We begin coverage of Nexus Gold Corp. with an investment opportunities score of “Significant”, based on recent test results, the opportunity in front of the Company and finally on its strong management team.
Nexus Gold Corp. is headquartered in Vancouver, Canada and trades on the U.S. over the counter market under the symbol OTC:NXXGF, in Canada under TSX-V:NXS, and on the Frankfurt exchange as FDE:NGE. The Company is involved in gold exploration with two West African mining operations currently under development in the country of Burkina Faso.
As many of our regular readers already understand, we rarely cover junior miners (mining companies in the exploration phase) such as this Company. This year we plan on only covering two, one of which is Nexus Gold Corp. Upon performing our initial research on this company, we were excited about three factors that convinced us that coverage is warranted.
First, are the recent test results the Company has recently announced. Many times, investors who do not normally following the mining sector get somewhat of a glassy eyed look when junior miners discuss RAB programs, grab samples, grams per ton, vein samples and the like. This causes many of them to steer away from investing in such companies. We think non-mining oriented investors should attempt to, and are able to understand, the test results that Nexus has produced recently. Simply put, it’s really not a complex as it sounds and some of the results are quite spectacular. It’s worth the effort, in our opinion.
Second, is the manner in which the Company has obtained its to rights to explore its chosen properties in West Africa. Often times, junior minors must cough up a huge amount of cash in order to begin exploration. We like the arrangements this Company has negotiated in that the projects are very backend loaded, meaning the Company will be able to deploy more working capital toward prospecting exploration.
Third, is the Company’s management team. We really like this management team as we believe they demonstrate a wide range of skills. Managers and board members not only have significant mining related experience, but also are well versed, via previous successful ventures, in corporate compliance, finance, management, and marketing. We also believe it is impressive to have such an experienced senior geologist on board. One of the directors, Warren Robb, has direct field exploration experience at one of the previous operators of the Bouboulou location. The Company’s Burkina Faso country manager, Jean Claude Ouedr Aogo and Mr. Robb, both were part of the Roxgold team that made the Yaramoko discovery in 2011 with Roxgold. We feel this is an important aspect of this story. We provide additional details of this later in this report.
Forth, this is a fact moving team. We really like that! In the past six months, Nexus has performed two sampling programs, a RAB drill program, two 2,000 meter diamond drill programs, and a 400 meter trenching program, at the properties. Additionally, it will be underway with another 2,000 meter diamond drill program next week. This is a well above average pace. As we mention, we like that a lot! Fast moving companies like Nexus produce lots of news for investors. We like that also!
We also view the corporate share structure and the market capitalization as attractive for risk adverse, small investors, even those investors not particularly well versed in junior miners. For example, there are approximately 125 million shares outstanding. With the recent closing price about US$0.15, we have a total market capitalization of about US$30 million. Considering the recent test results, and likely more importantly, what we think will be positive near-term future test results, we believe the market capitalization is attractive.
As is outlined in Table One, there is also a pool of options/warrants pending at prices of C$0.085 to C$0.12, and while this will boost the fully diluted share count to nearly 16 million, exercise will also likely yield more than C$3 million that can be added to the working capital balance to boost exploration efforts. Additionally, relative to the capital structure of the Company, we believe it is worth pointing out that 70 million of the outstanding shares are held by insiders such as management, friends/family, etc. While this provides the group with control over the future direction of the Company, it also places the group’s interest in the direction of the stock price alongside of the common shareholders’ interests.
We also point out that Nexus is not an unknown junior miner. There’s clearly a shareholder following that has grown substantially over the past 12 months. Surely, there are investors watching for news at the Company, which, in our opinion, means a potential pool of investors who are likely to buy the shares upon the release of positive news. We think this last point is important because if the Company does announce positive news – as we believe it will over the coming months – there will be a group of shareholders to stand up and take notice.
Thus, for these reasons we are beginning coverage of the Nexus Gold Corp. We believe risk adverse small-cap investors could do well by considering the shares.
|COMMON SHARES (Currently Issued & Outstanding)||124,412,032|
@ .075 cents
@ .12 cents
@ 12.5 cents
TOTAL POTENTIAL PROCEEDS FROM EXERCISE OF WARRANTS
OPTIONS (@ .085 – .12 cents)
FULLY DILUTED SHARE TOTAL
SHARES HELD IN CLOSE HANDS (Friends/Family/Associates)
MARKET CAP (@ C$22 cents)
Nexus Gold has three project worthy of discussion: 1) Walker Ridge gold property located in Nevada, USA, 2) Bouboulou Concession, Burkina Faso, West Africa, and 3) Niangouela Gold Concession, Burkina Faso, West Africa.
The Company acquired the Walker Ridge gold property during October of 2011, gaining a 100% interest in June of 2016. However, at the end of January 2017, the Company made the decision to abandon the project resulting in a write off of approximately $2.3 million. Considering that Walker Ridge is no longer the focus of the Company, the remainder of this report will concentrate on the West African exploration opportunities.
In particular, we believe the Niangouela Gold Concession is of special interest due to the recent extraordinarily strong test results. While we also believe the Bouboulou Concession holds strong promise for Nexus, it is our opinion that Niangouela will produce the best near-term exploration results that could drive the stock to higher levels.
As outlined above, both the Niangouela and Bouboulou properties are located in the West African country of Burkina Faso. Please see Exhibit One and Exhibit Two for more information.
Source: World Book Atlas, 2016
Burkina Faso is a small nation located in West Africa, but is also a major gold producing country. The continent of Africa produces approximately 30% of the worldwide total of gold with leadership from four countries, South Africa, Ghana, Mali and Burkina Faso. Political and social strife are common on the continent of Africa, and Burkina Faso has not been immune. However, while there has been a degree of such issues in Burkina Faso, the government has been stable and most importantly the mining industry has been well protected. It is no surprise the mining industry is especially important to Johnson as it is one of its major industries, as is outlined in Exhibit Three.
Source: Wilson World Book of Maps, 2015
Additionally, there is a very favorable national royalty and tax situation, which is positive for international mine operators. There is also mining operation expansion in the country with the government accelerating the approval of mining concessions, with most of this growth being in the gold sector. Lastly, relative to Burkina Faso, while there is a somewhat developed mining sector in the country, much of the country remains unexplored, leading to the potential for further expansion into other areas within Johnson by companies such as Nexus.
Source: World Bank, 2015
Exhibit Four shows the location of the Niangouela Gold Concession region in the North Central of Johnson. The mining permit covers approximately 180 square kilometers and is located directly in the Boromo Greenzone Belt.
Greenstone Belts our geological formations within the earth. These areas are mainly formations of rock that have undergone changes due to volcanic activity acting on sedimentary rock formations. Some of these rock layers are actually green in color due to the minerals present in the various layers of material. These Greenstone Belts often contain significant amounts of gold, particularly along the edges of the belt layers. Therefore, Greenstone Belts are an excellent place to prospect for gold and the zinc, silver and lead, and the other minerals that are often found in the same formations.
Gold mining of Greenstone Belts is usually “hard rocking mining” as opposed to placer mining, which most North American investors have more familiarity. Hard rock mining involves extracting gold from inside the surrounding rock, rather than simply separating gold from other materials as is done in placer mining. For example, as is shown in Figure Five.
Source: Nexus Gold Corp.
Investors are able to access the Company’s website for a complete rundown of the testing and sampling that has been done at the Niangouela location – most of this data is outside the scope of this report.
Here, we offer a layperson’s summary:
There have been almost 600 test pits, holes and trenches that have been dug in order to obtain samples in order to determine how much gold could be at the Niangouela site. Some of the samples produced strong results, but others have produced very exciting results.
Nexus ready knew that there was a decent amount of gold in the ground at the location as pre-acquisition test confirmed. However, the site also had promising geological features, which led many to believe the amount of gold in the ground could be significantly higher than the initial test results indicated. In particular, the Niangouela location has many of the same characteristics as one of the most important mining sites in all of Burkina Faso. Based on this pre-acquisition testing and the promising geological features that were present, the Company decided to begin a drilling program in order to determine how much gold could be at the site.
Nexus acquired rights to the property in November of 2016 and began rotary air blast drilling at the location during December 2016. (Rotary air blast drilling, referred to as RAB, is a relatively inexpensive way to obtain samples – it’s often the first step of a formal drilling and testing program).
Whereas earlier testing had returned samples of up 34 grams of gold per ton in soil samples and 18 per grams of gold per ton in rock samples, the Company’s own testing showed rock samples and values of 1.2 grams of gold per ton, up to 2.49 grams of gold per ton. Nexus announced the completion of the RAB drilling at the end of 2016. Actual test results were announced during the 2nd week of January 2017.
Some of the results were off the charts with one sample taken from the primary quartz vein (gold is often found with in veins of quartz) at an incredible 2,950 grams of gold per ton. Samples from other locations returned a much more lower 23.9 grams of gold per ton, but which are nevertheless also significant. The Company’s press release highlighted in bold letters, however, that the samples might not be representative of the mineralization at the site.
Nevertheless, the results were very exciting.
In many ways, the January 2017 RAB results opened up a host of additional questions for which management would need to find answers. It appears the sample showing 2,950 g per ton was in fact a one-off as it represented a single, very small sample. However, the sample indicating 23.9 g of gold per ton came from a much larger sample, and therefore is likely much more meaningful. Surely, both of these sample results indicated that something exciting could be in the ground at the Niangouela site and that additional testing was certainly warranted.
Additional results were announced in late January, with one sample indicating 403 g of gold per ton and an additional test with 49.8 g, with additional positive results being announced in early March of 2017. Based on all of these positive tests, the Company announced in early April of 2017 that it would begin the next phase of drilling at the site with more advanced and accurate diamond core drilling.
We are still awaiting results of the Phase Two drilling program at the Niangouela site, which we expect to be announced over the short term. The Company, however, announced on May 3, 2017 that the testing had revealed an additional five zones of quartz veining and sheering, in addition to the main vein-sheer system. What this means in lay terms is the following: management has known for a long time there was a main “vein-sheer system” on the property. These test showed there we even more of these zones than initially believed.
High concentrations of gold are often found in veins of quartz. See Exhibit Five. A vein-sheer system is simply a geographic formation caused by prehistoric earthquakes that “sheered” or split the quartz vein allowing additional gold accumulation to take place over long period of time. Therefore, finding a geographic formation where the veins of quartz have been sheered, could indicate an ultrahigh concentration of gold. Five additional such zones were identified by the drilling programs.
Source: Nexus Gold Corp.
We view the finding of the five additional zones as very exciting. Investors in the Company agreed. When the initial drilling program was announced, shares traded in the $.05-$.06 range. As results came in from the testing of the Niangouela site, the shares rose rapidly and are now more than triple the December 2016 price averages.
Considering we are expecting further test analysis from the Niangouela site, investors in the common shares could be in store for some exciting times. Should these results be negative, of course, the shares will likely selloff, but we would contend that the rise in the stock price is probably “telling us something” about what is likely to be announced
To the south and west of the Niangouela site is the Bouboulou Concession, which covers an area of approximately 40 square kilometers. Geologically speaking, the site has exciting features that are similar to those found at other proven locations that are located in close proximity.
Whereas the Niangouela site is somewhat of a speculative site, Bouboulou is a much more advanced stage gold exploration location. The general area has seen numerous gold finds supported by significant historical drill testing results. The property was successfully explored by both Riverstone Resources and Roxgold in the past. The Bouboulou location is shown in Exhibit Six.
Exhibit Five – Location of the Bouboulou Concession
Source: World Atlas, 2016
In early May of 2017, the Company announced it had begun the previously announced diamond drilling test program for the Bouboulou location.
The tests have also produced some very positive results with the Company indicating in early June of this year that it had obtained high-grade quartz samples that contain visible gold and other results indicating 66.1 g of gold per ton. In addition to these positive results, the testing has identified additional areas that may contain large amounts of gold. Management has called the most significant of these new zones “Rawema West”.
Based on these positive Phase One results, management now plans to embark on a Phase One diamond drill program at Bouboulou, which will target the previously identified zones of interest. Particular emphasis will be placed on the Koala section, which produced the samples that ran as high as 66 g of gold per ton.
It is also notable relative to the Bouboulou site that the Company’s senior geologist, Warren Robb, was also the chief geologist for Roxgold in 2011 and 2012. During this timeframe, he oversaw drill testing at the same location, which was then called Bissa West.
We also feel it is noteworthy that the Company’s Burkina Faso country manager, Jean Claude Ouedraogo and Mr. Robb, both were part of the Roxgold team that made the Yaramoko discovery in 2011 with Roxgold. That discovery was very important and raised around $60m for the Roxgold and propelled its market cap, as a high-grade system was confirmed. This was well above the average grade for Burkina Faso. Today Yaramoko is a producing mine, and it has turned Roxgold into about a $450 million dollar market cap. So the message here is Mr. Robb and his team has a history of exploration success in Burkina, and that is a major positive for Nexus.
If anyone knows that particular property, it’s likely Warren Robb and Jean Claude Ouedraogo.
Based on all of the analysis that has been done at Bouboulou, management, and clearly many of the investors in the Company, believes there are significant gold deposits at the location.
According to management, there is the potential for two types of gold deposits exist at Bouboulou. The PR and KB trends appear to potentially host gold deposits consistent with the belt in the 20 to 40 million ton ranges at grades of 1 to 3 grams per ton. The B2 trend could possibly host a higher-grade lower tonnage type deposit in the 5 to 7 million ton range at grades of 5 to 7 grams per ton.
Doing this simple arithmetic shows that these estimates indicate deposits within the PR and KB trends are of between 6433,000 ounces to 120,000,000 ounces. Based on $1,300 per ounce, this calculates to a value of at least $849 million. The amounts within the B2 trend could be much higher. Exhibit Six shows the Bouboulou gold trends.
Exhibit Six – Bouboulou Gold Trends
Source: Nexus Gold Corp.
We think the most exciting near-term catalyst will be the announcement results of the drilling that was completed as of May 11, 2017. Simply put, we think the results could significantly move the stock higher if positive – and of course lower, if the results are negative.
Either way…. Something’s likely going to happen! We are betting on the upward movement.
Over the past few months there has been increasing interest among investors on the Niangouela project with the Bouboulou product taking somewhat of a backseat. Clearly the initial results from Niangouela were quite spectacular and it appears that over the short term we will gain some additional insight as to what’s really in the ground at Niangouela.
While there is a lot of focus, especially considering the pending test results, on Niangouela, we also do not discount the fact that the opportunity at Bouboulou is also exciting. It’s a proven site and with Phase One of the diamond drilling program getting underway, investors will also likely be see news relative to that property over the coming weeks. We have seen since December of last year that these shares move significantly on news. We believe this will not change considering the growing interest in these shares.
Peter D. Berdusco
President, CEO & Director
For the past 20 years Mr. Berdusco has been an investor, business consultant, senior executive and board member in the public and private markets. Over the last 10 years, through his private consulting firm Berdusco Enterprises Inc., he has fulfilled executive management, corporate development and strategic planning roles. Further to this, he has successfully raised financing for junior public companies including GFK Resources Inc. (TSX.V: GFK) and Midnight Sun Mining Corp. (TSX.V: MMA). His experience as a board member includes a founding directorship with Giantstar Ventures Inc., a TSX Venture Capital Pool Company, which successfully acquired Chalk Media Corp. In 2009 he founded as senior partner, Falcon Point Capital Partners Ltd., a firm specializing in capital services for publicly traded companies.
Chairman & Chief Operating Officer
Mr. Klenman brings over 25 years of business development, marketing, finance, media and corporate communications experience. He has held senior management positions in both the public and private sectors. Since 2008 he has served as a communications consultant for several TSX-V listed resource companies, including among others Roxgold Inc. (TSX.V: ROG) and Forum Uranium (TSX.V: FDC). Mr. Klenman also spent ten years in broadcasting, which included notable board positions with CKVU Television in Vancouver and Canwest Pacific Television.
Warren Robb, P. Geo
Senior Geologist & Director
Mr. Robb graduated from the University of British Columbia in 1987 with a Bachelor of Science in Geology and brings over 25 years of mineral exploration experience to Nexus Gold Corp. Mr. Robb has worked for both senior and junior mining companies and has extensive operational and drill program management experience ranging from small preliminary testing to expansive programs for ore reserve definition to mining operations. Mr. Robb has managed exploration programs for precious and base metals throughout Canada, the United States, China, Africa and South America. In 2012, Mr. Robb served as Chief Geologist for Roxgold Inc., where he supervised both field exploration and the diamond drilling program on the company’s Yaramoko gold property in Burkina Faso, West Africa.
Mr. Stevens is a CFA charter holder with over ten years’ experience in the capital markets, first as an Investment Analyst with Salman Partners Inc., then as a merchant and investment banker. While at Salman Partners, Mr. Stevens became a top-rated analyst by StarMine on July 17, 2007 for the metals and mining industry. Over the course of his career, Mr. Stevens has been instrumental in assisting in financing’s and M&A activity worth over $1 billion in transaction value.
Michael W. Kinley, CA
Chief Financial Officer & Director
Mr. Kinley received his Bachelor of Commerce degree from Mount Allison University in 1971 and his Chartered Accountant designation in Ontario in 1973. He earned his designation with KPMG, where he spent 20 years (1971-1991), the last 10 as a partner. During the past 20 years Mr. Kinley has served as an officer/director for a number of resource companies listed on the TSX and TSX Venture Exchanges, including Cardero Resources, Wealth Minerals, Indico Resources, International Tower Hill Mines, Dorato Resources and Trevali Resources.
Dr. Douglas Oliver, MBA, Ph.D
Dr. Oliver is a career geologist who received his Bachelor’s degree in Geology from Rutgers University, an MBA from the University of Texas at Austin, and a PhD in Tectonics from Southern Methodist University. His more than 30 years in mineral exploration has focused on precious metals in the western United States, particularly in Nevada, as well as Alaska, Canada, Mexico, Latin America and Africa. His Nevada experience includes Senior Geologist positions with Occidental Minerals and Tenneco Minerals and he has consulted for over half a dozen companies on projects and acquisitions across the state. As VP of Exploration for Meadow Bay Gold Corp. (TSX: MAY), Dr. Oliver led in the discovery of Nevada’s first porphyry-host gold deposit at the Atlanta Project.
Jean Claude Ouedraogo, BAA
Mr. Jean Claude Ouedraogo is a graduate of the University of Quebec, Montreal, Canada. For the past 20 years in both Canada and Africa he has served as a director for several private companies in the mineral and resource sector. In 2011, he held the position of country manager in Burkina Faso for Roxgold, Inc. In this capacity, he assisted in the operations of company projects notably the discovery and development at Yaramoko, while maintaining good relations with the various government ministries responsible for mining and exploration.
It’s an exciting time for Nexus Gold Corp. and its investors. Having shut down its Nevada exploration, the Company is now focused on two potentially lucrative areas in the West African country of Burkina Faso.
The Niangouela gold concession has already captured significant investor attention. Preliminary test results have been somewhere between very strong and spectacular and we think we are all due for additional news over the short term. In our opinion, investors are betting heavily that these results will be positive, as the shares have already been driven up as the story has begun to unfold.
The Bouboulou concession is also interesting as it is in an area where there have been a host of successful mining operations. Additionally, the Company’s geologist was on staff of the prior operator of the site. This, for obvious reasons is a very positive sign. With diamond drilling now underway, we are also likely to see a string of announcements relative to results at Bouboulou.
We believe Nexus Gold is story to watch. News is pending over the short-term with additional news likely to follow. The Company has a reasonable market valuation with warrant/options exercises likely to occur, which will provide additional working capital for the Company. We also have in this Company a management team and a group of insiders with large equity positions and thus strong incentives to make this stock work for the minority common stock investors.
We will be anxiously awaiting upcoming test results. We can hardly wait for more information to help everyone figure out exactly what’s in the ground at Niangouela and Bouboulou.
This will be a fun story to watch unfold.
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