Emperor Metals

Why I like this project

An ‘in the center of Eldorado’ undervalued opportunity with historical resources that might easily get tripled until 2025 thanks to a 2024 (fully-funded) drill campaign. I believe this offers good opportunities in the mid-term (until early 2025), but also beyond in case the drill results confirm a low-grade bulk-tonnage open pit mine on top of a high-grade (average 5.35g/t) underground deposit. And you have enough midscale and majors around to buy the project at a certain stage.

Company & Project Overview:

Let’s zoom in from the geological region to the company and then to the project. This is because there are really a few things to know about the region where Emperor is active with its Duquesne project, namely the Abitibi gold belt.

This geological region crosses from West-Quebec to Eastern-Ontario, and is home to a number of fault zones, which are virtually covered with fertile gold mines and good exploration projects. The two graphs below have been put together by one of my trusted sources, Visual Capitalist, and explain the geography and the potential of this exceptional region quite well:

Emperor’s flagship property Duquesne (see map below) lies on the Porcupine-Destor fault zone, where mines have produced in excess of 110mio ounces of gold. The leading major in this region is Canadian gold miner Agnico Eagle, which is producing above 2 mio ounces of gold every year, just from this region, from five mines it operates in the Abitibi.

The responsible production manager of Agnico for Abitibi, Daniel Paré, said an interesting phrase in this connexion at a conference in 2023, stating ‘we are always one hole away from the next discovery’. There are not so many areas in the world where this sentence truly fits.

As always, being in the vicinity of a producing mine, or of a number of producing mines, is not a guarantee of hitting something in your own property. But Emperor’s Duquesne is right in the CENTER of a highly productive fault that host numerous gold system . Ok, still no guarantee. But a good precursor, can we agree on that?

And the best is: It actually HAS gold, because we do have historic data, comprising drill data and even a historic maiden resource estimate (MRE), which stands at 727,000 ounces of gold with an average grade of 5,42 g/t.

A word on total resource size:

You might have heard that there is a 1mio ounce benchmark for gold project. I my opinion, this is only a very rough indicator of success. It may be true that many banking and funding institutes start discussing projects only after that mark has passed. However, size is by far not the only factor to make a project worthwhile, and Australian developer Beacon Minerals has, in 2019, brought its Jaurdi gold mine to life with just 163,000 ounces of resources.

Are we set for the moment with the 727,000 ounces? This number is going to change for sure, and it will do so to the upside. While these 727,000 ounces are historic and could get a bit diminished with a new NI43-101 process (but not necessarily though), there will be most likely added ounces on top, taking this project above the 1mio mark, maybe even above 2mio. Why?

The main reason for that is that, as Emperor management points out, the previous owner didn’t take into account lower grade bulk tonnage near the surface, which could be conducive for open pit mining. In other words, the host rock which is sitting ABOVE the 727,000 ounces is equally mineralized with gold, but that wasn't taken into account by the previous owners. Or in yet other words: THERE IS A GOLDMINE ABOVE THE GOLDMINE. Under the tutelage of Emperors management team, the recent 2023 drill program went to get more information on the open-pit concept, and the results were generally positive: Highlights of the last drill campaign include

A graphical image of the drill campaign and the proposed open pit model follows below. Note that the resources for the open pit are open along strike in both directions plus at depth, which means they could get extended upon further drilling. The top part of the image below, which is in greenish and darker yellowish is the open pit concept. The more lighter-yellowish part below that is the historic 727,000 ounces we talked about further above. 

Supporting this openness and the probability to ‘drag’ the open pit horizontally for hundreds of meters, was a step-out hole (i.e. a hole not in the vicinity of the others, but in this case 120m away from the closest neighbour), which tested further mineralization. This hole, named DQ23-05 actually hit quite well: Check below (lines 11-15)

Rob McEwen is an investor, with around 10% ownership. Mr. McEwen is a legendary figure in the Canadian mining universe, and more important than putting ion around a million CAD is the prestige. It is unlikely such a personality will risk to invest in a lemon because it could taint his image as one of the most successful investors. Again, this is not a proof. But it is another aspect that de-risks the project in my view.

I also referenced a strong uptake by a number of other prominent Junior Mining investors like Jeff Clark. The general chit-chat mood is rather positive regarding Emperor Metals.

Management owns 13% of the shares, which is good enough in my view.

So, what is happening at the project precisely?

Following the argument above, Emperor has started an 8 ,000 m drill program mid-May 2024 to follow up on the results of its 2023 drill campaign. This is also a very nice entry-point into this project from an investors point of view. With a market cap of just around CAD 10mio (July 2024), the upside is quite solid, especially when taking into account a (hopefully) successful drilling campaign. Of course, investors hope that this drilling will further support the open pit concept, adding substantial resources to the historic data. Also, given the location, this project will remain all but invisible, which means that a successful drill campaign should get the attention of the market.

In addition, there is another 8,000m of non-assayed drill core from historic drilling that will be sampled under the 2024 campaign. I consider this a rather nice gift: You get 8,000m of free drill core for your analysis. The origin of the cores is from previous ownership near-surface drilling. That makes it a total of 16,000m of to be analysed drill-results.

First results should be out in late-summer (August/September). From July onwards, watch the news releases regularly. With regard to the historic resource, the plan is to have that updated to a new 43-101 MRE by early 2025. This means roughly ¾ of a year from now (summer 2024), from a 10mio market cap 727,000 ounce project to maybe a 2mio + project, with an market cap that should be substantially (and really substantially) bigger.

I trust the management is capable enough to drive this forward. The coup to get this historic project and transform it into a two-pit project is a good starting point. CEO John Florek is a seasoned industry veteran with a lot of experience working for majors, incl. Agnico Eagle. He also features deep understanding of the production site, including open-pit and underground gold production.

Chairman John Williamson has a long career of setting up and successfully selling Junior Mining companies. North Country Gold Corp and Benchmark Metals are two examples. At present, he is also chairman and director of Altiplano Metals, and has served as founder, chairman, president, CEO, CFO or director of more than 20 listed companies in Canada and Australia. So, very well connected, very experienced in setting up explorers. Personally, I wouldn’t know how to be active as chairman in so many companies at the same time (Emperor, Altiplano, Torr Metals, Scottie Resources Corp), but might be that this is just my limited horizon.

Looking at the finance side, Emperor currently has 3,5 mio CAD in the bank, which is good and solid to finance future campaigns. It also does not have any debt outstanding.

Strategic thoughts

Of course, at this stage, any thought on future strategies is very theoretical. But I like theoretical thoughts, and they don’t hurt, so let’s look for instance at the presence and the activities of majors in the region. There are many. Agnico Eagle, which is Canada’s top gold producer, is the most visible one.

Newmont, Iamgold and Hecla are present with operative mines as well and/or exploration projects in this gold belt too. This presence of majors is all but unimpressive and it surely means getting bought off as soon as there are signs for an above-average project in terms of size, grade or costs. Why? Because it just makes sense in terms of synergies from the majors point of view. Speaking of which, Barrick, which has left Abitibi years ago recently came back. And guess what? Barrick was and is really looking at these larger open pit bulk operations. They couldn't find them in Abitibi, which is why they went away. Now there is one or two (one operated by Agnico)...and the Duquesne project is lining up nicely. 

Quality is really important here, and maybe this is the only disadvantage when being active in such a region. You will be measured by hawk-eyes constantly, and if you fail, you most probably will fail really badly, because with the likelihood of other good projects coming along being high, no one will want to make business with the loosers. But on the other hand, if you can offer something, there are many buyers who rather would like to have the cake for themselves and not give it to the competition.  

In the nearer term, the prospect is to enter early into a project that stands at a market cap of around 10mio, and that, in consequence of what we have said above, could double or triple its reserves.

Furthermore, the Southern Abitibi is a fully functional top gold producing region, which means it already has a lot of relevant infrastructure for gold mining projects up and running. I am referring not so much to roads and electricity, which is of course available anyway, but also to processing plants and tailing dams. Given that Duquesne will most likely not be a juggernautic mining project, it might make use of existing facilities nearby, which could significantly save capex costs, which in turn will help to make for a very attractive net present value (NPV). Keep in mind that mills plus related infrastructure could easily add up to roughly USD 500mio. 

Options for speculation and investments:

Clearly looking at the drilling program – and at its results. For my part, I will most likely not sell until then (if nothing dramatic happens). One hint: Emperor itself set a benchmark for success of their 2024 drill campaign, in that they are aiming to proof for an 2mio ounces open pit concept.

That said, the results should hit this number, at least roughly. But remember, this benchmark will be the result both of the drill campaign and the analysis of the previously non-sampled drill cores. All this to be set early 2025. In case the campaign(s) support this goal, we would have a 2mio ounces open pit + around 750k high-grade underground mine, so roughly a 3mio ounce gold play. That should provide for a market cap of above 30mio, judging by its peers.

Further buying however could be an option over summer, depending on the price.   

Critical points:

Environment; social; political risk:   None Yet

Quality of the project: There is a certain degree of pressure. As explained above, Emperor has set its own benchmark. That needs to be met after all data has been sampled. If they can’t proof the lower grade bulk tonnage open pit, the project will most likely be a fail.

Amex Exploration has set a negative precedent along this line early December: With exclaining expectations of an MRE that would go between 2mio and 3mio ounces, and then getting public with 1,5mio ounces resulted in a rather dissatisfied market and a share price decline from 1,22 Euro to just 74 cents (and staying around that level even a week after that). So, watch what expectations management is raising in the weeks ahead of the MRE, and check with actual results, your analytical skills - and your gut feeling.  

Overall assessment

We do have a MRE, with additional 16,000m of drill core to be sampled and assayed over the next months. So this is a project that is NOT starting from scratch, and that could extend its resources up to 2,5 - 3,0 mio ounces within the next months - currently available at the market cap of an early, largely untested explorer. This is rare, even in the volatile world of Junior Mining. Of course, this company has to deliver, and there is, as always, the risk that it won't, but looking at the 2023 drill data and the 8,000m core that is gonna be sampled, I am ready to take the risks as the factors on the plus side seem to be convincing.