RC

Aquila Resources Inc.

The company’s experienced management team is currently focused on advancing pre-construction activities for its 100%-owned zinc- and gold-rich Back Forty Project in Michigan. Aquila’s flagship Back Forty Project is an open pit volcanogenic massive sulfide deposit with underground potential located along the mineral-rich Penokean Volcanic Belt in Michigan’s Upper Peninsula. The Project contains approximately 1.1 billion pounds of zinc and 1 million ounces of gold in the M&I categories, with additional upside potential. Aquila has received all State and Federal permissions required for the construction and commencement of operations at the Back Forty Project. The Company has two other exploration projects: Reef Gold Project located in Marathon County, Wisconsin and the Bend Project located in Taylor County, Wisconsin. Reef is a gold-copper property and Bend is a volcanogenic massive sulfide occurrence containing copper and gold. 

How to Play a New Bull Market in Gold

We believe that we are in a new gold bull market, as evidenced by negative real and nominal interest rates and over US$5.5B in funds flowing into physical gold ETFs. Our view is that smaller companies outperform in a bull market. Three keys to look at when investing in junior gold equities include scarcity, catalysts and potential.

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Commentary – Golden Summer Conference

We believe that a new bull market has started in gold. This along with investor interest, caused us to host a pair of gold conferences in New York and Toronto, last week. Each conference was opened by Derek Macpherson, VP Research at Red Cloud, highlighting why we believe we are in a new bull market, and 3 keys to investing in it (link). Followed by presentations from Tonogold Resources (OTC:TNGL), Brixton Metals (TSXV:BBB), Mawson Resources (TSX:MAW), Fiore Gold (TSXV:F), Minera Alamos (TSX:MAI), NxGold (TSXV:NXN), Gran Colombia Gold (TSX:GCM), Orford Mining (TSXV:ORM), Pacton Gold (TSXV:PAC), Aquila Resources (TSX:AQA) and RNC Minerals (TSX:RNX).

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Precious Metals – Looking for Leverage to the Gold Price Rally

Gold is on the move, looking for the companies we expect to be the big winners. Recent events have been very constructive for the gold price and point to it having the potential to move higher in the near-term. Taking this into account we have evaluated the leverage our current coverage universe has to the gold price (Figure 1). The companies with the highest leverage to gold in our coverage universe are: Gran Colombia Gold (TSX:GCM, FV est. C$6.00), De Grey (ASX:DEG, FV est. A$0.35) and Lion One (TSX:LIO, FV est. C$1.35). We note that while Seabridge (TSX:SEA, FV est. C$29.00) does not have the highest financial leverage to the gold price, it could be a go-to name because of its higher market cap and better liquidity. As well, while we do not have a NAVPS estimate on, Minera Alamos (TSXV:MAI) and RNC Minerals (TSX:RNX, FV est. C$1.00) both should also react favourably to a rising gold price.

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July Gold Conference – Aquila Resources Inc.

Impact: Positive

Mawson has released assay results from three holes, which yielded another high-grade discovery within the company’s Rajapalot Project in Northern Finland. We are encouraged by Mawson’s ongoing drilling success and continue to believe that the company is likely to at least double the resource at Rajapalot.

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Aquila Resources Inc. (TSXV:AQA) – Michigan Upholds Mining Permit

We believe Aquila Resources (TSX:AQA; OTCQB:AQARF) is worth C$0.36/sh based on applying a 0.60x multiple to our initial NAVPS10% estimate of C$0.60/sh. Aquila is developing the high-margin Back Forty Au-Zn-Cu project in Michigan and is poised for a re-rating as it transitions from developer to producer. Additionally, the FCF expected from this project once in production, is likely to attract mid-tier producers looking to bolster their balance sheets and production profiles. We believe investors stand to benefit from the ongoing transition from developer to producer, as manifested by project derisking with the potential to be taken out at a substantial premium to the current share price in the medium-term.

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Aquila Resources Inc (TSX:AQA; OTCQB:AQARF) – Harvesting the Back Forty Cash Crop

We believe Aquila Resources (TSX:AQA; OTCQB:AQARF) is worth C$0.36/sh based on applying a 0.60x multiple to our initial NAVPS10% estimate of C$0.60/sh. Aquila is developing the high-margin Back Forty Au-Zn-Cu project in Michigan and is poised for a re-rating as it transitions from developer to producer. Additionally, the FCF expected from this project once in production, is likely to attract mid-tier producers looking to bolster their balance sheets and production profiles. We believe investors stand to benefit from the ongoing transition from developer to producer, as manifested by project derisking with the potential to be taken out at a substantial premium to the current share price in the medium-term.

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Aquila Resources Inc. (TSXV:AQA) – Progressing Towards Production

Impact: Mildly Positive

Aquila released a positive permitting update, as one of the legal challenges for its permits was dismissed. While the legal challenge of permits is normal course in the U.S., this result acts as another positive step to advancing Back Forty towards production. We view Aquila as an undervalued take-out candidate on the verge of a re-rating through the development of the high-margin Back- Forty polymetallic project; the backdrop of a tightening commodities market should underpin the strategic value.

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Aquila Resources Inc. (TSXV:AQA) – Positive Feasibility Study Follows Recently Received Permits

Impact: Positive

Following the receipt of permits, Aquila has announced the results of an open pit only feasibility study (FS) for its Back Forty project in Michigan, which demonstrates positive economics for a low-cost polymetallic open pit mine. Considerable upside remains for the project with the potential addition of an underground operation that was previously outlined in a 2014 PEA.

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