The first modern district scale exploration program in the highly mineralised but vastly underexplored Southern Gobi copper belt has yielded five large independent porphyry targets that could be described as “as good as you get”.
Now, plans for funding an extensive “discovery drilling” program, the first such stage program under the watch of Kincora’s technical team who have found multiple Tier 1 copper projects before, have gained strong shareholder backing from sophisticated and deep-pocketed investors.
If good science and a bit of luck goes the company’s way we may now only be just a couple of drill holes from finding out as work at 5 large independent targets is expected to commence in June.
Kincora is currently finalising funding to support its plans for this comprehensive drilling program – closing scheduled for May 22nd and an offering structured to support participation from existing shareholders.
The company has made a good start announcing a firm lead order from its major 28% shareholder for the C$6mln funding that will allow it to get to work in a big way on its portfolio of copper targets in Mongolia, not far from where Rio Tinto is busy ramping up the giant Oyu Tolgoi mine to what is expected to be the third largest copper mine in the world with a hundred year mine life.
The new money for Kincora is priced at C$0.10 per unit, with a full warrant attached. While not included in the announcement of the fund raising, a second large cornerstone will emerge as a new declarable shareholding upon closing.
Over 60% of the offering is anchored by these two large natural resource institutional investors who will account for over 40% of Kincora’s ordinary share capital and have undertaken detailed due diligence.
Indeed, an independent technical review commissioned by the company’s largest shareholder supported a “discovery” having already been made at the Bronze Fox project within the underexplored target zone to the west of a key regional fault. This target area has been significantly upgraded by recent exploration activities.
Once the rigs start turning chief executive Sam Spring is optimistic that the shares will start to gain real traction, particularly as the company recently has had a void of news flow and catalysts to own the stock, given no drilling occurred in 2018 and corporate foundations were put in place.
After all, the background isn’t just that copper is likely to be one of the foundational commodities for the global economy for decades to come with a very attractive outlook given the lack of recent discoveries or new development projects in the pipeline, and expected continued electrification supporting demand. And it isn’t just that Oyu Tolgoi, and lesser-known second large porphyry in the project called Tsagaan Suvarga; provide a nice bit of nearology for part-time punters to latch onto and help understand the scale of the potential prizes in this belt.
No, the key to the opportunity that a well-funded Kincora presents is geological, and backing the simple thesis of a team that is looking to replicate prior successes again, but now in a proven but underexplored belt that has never experienced modern systematic exploration on a district scale.
The Kincora team has taken the time and done the work to drop half its landholding, and begin to home in on the best parts of its dominant position in this belt.
The company is at a unique and very exciting stage seeking to confirm its vision of opening up a whole new copper district play across Mongolia’s Southern Gobi belt. To provide substance to this vision, it is worth noting the last decade of extensive and district scale exploration in this belt accounted for around 9% of the contained metal discovered globally over that period, driven by the original Ivanhoe Mines and Robert Friedland’s leadership.
“Success would be visibility for at least the first globally significant copper discovery in the copper space since 2014,” says Spring.
“It’s taken us years of on-going systematic exploration to get to this point, but now we’ve just got to drill. We’ve managed to generate a set of targets that’s hard to match anywhere in the junior space at the moment. But these are still targets, not without risk, which is why confirmation of our concepts at any one of these would likely support at least a tenfold boost in valuation. We have 5 independent and large targets we are now looking to drill.”
The two key projects are Bronze Fox and East Tsagaan Suvarga, both have which have been subjected to a fair bit of scrutiny to date by Kincora, and sit within known mineralised systems and new large scale targets.
“This funding is going to close with good support in the book, we already see that, and the rigs are going to turn to confirm if these targets are what we think they could be,” says Spring.
Of immediate interest will be the area around a previous Kincora intercept within the western section of Bronze Fox which hit 37 metres of 1% copper equivalent within an extensive lower grade intersection.
It was nice enough at the time, but much geological pondering has taken place since that hit.
“Having commissioned an independent block model of previous drilling, relogged the 24,000 metres of core, undertaken detailed new geophysics and completed various technical workshops of all previous results we now believe that we drilled across the top of and away from the target when we got that 37 metres,” says Spring.
So, the simple, and not uncommon, instance of turning the rigs the other way might also work here and lead to an early win. If it does, it won’t stop there.
“Previous drilling focused on the outcropping area to the east of the now understood fault which was a tease for prior exploration,” continues Spring.
“This granodiorite system generally returned 0.1% to around 0.5% copper, close in some areas of the world but not what you come to the Gobi for. What we want to do is confirm the higher grade potential in the western section of Bronze Fox, which sits under moderate cover in a different system, a monzodiorite, which is why we and Ivanhoe missed it in the past. We feel this separate system has significant strike potential in two large target zone areas.”
Three of four holes previously drilled by Kincora in this system had plus 1% hits and the company now has a new understanding that wasn’t in place when last drilling.
“Success is expected to quickly add tonnes and grade to the 1.3mln and 1.5mln tonnes of total attributable contained copper equivalent metal already there within the independent block model,” says Spring.
His hopes are relatively high.
“Back of the envelope estimates support Bronze Fox potentially being twice the size of Xanadu’s Kharmagtai project,” he says, and that’s no idle aspiration. “The key is confirming the higher-grade potential”.
Kharmagtai already boasts a NI 43-101 compliant resource of over 1.1bn pounds of copper and 1.4mln ounces of gold, or 2.1mln tonnes of attributable contained copper equivalent metal for Xanadu, which underpinned recently shifting to the studies phase, post a positive scoping study.
Meanwhile, over at the East Tsagaan Suvarga project, Spring reckons Kincora has three targets, albeit earlier stage but within a brownfield setting of an existing billion dollar plus construction project.
Conceptually, each of these three targets could all be as big as SolGold’s (LON:SOLG) Cascabel project in Ecuador. That discovery for SolGold was a twenty-bagger, from a raising at 2.3p per share to fund its target testing phase drilling in March 2016, to the 45p per share price at which BHP Group (LON:BHP) invested US$59mln in October 2018.
Is the same thing likely to happen here?
Having been running Kincora for seven years, Spring has clearly demonstrated his belief and is cautiously optimistic, saying he is “looking forward to the drill bit to again drive Kincora’s valuation going forward with the company’s technical team, board, shareholder register and targets having never been in better shape”.
The current valuation is just C$7.1mln, pre-money.
Spring states, “I would like to think it would be hard to find many other juniors or deals with a similar risk-return profile, number of catalysts and/or targets, from such a low valuation and backed by a better team”.
Spring goes further, “While we can’t do anything about the water under the bridge, we now have the foundations in place for success and have sought to structure this offering to align the immediate and medium term capital markets strategy to our asset portfolio. We are encouraging existing and new shareholders to participate. I will be.”
Kincora’s chairman Cameron McRae sums up the appeal.
“I used to run Oyu Tolgoi, spent over six billion commissioning the open pit and commencing the underground development of what will be the third largest copper mine,” he says.
“And I would like to see that success repeated, but this time come in at the start of the process, not the building of it, and having seen the money that was made by the original Ivanhoe shareholders over that time.”
We shall see.