Analysis Kenorland Minerals

I haven't included a standard checklist for Kenorland, as the large number of projects makes it dysfunctional. I might add one at a later stage, in case two, three projects crystalize out.

Why I like this company

Intro note: In contrast to my previous three investments and the respective analyses (Ophir, Emperor and Heritage), I start the overview here on company-, rather than on project level. Individual projects are the stars of the three Juniors I have just mentioned. With Kenorland Minerals, it is the company that is the star.

Why? Because what makes this a potentially worthwhile investment does not boil down to one or two individual projects. Kenorland has a dozen grassroot (i.e early stage) exploration projects under its belt. But it is not only a numbers-game, because the workings of the company go beyond doing early exploration. It is also a royalty generator and holds shares through Joint-Ventures (JVs) with major mining companies and holds royalty / NSR (net-smelter retrun) agreements with others. 

Kenorland will receive royalty income through so-called Net-Smelter Returns of anything between 1% and 4%. For instance, it holds a 4% NSR agreement with Sumitomo Metal Mining Canada for its Frotet project. Besides option agreements, JVs and NSR agreements, the company controls exploration licenses for vast claims throughout Canada, doing early prospecting work on them - which in turn can be financed (at least partially) through the incomes generated as just explained. 

And it is the combination of this what makes it so attractive. Since it is actually generating income, it has one of the best working capital positions (around CAD 35mio, second half of August 2024) in the market for a company of this market cap. This enables Kenorland to pro-actively go forward with exploration work, such as farspread geochemical survey programs in its projects, increasing the chances of successes and ultimately discoveries there.

It is hence a rather unique endeavour, driven by highly competent people who have also secured strategic partnerships and investment with majors, making it one of the most interesting Canadian Juniors on the market in my view. It can generate both mid- and long term stock price gain opportunities.     

Company & Project Overview:

The Company:

Taking up what I mentioned in the introduction, the structure of Kenorland’s projects is basically divided into two major categories:

1. Exploration projects that are being advanced under option / JV /NSR agreements with mining majors, i.e. Newmont, Centerra and Sumimoto and other partners (red, orange and green dots in the map above). 

Please see project description below. In order to safe space, I haven’t gone into too much detail concerning these projects, but will update once ongoing and upcoming exploration processes are forming a picture. It is to say that most projects under this bracket are early exploration / grassroot projects; located in highly prolific districts and fault zones, along which other mines/deposits/mineral occurences are present or have been identified. The structural geology which hints to additional potential occurences and deposits seems to be what makes them attractive to Kenorland.

2. Projects in which Kenorland holds 100% ownership

Ad 1: Option-Agreement and Joint-Venture projects:

What are Option Agreements?

Under such an agreement, Kenorland has the ‘option to enter into a joint-venture (JV)’ with the partner. The partner (Centerra in the case of the Hunter project below, or Sumitomo in the case of O’Sullivan and Chicobi) has the option to get a 51% stake in the project (phase 1), which can be increased to 70% (phase 2). Certain conditions have to be met by the partner to enter into either stage. In the Hunter Project / Centerra case, exploration expenditure of CAD 5mio has to be provided for stage 1, and a mineral report of at least 1mio ounces filed in order to execute stage 2. From there, a JV in turn can be transformed into NSR income. Hence the line of evolution is OPTION - JV - NSR (but does not necessarily need to evolve into a NSR agreement in all cases). 

Once Centerra will have filed the 70% interest (i.e. stafge 2), Kenorland and Centerra will officially form a JV, with the added option for Kenorland to transform its JV interest into a NSR (2% for the case of Hunter).

The advantages for Kenorland are

• It gets funding for the exploration field work (also, we assume a thorough due-diligence has been undertaken by Centerra of the project before it entered into the agreement)
• It will generate income from its interest into the JV (at a later stage)
• It will generate revenues from the potential NSR (at a yet later stage)

Please note that the exploration work is undertaken by Kenorland.

1.1 Hunter project; Mineral: gold; Partner: Centerra Gold

Kenorland is partnering with Centerra around the Hunter project in Quebec since 2022.

Current status: Optioned to Centerra, but no JV established yet.

If you are following Explorado’s portfolio, you will have noticed that Hunter is located in the same area, and near the Porcupine fault-zone, as Emperor Metal’s Duquesne project (which lies to the East of Duparquet). The claim covers more than 19,000 ha. Within the Abitibi Greenstone Belt, this areas is spatially associated with many large VMS (volcanic massive sulphite) deposits. Due to the thick cover of former glacial clays, traditional surface exploration is difficult and hasn’t been undertaken systematically, but selective drill samples from the overburden have come up with very high levels of metal content. As Kenorland points out: ’ These results strongly suggest that there is a local gold-in-bedrock source’.

A total of 189 historic drill holes have been conducted in the area.

Since 2019, Kenorland undertook some prospective drilling, magnetic geophysical tests and surveys, and further drilling in 2024

Please note that while in May of 2024 the partnership between Centerra and Kenorland has officially been transformed into a ‘Strategic Partnership’, this happened independent of this project-level partnership (in other words, Kenorland has the option agreement with Centerra on the Hunter project, but there is also the overarching 10% partnership that Centerra now holds with Kenorland as a company - see further below when we discuss the Financials):

Based on an investment by Centerra Gold into Kenorland in the amount of CAD 9.86mio (a non-brokered Private Placement), Centerra owns now around 10% of Kenorland’s shares. And the entering of Centerra does not only brings in fresh money. A company like Centerra partnering with a Junior opens up additional networks, partners, public exposure etc. And, the additional capital from this transaction will be used to progress with exploration activities in various projects (including, but not limited to a number of geochemical surveys at these properties). Finally, getting a major onboard is also an approval-stamp of quality, and this kind of exposure will only be done after a very through due-diligence process by Centerra.  

1.2 O’Sullivan Project; mineral: gold; partner: Sumitomo

Current status: Optioned to Sumitomo, but no JV established yet.

With a size covering almost 28,000 ha, this claim is almost 30% larger than the already impressive Hunter project. Similar to Hunter, it is seated in another highly prolific gold district, the Casa Berardi Deformation Zone (CBDZ), which is host to  number of gold deposits and the Casa Berardi mine. As you can see on the map below, numerous mineral occurences are located around the O’Sullivan claim (within the black lines):

Historical drilling at the property was very limited, with 59 drill holes targeting geophysical anomalies. After Kenorland has acquired the property, it undertook a first systematic geophysical sampling of the area in 2020, followed by till-smapling and a geochemical survey. In 2023, this was followed-up by additional groundwork and finally a first drill program of 5 drillholes for 3,801 meters in 2024.

The highlights included visible gold at 475m depth, with 56.80 g/t Au and 23.60 g/t Ag over 0.30m. No discovery as such has been made in this drill programme, but as it was stated above, the programme was also rather limited. Next steps for the project are currently being carved out between Kenorland and Sumitomo.

With regard to the ‘no discovery’, it should be noted that on average, a discovery is made at the third campaign.

1.3 Chebistuan Project; mineral: gold and Nickel-copper-platium group elements (PGE); partner: Newmont

Current status: Optioned to Newmont, but no JV established yet.

Located in the Abitibi Greenstone Belt (similar to the two previously mentioned projects), Chebistuan is equally located nearby prolific mining trends and promising geological structures (see map below):

Above: The Chebistuan property is located directly west of the Chibougamau and Chapais mining camps (6.5 Moz Au; 2.7 Blbs Cu of historic production).

There are 372 historic drill holes located on the property (158,635 ha), targeting geophysical anomalies, but very little systematic regional exploration has been conducted so far.

Since Kenorland has acquired the property, it has engaged in systematic soil sampling and geochemical surveys, which led to ‘discovery areas’, and a discovery hole with

157.20m at 0.41g/t Au, including 20.61m at 0.97 g/t Au. In terms of the ‘grade / thickness (GT) metrics (i.e. the product from mineralization times length), this is a very high value of 64,5 which is in the top 80% percentile. But it is also the width of 157m which is excellent and raises hope for additional high-quality outputs in the 2025 programme.

Such a follow-up drill program, initially planned for the first quarter of 2024, has been delayed, and is now anticipated in the first half of 2025, subject to final approval from Newmont.

1.4 Chicobi Project; mineral: gold; Joint Venture with Sumitomo executed;

Currently Sumitomo holds 51% interest in the project, and Kenorland the remaining 49%. As with Hunter, Sumitomo can increase its share to 70%

This project is situated on another major fault zone within the Abitibi Greenstone Belt, the so-called Chicobi Deformation Zone (CDZ). As with the other, previously mentioned projects, Kenorland concentrates on a land mass that looks positive for mineralization based on the geological structures, and that has seen little systematic exploration otherwise.

Sumitomo has provided around CAD 5mio to exercise the JV option (they funded a regional sonic drilling program in 2019), so I assume that Sumitomo has a rather positive understanding about this property (which a company called NX Gold apparently didn’t, as they entered into a JV in 2017, but left it again in 2018).

Early exploration work under Kenorland since 2019 has focused on 'drill for till' (i.e. glacial sediments), with a total of 441 sonic drill holes having been completed across the project. To my unerstanding, the 'drill for till' methodology which Kenorland is following at a number of its projects looks at gold anomalies in the (former) glacial till. If one has detected such anomalies, the next step would be to trace back from where the glacier could have 'wiped off' this anomalies to detect the source.This is also why you see the 'ice flow direction' mark in the graphic below. 

Around 1.550 samples for gold grain counts, heavy mineral concentrate analysis, and till geochemistry assays have been produced and assayed. These efforts have been complemented by a number of geophysical tests. An alteration corridor (alteration in mineralization, providing clues for a occurrence-forming geological event) has been identified based on these prospecting activities, spanning 17 kilometers in strike length.

See the alteration corridor top left on the graph below. The map also shows the adjacent Destiny project, which is run by Big Ridge, and hosts 607,000 ounces of gold resources.  

Another drill-for-till program has been completed this year.

1.5 Healy project, Alaska; mineral: gold; JV with Newmont

Current Status: Kenorland currently holds a 70% interest in the project, and Newmont the remaining 30%

We move over to the Alaskan / Canadian border for this project, which is hold under another JV agreement with Newmont. However, here it is Kenorland which holds the majority interest of the JV (70%).

The border region between Alaska and Canada, the Yukon territory, is another major gold mining region of not only North America, but globally. You can spot a number of gold mines (or deposits, depending on their exploration/ development status) on the map, and White Gold, Coffee, Casino (on the Canadian side), or Fort Knox on the Alaskan side are trade names for high-grade and big gold deposits. More specifically, Healy is located in the Tintina Gold Province, which is covered between two major faults (Tintina and Denali). In the graph below, Healy is situated right in the center of this highly fertile geological province (between the L and the D of the word 'GOLD':

While no major discovery has been made, the projects NI43-101 report recommends continued work on the project, and specifically a follow-up drill campaign.

1.6 Frotet Project; mineral: gold; 4% NSR with Sumitomo as owner:

Frotet is the current flagship project in the rather broad Kenorland portfolio.  The star within this 40,000 ha property is the Regnault gold system which has been discovered in 2020, and was one of the more spectacular discoveries of that year. What has been so truly spectacular about Regnault was the fact that there were no historic drill holes nor mineral occurrences – it was a true virgin grassroots discovery.

The maps below show the outlines of the Frotet project with the Regnault discovery zone located on its southern brink, and the current deposit model plus drill results on the left (note the interesting comparison with Toronto's CN Tower for scale comparison).

While the process after discovery was already successful, with the size of the deposit being increased constantly, 2023 and 2024 added a particular large chunk to the project (see top right): 

The focus of the 2023 and 2024 programme was a combined strategy of infill, stepouts, and deeper drilling to find new structures. The deepest hole drilled was just over 1600m, and two more holes of 1200m were completed as well in that target area.

I will however not go into too much detail. The reason being that the ownership of the project will be transferred 100% to partner Sumitomo in 2025, although, and this is important for investors into Kenorland, under a NSR agreement:

Under Sumitomo (another mining major) ownership, this fertile gold project will continue to be on track for a mine-development, which means future royalty income for Kenorland, because…..it has recently converted its Joint-Venture interest (so a similar format as with the Hunter project above) into a 4% net-smelter return.(NSR). A NSR is something where you as the righ-holder get, as the name suggest, returns at the smelter for the goods you bring to them (gold in this case).

So when Frotet will be a running mine in some years, 4% of the output (minus transport and smelting costs) go to Kenorland. This is very positive, because it turned an unquantifiable liability into a yet to be quantified asset (because a JV looks good on paper, but what are you gonna buy from it?).  We will see how big this income stream is going to be, but one analyst has calculated the resources at beyond 3 million ounces.

This project is well on its way towards further serious development, and Kenorland has engaged the services of an engineering firm to look into the potential development of an underground exploration decline.

SIDE NOTE: Royalty Agreement: In this type of contractual agreement, a mining company (in this cases Sumitomo) pays a fixed percentage of its NSR (in this case 4%) to the royalty holder (in this case Kenorland Minerals). The benefit for Sumitomo is that it got its project developed by someone else. For Kenorland, the advantage is to have a fixed income stream once the mine is up in production. There is also an additional option to reduce the 4% NSR to 3.25% by Sumitomo paying to Kenorland CAD 13mio within 10 years.  

Additional equity interests:

Kenorland holds 9.95% equity plus 3% NSR on the Opinaca property (majority owner and operator: Targa Resources). Opinaca is prospective for both gold and lithium, with the property being located south of Patriot Battery Metals' Corvette project).

Furthermore, Kenorland Minerals Ltd. has entered into a definitive purchase and sale agreement with Evolution Nickel Corporation for the South Thompson Nickel Project, whereby Evolution will acquire 100% of the Project and issue 26,000,000 common shares to Kenorland, along with granting a 2% net smelter return royalty (closing expected before December 31, 2024), and subject to customary conditions and Evolution completing an equity financing of at least C$4,000,000.

Ad 2: Projects with 100% Kenorland ownership:

Kenorland has no fewer than 15 early stage exploration projects under its belt. Just in Ontario alone, it controls around 331,000 hectares, where it will be conducting regional-scale surface exploration programs, targeting various projects in the Red Lake District and Wabigoon subprovince:

The exploration programs include activities such as detailed mapping, prospecting, and heavy mineral concentrate (HMC) till surveys to define drill targets for testing in the future. The Projects being explored include South Uchi, Flora, Western Wabigoon, and Algoman, each with different geological environments and potential deposit types.

The exploration strategy aims to screen the projects for potential new discoveries by targeting orogenic gold, Ni-Cu (nickel-copper) sulphides, lithium-bearing pegmatites, and VMS-style mineralization systems.

The projects' geological settings feature characteristics favorable for mineralization, including major deformation zones, metavolcanic-clastic and metasedimentary-iron formation stratigraphy, and associations with various types of deposits.

Their projects in Quebec and Manitoba cover another 300,000ha, so that the company has around 600,000 ha under its belt. Due to their healthy working capital and income structure, Kenorland will be in a position to actually pursue fieldwork on their projects, although that will require prioritization, as not all properties and targets within these properties can be worked on. It will be interesting to follow-up which ones these will be.

Priority projects could be South Uchi (see map above), where a large-scale gold anomaly in glacial till has been discovered in 2023 (the Papaonga target). Drill targets likely to be tested in 2025

Financial aspects:

I have covered the graphic below on a piece I wrote specifically on the importance of finance for Juniors – as a positive example. The information below looks like made up for a classroom on how a sound and healthy financial set-up could look like. Starting with the share-structure, we see it is very tight: Retail has less than a third, whereas management and insiders almost own a quarter. The two strategic partners Centerra and Sumitomo roughly have 20% of the shares, and sophisticated investors like HNWI and institutional investors control another third. This is excellent.

As is their working capital (very high), and the number of fully-diluted shares (on the low side). Speaking of dilution: The partnership with the majors, the JVs and the royalty share(s) (maybe more to come?) are having another major effect for investors: There is much less pressure for financing through stock issues than is normally the case. There might still be additional rounds of financing coming up, but in terms of dilution, I see much lower propensity here than is the case for the average Junior. 

As a final word on finance, I also would like to add that while I am not sure where it can go with regard to the upside, I am rather sure that the downside is limited here. This is an aspect which is often overlooked (by me included), but given the many assets the company has, I don’t see it crumbling to a huge degree anytime soon.

Management:

Led by Zach Flood, the quality of this management team is indeed underlined by facts and actions, rather than by looking at their CVs and past experiences. Flood has been educated for years at Friedland’s iconic Ivanhoe Mines, a company that excels in combining technical expertise with the spirit of making successful business. Indeed, Ivanhoe flourished in places where most ‘normal’ mining companies wouldn’t set a foot to, such as Mongolia and DRC, not to talk about setting up worldclass mining operations. And this business spirit is quite evident with Kenorland as well, as one could see with regard to their partners, their strategy, their share structure etc.

The rest of the team is made up with highly qualified experts, including the financial side. Director Rick Trodman for instance was with Resource Capital Funds, an investment firm that pioneered private equity in the mining industry. We also find people that have successfully developed and/or sold projects, and that were responsible for exploration and development with mining majors. Others bring in, besides their technical expertise, a wide professional network, such as Advisor Peter Meredith, who equally served with Ivanhoe and led their Mongolian operations.

Options for speculation and investments:

As with everything related to Kenorland, this is not so easy to say, because the options are many - as are the dirrenet ways this company could develop. I see this company as providing both mid-term and long-term horizons, being attractive for speculators and longer-term investors alike. 

The mid-term options would be generated along its many projects, with solid prospecting results, and later with one or more successful drill and hopefully discovery results. What fits neatly in here is the fact that money is available to do things. More money indeed than most Juniors have, specifically for these early stage projects. It is too early to tell at the moment what the company is going to do with such projects further down the road, especially those where a discovery will have been made. But in any case, the long-term market cap should raise significantly, given its incomes from JVs, NSRs and then potentially with a number of developing projects under their belt.

I understand this one will be demanding to follow. And the questions of when to sell, and when to buy again (because a one-time purchase seems too simple for a relatively compex set-up) will require deeper thinking than is true for most.

Critical points:

Complexity: For investors, the many things that could and that are happening are not so easy to follow. On the other hand, we could also see that income from NSR will flow independent from our scrutiny, and as far as the JVs are concerned, it has been the majors that did a lot of this work. 

How will the NSR and (potentially upcoming) JVs (from the option agreements) influence the share price? I will try to anwer this question over the next weeks and months, as I don't have a clear-cut reply now. This type of company is also new for me. What I suspect in any case is that at the very least, the interest in JVs and future and current NSR will stabilize the company against too massive downward trends, expecially now ith the very strong gold price coming in.

Ownership and freedom of decisions: As I explained for the case of the Chebistuan project where Newmont is the partner, certain decisions have to be approved by that partner. That does not necessarily need to be something negative, as four eyes see more than two, but it is something that should be kept in mind.  

Overall assessment: 

Kenorland is a one-of-a-kind company. It is both a widespread exploration company with now a dozen grassroots exploration projects under its command. On the same hand, it is also an emerging project generator or royalty company. It is a pretty rare mix, and honestly something I do not have much experience with myself. However, what gives me most trust in Kenorland in the management team, as it was able to lead such a unique set-up. It managed to partner with more than one major, successfully transferred projects against a NSR, has interesting shareholders, a tight share structure and boasts one of the best cash and working-capital basis in the Junior world. I am optimistic it will use the cash wisely in promoting some of its 100% ownership projects, hopefully leading to numerous chances of finding something big.