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SVH Tracker - October 5, 2017: Recommendation Strategy for Serengeti Resources Inc
 Serengeti Resources Inc, initially recommended a Good Relative Spec Value Buy at $0.145 on August 10, 2016 and continued as such at $0.14 on December 30, 2016, spent most of 2017 waiting for the South Korean conglomerate Daewoo to decide whether or not to acquire 35% of the Kwanika project by putting up another $7 million toward a prefeasibility study for a combined open pit-underground copper-gold mine. A day before its deadline Daewoo announced on July 26, 2017 that it would proceed, though hammering out a formal joint venture agreement was expected to take another 60 days. The nuts and bolts were agreed upon on October 3, 2017 but the final signing likely will not happen until early November, which means no new exploration work will be done on Kwanika until May 2018. One can only hope the $7 million arrives before Little Rocket Man and Dotard escalate their feud to the next level. The only thing that changed in 2017 for Kwanika was an updated PEA published on April 3, 2017 which indicated an after-tax NPV of CAD $191.2 million at 7% discount rate and IRR of 16.6% with a four year payback at base case prices of $2.90/lb copper and $1,270/oz gold. That was an improvement from the one done in 2013, but with CapEx at CAD $476 million Kwanika fails a development hurdle that NPV match or exceed CapEx. There are two ways Serengeti can improve the economics through the 2018 plans. Much of the 2018 budget will involve geotechnical and metallurgical drilling which is expected to improve the gold grade of the gold-enriched copper zone that will need to be underground mined by block caving. Those gains will be incremental and not revealed to the market until a PFS is delivered in 2019. So that part of the $7 million expenditure is not going to make the stock go up in 2018 in the absence of a rise in copper and/or gold prices. Fortunately Daewoo has agreed to allow Serengeti to drill two exploration holes in 2018 which will likely be done early in the season so that any success can be incorporated into the PFS. The first hole will involve deepening Hole K-16-179 from 900 to 1,300 metres. That hole, reported September 22, 2017, bottomed with increasing grade and has another 400 metres of room before hitting the Pinchi Fault on the other side of which is no mineralization. Speculation about that hole drove Serengeti above $0.30 last year, though some of it may have been about hole K-16-178 which tested a deep IP chargeability anomaly 1,000 metres north of the Central Kwanika zone with a 719 metre angled hole that nipped low grade copper and gold and appears to have overshot the IP target. I discussed these two holes in SVH Tracker - September 22, 2017 and expressed hopes that Daewoo would make a decision early enough in 2017 to allow them to be revisited. Given that 2017 after a strong start turned out to be a fairly miserable market for the resource juniors, I am looking on the bright side that Serengeti Resources Inc has been preserved as a strong, cheaply priced dual optionality and exploration expansion copper-gold play for 2018 and confirm it as a Good Relative Spec Value Buy at $0.215.
Although it looks like Spec Value Hunters may have to wait another 6-8 months for any fundamental changes other than rising metal prices to drive up the stock price, there are two outside shots at getting a discovery exploration surprise by the end of November 2017. On October 4, 2017 Serengeti reported that it had completed two small drill programs on the Milligan West and UDS IP targets. The Milligan West property is a joint venture between Serengeti (56.3%) and Fjordland Exploration Inc (43.7%) on which 3 holes representing 1,220 metres were drilled.
Milligan West adjoins the Mt Milligan copper-gold open pit mine now owned by Centerra Gold Inc following its acquisition of Thompson Creek Metals Company Ltd in November 2016. The drilling focus was a 4 km north-south trending IP chargeability anomaly known as the Heidi target. If Heidi were confirmed as a copper-gold enriched sulphide body it could serve as future mill feed for the Mt Milligan operation. Of the three proposed holes in the section below the JV did not drill #1, choosing instead to drill two at location #3 and one at #2. Serengeti's words, "it is is evident that the drilling has provided a vector in which to pursue further work on the property", is code for admitting that there is no visual evidence of copper mineralization in the core. According to CEO David Moore the hole in location #2 looked better and if there is any hope for the Heidi target it will lie farther to the north. This program was budgeted at $400,000 with Fjordland contributing its share. The Milligan West results are unlikely to constitute a new discovery.
Moore was considerably more upbeat about the 100% owned UDS property which adjoins to the east of the Kemess copper-gold mine. Discussed in SVH Tracker - October 20, 2016, the UDS property straddles an overburden covered, bush filled valley that has seen little prospecting work and no drilling despite the potential fault off-set extension of the Kemess South deposit. One of Bill McWilliams' juniors had prospected copper and gold values on the ridge flanking the western side of the valley but never got around to conducting any geophysics or drilling holes. A junior had drilled a couple shallow holes in 1989 at the northern end of the valley testing an epithermal gold-silver target, but nothing in the valley where Serengeti generated an IP chargeability anomaly suggesting a blind sulphide system. Hole #1 tested the "mid-valley" IP target, #2 the western edge of the valley, and #3 the deep valley bottom. All three yielded intense phyllic alteration with sulphides in both the Takla andesitic volcanic rocks and the Black Lake monzonite intrusive, both of which carry copper-gold mineralization at Kemess. As with Milligan West there was no mention of copper mineralization in the core, which is implicit in the statement "preliminary interpretation of the lithologies encountered in all three holes and the intensity of the alteration observed suggest they are consistent with those present in the immediate vicinity of the other copper-gold deposits in the Kemess district". In other words, do not expect ore grade assays, but do expect proof that an unrecognized hydrothermal system similar to those that drove the Kemess copper-gold deposits is present. The question will be whether it is strong enough to justify followup drilling in 2018 100% by Serengeti, or best offered as a farmout to AuRico Metals Ltd which is developing the underground Kemess resource to the west. Spec Value Hunters not already long Serengeti and wondering if they can pick up the stock cheaper during the dormant winter need to bet that the UDS result will be "encouraging" rather than "inspiring". For those already on board I recommend riding out whatever pain the winter waiting period will bring while keeping in mind that this year there is no reason for tax loss selling.
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