Tracker - February 15, 2019: Spec Value Rating for Eagle Plains Resources Ltd
Eagle Plains Resources Ltd has a Bottom-Fish Spec Value Rating and is a KRO Favorite because this junior is the best practitioner of the prospect-generator-farmout model in British Columbia and Saskatchewan. Headed by CEO Tim Termuende and exploration VP Chuck Downie, Eagle Plains has operated without a rollback since 1995, still has only 103 million shares fully diluted, a portfolio with a couple dozen projects farmed out or available for farmout plus a dozen royalties, and has working capital of about $7 million which it keeps stable by offsetting overhead with income from its TerraLogic exploration service business and share or cash payments from farmouts. Eagle Plains is based in Cranbrook where it owns the office building its team occupies 75% with the rest rented to professionals. The junior is a data-miner which monitors the claim holdings in BC and Saskatchewan which, unlike the Yukon and NWT, have a map staking system in place. Under the Canadian claim system claims are cheap to "stake" but come with spending requirements for which assessment reports must be filed that become open to the public after a certain period. The claim expiry is extended based on how much was spent. Eagle Plains targets claims where enough work was done to establish a mineralized system that fell short of the development threshold. While such claims have a long life, eventually they do come to an end and are often allowed to lapse. Eagle Plains is very proficient at beating out armchair online stakers and competitors when such claims come open. Some prospects with ounces or pounds in the ground are simply optionality plays but others lend themselves to a geological rethink. Eagle Plains will digitize historical work and revisit the prospect with a fresh set of geological eyes and the question: is what the previous operators found all that there is to get? The junior will conduct basic work, often involving new geophysical surveys whose technology allows more to be seen in the third dimension than older surveys. It then shops the dressed up play around for farmout to other juniors or majors, sometimes retaining a temporarily carried working interest, sometimes just a royalty with hefty staged stock and/or cash payments. Where the farmed out project is substantial as was the case with Copper Canyon Eagle Plains will do a spinout and retain a 19.9% or lower equity stake so that it is easy for the majority project owner to take out the minority stake. The latest such spinout is Taiga Gold Corp in which EPL retains a 19.9% equity stake. Taiga owns the Fisher project farmed out to SSR which can earn 80% plus several other Saskatchewan prospects of which Leland, surrounded by SSR, is the most interesting. Fisher covers the extension of the shear structure that hosts the Santoy Mine now owned by SSR. During 2018 SSR drilled 14,000 m to map this shear structure for which results are still awaited. However, a more focused 8,000 m drill program began in Q1 of 2019 which could lead to the discovery of high grade gold zones SSR will need as future feed for the Seabee/Santoy complex. In a recent development EPL managed to scoop the Knife Lake VMS deposit which it has optioned 100% to Rockridge for a large stock position. Tim Termuende has not yet had his "Andre Gaumond moment" where a project is a keeper he wants to drill on a 100% basis and may never have it because it does not do the sort of grassroots exploration that can deliver a big surprise. EPL will do modest drilling sometimes to help dress up the geological context, as was done with Iron Range in 2018 but the preference is still to find a partner. EPL has good exposure in its southeastern BC backyard where Iron Range and Vulcan are key Sullivan II prospects. The reason Eagle Plains is cheap lies with the fact that the farmout model is difficult as we enter the eighth year of the bear market that began in 2011. The farmout model worked well in the 1980s and 1990s when the focus was on discovery exploration and the market was quick to switch the glass half full for proximity or conceptually similar plays anytime a major discovery was made by a junior. But in 2002 metals developed real price uptrends related to the China super-cycle for base metals and the explosion of debt for gold which shifted investor focus to feasibility demonstration plays. But that ended in 2011 and there have been no really big discoveries to ignite the juniors nor significant metal price uptrends except in "minor" metals such as lithium and cobalt related to emerging technology trends. That has sharply diminished the farm-in appetite from other juniors whose traditional audience has run off to sectors such as cannabis which offer winner take-all bubble dynamics. The majors in turn have retreated to asset rationalization and mine-site exploration. The drought in the junior resource sector is the longest on record. Eagle Plains has adopted a survival strategy which means that its upside for now is linked to a turnaround in the junior resource sector. When that "inflection" becomes visible Eagle Plains will be an obvious go-to stock because not only does it have an inventory of projects of merit for farmouts, but it also has the in-house talent to go it alone during the awakening stage of a new bull market.
*JK owns shares in Eagle Plains Resources Ltd