Wednesday, August 21, 2013 3:24:45 PM
Aug 21 2013
by: Itinerant
Seeking Alpha
The Company
Probe Mines (PROBF.PK) is a junior precious metal exploration company that has made two major discoveries in Ontario since 2009, the Borden Gold Project and the Black Creek Chromite Project.
The Thesis
The Borden Gold project has already attracted the interest of a major Canadian mining company. The resource has been growing steadily with every drilling season; and an evolving high-grade zone within the deposit has the potential to improve the economics of the project significantly. Recent drill results seem to confirm our expectations of this high grade zone.
We believe that the Borden gold discovery has a high probability of becoming a profitable mine in due course; and we also believe that the chromite project is a logical candidate for an accretive sale.
Probe Mines have already shown the ability to create value by advancing these discoveries.
Support from Agnico Eagle
We had been following the progress of this company for some time but only raised an eyebrow when Agnico Eagle (AEM) made a $11.25 investment in the company. It can be safely assumed that Agnico Eagle had been able to perform a level of due diligence that remains unattainable for mere retail investors. This investment therefore represented a serious tick of approval. Following this transaction Agnico Eagle owns almost 10% of the outstanding shares. If Agnico Eagle decides to exercise the warrants that were also part of this deal it will increase its holding to 16.2%. This investment is one of several that Agnico Eagle has made this year and in each case it gave this senior gold miner a foothold in a promising exploration project.
(click to enlarge)
The Borden Gold Project
Probe Mines landholdings are situated about 160km to the south-west of the gold mining town of Timmins. Despite the prolific nature of this district the particular area of the Borden project is comparatively underexplored. The Borden Gold discovery was made in 2010 and since then this project has been the sole focus of the company's exploration activities. The latest NI 43-101 resource estimate dating back to January this year reported on 3.868M ounces of gold in the indicated category plus further 0.625M inferred ounces at a cutoff grade of 0.5 g/t.The metalurgy is advantageous and recoveries of more than 90% have been achieved for the higher grade ore of the deposit.
This resource averages just over 1g/t which is on the low side for our comfort. However, the deposit has a distinct high-grade zone. Increasing the cutoff grade to 1.5g/t yields an indicated resource of more than 1M ounces at a very respectable grade of 2.34 g/t.
This year's drill campaign is concentrating on expanding this high grade zone and first drill results have started to flow in. Last week's announcement prompted us to raise an eyebrow yet again. Reported intercepts included 47.0 meters grading 6.8 g/t Au and 29.4 meters grading 5.9 g/t Au. The latter of the two quoted results is especially interesting since it indicates a significant expansion of the high grade zone by 200m to the northwest.
As we are putting the final edits to this article, more drill results are being released including 44.4 metres grading 4.0 g/t Au.
Upcoming Catalysts
Given the high quality of these first drill results for this season we recommend that potential investors remain alert to future announcements reporting on drill results. These should be forthcoming regularly from now on.
Once this drilling season concludes later this fall we expect the new results to be worked into the resource model. This will lead to a resource update, presumably with yet another increase in ounces and confidence. A preliminary economic assessment based on this updated resource will be the logical next step.
The company continues to consolidate its landholding and has added a large area called the East Limb in order to extend its control of the Borden Gold Belt to over 41 km. A few gaps still need filling in and corresponding action would be accretive for the company.
The Black Creek Chromite Project
Turning to the chromite project we note that the location of Probe's resource is wedged between two other deposits controlled by Cliffs Resources (CLF). Probe Mines has conducted enough exploration work on this property to release a NI 43-101 report. This document indicates a substantial resource of over 10 million tonnes of high grade chromite rich enough to be direct-shipped upon extraction. Chromite is an iron-chromium oxide which is used in stainless steel production. Probe has not performed exploration activities on this project since shifting focus to the Borden gold discovery. However, enough information has been generated to whet Cliffs appetite should it decide to develop the adjacent deposits on either side of Probe's landholding.
(click to enlarge)
Stock & Financial Information
Probe Mines is listed on the Toronto Stock Exchange and shares of the company trade on the pink sheets in the US with adequate liquidity for retail purposes. The company currently has a market capitalization of $122M and there are 75.7M shares outstanding (88.5M fully diluted). Shares are currently trading at $1.81 which is not far from the top end of the 52-weeks trading range. Management owns 5% of the company and institutional investors control a 35% stake (not counting Agnico Eagle's investment). Nine analysts are currently covering Probe Mines.
Very importantly, the company has no debt and has $28M of cash at its disposal which will be sufficient to pay for all exploration activities this year. We presume, that these funds will also be sufficient to perform a PEA for the Borden Gold Project.
Risk
Probe Mines is an exploration company and still near the very beginning of a long process that may eventually lead to operating a gold mine. Many pitfalls can happen along the way, and most companies do not make it to production from such an early stage. Investors putting their money into this type of enterprise run a very high risk of loosing their investment. The few that don't, however, typically earn rich rewards.
The Chart
There are two features that we note from the daily chart above:
The 200dMA has crossed back over the 50dMA which is a bullish indicator called golden cross.
This year's summer low was significantly higher than last year's.
Both features distinguish the performance of this company from the general sector and we interpret them as bullish signs.
Conclusion
If the blossoming gold price rally has legs and positive drill results continue to flow in we believe that this stock has the potential to run significantly higher before the end of the year.
In the longer term we view Probe Mines as a potential takeover target. If equity and capital continues to be managed diligently then such a scenario should be advantageous for Probe shareholders.
http://seekingalpha.com/article/1649512-probe-mines-a-cashed-up-explorer-getting-noticed
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