NioGold Mining Corporation (NOX.V), (NOXGF, US)

NioGold Mining Corporation is a Canadian gold exploration company founded in 2003. The company’s properties are located in the Cadillac, Malartic and Val d’or mining camps in the Abitibi district of Quebec. The Abitibi region has an eighty year history of gold production (over 45,000,000 ounces of gold production through 2013) and is one of the most productive gold mining areas in North America. Well off its three year price high of .50 cents, it is currently at the .28 cents range. 

 

In our May 8, 2014 research report on NioGold, we stated that the “price weakness in stocks may be providing an opportunity for investors, it often does, but few take advantage of it. That will never change!” NioGold is not the same investment story today that it was in May-it is far better! In May, we recommended NioGold at .22 cents a share as our analysis suggested that it was strikingly undervalued. We had analyzed NioGold’s company’s drill results, resources, assets, projects location and potential among many fundamental factors.  Moreover, the price chart of NioGold suggested that the stock was basing and selling at a very undervalued price level. What many overlooked was that while NioGold was drifting down in price, there was not a large amount of shares available for purchase. Accumulating a large volume of NioGold shares was nearly impossible.

 

 One must keep in mind that due to the fact that there is limited brokerage house support any longer in small cap mining stocks, they often fall to price levels that can be described as exceptionally undervalued. Price declines such as those we see today generally did not occur in the past. As well, there is little market maker support such as what we saw for decades, in recent years stocks of all sectors often go into free fall during price declines.

 

The major fundamental news: Last July 2014, Osisko Gold Royalties, a very successful Quebec based gold mining corporation acquired 14 million shares of NioGold for $4,900,000 in a private placement at .35 cents per share. That investment increased Osisko’s Gold Royalties ownership percentage to 19.5% of NioGold. The original Osisko Mining Corporation was led by Sean Roosen who succeeded in bringing Osisko to an exceptional level of mining success. Several years ago, I was visiting the Val D’or area when my impression was that Osisko would face problems in building a profitable mining operation. I was wrong as Sean Roosen’s and the Osisko team created an extremely successful producing mine. The addition of Mr. Roosen to NioGold’s board of directors adds to the positive fundamentals at NioGold.

 

NioGold’s new CEO: Just as important is the appointment of Robert Wares, a geologist as NioGold’s CEO.  Mr. Wares has an excellent reputation and brings experience and more importantly a history of exploration success and mining development to NioGold. While the chief geologist at Osisko, Mr. Wares was instrumental in its success.  He is highly regarded in the mining industry. We have found that the three most important factors in the success of a mining company are 1-management, 2-management, and 3-management. All three factors are present in NioGold.

 

Explaining what occurred: Osisko Mining Corporation was acquired by Agnico Eagle and Yamana with each company acquiring 50 percent of Osisko. Out of the takeover came the Osisko Gold Royalties, symbol “OR” which trades on the Toronto Stock Exchange. So to clearly explain it, Osisko Gold Royalties is the second largest shareholder of NioGold. 

 

The price weakness in the gold mining shares in our opinion still offers opportunities to accumulate shares in mining companies that by our analysis are undervalued. We remain positive on many of the gold mining shares as our analysis suggests that a major bottom is being completed. That analysis consists of fundamental, technical and cyclical analysis.    

 

Note well that since last July 2013, many mining stocks have seen their price lows and have appreciated well. We do notice that many mining stocks do not have offerings on the screen of size so if buying commences into their markets, substantial price moves may be seen. In our opinion, for the next bull market in mining stocks “the stage is still set” and nobody will sound an alarm when it begins. By the time the investment world recognizes a new bull market in gold mining, most legitimate mining stocks will already have seen 40% to 50% moves up. If we use history as a reference, the US brokerage industry will deny and refute it until the stocks are up 70% to 100% and more. At that time they will probably suggest that gold should be shorted; that ridiculous nonsense never changes.

 

NioGold has a 130 square kilometer land package of which for this report, we are focusing on its Marban Block that contains three past producing mines with current 43-101 resources of over 2,100,000 ounces of gold. Of note, NioGold’s mining neighbors include seven producing gold mines including Agnico-Eagle, Osisko and Richmont Mines.

 

The company’s exploration focus over the last four years has been its 100% owned Marban Block project. Since 2004, over $28,000,000 has been spent on exploration with another $5,000,000 budgeted for 40,000 meters of drilling in 2015. The 2014 drilling program is ongoing. As is the normal strategy with junior exploration companies, our analysis suggests that NioGold’s exploration will continue to add ounces to the resource base since there still is substantial potential in NioGold’s total land package.

 

To date, the company is on schedule with already 1,531,000 ounces of 43-101 measured and indicated resources and 599,000 inferred at the Marban Block. That property now has a level of 43-101 resources that is close to mining consideration in itself. As always, the price of gold bullion is a key factor.

 

The Stock: Who owns it?

The largest shareholders are Canadian and American institutions. The new Osisko Gold Royalties owns 19.5% of NioGold; a U.S. fund owns approximately 20%; NioGold’s officers and directors own 6% of the shares with “friendlies and close associates” holding another 21%.  A Canadian mining executive with an exceptional history of mining accomplishment owns approximately 4.2% of the shares. The directors include people of superb repute and success in the mining industry. We also would underscore the fact that recently, more insiders (officers and directors) have bought more NioGold shares. 

 

Valuation of resources

A most important factor, (among several) in putting a value on an exploration company is the amount of resources in the properties owned. Historically a gold property with deposits could be valued at $30 to $70 an ounce of in-ground (in-situ) resources. However, in the last decade, despite the enormous move up in gold’s price, it has dropped to into the $10 to $15 per ounce range in ground. Naturally it is influenced by many factors including depth of deposits and the area of the mining. Yet, $15 is low! We believe that when we enter a more positive market for gold bullion, we will see a return to the $30 and above valuation for in-ground gold. We believe that a move above $1400 to $1500 in gold bullion will  ignite higher valuations.

Infrastructure

At all Niogold’s projects, the needed infrastructure for mining is already in place. There is an abundance of skilled labor, available electric power and readily accessible roads. A railroad goes directly through the Marban Block. Overall, it is an ideal mining location. It is a major mining district in every sense with nothing less than tremendous support from the Province of Quebec.

How we approach NioGold now

Our view is that Osisko Gold Royalties has recently made a substantial investment in NioGold at a price of .35 cents which we interpret as based upon the potential of NioGold’s properties. We also do not believe that Osisko invested at .35 cents with a mere potential upside of .40 cents. Like Osisko, we see the potential for a a continuing increase in NioGold’s resources and view any price weakness as perhaps an opportunity.

Conclusion

In a still very difficult market for mining and particularly junior exploration companies, Niogold has made superb progress and remains debt free. But above all else, its value was the key element in the recent substantial investment by Osisko in NioGold shares. Keep in mind that the market no longer has market makers and brokerage house research support which as in the past-which explains the excessive weakness. With this in mind, shareholders should keep in mind that some stocks are selling at prices substantially below where they should selling at. NioGold’s fundamentals are quite positive and the company, in our opinion is at a new and higher valuation level; Osisko obviously took notice of it.

 

We have obtained the information in this report from sources we believe to be reliable. We cannot guarantee its accuracy or completeness. It is an overview not a complete discussion of the risk factors associated with this or any other investment. We may be compensated for this or other reports and may engage in corporate finance for corporations.

 K.C. Grainger and Bob Pellerin