The Next Ventana Gold (OTCMKTS:MRLDF) – Seeking Alpha
For those familiar with the junior gold mining space, Ventana Gold was one of the largest price tags paid for a junior in the past five years. The company’s first drill hole was a massive intercept of 107 meters of 7.81 grams per tonne gold. Eike Batista initially acquired 20% of the company after strong drill results, and acquired the other 80% in a $1.43 billion take-over in early 2011. Ventana Gold had proven up a resource of 3.9 million gold equivalent ounces, at a grade of 4.0 grams per tonne gold. The company’s La Bodega and La Mascota deposits were located in Colombia, 400 kilometers north of Bogota.
(Source: StockCharts.com)
Ventana proved to be a massive winner for shareholders, moving from $0.20 cents a share in 2009 to a buy-out of $14.00 in 2011. This was a 7,000% percent gain for shareholders in less than three years, and would have turned $1,000 in $70,000 for those who got in early. Fortunately, for investors who missed out on Ventana Gold, I believe there is a similar opportunity brewing in the junior mining space. A relatively underfollowed explorer Mariana Resources (OTC:MRLDF) just started drilling last year, and has already delineated a resource nearly the size of Ventana’s. While Ventana’s discovery hole of 143 meters of 7.81 grams per tonne gold was impressive, Mariana bested it on its first hole by returning 103 meters of 9.0 grams per tonne gold. The major difference between Ventana Gold and Mariana Resources is that Mariana’s Hot Maden Project is nearly 400% higher grade than Ventana’s La Bodega and La Mascota deposits.
Below are examples of Ventana Gold’s five most significant drill intercepts during its 2009-2011 drill campaign:
1. LB-051: 51.6 meters of 7.85 grams per tonne gold
2. LB-047: 56.5 meters of 6.60 grams per tonne gold
3. LB-143: 84 meters of 13.66 grams per tonne gold
4. LB-01: 107 meters of 7.81 grams per tonne gold
5. LB-112: 94.5 meters of 5.83 grams per tonne gold
Most junior explorers would dream of hitting even one of these intercepts, yet Ventana had several of them on the path to delineating its nearly 4 million ounce resource. In 2015, investors were introduced by Mariana’s Hot Maden Project and thus far, we have seen results like these:
1. HTD-04: 109 meters of 9.0 grams per tonne gold
2. HTD-05: 82 meters of 20.4 grams per tonne gold
3. HTD-15: 117 meters of 13.9 grams per tonne gold
4. HTD-34: 71 meters of 32.7 grams per tonne gold
5. HTD-71: 69 meters of 62.7 grams per tonne gold
(Source: Company Presentation)
As we can see from the above drill results, Mariana’s drill intercepts are thicker intersections with nearly double the grades. While Ventana’s LB-047 hit a 56 meter intercept of 6.60 grams per tonne gold, Mariana hit a 69-meter intercept of 62.7 grams per tonne. This is a slightly thicker intercept with 900% higher grades, and was released just last week. The other impressive part about Mariana when comparing to Ventana is the minimal exploration work that has been done at Mariana’s Hot Maden. Ventana needed over 150 holes to prove up these five intercepts and a resource of over 3.5 million ounces gold equivalent. Thus far, it has taken Mariana Resources 70 holes to release more impressive drill results and delineate the same size resource.
Mariana Resources
I first highlighted Mariana Resources last week when I shared two junior mining takeover targets in one of my recent articles. Since then, the stock is up over 15% during a week when the Junior Gold Miners Index (GDXJ) barely budged. Mariana Resources is a relatively small junior explorer with 120 million shares outstanding. The company has $6.5 million in cash and a share price of $0.90. This gives it a current enterprise value of $101 million. The company’s flagship Hot Maden project is located in Turkey, roughly 130 kilometers northeast of Erzurum. The project is only 30% owned by Mariana Resources, with the other 70% being held by Lidya Madencilik. Fortunately for investors, the only way to get ownership in the project is through Mariana Resources’ stock. Lidya Madencilik is a private company, and is therefore not publicly traded. Given that Mariana Resources only owns 30% of the property, the total value of the Hot Maden project is closer to $460 million dollars CAD. This means that the market is currently placing a value of $132.43 on the company’s ounces. While this may seem high for a junior explorer, I believe Mariana Resources to be one of a kind.
(Source: Microsoft Excel)
I made up the above table to give a better idea of how the two companies stack up. While both companies have very similar sized resources, Mariana’s 3.5 million ounces are at a grade of 15.0 grams per tonne gold equivalent. This is exponentially higher than Ventana’s grades, which came at the 4.0 gram per tonne gold equivalent level. As we can see looking at the table, Ventana Gold was acquired for a price tag of $366.66 per ounce for its Colombia project. Currently, Mariana Resources’ 30% ownership at Hot Maden is worth roughly $101 million. This means that the total project is worth $463 million as shown in the above table. While I agree that a discount should be given as it is in different mining jurisdictions, I believe the current discount to be far too large. I believe Mariana’s ounces have a fair value of over $300.00/oz compared to Ventana Gold’s $366.66/oz. While I believe it is fair to place a 30% discount on Mariana’s ounces compared to Ventana’s due to country risk, 25% of this discount should be added back to account for grade disparity. Mariana Resources’ grades are nearly 400% higher than that of Ventana’s with a resource that is almost the exact same size. This should make a significant difference when comparing cash costs for the two companies, and I expect the PEA should show all-in sustaining cash costs at Hot Maden of under $500/oz.
The Hot Maden Project
The Hot Maden Project currently holds an extremely high-grade resource of 3.5 million ounces of gold at 15.0 grams per tonne gold equivalent. Of the 3.5 million ounces, 2.1 million ounces are at a grade of 32.6 grams per tonne gold. To put this in perspective, Roxgold (OTCQX:ROGFF) has a resource of 1.5 million ounces at 15.8 grams per tonne gold, and is currently seeing all-in sustaining cash costs of $590/oz. This shows us that nearly half of the Hot Maden Project’s resources are double the grades of one of the highest grade producers in the world.
(Source: Company website)
Mariana has only been drilling the Hot Maden Project for a little over a year, and has thus far delineated the deposit over a strike length of nearly 1 kilometer. The main resource area is located to the north and currently holds over 3.5 million gold equivalent ounces. As we can see from the below drill map, there has been significant drilling done to the south over the past year. The company is currently focused on the «Ridge» area, which has the potential to connect the Main Resource Area with the Southern Discovery Zone. Given the most recent drill results that hit the highest grade drill hole to date at Hot Maden (69 metres of 62 grams per tonne gold), I expect Hot Maden’s Main Resource Area already has moved to over 4 million ounces of gold.
The Southern Discovery Zone has seen limited exploratory drilling thus far, but I expect an initial resource estimate should prove up between 300,000 and 500,000 ounces of gold if it was done with only the current drill results.
(Source: Company Presentation)
Risks associated with my thesis
There are always risks when investing in junior mining companies. When it comes to Mariana Resources, the most obvious risk is the company’s mining jurisdiction. Gold projects in Turkey have seen opposition in the past to mining, and this could prove to be a problem for Mariana’s Hot Maden project. While Alacer Gold (OTCPK:ALIAF) is currently mining in Turkey at its Copler Mine, the area is not one of the top mining jurisdictions. I expect the project could see a discounted valuation, given the added risk of mining in Turkey. I have given the company’s ounces a 30% discount given the mining jurisdiction, but still believe they are significantly undervalued after applying this discount. When comparing the company to Ventana Gold, Mariana has higher grades, a similar resource, but only one third of the valuation. Despite using a 30% discount on Mariana’s ounces, the project is still undervalued by roughly $500 million dollars. Given the fact that Mariana holds 30% of the project, this should result in Mariana adding $100 million to its market capitalization once the market wakes up to this story.
Summary
Mariana Resources is the highest grade gold junior on the market right now, and the biggest discovery of the past five years. I do not believe there is any junior miner that can be compared to Mariana, and one may not come along for another year or longer. While I have compared Mariana Resources to Ventana Gold in this article, I do believe the companies are even in the same league. Mariana Resources has taken half the time and half the drilling to delineate a resource that is the same size of Ventana’s, but at 350% higher grades. While Ventana Gold’s grade for its 3.9 million ounces is 4.0 grams per tonne gold, Mariana Resources is 15.0 grams per tonne gold.
Mariana Resources has moved into my top 5 takeover targets in the junior gold space, behind my top takeover target Gold Standard Ventures (GSV). I believe the company will ultimately prove up 8-10 million ounces at its Hot Maden Project, and has already proven up 4.5 million ounces if it were to do a resource estimate based on current drilling results. The company’s 2.1 million ounces at 32.7 grams per tonne gold should provide a high-grade starter pit if Mariana can move into production. This high-grade starter pit should see all-in sustaining cash costs of under $450/oz, with the project itself seeing all-in sustaining cash costs of $500/oz or less. The company is set to release a preliminary economic assessment over the next few months, which should help us better realize the potential of Hot Maden.
Thus far this year I brought TMAC Resources (OTC:TMMFF) and Gold Standard Ventures to the attention of readers on this site. Both companies were relatively underfollowed at the time, and have both gained over 60% since I highlighted them in my articles. I believe Mariana Resources to be as exciting an opportunity despite being in a less mining-friendly jurisdiction. I am currently long Mariana Resources from $1.08 on the Canadian market, and doubled my position this morning at $1.20. My average cost on Mariana Resources is $1.14 per share. For those that missed out on Ventana Gold and Aurelian Resources, I believe there is a new opportunity in Mariana Resources. The company has higher grades, higher drilling efficiency, and is not even being talked about. The stock trades very thinly and has not been mentioned by anyone yet despite being the largest discovery in the past five years. I believe this to be the calm before the storm, and think it’s an excellent opportunity to acquire shares before it moves into the spotlight.
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Disclosure: I am/we are long MRLDF. 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.
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