Some junior resource companies have so many properties all over the world that they end up spreading themselves too thin, and seem to be in a constant state of fundraising to bring each project into development.
Castillian Resources (TSX-V: CT) is a Canadian company and although it has two properties outside of Canada, it has narrowed its focus to become a junior gold exploration company working exclusively in Canada. Thanks to an exciting project in Newfoundland, their narrower focus offers a significant reward to the company and to shareholders.
At the recent PDAC Conference in Toronto (March 4th through 7th), we met with Castillian Resources’ President and CEO, Bill Pearson. We talked about the company's focus and their properties, and why investors might want to take a closer look at Castillian.
Mr. Pearson said: "Castillian is a growing gold junior exploration company. We're focused on exploring and developing gold deposits in Canada. Our flagship property is the Hope Brook project in Newfoundland… We also have an interesting project in the Yukon called Canadian Creek… We still have some assets in Brazil and Bolivia and we're looking to sell or get them into another vehicle (to finance) so that we are a pure Canadian gold junior."
We talked about the flagship property.
Mr. Pearson reported some of the key numbers to us: "Hope Brook has 25,000 hectares on the south coast of Newfoundland. It's a significant past producer (the property formerly produced about 752,000 ounces from 1987 to 1997) but it was all done during a period when gold prices were at less than $400/ounce. So a lot of the targets weren't of interest at that time but are now definitely of interest. We acquired the property in 2010 and we started a major drilling program that fall."
Since then, the company has been hard at work on the property: "Last year we did 25,000 metres of drilling. This culminated in the release two weeks ago of a NI 43-101 mineral resource estimate. It had 740,000 ounces inferred and 290,000 ounces indicated; we did that in just over 16 months. I'm very enthusiastic about the size and extent of the mineralized system and the exploration potential to expand our resource. About 70% of our current resource is potentially open pittable and there is higher grade resource below the potential pit. We were very pleased to be recently added to the quarterly RBC Capital Markets Junior Gold’s valuation report.
There are still other advantages that Mr. Pearson outlined: "We also have a number of very positive infrastructure advantages: We have power; we have tailing ponds; we have an air strip; we have a ramp that goes 350 metres below surface; we have a tremendous local labor force; and a very supportive government."
Their other Canadian project – in the Yukon – looks to have some opportunities as well: "It has a 7.5 by 2 kilometer gold soil geochemical anomaly along a major structure. Our property is adjacent to Kaminak's Coffee property. We did quite a bit of work on it last summer and we would like to do drilling on the property this summer." But their focus is on Hope Brook project in Newfoundland.
Next, we asked about the company's plans moving forward: "Our goal is now to test and evaluate the potential resource and expand it. We initiated a 5,000 drill program and we're focusing on the major extensions. Last week we just announced several major target areas over a strike length of about 3.3 kilometers, which would be major extensions to our known resources, as well as new zones. All of these target areas have not had one single historical drill hole so we're really focused right now on doing wider-spaced drilling. Our geophysicist tells us that our mineralized structure is likely there but obviously it has to be drilled to confirm that it has grade."
Along with the technical review, of course, comes the economic assessment. Mr. Pearson told us: "We are working on doing the technical work for the PEA so we want to get a sense about what type of resource we need to put this into a good, potentially economic operation. There's the potential here that the capital expenditures would be paid back by the production from the pit and the future underground resource would be the gravy. There are also 8 million tonnes of tailings. We want to find out what's in there. We suspect that there may be more than what the old data indicates."
Right now, the company is trading at about $0.05/share, down from a 52-week high of $0.24/share. Mr. Pearson said the market is currently undervaluing the company. "The market is tough. This is a time that investors should be looking at companies that have solid assets and are undervalued. One of the most important things for an investor is: Right now we're trading about $16 per in situ ounce. The average junior gold explorer is about $50 an ounce. We think there is an awful lot of upside in the stock. I would argue that an ounce in the ground in Newfoundland is probably worth more than $50 an ounce average. We think we're undervalued."
One of the challenges that Castillian has faced has been its corporate structure. "Our shareholders have been very supportive," said Mr. Pearson, but he does want to improve the corporate structure: "We recently announced a proposed 5:1 rollback of the common shares which will be voted on at the upcoming annual and special meeting of shareholders on May 9, 2012. We have also strengthened our balance sheet by getting rid of all the debt in the corporation. "
Although they have had to go to the market for money, and will have to again, Mr. Pearson is confident that the shareholders will support the decision: "We did a small financing in December 2011… We have about $3.0 million in the treasury now so we are fully financed for our 5,000 metre program into the summer. We'll have to raise some additional money to do more drilling because we would like to issue a resource update by the end of the year. We've budgeted out our program so that we're not going to run the till down to zero and we can do an awful lot of work very efficiently. The minimum to do for the next stage of drilling after the initial 5,000 metre drilling is complete would be a 15,000 to 20,000 metre program. We would need to go to the market for more money – just $5 million or $6 million to get us to the end of the year and our next milestone. At this stage, we don't want to look at any debt financing."
Financing is always a challenge for junior resource companies but for companies with a project that has a lot of potential, shareholders can accept some additional dilution. Although all investors should do their due diligence before investing in any company, Castillian does seem to have an exciting project that could see an upward value correction in the price given the right circumstances in the market.
Castillian Resources Corp.
65 Queen St. W., Suite 815 PO Box 75
Toronto, Ontario Canada M5H 2M5