RGDFF - Junior Gold Mining Investors Pay Attention To Founders Metals

2023-09-11 08:47:23 ET

Summary

• Founders Metals is a junior gold exploration company working on the Antino Gold Project in Suriname, part of the growing Guiana Shield gold region.
• The company has released excellent assay results from its ongoing drill program, leading to recent stock price gains, but it remains under the radar with a modest valuation.
• Founders' project has the potential to become a major gold discovery as the company aims to develop a multi-million ounce gold deposit at Antino.
• In this early stage of the story, Founders Metals today may be compared with Great Bear Resources in 2018.

Founders Metals ( FDR:CA ) is a relatively new junior gold exploration company that is working on the Antino Gold Project in Suriname. They acquired up to a 75% interest in the project in a deal that closed earlier this year. Founders began a drill program this summer, including infill and expansion drilling guided by historical results and their own geological analysis to identify targets.

Founders has already released a series of excellent assay results from this ongoing program, including 12m of 19.23 g/t gold (July 27) and 15.5m of 30.72 g/t gold (August 24). The latter result finally attracted the attention of investors, and the stock price rose from C$0.42/share on August 23 to its current share price of C$0.97. This represents a market cap of C$46 million or the equivalent of US$34 million.

Despite the recent share price appreciation, the market cap remains modest for a potentially major gold discovery in the growing Guiana Shield regional gold belt in Guyana, Suriname, and French Guiana. In Suriname itself, Newmont ( NEM ) operates the Merian gold mine and Zijin operates the Rosebel gold mine (acquired from IAMGOLD ( IAG ) in a deal that closed earlier this year).

Other more established junior gold explorecos in the region have already achieved very respectable valuations, such as Reunion Gold ( RGD:CA ) with a C$534 million market cap for a 4 million ounce resource, and G2 Goldfields ( GTWO:CA ) with a C$138 million market cap for a 1 million ounce resource, each valued at about C$130-140 or about US$100 per ounce of gold in the ground. Founders has been talking about the potential of a multi-million ounce gold deposit at Antino, and more recently after the latest drilling successes CEO Colin Padget has mentioned 5-10 million ounces as a potential deposit size that Founders is now aiming for at Antino.

Founders vs. Previous Owners: Circumstances Have Changed and Improved

It is true that other explorers did some drilling on the Antino project in past decades, with the best historical drilling result being 62m of 9.59 g/t gold. Sometimes such stories attract less attention from the market than brand new discoveries. But several factors justify interest in Founders and the Antino project today: The gold price is much higher now than it was at the time of previous drilling at Antino. The development of the mining industry and infrastructure in the region has also progressed considerably since then. Also, the Founders team has access to Lidar data and other advanced geological technology that previous explorers did not have.

In short, previous drillers may have found 5-10 g/t gold in a new mining region with the gold price under $1,000/oz. Today, Founders is using better technology to choose better drill hole locations, so they are finding 20-30 g/t gold, in a growing, better established mining region, with the gold price around $2,000/oz. The combination of these factors is enough to transform a previously uneconomic project into a very promising project now with excellent potential to become a highly economic deposit.

If you are wondering how Founders was able to acquire such a promising project from its previous owner within the past year, the explanation lies in the circumstances of the previous owner, Orea Mining. Orea's flagship Montagne d'Or deposit in French Guiana is a 55-45 JV partnership with the Russian company Nordgold. Since last year, sanctions on Russian companies by the French, Canadian, and U.S. governments have caused major problems for this project. As a result, Orea chose to sell its stake in the Antino project to Founders in order to raise funds and concentrate on resolving the situation of its flagship project. It was bad fortune for Orea but good fortune for Founders.

Comparing Founders in 2023 and Great Bear in 2018

In certain significant respects, the Founders Metals story right now is reminiscent of the Great Bear Resources gold discovery at the Dixie Project in the summer and fall of 2018. Of course no one can expect any junior gold miner stock to repeat the spectacular success of Great Bear, which soared from C$0.50/share to C$2.00/share (C$54 million market cap) within days of its discovery hole announcement in late August 2018, rose to over C$3.00/share (C$113 million market cap) by the end of October 2018, and was eventually acquired by Kinross Gold ( KGC ) for C$29.00/share (C$1.8 billion) just over 3 years later. But it is fair to point out the similarities of Founders with Great Bear in the early stage story:

• Similar widths and grades in assay result of biggest discovery drill hole
• Similar market cap, share price, and share structure before the discovery
• Project with large land area and multiple zones of gold mineralization (Founders just announced a channel sample in a different zone, Buese, including 1m of 113 g/t gold. Great Bear added such news of initial results in new zones as they proceeded in 2018-2019 as well.)
• Under the radar, but respected by a small group of knowledgeable investors in the junior mining sector. In particular, Eric Coffin of Hard Rock Analyst (HRA) Advisories was an early advocate of Great Bear's potential in 2018 and has been an early advocate of Founders' potential this year.

Under the Radar and Worthy of Investors' Attention

It is fair to say that Founders Metals at this stage is even more under the radar than Great Bear Resources was at this time in 2018. I see substantially less attention and commentary about Founders online, even now after its series of excellent assay results, than I saw about Great Bear in 2018.

In fact, Founders Metals is so new to the market in its current form, since it began trading again in March after completing the acquisition of the Antino project, that its listing on the U.S. Over The Counter (OTC) markets is hardly active at all -- the company does not mention or promote the OTC ticker in any of its current materials. (Great Bear did have a very active U.S. OTC listing in 2018.) This is a sign of just how under the radar Founders still is, and just how much potential there will quite possibly be to attract substantial new buying demand for shares from new groups of investors going forward.

It is true that this may pose an issue and an obstacle for U.S.-based junior miner stock investors who still prefer to access such shares via the OTC market listings. That is a decision that each individual investor will have to make for himself or herself. But I may point out that nowadays, it is not difficult for a U.S.-based retail investor to gain direct access to the TSX Venture Exchange, where Founders Metals trades (ticker symbol FDR), via an online brokerage account such as Interactive Brokers ( IBKR ). There one can deposit US dollars, convert them to Canadian dollars, and buy shares of stocks listed on the TSX Venture Exchange.

Financials and Risks

Of course, every small mineral exploration stock has significant risks for investors. Only the very best of them will find an economic mineral resource and reward shareholders with substantial gains. This is why every company's corporate presentation begins with a page stating the inherent risks and uncertainties of the mineral mining industry and of junior exploration companies in particular.

Since an exploration company is pre-production, typically it earns no revenues. Junior explorecos in this industry raise financing for their operations by issuing additional shares of their stock, usually in private placements of various types. Shareholders must be aware that every such financing dilutes the stake of existing shareholders. In this sector such dilution cannot be avoided, but the aim should be to minimize the amount of the dilution by raising financing on the best possible terms.

Founders Metals had already raised the financing to fund this year's 10,000 meter drilling program at Antino. (The reported assays to date only comprise 3,500 meters of the ongoing program.) Very recently, the company raised an additional C$1.7 million in a private placement with a strategic investor. Although the financing agreement was negotiated before the recent share price rise at a price of C$0.40/share, Founders did not have to issue any warrants to the strategic investor, which will minimize future dilution of shareholder value. (Warrants are like options, so if and when a company does achieve a higher share price, warrants and options will eventually be converted into actual shares, diluting the value of existing shares.)

Founders CEO Colin Padget recently stated in an interview that the company now has a working capital of C$2.5 million after the latest financing. This should fund the company's exploration operations through well into next year. Founders owns its own diamond drill rigs to reduce exploration costs, and Padget has stated that Founders' drilling costs in Suriname are as low as C$85/meter for drilling alone and C$160/meter of all-in costs including assays. Thus, the working capital of C$2.5 million should go a long way and fund a large drilling program next year. Further, any future financing is now likely to be conducted at a much higher share price after the recent gains. Again, this will minimize dilution of existing shareholders.

Conclusion

I encourage investors with an interest in junior gold exploration stocks to pay close attention to Founders Metals going forward. As always, do your own due diligence and make your own investment decisions.

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