$ALO : Alio Gold – Independent Economic Analysis

Updated, 8 January 2020

Long-Term Price Case$1,700/oz.
ProjectFlorida Canyon
Mineral Reserves1 Mozs.
Shares Outstanding84,700,000
Market Cap$65,219,000
Average Annual Production85,000 ozs.*
Recovery71%
LoM9.8 Years
Payable Product734,200 ozs.
True All-in Cost (TAIC) $1,283/oz.
Gross Revenue$1,248,140,000
Royalty($57,414,440)
Refining Charges($3,369,978)
Gross Income$1,187,355,582
Total Operating Costs($662,900,000)
Operating Profit$524,455,582
Income Taxes($136,358,451)
Total Capital Costs($81,900,000)
Net Income$306,197,131
Net Profit Margin25%
Absolute Cost Structure (ACS)75%
Total True Value$3.62/sh.
Cash Flow Multiple5x
Average Net Annual Cash Flow$35,445,000
Future Market Cap$177,225,000
Future Market Cap Growth172%
Target$2.72/sh.

Notes: All Values in U.S. Dollars

Alio Gold, with Mark Backens at the helm, has done more soul-searching than is common for a small producer. As a result, it has rapidly been transformed into an enterprise with few illusions and a no-nonsense mission.

At Fahy Capital Management, we typically invest in the deposit first and management second, but the reverse is true with Alio Gold. With this particular investment, we are primarily investors in Mark Backens, as he has made the hard choices required to bolster shareholder confidence.

From the bold sale of non-core assets and the negotiation of a smart financing package with Sprott to the recent lease agreement with Caterpillar and the swift development of a critical Phase II leach pad, Backens has attacked Florida Canyon with a laudable all-or-nothing attitude. He has spearheaded a right-sized capital spending program that is effecting material results for shareholders. He has transitioned San Francisco to residual leach, while pursuing a potential monetization of the mine. Meanwhile, spending at Ana Paula has been reduced to holding costs until the asset is monetized or a JV** is in place.

In closing, as we are confident that Alio Gold will boost production by up to 50% at Florida Canyon in 2020 and grow mineral inventory through brown field exploration, we have boosted our stake for the 3rd time in 24 months.

*For the time-being, we have included an approximately 12,500 ozs. of residual leach output from San Francisco in our valuation model. This will taper down over time.

**We think a JV is the ideal path forward for Ana Paula, an asset on which we have spent a lot of research hours, as well as one that we believe will prove of value to shareholders in the latter half of the decade.

$AUNFF : Aurcana Acquires Blue Grass Mining Claim, Extends Virginious High Grade Vein by 7500 Feet

This is an exciting development for one of our favorite fully-permitted, production-ready primary silver miners.

The acquired claim provides Aurcana with access to an additional 7500 feet of high grade replacement vein which could considerably expand mineral inventory.

We think the nearby Orvis Claims are next on Aurcana’s shopping list.

$NORZF : NorZinc — Independent Economic Analysis

Long-Term Price Case$24/oz. Ag, $1.10/lb. Zn, $1.00/lb. Pb
ProjectPrairie Creek
Mineral Reserves159,766,517 AgEq ozs.
Shares Outstanding372,540,000
Market Cap$23,470,010
Average Annual Production10,064,587 AgEq ozs.
Recovery87% Ag, 88% Pb, 83%, Zn
LoM15 Years
Payable Product150,968,809 AgEq ozs.
True All-in Cost (TAIC) $18.59/oz.
Gross Revenue$3,623,251,416
Smelter Deductions($350,261,000)
TCRC + Penalties($333,905,200)
Gross Income$2,939,085,216
Total Operating Cost($1,386,771,250)
Operating Profit$1,552,313,966
Income Taxes($411,363,201)
Royalties($18,627,768)
Total Capital Costs ($305,436,850)
Net Income$816,886,147
Net Profit Margin23%
Absolute Cost Structure (ACS)77%
MTQ Score0.3
True Value$2.19/sh.
True Value Discount (TVD)97%
Cash Flow Multiple5x
Annual Cash Flow$54,449,416
Future Market Cap$272,247,080
Future Market Cap Growth1,060%
Target$0.73/sh.

Notes: All Values in U.S. Dollars

NorZinc Newfoundland NI-43-101 Compliant Indicated Resources

DEPOSITZinc (lbs.)Lead (lbs.)Copper (lbs.)Silver (ozs.)Gold (ozs.)Zinc Equivalent (lbs.)
LEMARCHANT328,113,98585,363,98836,279,27036,279,27086,112697,621,844
BOOMERANG212,695,86190,252,84115,342,9834,386,05466,069499,031,249
LONG LAKE70,167,40614,177,0468,703,630581,6716,766124,637,849
TOTAL610,977,252189,793,87560,325,88341,246,995158,9471,321,290,942

Like substantially de-risked Prairie Creek, NorZinc’s 1.3B lbs. of ZnEq in Newfoundland is not currently reflected in the company’s market cap, further deepening the special value proposition open to patient, risk-tolerant speculators.

$THM : Tower Hill Mines — Independent Economic Analysis

Long-Term Price Cases$1,700 oz. Au
Shares Outstanding187,111,857
Market Cap99,169,284
ProjectLivengood Gold Project
Ownership100%
Reserves9M ozs. Au
Average Annual Production294,100 ozs.
Recovery75.3%
Payable Gold6,763,900 ozs.
LoM23 Years
True All-in Costs (TAIC)$1,412/oz.
Gross Revenue$11,498,630,000
Royalty($344,958,900)
Total Operating Costs ($4,586,129,395)
Operating Profit (EBITDA)$6,567,541,705
Income Taxes($1,773,236,260)
Total Capital Costs($2,847,000,000)
Net Income$1,947,305,445
Net Profit Margin17%
Absolute Cost Structure (ACS)83%
MTQ Score (Higher is Better)0.2
True Value$10.41/sh.
Cash Flow Multiple5x
Average Net Annual Cash Flow$84,700,000
Future Market Cap$423,504,000
Future Market Cap Growth327%
Target$2.26/sh.

Notes: All Values in U.S. Dollars

Net Profit Margin is slim and Absolute Cost Structure is bad but scale works nonetheless for Tower Hill Mines, a fact that hasn’t gone unnoticed by the likes of John Paulson and Electrum. We became shareholders on 31 December 2019.

$POTRF : SOPerior Fertilizer Corp. — Confidence is…

LOW

Firstly, the present informal arrangement that SOPerior has struck with Lippo Group-backed Tamra Mining in Milford is unnecessarily opaque. Secondly, the dearth of updates from the company over the last year regarding pilot plant debt financing is shameful. In light of these factors alone, SOPerior’s recent down-rating is justified.

Getting into bed with the Lippo Group, firstly, is a generally bad idea, as Lippo is known for its rapacious business practices. If financing is secured by SOPerior over the next handful of quarters, one must pray that it isn’t from Lippo. That financing would likely result in a management appointment, total financial control, bankruptcy and the acquisition of Blawn Mountain by Bill Clinton campaign fraudster James Riady’s Lippo China Resources (LCR).

This isn’t to suggest that SOPerior is in any way presently in cahoots with Lippo or any of its affiliates, but Riady is on the prowl in the neighborhood and has already demonstrated suction in Milford and environs.

Regarding SOPerior’s proposed pilot plant: LCR currently owns the plant’s debt, which it bought in 2016 at a hefty 31% discount, and which gave it a 28% equity interest in the Waterloo-owned plant (LCR subsidiary!), which would clearly enable LCR to exert undue and likely detrimental influence on SOPerior. One can surmise that it was the intention of LCR to lure SOPerior into the same trap in which CS Mining found itself ensnared in 2011.

We are of the earnest opinion that it is of paramount importance for SOPerior’s Board to reconsider its proposed partnership with LCR, presently masquerading in Milford as Tamra Mining. We believe there are safer means by which to secure debt financing, and that Blawn Mountain — a true national resource treasure — should remain out of the reach of foreign hands.

$CCJ : Cameco and the Japanese Overhang

We won’t pay up for Cameco, as we still think the downside for the stock is substantial, especially in light of unabated Japanese uranium stockpile sales since August.

While the Japanese flood the market at and below spot, these are the levels we are watching in Cameco:

Weak buying at $7.67, mild support at $6.35 and thin air below to $4.21. We are tentative buyers from $6.35 and committed buyers from $4.21.

Needless to say, this also implies that the bulk of our uranium book will be smashed to smithereens once window dressing season has concluded, which is our secret hope, as we would love to add aggressively 50-75% lower in our holdings. After all, it’s all crap and we love to be alone with the infernal stink of shit companies that are likely to get shittier, poop scoopers that we are.

Powerlifting Update

Over the last 12 months I have dropped 50 lbs. in order to conduct a strength-to-weight ratio ‘experiment’ (read: stay alive). My hope was to drop up to 50 lbs. while boosting the ratio.

215 lbs.165 lbs.
Bench Press1.121.30
Deadlift1.902.21
Squat1.841.88
AVERAGE1.331.78

Strength, interestingly, is now improving at a measurably higher rate in all lifts than was measured at the previous max body weight. More importantly, I am no longer suffering from sleep apnea and dreaming of the afterlife.

Overall Strength-to-Weight Ratio improvement:

34%

Experimental Animal

I also am experimenting with a daily 7g dose of diferuloylmethane, as I am of the opinion that it functions as a BAT proliferator, NF-B inhibitor and myostatin down-regulator, resulting in enhanced hypertrophy.