The Case for TNR Gold – Independent Analysis

The Case for TNR Gold – Independent Analysis by Leslie Michael

April 2019

TNR GOLD [TNR.V] is looking to make waves in the mining world. Armed with a strategic portfolio of high-quality acquisitions, the company is attracting attention from major producers. 

The company came to my attention last year from someone familiar with their story.

TNR Gold identifies mining exploration and royalty projects in advancing stages where infrastructure has already been developed. They acquire these projects for pennies on the dollar. Then acquisition costs, downside risks and shareholder dilution is hedged further by partnering with major producers.

Management holds nearly 50% of all outstanding shares. Insider filings show they are continuing to buy each month.

CEO Kirill Klip handpicked a team of seasoned personnel. It is estimated that the entire company core throughout Europe and North America, including management and close associates, own 70-75% of all outstanding shares. The team is committed to building shareholder value because of their high confidence in the company’s vision.

With only a small amount of shares floating on the open market, any major growth spurt could squeeze TNR Gold’s stock price significantly higher. This is exactly what TNR Gold expects will happen. Major growth spurts in combination with a shortage of shares available could make TNR Gold an attractive investment to consider.

John Davies, a director of TNR Gold, describes investing in the company as investing in the one of the best high-leveraged proxy hedges you can find.

Proxy hedges use price or rate correlated financial instruments to hedge a particular risk when a direct hedge is unavailable. In TNR Gold’s case, proxy hedges come in several forms. Each hedge builds upon the other.

The first hedge is the currency hedge between gold, the US dollar and all other fiat currencies. 

TNR Gold provides significant exposure to gold through its 90% holding in the Shotgun Gold porphyry project in Alaska.

Shotgun Gold is a highly coveted Alaskan property due to its close proximity to Novagold’s Donlin Creek project with Barrick Gold. 

Donlin Creek is one of the highest grade open-pit gold deposits. Donlin holds 39 million ounces of gold, with a measured indicated resource grade of 2.2 grams per tonne. TNR Gold’s Shotgun Gold is 100 miles south. It is noted by highly regarded geologists to possessing a similar geological signature as Donlin Creek.

The second hedge is the acquisitions hedge. 

TNR Gold projects are easily fast-tracked because they are already in a path of growth.

Referring to the Shotgun Project in Alaska again, infrastructure has already been developed by the neighbouring third parties in a mining friendly region. Which means any added development costs are mitigated by the surrounding developments. Millions of dollars have already been spent developing the roads, surveys, drill results, assays, corporate social responsibility and other forms of infrastructure.

Here is Kirill Klip discussing the acquisition and infrastructure. 

The third hedge is minimized share dilution. 

Presently, TNR Gold only raises money when buying new properties or for special situations. The company plans on keeping its share dilution to a minimum because it strategically acquires valuable projects at a heavy discount.

The fourth hedge is social responsibility. 

Each acquisition under management specializes in green energy metals around the world.

Green energy movements such as the electric car revolution are still in early stages. Future mining requirements for these economic transitions include both traditional metals and rare earth metals. Currently, TNR Gold provides significant exposure to gold, copper and lithium through its three main holdings within Alaska and Argentina.

The fifth hedge is strategic leveraging. 

TNR Gold uses joint ventures to mitigate costs and risks.

The company’s Los Azules Copper NSR Royalty is already being developed by McEwen Mining.

The company’s Mariana Lithium NSR Royalty is Joint Ventured with Ganfeng, one of the world's leading Lithium manufacturers, established in China. There is another major JV on this project that is currently deciding on its level of involvement.

In the case of their Shotgun Gold Project in Alaska, Kirill’s team is looking for a major gold mining company to develop the project in a JV option agreement. At this time, the company is unable to comment on who they are in talks with.

What is on public record however, is Novagold founder Greg Johnson who discovered Donlin Creek is a TNR director. He joined after TNR Gold reported a gold discovery in 2012 and is helping the company make the right deal with a major.

Kirill Klip says

“We may be at the beginning of a great discovery. There is a clear path on how to move this project forward using the geological and geophysical research currently available to target drilling to expand the resource and form the basis of a preliminary economic analysis. The next step is to acquire a partner that shares our vision and recognizes the growth potential and value to be added to the Shotgun project over time.”

The sixth hedge is its financial creativity.

TNR Gold is actively pursuing a “Royalty Convertible Debenture”. In order to free up cash flow faster, the company is securing their debenture with future royalties from two projects. The Los Azules royalty project and the Mariana Lithium royalty project. Both are located in Argentina.

The Los Azules property provides TNR Gold a 0.36% royalty Net Smelter Return (NSR). The project is currently being developed by McEwen Mining.

This project is highly leveraged to the price of Copper. They anticipate Los Azules to be the world’s 26^th largest copper producer and a lowest cost quartile producer.

Los Azules has reserves amounting to 1.39 billion tonnes of ore grading 0.46% copper. with 10.2 billion lbs of copper indicated and 19.3 billion lbs inferred. 

Unless there is some major data variable that I am unaware of or did not consider...at a rough price $3.00 per lb, the royalty agreement TNR Gold has with McEwn Mining is worth much more than $127M which the company estimates over the current life of the mine, pending future metal spot prices. The $127M estimation by TNR Gold appears to represent only the indicated copper reserves and not the inferred reserves.  The Los Azules royalty also contains a return on the gold and silver which is also mined on the grounds.

The Mariana Lithium project is highly leveraged to the price of Lithium.

TNR Gold has a 1.8% royalty NSR. That 1.8% may be reduced to 0.8% pending a side agreement. Another company has the option to repurchase 1% of the royalty from TNR Gold for $900K. Investors should expect that to happen.

The mine life is expected to be 25 years producing 10K tonnes per year (TPY) of Lithium Carbon Equivalent plus 84K TPY Sulphate of Potash. With Lithium priced at $16K Per Tonne, a yearly royalty at 1.8% NSR could be around $2.88M per year for 25 years (10K X $16K X 1.8%). That’s $72M for the life of the mine. If the royalty is cut to .8% as one would expect per prior repurchasing agreements, then a yearly royalty at 0.8% NSR would be around $1.28M per year for 25 years. That’s $32M for the life of the mine.

Transitioning the two royalty assets into a convertible debenture, will allow TNR Gold to:

1. Benefit in real time from higher metal valuations faster.
2. Repay its long-term investment loan early.
3. Deploy capital back into new projects faster.

In addition, the company is pursuing the transitioning of the convertible debenture into blockchain technology.  

Kirill Klip explains that blockchain can decentralise access to the capital.

“All junior miners are struggling with the lack of allocated capital to our sector. The main fascination with the Crypto Universe is the idea that TNR Gold can expand its base of investors out of very narrow mining sector toward energy and blockchain technology allocated capital. The idea is to connect its potential Royalty cash flow streams with capital allocated to the crypto space.”

The seventh hedge is liquidity. TNR has money in the bank to progress its projects toward completion.

Conclusion.

According to Kirill Klip, TNR Gold’s main plans moving forward will be:

1. Articulating the TNR Gold story, which also includes presenting the team and assets.
2. Launch of GEM Royalty (the name of the “Royalty Convertible Debenture”)
3. Facilitate the first Royalty Convertible Debenture transaction and cover TNR Gold’s long term investment loan with institutional money.
4. Facilitate transaction with Strategic Partner on the Shotgun Gold and start drilling in Alaska.
5. Expand TNR Gold’s shareholder base and build what Kirill calls an EcoSystem Mining Alliance of Trust

With a market cap of under $6M, the story of TNR Gold has clearly not penetrated the investing community as it could. This is perhaps one of TNR Gold’s bigger weaknesses. Yet it is a challenge they are aware of and recognize as solvable with some perseverance and creativity.

The copper and lithium royalties alone have a combined approximate worth of over $159M at present metal value. That valuation comes with the added benefit of requiring no further foreseeable capital expenditures. Metal prices, will naturally go up over the next 10 years, which could make the value of these projects potentially higher.

Let’s not forget TNR Gold has a potential world class gold mining project in Alaska which is noted by highly regarded geologists to having a similar geological signature to its neighbour which one of the highest open-pit gold deposits at 39 million ounces of gold.

Last but not least, they have a convertible debenture to liquify funds. Plus, they are pursuing blockchain technology to tokenize the convertible debenture and bring in a new class of crypto investors.

If these proxy hedges hold and build upon each other, watch out for TNR Gold over 2019 and 2020.

Disclosure: 
1) The following companies mentioned in this article are not sponsors of this report:

2) Comments and opinions expressed are those of the specific writer and not of TNR Gold or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. 

3) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. This article is not a solicitation for investment. There is no endorsement or recommendation of the business, products, services or securities of any company mentioned on this report. 

4) From time to time, the writer and followers as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned.