Radio. Feel free to shoot any of us an email. My email in particular is collin@palisadeglobal.com. Always happy to hear from listeners and happy to chat and potentially meet up. Denis, thank you so much for coming on the program and hope to have you back soon.

DL: Thanks Collin.

Denis Laviolette, V.P. Investments for Palisade Global Investments:
Denis brings more than 10 years of experience as an exploration geologist and mining professional, having worked on three different continents. During his time in Northern Ontario (Timmins, Kirkland Lake and Red Lake), Norway and Ghana, he took on a diverse array of tasks, including advanced mine operations, start-up mine management, QA/QC, grass roots exploration, and financing and acquisitions. Denis has also worked as a mining analyst with Pinetree Capital Ltd. ("Pinetree") in Toronto and now serves as a mining analyst and VP of Corporate Development for Brownstone Energy ("Brownstone"). His responsibilities include market/portfolio analysis, appraising and vetting assets on a technical basis, providing valuation estimates, and reviewing corporate financial statements. Denis is currently a director of Xtra-Gold Resources Corp, Northern Sphere Mining Corp. and Tartisan Resources Corp. He received his B.Sc, Earth Science (Geology) from Brock University.

Palisade Global Investments Limited holds shares of certain companies discussed in this interview. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this interview may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this interview are those of Palisade Global Investments and are subject to change without notice. The information in this interview may become outdated and there is no obligation to update any such information. Do your own due diligence.

Disclosure: I am/we are long XTGRF, AGTMD, NHVCF, CRCUF, LATNF, ASGOF, NFRGD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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