One of the challenges in the junior resource exploration/development sector is attaching a credible net asset value to potential assets in the ground. A 43-101 resource estimate is helpful, so is a preliminary economic assessment; but neither really attaches a hard cash value to a company’s project.
Which is why Abraham Drost, CEO of Clean Air Metals (AIR.V) was delighted with the sale of a 2.5% net smelter returns mining royalty for all mineral products produced on the Thunder Bay North Critical Minerals (Platinum, Palladium, Copper, Nickel) Project in Northern Ontario, Canada.
“Triple Flag Precious Metals Corp. is paying us what will be 15 million dollars for a 2.5% net smelter return royalty on our Thunder Bay Critical Minerals Project,” said Drost. “These were orphaned assets which we paid 15 million dollars for 100% of title two years ago. We jumped in with both feet and we’ve put a further $30 million into the ground since then.”
“The value of the Current Deposit and Escape Deposit assets and the work done is not yet reflected in Clean Air’s share price,” said Drost. “However, the Triple Flag investment was into the asset not the equity. If we had gone the equity route to finance 15 million dollars we would have had to issue 60% of our float.”
Drost has lots to say about the flow through share, tax-driven, nature of junior resource financing in Canada. But his takeaway was, “Triple Flag are royalty investors that believe in the potential production value of the assets.”
“Now we are funded to delivery of a pre-feasibility study technical report and additional drilling. Our exploration work will be looking at six, ultra low resistivity, electromagnetic targets outside the known magma conduits. The lower the resistivity the higher the conductivity and that indicates metal.”
With what they have seen so far, Clean Air envisions two mines feeding a single mill. “But there maybe a third deposit, time will tell” said Drost.
Clean Air has attracted a good deal of industry attention. “We had seven parties in the data room,” said Drost. “The CEO of Triple Flag is an ex-colleague of our Chairman, Jim Gallagher and COO Mike Garbutt at Falconbridge and XStrata. Triple Flag has made its bet on the assets and the jockeys.”
In the news release, Gallagher states: “This sizeable, early-stage investment by Triple Flag made after a significant due diligence review demonstrates the inherent potential value of the Thunder Bay North Critical Minerals Project. We appreciate Triple Flag’s confidence in the Clean Air Metals team’s ability to engineer, permit and construct a mine at Thunder Bay North.”
The jockeys in Clean Air’s case bring a wealth of mining engineering and exploration experience to their orphaned deposits. Jim Gallagher has been a mining engineer and mine operator for 35 years. Most recently he “turned around” and sold North American Palladium. Abraham Drost is a professional geologist with a 35 year career leading junior exploration and development companies.
From the investor perspective, Clean Air trading at $0.12 is very much worth a look now that it is funded to the pre-feasibility stage. Triple Flag is not investing to lose money so, rather obviously, their due diligence suggested a highly economic potential producer. Critically, selling the royalty instrument means that Clean Air will not be returning to the capital markets to raise money any time soon.
The great enemy of the retail investor is the share dilution companies have to undertake to raise capital to advance their projects. Clean Air’s management is committed to avoiding that dilution which means there will not be more shares issued at knock down prices. As the Thunder Bay North project advances the markets will have the opportunity to re-rate Clean Air’s share price as it moves from exploration to development.
The overall junior resource market is battered. Market caps are in no way reflective of the underlying value of the assets a company controls or the work it has undertaken.
“Up until now we’ve been price takers,” said Drost. “Now we aren’t.”
It is a very good place to be.