Allegiant Gold: A Stock Too Cheap To Ignore

Summary

• Allegiant Gold is a little-known, intermediate-to-advanced stage gold explorer in Nevada.
• Its flagship Eastside project has 1.5 Moz AuEq defined so far, near-surface and mostly oxidized low-sulfidation epithermal, thus potentially amenable to low-cost open-pit mining and heap leaching.
• The company is a hidden gem in a top-ranked mining jurisdiction, run by competent and shareholder-friendly management. It is worth considering by those who want exposure to gold exploration.
• I do much more than just articles at The Natural Resources Hub: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Tetiana Rashevska/iStock via Getty Images

Among the gold mining jurisdictions in the world, Nevada is top-ranking, thanks to its rich precious metal endowment, political stability, and mining friendliness. In such a premier gold mining province, one would probably expect it to be nearly impossible to come across any hidden-gem gold explorers.

Below, I present Allegiant Gold Ltd. (AUAU.TSX-V)(OTCQX:AUXXF) to demonstrate it is still possible to find great investment targets in Nevada if an investor follows the investment principle as I detailed in a recent interview.

From project generation to project development

Allegiant was spun off Columbus Gold Corp. in January 2018, which now goes by Orea Mining Corp. (OREA.TSX)(OTCQX:OREAF). While Columbus Gold retained the French Guiana assets, Allegiant became a project generator with 10 gold/silver projects in the U.S. (Fig. 1).

Fig. 1. The projects of Allegiant, from the company's July 2021 presentation.

Since the spin-off, Allegiant began to pursue a transition from a project generator to a project developer, by farming-out non-core projects and focusing on its flagship project Eastside .

• In January 2019, Allegiant optioned out the Four Metals project in Arizona to Barksdale Resources Corp. (BRO.TSX-V)(OTCQX:BRKCF) for US$225,000 in cash and shares over five years;
• Also in January 2019, Allegiant farmed out the Bolo project in Nevada and Mogollon in New Mexico to Barrian Mining Corp. now known as New Placer Dome Gold Corp. (NGLD.TSX-V)(OTCQB:NPDCF), which is supposed to pay US$1 million in shares for a 100% interest in Bolo and incur US$4 + 4 million of capital spending over four years. Mogollon, which was returned back to Allegiant in May 2020, was subsequently optioned to Summa Silver Corp. (SSVR.CSE)(OTCQX:SSVRF) for a total of US$5.75 million in cash and equity as well as US$3 million work commitment over three years.
• In August 2020, Allegiant optioned out the Clanton Hills silver project in Arizona to Volt Energy Corp. that is now known as Supernova Metals Corp. (SUPR.TSX-V)(OTC:ABETF) for US$550,000 in cash and shares and US$1.5 million of work commitment over a three-year period

Eastside

Allegiant holds a 100% interest in the Eastside-Castle project through an agreement with Cordilleran Exploration Company, LLC (aka, Cordex) of Andy Wallace, who has been closely associated with Allegiant since then.

The Eastside project is located northwest of the town of Tonapah, Nevada, which is known for the famous historical silver mine, where Blackrock Silver (OTCQX:BKRRF) and Summa Silver are currently conducting brownfield exploration. Geologically, Eastside is part of the Walker Lane trend. This part of Nevada is known to have excellent infrastructure including highway access, water, and electricity (Fig. 1).

The original Eastside property consists of 870 un-patented lode mining claims covering 7,202-ha in northern Esmeralda County, Nevada, with annual lease fees of $153,994. The surface within the Eastside property is managed by the U.S. Bureau of Land Management (aka, BLM), with no private surface or state land (Fig. 2).

Fig. 2. The Eastside project shown on the left, and geology of the area shown on the right, with the rhyolite domes in pink, both from the same source as Fig. 1

• Allegiant continued to expand the land package. On July 7, 2021, Allegiant signed a memorandum of understanding with a private party to acquire a 100% interest in 84 claims immediately adjacent to the northwest of the original Eastside property (Fig. 3). Allegiant is scheduled to pay US$60,000 in shares for the first 2 years of lease payments, and annual lease payments that escalate each year until 2027, for a total of US$750,000. Allegiant is also supposed to grant the claim owner a 3% NSR royalty, which can be reduced to 1% for a US$2 million payment.

Fig. 3. A map showing the additional claims optioned in July 2021 to the west of the Eastside deposit, from the company's news release of July 7, 2021.

Original Pit Zone

The mineralization in Eastside is of the oxidized, low-sulfidation epithermal gold-silver type, which is hosted predominantly (~80%) in Tertiary rhyolite domes and, to a less extent, in andesite flows and volcaniclastic rocks.

The Eastside project includes two main deposits, i.e., the Original Pit Zone in the north and the Castle cluster in the south, with a number of targets for further exploration (Fig. 2). Newmont (NEM) and Cordex conducted surface exploration around the Eastside area in the 2000s.

Castle

Numerous companies explored the area around Castle, including ASARCO, Noranda, and Houston Oil and Minerals in the 1970s; Falcon Exploration, Homestake Mining Company, Westgold, and Mintec Resources in the 1980s especially around the areas of the Boss mine and the Black Rock and Berg zones; Kennecott Exploration, Fischer-Watt Gold Company, and Platoro West Inc. in the 1990s.

• In 1988-1989, Falcon brought the Boss mine on stream, which produced 32,000 oz of gold from 544,300 tons of ore, at an implied average grade of 1.67 g/t Au.)

In 1998, Cordex - then a subsidiary of Rayrock Resources Inc. - leased the area northeast of the Boss mine from Fischer-Watt Gold, drilled RC holes, and arrived at estimated historical geologic resources of 11.2 Mt with an average grade of 0.68 g/t Au for the Castle, Black Rock and Berg zones. However, once Glamis Gold acquired Rayrock Resources in 1999, the Castle project was terminated.

• Platoro acquired the Fischer-Watt Gold claims in 1999 and leased them to Seabridge Gold Inc. (SA) in August 2000 until Columbus, the predecessor company of Allegiant, acquired the Castle area property from Platoro and Seabridge in February 2017. Since 1999, no exploration work has been done around the Castle area until Allegiant launched an exploration program in 2018.

Exploration by Allegiant

Allegiant conducted drilling in the Eastside project in 2018 and 2019. The company struck gold mineralization in wide intersections, e.g., 42.7m of 2.49 g/t Au (including 9.1m of 9.03 g/t Au), 79.2m of 1.03 g/t Au, and 74.7m of 0.89 g/t Au, extending the Eastside deposit to >1km strike length, 700m in width, and 500m in depth.

Based on ~190 drill holes as of December 30, 2019, Allegiant arrived at NI 43-101 compliant inferred mineral resources of 57 Mt at 0.54 g/t Au and 4.3 g/t Ag, for 996 Koz Au and 7.838 Moz Ag, under the assumption of a cutoff of 0.15 g/t Au, $1,550/oz Au and $19.67/oz Ag prices, and preliminary metallurgical test results (heap leach extraction of ~70% for gold and 20% for silver using a three-stage crushing procedure, potentially improvable to >90% for gold and ~50% for silver). The estimated MRE came to 1.094 Moz AuEq at 0.60 g/t AuEq. The above MRE does not include 273,173 oz of historical near-surface oxide gold in the Castle cluster.

In August 2021, Allegiant updated and expanded the inferred mineral resources at Eastside, incorporating a resource at Castle and 9 additional holes at the Eastside Original Pit Zone. The updated inferred MRE includes 1.09 Moz Au at 0.55 g/t and 4.4 g/t Ag at Eastside Original Pit Zone and 314 Koz Au at 0.49 g/t at Castle, both within pit-constrained models at a cut-off grade of 0.15 g/t Au, US$1,750/oz gold price, and US$21.88/oz silver price (Table 1). The Eastside resource is still open to the south, the west, and at depth, while the Castle resources are open in all directions.

Table 1. The NI 43-101 compliant mineral resource estimate of Eastside and Castle, from the company's news release of August 4, 2021.

Exploration upside

In the 72-sq km, district-scale Eastside project, exploration suggests some 80% of the MRE is hosted in rhyolite. However, only a small number (<15%) of the >40 identified rhyolite domes has been drilled so far (Fig. 2).

In December 2019, Allegiant applied to expand the permitted operating zone in the Eastside project from 601 acres to over 3,200 acres so as to evaluate additional targets. In September 2021, Allegiant received two permits allowing for an expansion of drilling and operations at Eastside, with the first enlarging the Plan-of-Operations from 600 acres to over 3,676 acres around the original pit zone that allows the building of new roads and access to 160 new drill sites, and the second amending the existing drill target plan within the original pit zone thus allowing the drilling of up to 14 new holes to test the recently discovered high-grade zone (Fig. 4).

Fig. 4. A map showing the expanded permit area at the Eastside project, from the news release of September 28, 2021.

In May 2021, Allegiant struck high-grade gold in step-out holes up to 100m to the west of the Original Pit, e.g., 117.3m of 3.17 g/t Au. Such results were incorporated into the August 2021 MRE update.

Upside and risk

Allegiant has 90.9 million shares issued and outstanding, in addition to 6.4 million warrants exercisable at C$0.40 and 6.25 million exercisable at C$0.70, 2.5 million RSUs, and 1 million options, for fully-diluted shares of 107.1 million. At the current share price of US$0.30, the market cap of Allegiant amounts to US$32.13 million on a fully-diluted basis.

• The company has settled in October 2020 a loan of C$1,604,404.75 extended by Orea Mining through share issuance, and currently is debt free. As of June 30, 2021, Allegiant had C$389,774 in cash; subsequently, it raised C$5 million by issuing 12.5 million units (1 common share and 1/2 warrants). Allegiant holds some equity interest in farmed out projects.

I reckon the enterprise value is approximately US$27.6 million, which suggests an EV/MRE multiple of US$18.2/oz AuEq (93% gold and 7% silver).

Comparing that multiple with comparable pre-PEA gold projects, which average US$40/oz AuEq or US$60/oz Au, Allegiant is clearly deeply undervalued at this time.

• It is worth noting Eastside is an open-pit oxide gold, which is known for low-cost mining, simple processing, and good project economics. Importantly, the above assessment is prior to giving any credit to the exploration upside; both Eastside and Castle are open in multiple directions, while the property has additional yet-to-drill targets. The management maintains the project has a potential of 2-5 Moz Au.

The stock is expected to re-rate by a magnitude from 3-4X as Allegiant advances the project toward mine construction, while further exploration may help expand the MRE expansion by 1.5-3X, for a total upside of 5-10X. Such an upside potential comes with a number of risk factors as discussed below.

Permitting

The Eastside project is located on BLM land. Previous operators seem to have been able to receive BLM permits without a problem.

• Apart from the surface disturbances permitted under the approved plan, which will require reclamation, there are no environmental liabilities at the Eastside area of the project.
• In the Castle portion of the property, there may be liabilities associated with the heap-leach pad of the historical (1988-1989) Boss mine. No environmental permitting has been undertaken for the Castle portion of the property, and no environmental permits are in place for exploration in the Castle portion of the property. In 2018, Allegiant submitted a BLM Notice of Intent to permit exploration drilling of 21 holes in the Adularia Hill portion of the property (Fig. 1), on which no further progress has been reported.

Financing

Allegiant has been farming out non-core projects to pull in some cash flow, which the management expects to cover overhead expenses and land-holding costs for next 12 months. The management was able to raise funds via equity issuance in the last few years. Further equity issuance may be necessary to fund the exploration program but the cash flow from farm-out will materially limit future equity dilution.

The management

Andy Wallace, who is credited with five gold discoveries in Nevada, acted as CEO from the spin-off of Allegiant to the time when chairman Robert Giustra took over on his retirement in July 2019. Peter Gianulis, with a natural resource-focused private equity background and already a director, was named CEO in September 2019 to lead the accelerating exploration program. Gianulis immediately brought back Wallace first as a strategic technical advisor, and then as chief geologist and director.

The management and insiders own 16.9% of the issued and outstanding shares, giving them substantial skin in the game. They purchased shares as recently as September 20, 2021, accumulating ~9 million shares in the open market.

Allegiant trades mainly on TSX-V, averaging 55,000 shares traded per day; the stock started trading on OTCQX in February 2018, averaging 32,000 shares per day, with acceptable liquidity.

Investor takeaways

Allegiant seems to check quite a few boxes:

• Its flagship Eastside project is situated in Nevada, a top-ranking mining jurisdiction with excellent infrastructure.
• The gold-silver mineralization in Eastside is near-surface, mostly oxidized, and of the low-sulfidation epithermal type, and is amenable to low-cost open-pit mining and heap leaching.
• The district-scale Eastside project has further exploration upside both near the Eastside and Castle deposits and elsewhere in the project area.
• The management seems to be advancing the project with technical competence. Running a tight ship, it tried minimizing equity dilution by farming out non-core projects. I like the fact the insiders have substantial skin in the game.

Still under the radar in part due to the lack of promotion and also because of the ongoing transitions from a project generator to a project developer, the stock ends up being deeply-undervalued relative to the in-situ gold and silver so far delineated.

Having been consolidating since striking high-grade gold in May 2021, the share price has dropped to an attractive level (Fig. 5). The C$0.40 warrants are scheduled to expire between December 11, 2021, and January 6, 2022, the exercise of which may generate entry opportunities for discerning investors who would like to maintain an exposure to a deeply-undervalued, intermediate to advanced-stage gold explorer in the world's top-ranking jurisdiction.

Fig. 5. The stock chart of Allegiant Gold (AUAU.TSX-V), as compared with gold price, modified from barchart.

Disclosure: I/we have a beneficial long position in the shares of AUXXF, SSVRF, BKRRF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.