Gold Reach Resources: A “Special Situation” With Better Than Average Odds of Becoming A Copper Mine

Sep 09

Gold Reach Resources: A “Special Situation” With Better Than Average Odds of Becoming A Copper Mine

Don’t let the name fool you – Gold Reach Resources (GRV, TSX-V) (GRJVF, OTC) is a Copper play all the way (but it does have good Gold credits). But because “Gold” is in its name I think it may take Mr. Market a little longer to figure out what I/we know now.

Here’s the deal:

…given its location, adjacent to Imperial Metals’ Huckleberry Mine, Gold Reach Resources’ Ootsa project represents a “special situation” and has better than average odds of getting into production.

GRV -- overview

To reemphasize why Gold Reach Resources is quite special:  In a walnut shell, there just aren’t any (or many) quality Copper projects that can be brought into production quickly (like less than 2 years). There are even fewer quality Copper projects that can be brought into production for a minimal capex (under $65 million). Gold Reach Resources offers both.

As I see it, there are 2 ways this situation unfolds, and at less than 15 cents per share ($5.6 million market cap) I expect both will result in shareholders of Gold Reach Resources making money.

  1. Gold Reach Resources successfully negotiates access to Imperial’s dormant mine and mill, an operation that could be turned back on with the flip of a switch. Long-time manager Randall Thompson is on site and would be the individual who continues to run the operation. Gold Reach Resources is one of few natural buyers. Its existing resource base would support production of roughly 325 million pounds of Copper and 185,000 ounces of Gold over a 12-year period.
  2. Imperial keeps the Huckleberry mine and restarts it, or sells it to someone other than Gold Reach Resources. Thing is, most buyers would not be interested in Imperial’s mine and mill without having access to Gold Reach Resources’ long-term deposit (there are less than 5 years left in Huckleberry’s mine life). Therefore, the Ootsa deposit becomes a must-have asset and someone must acquire Gold Reach Resources whether Imperial holds or sells.

If someone buys the entire company I don’t think it will come cheap either, because approximately 75% of the equity is owned by “Insiders and Close Associates”.

Re: “Exploration Potential”

Regarding the long-term potential of this property, I’d like to think the map below illustrates that very clearly. And keep in mind, this represents but a fraction of Gold Reach Resources +72,000 hectare property, which contains 5 known Gold and Silver targets outside of the main Ox and Seel resource area.

GRV -- map

Look how nicely those mineralized zones align with the IP and magnetic anomalies.

Now then, looking at the bigger picture (outline of property below), there’s no shortage of mystery and exploration potential within this 72,000 hectare property.

GRV -- eu

As CEO Mr. Shane Ebert P.hD. and Geologist explained it to me– you could spend an entire lifetime exploring this property. There’s many high-grade Silver and Gold targets that deserve to be drill tested. The existing/known porphyry deposits remain open at depth and to the west. But at some point, when is enough-enough? Gold Reach Resources is already sitting on +20 years of mine life, so spending money drilling hasn’t been a priority over the past few years.

Over the past few years Gold Reach Resources has been doing the right thing– nothing. And that partly explains why the share structure remains intact, with only 47 million outstanding.

Re: “The Economics”

If Gold Reach Resources successfully negotiate access to Imperial’s mill (which is already permitted), the stock would likely take a moonshot. Early stage economics don’t get much better – after-tax IRR of 81% for a nominal startup cost of $64 million.

GRV -- conveyor

The PEA and that 81% after-tax IRR assumes metal prices of $3 Copper and $1,260 Gold– Copper has recently traded as high as $3.18. The Gold price is now north of $1,350. Meaning, the projected economics at today’s metal prices are even better!

The chart looks bad, but in such a good way…

It’s kind of amazing to think Gold Reach Resources was a $1.75 stock less than 5 years ago, because right now it’s selling for 14 cents.

GRV -- bottom

It’s not unreasonable to think Gold Reach Resources could once again trade for $1 per share, or even make new all-time highs. I especially like the shorter-term chart. If you look at a one year, it has been consolidating nicely between 10 and 15 cents.

Re: “Relative Value”

…with the $5.4 million market cap in mind

To date, over 140,000 m have been drilled and $25 million has been spent on the Ootsa property.

If an exploration company released drill holes like 238 m of 0.73% CuEq (from 30 m depth) and 817 m of 0.45% CuEq (to a depth of 1,000+ m) from a “new discovery”, like Gold Reach Resources did back in 2012, I’d venture to say its market cap would skyrocket to $50 million or more!

On a price per pound basis Gold Reach Resources is valued at approximately $0.0029, near the low end of the industry average. When considering the relatively safe jurisdiction (BC) and nearby infrastructure (the Huckleberry Mine) there’s a strong argument to be made that this deposit/resource should sell toward the higher end of the industry’s average.

In Conclusion…

Early stage economics (PEAs) don’t get much better– considering Ootsa is located just across the lake from a dormant/past producing Copper mine. The mine manager there, Mr. Randall Thompson, if memory serves me, would run the mine again (be it for Gold Reach, Imperial, or some other group).

Much hinges on successful negotiations with Imperial. Thus far, the two companies have had little to no dialogue (from what I’m told). However, the ice could break soon because Imperial is having some startup issues at its Red Chris mine and has lingering liabilities due to a tailings accident at Mt. Polley. The Huckleberry mine is currently on care and maintenance (an ongoing cost) and locals want their jobs back. Therefore, Imperial‘s problems may present an opportunity for Gold Reach Resources.

P.S. If you spot a better bargain or see something I’m missing with this situation please let me know.


*Daniel has a long position in GRV


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