Mining Stocks

The making of a Junior Gold Buyout: the Kaminak Story

Kaminak Gold

Every junior gold investor has one thing or reason for investing in the back of their minds: the buyout. The discovery comes first, but then, as new investors pile in and, in many cases, years go by, the focus inevitably shifts to the potential of a buyout. For Canadian speculators in the junior gold sector, there is no higher honor than a major saying – “enough, we must acquire you and either move this asset into production or lock up the project before one of our competitors does”. Canada has no shortage of junior gold buyout examples. The latest involves a little company working off the grid, 130 kilometres south of Dawson City…

Kaminak Gold‘s official journey into the Yukon and the White Gold District began on May 4, 2009.

On that day, the Vancouver-based company announced it had obtained an option to acquire a 100% interest in three highly prospective gold properties located in the White Gold District of the Yukon.

Kaminak’s three initial properties were known as: Coffee, Cream and Kirkman and totaled 7,680 hectares. All three were located in the newly recognized “White” gold district in the west-central Yukon.

Click here to read that first press release.

In what would become a historic press release, Kaminak cited the recent success of another soon to be acquired junior gold explorer:

“The primary target on all three properties is a near surface, bulk tonnage gold deposit analogous to Underworld Resources Inc.’s newly discovered White Project, which is located only 8 km from Kaminak’s Kirkman property and 27 km from Kaminak’s Coffee and Cream properties.”

At the time, the White Gold District was emerging as an area play following a highly publicized discovery by Underworld.

Underworld’s shares were eventually acquired for approximately C$139.2 million by Kinross Gold in the spring of 2010.

Unfortunately, many mining investors buy at the top and the peak of the gold bull market was rapidly approaching.

In little over a year, gold would hit it’s all-time high above $1,900 an ounce and a few months later the TSX Venture would top out at about 2,400. After about 5 years, following one of the harshest commodity bear markets in history, the exchange would hit a low of 466.43 on January 20th, 2016. Less than 4 months later, one of the great gold buyouts in Yukon history would take place.

 

TSX Venture – 10 Year Chart

tsxv-10-year_

Before any of this could happen; Kaminak had a lot of work to do. On June 8th, 2009, Kaminak upped the ante by announcing its phase one program on Coffee targeting gold geochemical anomalies that were“analogous to Underworld Resources Inc.’s newly discovered White Project where a new mineralized gold system was revealed (see Underworld news release dated May 25th, 2009).”

Furthermore, Kaminak announced its initial intent to drill Coffee, stating, “Contingent upon trenching results, Kaminak has funding in place to complete a Phase Two diamond drill program this season.”

source: http://www.kaminak.com/news_releases/archives/index.php?&content_id=123

Kaminak compared Coffee to Underworld’s White Project from the beginning…

 

Even from this early stage, Kaminak stated:

“The primary target on all three properties is a near surface, bulk tonnage gold deposit analogous to Underworld Resources Inc.’s White Project…”

In the end, Coffee would deliver such a deposit.

Arguably one of the first major signs a significant amount of gold might exist on Kaminak’s Coffee property came in August of 2009 when the company reported, “New Gold Occurrences from Yukon’s White District: Trenching on the Coffee Property yields 2.30 g/t Au over 21.0m”

 

Gold buyout lesson: follow the high grade

 

In October of 2009 a chip sample yielding 11.45 g/t Au over 5 metres was reported, followed by additional trenching results of 11.72 g/t Au over 10 metres and 8.56 g/t Au over 15 metres. Companies that kept hitting high grade were able to attract capital even in the worst of times.

It would not be until the following summer, when sentiment towards the White Gold District was peaking, that Kaminak would release its first drill hole, confirming a significant gold discovery. On May 26th, 2010 Kaminak reported a hole intersect of 17.1 g/t Au over 15.5 metres. To give you an idea of the sentiment at the time, just a few weeks after these results were published Underworld would be successfully acquired by Kinross.

Through grid samples, Kaminak identified three new kilometre-scale gold soil trends on the Coffee Property in August of 2010. By now, Kaminak’s share price was on fire as investors clamored into the gold stocks still searching for high-grade deposits in the White Gold District of the Yukon. At the end of the 2010 drilling season, eight gold discoveries were ultimately drilled over a 15 kilometer by 5 kilometer area of the Coffee Gold Project. Right from the beginning, in Kaminak’s first year of drilling, the high-grade nature of the company’s results were evident:

2010 drill highlights from the T3 Trend include:

  • 17.1 g/t Au over 16m (CFD-1)
  • 12.4 g/t Au over 14m (CFD–16)
  • 3.3 g/t Au over 17m (CFD-3)
  • 1.2 g/t Au over 51m (CFD-23)

 

Check out the action in Kaminak’s market during the release of these results in 2010 and 2011. It is important to remember, tens of millions of shares traded in Kaminak’s market each month during this time.

Kaminak Gold – 10 Year Chart

kam-10

 

After announcing a $10 million bought deal financing on October 21st, the company closed the $12 million financing at a price of $3.60 per share. Kaminak was now cashed up in a monster of a gold bull market.

On January 21st, 2011, just a few months before the TSX Venture topped out and began its epic decline of more than 80% in value, Kaminak announced a $15 million initial Phase 1 budget for its Coffee Gold Project.

The following month it announced a $10 million bought deal private placement and once again oversubscribed, attracting $11.5 million in capital.

 

Kaminak’s focus on gold recovery increases

 

In March of 2011, Kaminak reported 97% gold recoveries from initial metallurgical testing of oxide mineralization at its Coffee Project.

In April of 2011, Kaminak announced a $15 million Phase 1 budget, which included 4 drills and 40,000 metres.

As the potential and scope of the Coffee Project began to expand, in July of 2011, Kaminak mobilized a twenty man crew to collect a minimum of 10,000 soil samples across the 150,000-acre property.

On April 2nd, 2012 Kaminak reported 90.4% gold recoveries from a simulated heap leach test. At the end of April, Kaminak drilled a new gold discovery at its Supremo Zone on Coffee.

Results from T4 and T5 Zones included 3.6 g/t Au over 32 metres, 2.1 g/t Au over 36.6 metres, 2.1 g/t Au over 21.3 metres and 2.4 g/t Au over 18.3 metres.

As the TSX Venture deteriorated, Kaminak continued to raise funds, albeit at lower prices. In September, Kaminak announced a $10 million bought deal private placement only to over-subscribe the placement once again, closing a $12 million bought deal private placement on the 11th of October.

Kaminak had now established a trend of over-subscribing private placements and would continue this trend in the coming years.

Towards the end of the 2012 drilling season, Kaminak reportedly connected the Supremo T5 and Double Double gold zones, via assay results from 71 drill holes within the two zones. The asset continued to grow in scope.

Finally, after nearly three years of exploration and tens of millions raised, on December 13th, 2012 Kaminak reported its maiden inferred mineral resource estimate. The result:

3,236,000 ounces of Gold at the Coffee Project in the Yukon.

Kaminak had never been in a better position. It finished 2012 with a 3.2 million ounce resource, C$16 million in cash, no debt and was fully funded for its planned 2013 exploration program. The price of gold and sentiment towards junior gold stocks were about to go where few imagined.

Kaminak welcomes Eira Thomas as President and CEO

As the firestorm of one of the worst gold bear markets was set to worsen, Kaminak appointed Eira Thomas as its President and CEO in February of 2013. Just over 3 years later, she would be negotiating the acquisition deal for over half a billion dollars with Goldcorp, one of Canada’s, and the worlds, largest producers. The company also beefed up its Board of Directors, adding Richard Hall and Bradley Blacketor to the team.

By summer, the markets were completely deteriorating, and companies were running from gold stocks in the Yukon. Kaminak knew it had to keep producing results and advancing its asset; so, in late-June the company entered into a private placement financing agreement with a syndicate of underwriters led by RBC Capital Markets to purchase 4,210,000 flow-through common shares at $0.95 for aggregate gross proceeds of $4.0 million. Like most raises, it was over-subscribed and Kaminak ended up with $5 million when it closed in July.

In September, the company announced it was to raise another $2.5 million. This time, only an extra $300,000 came in, bringing the total to $2.8 million. The capital being raised and the over-subscriptions were getting smaller as the carnage on Canada’s junior exchange grew bigger.

Despite the markets and gold, Kaminak kept right on developing and proving up its key asset. This was the opposite of many companies who were either abandoning the Yukon or reducing activity to care and maintenance.

On November 20th, drilling at the Coffee property linked the Supremo T5 and T7 gold zones. The potential resource was getting bigger…

The company’s last press release of 2013 was very telling as it announced the results of the first phase of a comprehensive metallurgical test work program.

The company reported:

“The primary objectives of the 2013 metallurgical program were to test the potential for heap leach processing of Oxide and Transitional facies at Supremo and Latte, two of the largest deposits discovered to date at Coffee…”

 

Additionally, column leach gold recoveries of 90% to 92% on 1 inch crushed material from drill core composites of representative Oxide material from each of Latte and Supremo were achieved within 40 days. This was a very good initial sign.

In a year that saw many junior gold stocks kick the bucket; Kaminak put out a whopping 22 news releases in 2013.

2014: a deciding year for Kaminak

 

At mid-year, on June 10th, Kaminak reported a pre-tax NPV at a 5% discount of $522 million and IRR (internal rate of return) of 32.8%. These numbers were assuming average annual gold production of 167,000 ounces and all-in sustaining costs of US$688/oz.

Less than 2 years later, Kaminak would announce an acquisition by Goldcorp for $520 million. 

To fund further development in the summer of 2014, Kaminak announced a $13.5 million investment by famed resource investor Ross Beaty and Zebra Holdings and Investments S.à.r.l. in July.

Eira Thomas, Kaminak President & CEO, commented,

“Kaminak is very pleased to be welcoming both Ross Beaty and Zebra Holdings as significant new shareholders, at a pivotal time in our Company’s history. Kaminak recently completed a Preliminary Economic Assessment for our Coffee Gold Project, which indicates a robust, high margin, rapid pay-back, 11 year, open pit, heap leach project in Canada at current gold prices. The Company will now have sufficient funds on hand to undertake a bankable feasibility study and advance the project towards a production decision.”

Click here to read the entire press release from July 14, 2014.

 

Once again, with the treasury full of cash, Kaminak went to work, commencing a Feasibility Study at its Coffee Gold Project with an initial budget of $12 million approved for 2014.

The discoveries kept coming as Kaminak reported another new gold discovery after drilling 3.55g/t Au over 28 metres at Coffee in September.

Another year down and Kaminak delivered 20 press releases to the market, slightly less than the 22 it released in 2013.

The year 2015 was another development year that saw Kaminak deliver numerous infill drill results, an updated resource, two large strategic investments and a plan to build an all-season road to the project.

Kaminak started the year on January 13th by reporting infill drill results from Coffee, including 3.99g/t Au over 22.9m, 4.85g/t Au over 16.8m, 24.1g/t Au over 3m and 3.63 g/t Au over 19.8 metres.

The company closed a $21 million bought deal private placement in March. Then, in late September received a significant endorsement from the Tr’ondëk Hwëch’in First Nation after the company selected its new, northern access road route to the Coffee Project.

The company reported, “the cost to construct an all-season road into the Coffee site from the south was included in Kaminak’s 2014 Preliminary Economic Asessment (“PEA”) at an estimated cost of CDN $35 million…”

On October 30th, 2015, Kaminak closed a C$22.5 million financing with Electrum Strategic Opportunities Fund L.P. and Existing Large Shareholders. When new investors and old keep giving a company many millions of dollars an underlying level of confidence begins to build in the deal.

2016: the year Goldcorp acquires Kaminak for $520 million

Kaminak Gold started 2016 with a bang, announcing on January 6th the Positive Feasibility Study results from its Coffee Gold Project located in the Yukon.

 

The highlights were as follows:

  • After-Tax NPV5% of C$455 million
  • IRR of 37%
  • Average Life of Mine Annual Gold
  • Production of 184,000 Ounces
  • All-In Sustaining Costs of US$550/oz Au

 

The company stated:

“The Feasibility Study indicates that the Coffee Project represents a robust, rapid pay-back, high margin, ten year open pit mining and heap leach project that works in the current gold price environment.”

 

And that,

“As such, Kaminak intends to move forward into mine permitting to support mine construction, which is planned for mid-2018.”

Click here to read the entire press release.

 

By February, the gold market was beginning to strengthen and by March the secular gold bull market, led by equities, had resumed. Take a look at Kaminak’s three-Month chart below:

kam3mo

 

Kaminak’s last press release regarding its work on Coffee came out May 5th. The company, having successfully raised $14.4 million by way of warrant exercise, approved a $29 million 2016 budget. The details of which are featured below:

“The 2016 program will consist of environmental baseline, permitting and exploration activities designed to de-risk and advance the project towards production while continuing to unlock future mining opportunities at Coffee.”

 

If there is anything that can be learned from the Kaminak Gold story and ultimate buyout from Goldcorp, it is this: if you are on the gold, and its high grade, recoverable, keep moving forward at all costs. Kaminak did not take its foot off the gas. When the markets were crashing and its shares were in a free fall, for years, between 2012 and 2014, the company continued advancing its asset. While the dilution seemed significant at times, the market always gave the company a high enough valuation so that it could come back. While it, along with so many junior gold stocks, working in the White Gold District of the Yukon will never see the highs of 2010 or 2011 again, victories like this will continue.

Kaminak Gold’s real journey in the White Gold District of the Yukon began on May 4th 2009. After 6 years of development and more than $100 million spent, the company has identified a world-class resource and created value for its shareholders. Kaminak, like Underworld which it followed into the White Gold District, will now be remembered as another Canadian gold exploration success story. It will give birth to a new wave of exploration in Canada as mining companies push the limits to find gold in the Yukon.

 

The gold markets remain on fire as capital flows back into the junior gold space and the TSX Venture continue. In preparation for this bull market we published an EBook in early 2015, where we reveal 50 leaders who took small-cap stocks to stunning multimillion and, in some cases, billion dollar buyouts. The companies these leaders run today are described in this one of a kind rolodex of some of the top entrepreneurs and business minds in the small-cap mining, technology and energy sectors.

 

This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.


Alexander Smith

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