Equedia Letter

What Juniors Strive to Be: The Red Eagle Mining Opportunity23 min read

Today, I am going to introduce you to an undervalued opportunity on the brink of a critical milestone.

In just a few months, this Company is going to do what many juniors can only dream of doing.

In just a moment, I’ll tell you all about it.

Going Strong

Right now, we are being presented with an incredible opportunity to take advantage of the geopolitical drama that’s unfolding.

If you know what’s truly happening, you too can participate in the returns that even the world’s best hedge funds and money managers can only dream of.

Let me explain.

Last week, I talked about why gold was once again about to break out.This week, gold surged to a 7-week high. So it’s no wonder gold stocks are doing extremely well.

In fact, the latest gold company I introduced is now up over 100% – in just six months.

The one before that is now up over 325% – in less than a year.

While the two of them are most certainly the leaders of the pack within their space, they aren’t the only ones whose share prices have performed.

But with many gold stocks now trading near their 52-week highs, is there still upside?

Absolutely.

That’s because I believe the run has just begun. And it all starts with this cycle…

The Devaluation Loop Continued

Last week I talked to you about the devaluation loop; how countries around the world take turns in devaluing their currency. I told you that because of this loop, we will likely continue to see further devaluation of the dollar this year.

That’s because we’re back to the part of the cycle where it’s the dollar’s turn to devalue.

And just as predicted, it’s happening now.

On Thursday, China stepped in and strengthened the Yuan fix by the most since 2005.

Japan did the same.

The yen posted its biggest weekly gain since the 2008 financial crisis when its central bank “surprised” markets this Thursday by holding interest rates steady and declining to adopt more stimulus. It was the biggest one-day gain since March 2011.

This Asian-currency fix is undoubtedly an attempt to weaken the dollar – as I mentioned would happen this year.

Now here’s the opportunity.

Fuel for Fire

The last time it was the US dollar’s turn to devalue, back at the beginning of 2011, gold was trading at just over US$1300 – roughly where it is today.

But within months of the US dollar devaluation, gold rose to an all-time high of US$1921.50.

If history is an indicator of where the price of gold is going next within this stage of the devaluation cycle, we could be in store for an incredible surge.

And that will most certainly fuel gold stocks.

But with so many to choose from, where do we begin?

Timing: A Key Ingredient to Success

Finding an undervalued company amongst the many is one thing, but finding one that is poised to break a critical milestone during a sector breakout is rare.

Today, I am going to introduce you to such an opportunity.

Over the past years, we’ve had a lot of success together in finding and investing in undervalued companies on the verge of a breakout.

We just witnessed this with the last two gold stocks I introduced, which are up over 100% and 325% respectively. Both continue to hit new highs.

The Company I am introducing today is not only extremely undervalued when compared to its peers, but is expected to make a massive announcement in just a few short months – a critical milestone that many juniors can only dream of.

This one single announcement could send shares of this Company much higher than where it trades today.

And that’s what makes the timing of this opportunity so special.

Red Eagle Mining Corporation

(TSX-V: RD)* (OTCQX: RDEMF)

* Red Eagle has since graduated to the TSX under the symbol: “R”

Red Eagle Mining Corporation (Red Eagle Mining) is a Canadian-based company focused on building the San Ramon Gold Mine on its 100%-owned 10,000-hectare Santa Rosa Gold Project in Colombia.

The San Ramon deposit is an intrusive-hosted, structurally-controlled quartz stockwork system located within the prolific Antioquia Batholith near the town of Santa Rosa de Osos.

The geology is predictable and simple, which means high recoveries and predictable drill results.

Now before we get into the details of what I believe is an extremely undervalued opportunity, let’s first talk economics – because nothing makes sense if the economics aren’t there.

An Upcoming Low-Cost Producer

Red Eagle Mining’s San Ramon Gold Mine at Santa Rosa offers a great Internal Rate of Return (IRR), a very low pre-production capital requirement, and an extremely low all-in sustaining cost.

In other words, it’s cheap to build and cheap to produce.

At today’s near-$1300/ounce gold price, the San Ramon Gold Mine offers a post-tax production story with:

  • IRR of 53%
  • Capex of $74 million
  • Short payback of only 1.3 years*

*Based on 2014 Feasibility Study

More importantly, the Company could make money at much lower gold prices.

All-in costs for the San Ramon Gold Mine are projected to be just $670 per ounce, with cash costs at $596 per ounce. Even if gold prices were to fall, the Company could still make good money.

Red Eagle Mining not only has all of the money it needs to begin production, but it has great financial backing.

In fact, its investors represent a big part of why I believe Red Eagle Mining shares could soar.

Once you understand it, you’ll see why I am excited.

Investors Matter

Just at the peak of gold’s rise in 2011, I was introduced to a new gold junior created by Ian Slater and his business partner Robert (Bob) Bell.

The two created Red Eagle Mining with the dream of creating more than just a junior explorer – they wanted to create a mining company.

In other words, unlike many juniors, they wanted to make money – not continue to ask for more.

But with so many advanced-stage gold assets already taken by others, they felt they had to take a different approach.

So instead of looking where everyone looks, they went to the best places in the world with great geology that wasn’t already influenced by modern exploration.

They narrowed it down to three choices:

  1. Kazakhstan
  2. Burma
  3. Colombia

Of the three, Colombia was by far the easiest place to work.

Once they settled on Colombia, they scanned through hundreds of projects before finding the Santa Rosa Gold Project.

It was a great choice.

The Santa Rosa Gold Project was not only an asset with proven mining potential, but it had the scalability that was required to build a long-term profitable mine. It was one of those rare assets within a district of tens of kilometres of colonial-era mining, yet no modern day gold mining operation.

If it weren’t for Colombia’s political past, the Santa Rosa Gold Project would have likely already had a modern day mine on site.

But things in Colombia are drastically different now.

At First Glance – Five Years Ago

Five years ago, when I was presented with Red Eagle Mining, I knew they had a great asset.

But the Company was in its early stage (having just become public), and market conditions were beginning to weaken in the gold market.

Given that it was Ian and Bob’s goal to build a mining company, and not just an explorer, I thought:

How could they possibly raise enough money – especially in such a tough market – to put the asset into production?

About a year later in 2012, as gold prices continue to fall, Red Eagle Mining surprised the market by announcing the completion of a $20 million financing with Liberty Metals & Mining Holdings (Liberty).

Now consider this: the amount raised was nearly identical to Red Eagle Mining’s market cap at the time.

This goes to show you just how much Liberty believed in the Santa Rosa Gold Project and Red Eagle Mining’s management team.

But Liberty had one caveat: get the San Ramon Gold Mine through to definitive feasibility stage and don’t spend any extra money on regional exploration. Use the cash flow from production to explore.

Ian and Bob listened. And it was one of the smartest things they did.

Unlike most juniors during the recent mining bear market, Red Eagle Mining stayed lean. They drilled and spent only the money that was necessary to get the San Ramon Gold Mine to feasibility.

Red Eagle Mining delivered.

Robust Economics

In 2014, Red Eagle Mining announced a feasibility study for the San Ramon Gold Mine with robust economics.

As I already mentioned, the study showed that at today’s near-$1300/ounce gold price, even after taxes, the San Ramon Gold Mine at Santa Rosa offers a production story with great economics, and the ability to generate cash – even at much lower gold prices.

But none of this would matter if the Company couldn’t get approval from the government to mine the asset – a problem that many gold projects face.

Environmental License

The most important and difficult permit to get – regardless of jurisdiction – is the environmental permit.

But in just a few months of filing the feasibility study, Red Eagle Mining was granted the environmental license in full, without conditions.

This was the final permit required for construction and mining of the San Ramon Gold Mine at Santa Rosa, and it’s valid for the life of the mine.

The speed in which Red Eagle Mining was able to receive the permit is incredible, and was the result of the hard and sincere work put in by the Red Eagle Mining team in helping the local community.

Red Eagle Mining first sought out a Social License then obtained its Environmental License in just over 12 months time, which is quick in any jurisdiction on the planet. Their corporate social responsibility efforts there alone are more than enough to get my support, but that’s a story for another time.

The license, combined with a robust feasibility, was enough to attract some serious strategic investors and bring the project to life.

This is where the story begins to truly unfold.

Ready to Rock and Gold

You would think that raising the estimated US$74 million to put the San Ramon Gold Mine into production during the recent bear market would be near impossible, but Ian and his team were able to do just that.

As soon as the environmental permit was granted, Red Eagle Mining was able to raise all of the money necessary to put the San Ramon Gold Mine into production, and then some.

This not only proves management’s ability to deliver, but it gives us validation that the project has major upside.

But that’s not all.

The investors who participated in the massive raise have a history. And there are strong reasons why they stepped up to the plate.

Liberty, the initial major financier for the project, once again stepped up.

But they weren’t alone this time.

Orion Mine Finance, a mining-focused investment fund split off of Red Kite (one of the largest metal merchants in the world) also stepped up.

Together, they not only agreed to give Red Eagle Mining a US$60 million debt facility, but also direct strategic equity investments.

But in order to draw on that debt, Red Eagle Mining would need to raise US$20 million in equity – US$5 million of which Orion had already committed to.

Liberty added an additional US$5 million in equity, but under its guidelines, could not exceed a 19.9% equity stake.

They needed another $10 million. But who would they get this from?

The Perfect Partner

Red Eagle Mining had been searching for the right mining contractor to help build the San Ramon Gold Mine.

After many months, they finally settled on Stracon GyM (Stracon).

Stracon is part of the Peru-based Grana y Montero Group, a massive NYSE-listed conglomerate of engineering and infrastructure service companies operating in Latin America, with permanent operations in Peru, Chile, and Colombia. They are responsible for building some of Latin America’s biggest mines and have an amazing track record.

During contract discussions, Stracon’s co-founder and CEO Steve Dixon saw the promise in Red Eagle Mining and was immediately interested in taking a piece of the equity placement.

So his firm agreed to put up US$7 million to advance the San Ramon Gold Mine.

But why would a mine services contractor want to invest in Red Eagle Mining?

Let me tell you why.

The Billion-Dollar Takeover

Last year, Rio Alto Mining was bought out by Tahoe Resources for a whopping CDN$1.4 billion for its principal asset, the La Arena mine in Peru.

Here’s where it gets interesting because the similarities between Rio Alto and Red Eagle Mining are shockingly eerie.

The project financing for Rio Alto’s La Arena was done through Red Kite – the metals merchant Group that spun out Orion Mine Finance, Red Eagle Mining’s financiers.

Guess who operated La Arena?

That’s right, Stracon.

At the time when Stracon signed the mine services agreement with Rio Alto, Rio Alto had a market cap of just CDN$30 million.

Over the next five years, Stracon witnessed Rio Alto go from a CDN$30 million market cap to a massive CDN$1.4 billion takeover, valuing Rio Alto shares at CDN$4.

When Rio Alto signed the mine services agreement with Stracon, its market cap was around $30 million – the same market cap as Red Eagle Mining when it first signed the mine services agreement with Stracon.

So when Steve Dixon saw that Red Eagle Mining was doing a capex funding round, he immediately wanted to participate on the potential upside of the equity.

And being that Red Eagle Mining is the only company with an independently owned gold mine going into production in the Andes for the foreseeable future, it made even more sense.

The remainder of the money was put up by Ross Beatty and other high net worth individuals.

With the money in place, Red Eagle Mining was ready to build a mine.

The Big Announcement

After a year of closing the financing required to put the San Ramon Gold Mine into production, Red Eagle Mining is now on track to make its first gold pour in September, commence commercial production in Q4 of this year, and is expected to produce 70,000 ounces of gold next year.

The first gold pour announcement is huge for every gold company. That’s because from that day on, its making money.

In fact, there is a well-known and well-established pattern for companies that are going into production.

During the construction phase, shares of a company are often quiet because there’s no “new” news coming out.

But as a company moves closer to the first gold pour, shares begin to rise.

(We’re already seeing this reflected in Red Eagle Mining’s share price.)

Then, when the first gold pour is finally announced, shares begin to really take off. And once production ramps up, shares often go even higher.

This pattern exists because the valuation of a gold company is no longer trapped in the rocks when it becomes a producer.

Where there’s gold, there’s cash – and that’s when the big money institutions begin to pile in with everything from analyst coverage to big money investments.

Combine the fact that Red Eagle Mining is still relatively unknown to the market and shares are tightly held by strategic investors, shares could rapidly rise once other institutions get involved.

Of course, they’ll only get involved if it makes sense.

Just because a company becomes a producer, doesn’t mean its share price has to react.

There have to be strong reasons for institutions to take notice…

Better than Their Peers: A Comparison

Valuation is key for big institutions. One of the best metrics to gauge this is how undervalued a company is when compared to their peers.

By this metric, Red Eagle Mining certainly stands out.

Take a look:

Peer Comparison

Based on 2017 estimated cash flows (a key figure for analysts), Red Eagle Mining represents one of the lowest price-to-cash flow valuations within its peer group.

And when it comes to EV/EBITA, a popular valuation multiple used in the finance industry to measure the value of a company, Red Eagle Mining is also one of the most undervalued amongst its peers.

But that’s not all.

Capacity to Grow

Red Eagle Mining’s San Ramon Gold Mine has built-in capacity to double throughput.

Right now, the plan is to produce 1,000 tpd, generating 70,000 ounces of gold next year. But for an estimated US$14 million, the Company could double that production – all they have to do is prove up their reserves on a parallel sheer zone.

And I believe they will.

Exploration Upside

Current reserves at the San Ramon Gold Mine are 405,000 ounces at 5.2 g/t Au – all within 200m of surface.

There’s no doubt in my mind, and the minds of Red Eagle Mining and their financiers, that there is much more gold than in the current reserves. Much, much more.

Let me explain why.

The San Ramon Gold Mine is a single shear zone within the Santa Rosa Gold Project. It trends east-west, dips 70 degrees to the north, extends over 2 kilometres, is up to 50 metres in width and is mineralised from surface.

45,000 metres have been drilled to a vertical depth of just over 600 metres with mineralisation remaining open at depth and on strike.

Yet, reserves have only been delineated to a depth of 250 metres.

In other words, there’s significant potential to dramatically increase the resource simply by going deeper. Most peer development stories have depths of over 1000 metres, so it should come as no surprise that going deeper at San Ramon could yield a lot more gold. Heck, I’ve seen sheer zones reach depths in excess of 2000 metres!

Management is extremely confident there’s more gold to be found because the deposit is a highly predictable sheer zone. And since they already know mineralisation goes at least three times as deep as the current reserves, having drilled to a depth of over 600, one can easily imagine the possibility of two – maybe three – times the current reserves.

But that’s just the tip of the iceberg.

Take a look at this:

san ramon long secion

But why is it cut off?

The San Ramon Extension

This is the San Ramon reserves long section. Notice how the mineralization continues to get stronger as it dips to the East.

Previously, this eastern extension of this deposit belonged to AngloGold Ashanti Colombia S.A. (Anglo)

But when Red Eagle Mining began to delineate their reserves, they realised that their deposit continued to get better as it dipped to the east. So they drilled ten core holes and intercepted the deposit within 100m of Anglo’s concessions. In fact, some of the highest grade drill holes are right at the border of the San Ramon Gold Deposit.

Since the currently reported resource is cut off at the Anglo concession boundary and appeared to get better, Red Eagle Mining had to make a move.

So they struck a deal with AngloGold and acquired the approximately one-kilometre extension directly on strike to the east San Ramon Gold Deposit, which plunges to the east on to the adjacent Anglo concessions.

Long_Section_San_Ramon_and_Anglo_Ground_Large

Later this year, Red Eagle Mining is expected to drill from surface at the San Ramon Extension and also at depth from the decline, which will serve to increase the mine life at the San Ramon Gold Mine.

If they find what they are expecting to find, and its probable that they will given the nature of the deposit, reserves at the San Ramon Gold Mine could increase dramatically.

So not only is the Company expected to make its first gold pour in September and be in commercial production later this year, it could soon shock the market with significant high-grade drill results that could add significant ounces to an already high-grade deposit.

And still, there’s more.

Guacamayas and Canada Rica

Other than the San Ramon Gold Deposit, numerous additional drill targets have already been identified within the Santa Rosa Gold Project. Once reserves are proved up on one of these targets, Red Eagle Mining can implement the ramp up plan to 2000 tpd.

There are over 3,000 historic adits and 100 surface mines mapped on the Santa Rosa Gold Project, and none of them have been exposed to modern day mining methods.

As I mentioned earlier, the Santa Rosa Gold Project is host to mesothermal sheer zones – zones known for their large size and continuation to depth. Through historic and archaic mining methods, much of the oxide has been mined. But where there’s oxide, there are also sulphides, and with so many historic adits and surface mines, surely there is more gold underground.

The San Ramon Gold Deposit was targeted because of the mass amounts of surface and light underground mining that was done in the past. And with some drilling, it has already proven itself to be a great deposit.

But take a look at the amount of historic surface and underground mining that was done at the Guacamayas and Canada Rica target:

Canada Rica

Red Eagle Mining has already pulled anomalous gold from soil sampling at Canada Rica.

The artisanal work over at Guacamayas and Canada Rica are even more prolific than at the San Ramon Gold Mine, which is why Ian and his team believe there’s another shear zone there.

And considering the historic mining which extensively focused on the oxides, they are going to begin drilling this year where no one has drilled before.

If the San Ramon Gold Mine is any indication of success, I wouldn’t be surprised if they find another economically mineable shear zone at Guacamayas and Canada Rica. In fact, I would bet on it.

Rigs are already being mobilized to the new targets.

If there is another sheer zone there, it could send Red Eagle Mining into a whole new territory as a gold producer.

There could be more than enough gold at those targets to feed the plant at the San Ramon Gold Mine plant and double its capacity to 2000 tpd without stopping production.

Bigger than Ever

Red Eagle Mining is far more than just a simple gold production story.

I believe it has the potential to become a district play.

Especially considering their recent majority acquisition of an extremely high-grade asset in Colombia.

Vetas Backstop

Red Eagle Mining currently owns 71% of CB Gold, a Canadian junior that controls the high-grade 100%-owned Colombian Vetas gold asset, situated within the prolific Vetas-California gold province where Ventana Gold’s La Bodega project is situated.

(For those that don’t remember, Ventana gold was taken out for a whopping $1.4 billion – just like Rio Alto was.)

The diamond drilling results from Vetas highlight the excellent potential for high-grade gold and silver vein mineralization, including, among a multitude of other highly encouraging intersections:

  • 325 g/t (9.5 oz/t) Au over 2.09 metres;
  • 507 g/t (14.8 oz/t) Au over 0.74 metres;
  • 370 g/t (10.8 oz/t) Au over 0.82 metres;
  • 228 g/t (6.7 oz/t) Au over 1.13 metres;
  • 104 g/t (3.0 oz/t) Au over 2.45 metres; and
  • 235 g/t (6.9 oz/t) Au over 1.03 metres.

Between November 2010 and November 2013 CB Gold completed a total of 71,035 metres of diamond drilling in 162 holes from surface platforms and spent nearly $70 million on the asset.

Highly encouraging results were returned from several of the known vein systems distributed throughout the project area, including:

  • 177 intersections with grades in excess of 5 g/t (0.15 oz/t) Au;
  • 100 intersections with grades in excess of 10 g/t (0.3 oz/t) Au; and
  • 33 intersections with grades in excess of 30 g/t (0.9 oz/t) Au.

There’s no question that Vetas is a great asset that Red Eagle Mining swooped up at the bottom of the market.

I believe that Vetas could soon become a mine and the management team at Red Eagle Mining does too.

Red Eagle Mining plans to advance the Vetas Gold Project toward economic feasibility by the delineation of high-grade vein resources exploitable by underground mining methods.

Ian and his guys are also already working on the social aspect with the townspeople there. Given what his team has been able to accomplish at the Santa Rosa Gold Project in such short time, I would bet that when the time is right, they’ll get it going.

In fact, Bob has already introduced both the incoming and outgoing mayor over at Vetas to the mayor at Santa Rosa and they were blown away at what Red Eagle Mining has done for the people there. This is a story I’ll get into another time, but it’s worth checking out.

CLICK HERE to see some of the community work Red Eagle Mining has been involved in.

CB Gold currently has a market cap of nearly $36 million, and Red Eagle Mining owns 71% of them. Yet, the market is giving little to no value for it in Red Eagle Mining’s share price.

But as the Vetas advances, the market will have to pay more attention – especially considering the amazingly high-grade results that asset could produce.

The Opportune Moment

Last year, I introduced you to an undervalued gold producer with no analyst coverage right at the bottom of the gold market.

Today, that Company is up over 325%, and numerous institutions are now covering the deal.

I believe we’re once again being presented with another great opportunity in Red Eagle Mining.

And the timing couldn’t be better.

Remember, the last time it was the dollar’s turn to devalue, gold reached nearly US$2000.

Sometime in September, Red Eagle Mining is expected to make its “first gold pour” – a headline that almost always moves stocks higher within the sector.

Combine this with the first real exploration drilling from the Company later this year and we could witness some very strong market moving events.

Red Eagle Mining has incredible exploration potential with numerous possibilities for expansion. It’s fully funded for production and exploration, it controls the high-grade Vetas asset, and it’s extremely undervalued when compared to its peers.

When the Company begins commercial production, surely it will require a re-rate in the price of its shares. And I would assume analysts will jump on board, too.

But that’s not all.

In less than a month of Red Eagle Mining announcing its first gold pour, an important world event will occur that could give yet another massive boost to the price of gold.

On October 1, 2016, China’s yuan will be informally crowned with the status of ‘reserve currency’ when it becomes part of the Special Drawing Rights (SDR) of the IMF.

This one event alone should further strengthen the yuan and thus devalue the dollar.

That means the run in gold likely hasn’t even begun, and we could see another massive breakout as a result.

Don’t expect Red Eagle Mining shares to stay here for long.

Red Eagle Mining Corporation

Canadian Trading Symbol: (TSX: R)

US Trading Symbol: (OTXQX: RDEMF)

Disclosure: We’re biased towards Red Eagle Mining because they are an advertiser. We don’t currently own shares, but we are looking to buy shares in the open market following this report. We also own options in the Company. You can do the math. Our reputation is built upon the companies we feature. That is why we invest in every company we feature in our Equedia Special Report Editions, including Red Eagle Mining. It’s your money to invest and we don’t share in your profits or your losses, so please take responsibility for doing your own due diligence. Remember, past performance is not indicative of future performance. Just because many of the companies in our previous Equedia Reports have done well, doesn’t mean they all will. Furthermore, Red Eagle Mining and its management have no control over our editorial content and any opinions expressed are those of our own. We’re not obligated to write a report on any of our advertisers and we’re not obligated to talk about them just because they advertise with us.

Comments (1)
  1. john wyllie says:

    Sounds like the business plan is well thought out.

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