Fund manager Adrian Day discusses a mineral exploration company that has added value through the drill bit.
In recommending Evrim Resources Corp. (EVM:TSX.V, CA$1.06), at the beginning of the year, there seemed no rush to buy. But coincidentally, another newsletter writer, well respected, recommended the stock on the same say, calling it his pick of the year. The stock shot up and we missed buying at our limit. His recommendation took the stock from 25 cents to 30 cents the same day. We decided not to chase it, but the stock never looked back.
Following that, some strong drill results and a subsequent initial resource estimate were released on its Ermitaño property, optioned to First Majestic, and on which Evrim retains a 2% royalty. These items of news took the stock first to 40 cents, and then to 50 cents.
Immediately thereafter, trench results from an untested, 100% owned project, Cuale, were released, including an astonishing 1.28 grams per tonne over 351 meters (of which a more astonishing 2 grams plus per tonne over 193 meters). The stock shot up to 90 cents. Further results the following week, including 106 meters grading 13.6 g/t, took the stock to a high over $1.50. Yes, we missed it alright. This is one case where a strict buy limit worked to our disadvantage. Of course, in January we did not know that Cuale had this kind of potential; it was just one more property, untested, in Evrim’s portfolio.
Progress on many fronts
Since these results, there have been several developments on other properties: a drill permit has been received on another joint-ventured high-grade property (Cerro Cascaron), partner Antofagasta has commenced drilling to earn into the Axe project in British Columbia, and Coeur has signed an agreement to earn into the Sarape project (near Ermitaño). So Evrim has been busy indeed. But the focus is on Cuale, where Evrim announced a $1.5 million exploration program, including follow-up trenching (to extend the footprint of mineralization), geophysics, and 3,000 meters of drilling.
The truth test comes soon
The drill permit has been delayed for a minor environmental report, but results from the trenching and geophysics are expected soon. This might provide an idea of the extent of the outcropping mineralization at the first zone, La Gloria; the potential for new zones, including on nearby hills; and an idea of potential at depth. Drilling will commence as soon as the company receives its permit, perhaps next month. The proof of the pudding will be in the drilling, of course. As a high sulphidation system, ounces could grow quickly; it’s no surprise that several majors are looking at the project already. Other similar systems have been gobbled up very early in the exploration process, one after 20 holes, another after just seven.
Risk-reward is favorable
Further success is not, of course, certain—it is possible that drilling will show mineralization is very shallow; it is possible that the existing trenching has defined the bulk of the footprint; it is possible that there are no additional deposits—but the odds of success are reasonably high, the potential huge, and the risk moderate, given all the other things Evrim has going on.
Failure at Cuale would see the stock give back the gains from the initial release. But with a market cap of US$60 million, Evrim is by no means expensive. The company’s value is supported by its Ermitaño royalty (on which I put a back-of-the-envelope value of $30 million); around C$5.5 million in cash; plus all the other joint-ventures (seven currently) and other projects, with near-term drilling results on at least five of those projects (in addition to Cuale). There is risk, but on a risk-reward basis, it looks very attractive.
And Evrim has some of the best management, technical teams, and board of directors—honest, diligent, shareholder-friendly—of any exploration company, one of the key reasons I recommended back in January. (Note: clients of my management firm own over 12.5% of the company.)
Buy Evrim at the current market, with a limit of C$1.09. I don’t think we’ll miss it this time (unless someone else recommends it overnight!).
Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”[NLINSERT]
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Evrim Resources. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Evrim Resources. I determined which companies would be included in this article based on my research and understanding of the sector.
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( Companies Mentioned: EVM:TSX.V,