Is Centenera Mining Corp. Undervalued?

Centenera Mining Corp. (“CT”)  [TSX-V: CT / OTCMKTS: CTMIF] is a target and catalyst rich, 100% Argentina-focused junior, with highly prospective assets spanning Copper (“Cu”), Gold (“Au”) and Lithium (“Li”).  It has a market cap of just C$11.4 M / US$ 8.4 M (May 12th, at C$0.20 per share), meaningfully undervalued in my view.  CT has 7 properties/projects, 3 of which are front and center.  

The most important project to watch is an outcropping Cu-Au porphyry system with a discovery hole intersection of 353 m grading 0.49% Cu Eq, (incl. 243 m at 0.57% Cu Eq / incl. 88 m at 0.69%).  The Company also has a gold project with a JORC-compliant conceptual geological target of 600k – 940k ounces Au at 0.92 – 0.94 g/t, and a promising hard-rock lithium opportunity undergoing a property-wide mapping and detailed surface sampling program.  On top of it all, a tremendous management, Board & technical team (see details below).

Centenera Mining was formed in mid-2015 in anticipation of a much more pro-mining governmental party coming to power in Argentina.  This came to pass when Mauricio Macri won the Presidency in late 2015.  Since then, improved sentiment continues to take root, culminating in the imminent signing of a comprehensive Federal Mining law.  Here’s an update from Mining.com on the topic.  

Argentine authorities, industry players and unions are expected to sign a long awaited federal mining agreement that unifies existing legislation across the country.  The nation, once a favourite of mining investors, has fallen behind neighbours Chile and Peru despite containing rich deposits of copper, gold, silver and zinc.  Under the previous Administration, Argentina received investment of only $10 billion from 2007 to 2015, while Chile’s mining investments totaled $80 billion and Peru’s $52 billion over the same period.

Stronger confidence is evidenced by the acquisition of Goldrock’s Lindero Gold project in Salta Province by Fortuna Silver Mines (2016).  Several projects/companies are attracting attention & investment.  For instance, Golden Arrow’s (TSX-V: GRG / OTCMKTS: GARWF) Chinchillas Silver Project in Jujuy Province, where Silver Standard Resources (TSX: SSO / NASDAQ: SSRI), exercised an option (March 2017) to form a 75%/25% (private) JV company centered on Chinchillas & Silver Standards’s producing Pirquitas Mine.

Barrick Gold (TSX: ABX / NYSE: ABX) the world’s largest gold producer recently agreed to co-develop one of its largest mines (Veladero) (April 2017) with a State-backed Chinese firm.  The agreement also contemplates the parties jointly developing the massive Pascua-Lama gold project, and co-investment opportunities along the border of Argentina & Chile.  

Huachi Cu-Au project

In January 2017 Centenera signed a binding Letter of Intent granting it an option to earn a 100% interest (subject to a 2% NSR) in the Huachi Copper-Gold property from Macondo S.A.  The Property consists of a central copper-gold porphyry deposit and a peripheral epithermal gold system.  The Company is targeting the large-scale Cu-Au porphyry system.  On March 6th, a NI 43-101 Technical Report was published.

Huachi is in San Juan Province (2nd highest ranked Province in Argentina; Source: Fraser Institute Mining Survey, 2017) in the northwestern region of the country.  Despite a long history, it was first drilled in 2006 with a key discovery hole intersecting 199 m grading 0.35% Copper Equivalent (“Cu Eq.”) from surface.  Several more drill holes were completed, the best returned 353 m grading 0.49% Cu Eq, (incl. 243 m at 0.57% Cu Eq. incl. 88 m at 0.69%).

Historical exploration includes detailed geological & alteration mapping, surface rock sampling, a geophysical induced polarization survey west of known mineralization and 20 diamond drill holes totalling 6,640 m.  Between 1979-1999 limited field studies were completed by government agencies, including German & Japanese groups, work that resulted in a total of 406 samples. 

From 2005-2007, Cardero Resources conducted a modern, systematic exploration campaign focused on the porphyry mineralization.  The program consisted of systematic rock sampling, detailed property scale mapping, an IP survey, and drilling (11 holes, 2,552 m).  The goal was to delineate copper-gold-porphyry mineralization. 

Cardero viewed the exploration results as positive, but for financial reasons allowed the option to expire in 2009.  The following year the property was optioned by Kestrel Gold Inc. who drilled 10 diamond drill holes (4,174 m) in 2011 focused on the peripheral epithermal gold system.  NOTE:  {Current focus is on the Cu-Au porphyry system

“Exploration programs completed by Cardero from 2005 – 2007, and Kestrel, 2011 – 2012, greatly increased the understanding and potential of the Property.  Cardero’s was the first comprehensive modern exploration with an emphasis on finding and defining a porphyry copper deposit.  Cardero was successful in identifying both widespread porphyry copper and low sulphidation epithermal gold style mineralization.”  {Source:  Page 51 of Huachi Technical Report}

As a rough valuation exercise, one could compare Huachi to First Quantum’s Taca Taca project, which was acquired for US$0.015 per Measured, Indicated & Inferred resource pound Cu Eq.  Current pre-development projects are valued by the market in the range of ~US$0.01-US$0.025 per pound Cu Eq in the ground.  However, since many have a primary project with a PEA, PFS or BFS attached, I assume a per pound value of US$0.0075.  

Management is shooting for 500 Metric tonnes (“Mt”), drill results this year will be telling.  At 500 Mt x 0.40% Cu Eq, that would be 4.41 billion pounds, worth ~US$33 M, (at $0.0075/lb.) equal to ~C$0.61 per share.  The chart below assumes all warrants/options are exercised, C$/US$ = 1.3333 and 0.40% Cu Eq.  Indicative share prices are based on millions of tonnes of potential resource (from 200 to 800 million) and the prospective market valuation (from US$0.005/lb. to US$0.0125/lb.

To be perfectly clear, 500 M tonnes is far from a sure thing.  However, historical exploration points to targets to be drilled this year that could provide evidence of a scale that attracts attention.  Many projects with solid grades reach into the hundreds of millions of tonnes, but the cost / benefit analysis of additional drilling becomes increasingly difficult without the real possibility of economically viable scale.  That’s why Huachi’s substantial 353 m length intersection is so promising; a few more 150-200 m+ intervals with good grade would make a world of difference.  

Organullo Gold Project

The Organullo Gold project has a JORC-compliant conceptual (non NI 43-101 compliant) exploration target tonnage and grade ranging from 600k – 940k ounces Au at 0.92 – 0.94 g/t.  A good start, but the project will require significant drilling to fully assess the extent of mineralization.  Management feels it would be too time consuming and equity dilutive to move Organullo forward alone.  A plan of farming it out is well underway, with conversations among a small number of interested parties. 

In terms of potential valuation, the obvious comparison is the above mentioned Fortuna Silver acquisition of Goldrock’s Lindero project last year for US$130 M, or about US$60/oz of gold.  Lindero was far more advanced than Organullo is today, it had ~2.17 M (combined) Proven, Probable, Measured & Indicated ounces at an average grade of ~0.6 g/t.  And, Lindero was at an advanced exploration stage, sporting a US$150 M NPV and 26% IRR.  By contrast, Organullo has only a conceptual exploration target of (the midpoint) 770,000 ounces at a grade of ~0.93 g/t.  So, 50% higher grade, but 4-5 years behind where Lindero was when it was acquired.  

So, 770,000 ounces x US$60/oz = US$42.2 M.  Discounting that figure back 4 years at 20% equates to a prospective valuation of ~US$22 M for 100% of the project.  However, it’s reasonable to assume that Centenera might end up farming out 75% of the project (to minimize equity dilution from exploration/development).  Arguably a 25% Interest (perhaps free carried for a few years) might be worth US$22 M x 25% = US$5.5 M, which equates to ~C$0.13 per share.  NOTE:  {A highly speculative assessment, but there’s room for resource growth, and the grade is strong}.  Therefore, Huachi & Organullo alone could be worth nearly C$0.75 per share, AND evidence supporting or refuting this indicative valuation exercise is forthcoming. 

Meanwhile, management is diligently working towards farming out Organullo and possibly Huachi (but not before further drill results).  This would free up managerial and capital resources to actively pursue other compelling undervalued assets.  

Hard-rock Lithium Play in Salta Province

One last property worth mentioning is the Company’s hard-rock Lithium play.  The El Quemado project is located in Salta Province, (top ranked province in Argentina) ~80 km west of the city of Salta and consists of 7,959 hectares on 19 claims.  Several known pegmatite occurrences have been found, most of which have seen limited historical exploitation.  The project includes the historic El Quemado small-scale mine, a former tantalum operation.

Historical production was focused on tantalum, niobium & bismuth, but modern demand & economics would greatly favor lithium (subject to grade & purity).  For example, the world’s largest hard-rock lithium producer, located in the Greenbushes pegmatite belt of southwest Australia, mined mostly tantalum before lithium was first produced in the mid-2000s.  Despite historical production, no modern systematic exploration has been undertaken at El Quemado, meaning that observed occurrences have never been drilled or subject to formal resource estimation.

Management, Board & Advisory Team Members

Every company claims to have the best team, but pound for pound CT truly has a great one.  For a small company to have such talented players speaks volumes about the attractiveness of CT’s asset portfolio.  President, CEO & Director Keith Henderson M.Sc. has 20 years’ mining industry executive experience in Africa, Europe, North & South America.  I’m impressed with Keith’s technical expertise, but also his business acumen.  He’s been very candid about the substantial upside, but also the work that needs to be done and the risks ahead.  Importantly, Keith understands the benefits of bringing in partners to fund exploration activities to minimize equity dilution.

This week’s announcement of John Drobe, P. Geo joining CT as Lead Technical Advisor really caught my attention.  He’s not only a 30-year mining veteran, but also a world-class expert, specializing in, “porphyry copper-gold, epithermal and skarn deposits throughout Latin America.”  Exploration Manager Tyler Caswell, P. Geo compliments Mr. Drobe’s remarkable skill set.  Caswell was most recently with MMG Ltd, where he was focused on resource expansion & exploration at the Las Bambas porphyry / skarn deposit cluster in southern Peru.

Director Henk Van Alphen, with 35 year’s experience, has multiple successes under his belt, including in his current role as Chairman of lithium junior Wealth Minerals, a company that’s increased its market cap by ~400% in the past 18 months.  Henk’s reputation and industry contacts are unsurpassed, especially in South America. 

Make no mistake, Centenera Mining Corpis a highly speculative investment, but the size of the prize is considerable.  De-risking via farm-outs this year and exploration results from Huachi (Cu-Au) and El Quemado (Li) represent near-term catalysts that management is cautiously optimistic about.  The share price briefly touched C$0.50 in October of last year when Cu / Au prices were stronger, and was as high as C$0.295 in February.  Notably, the high tick of C$0.50 per share was before management executed the Huachi option agreement. 

CT has 57 M shares outstanding + 4.575 M options @ C$0.25 + 10.8 M warrants @ C$0.15 – $C.0.30.  Except for 400k options issued this week, all options & warrants expire between May 15 – December 31st, 2017.  Management states that, “> 60% of stock with supportive shareholders.” 

Readers are encouraged to visit Centenera’s website, corporate presentation and Sedar filings to learn more.  

The March 2017 Huachi Technical Report, (not that long or overly technical).  Here’s the April 2015 Technical Report on Organullo.

Recent press releases: May 10th + April 26th + Mar. 6th + Mar. 2nd + Jan. 23rd

Disclosures: The content of this article is for information purposes only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein, about Centenera Miningincluding but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered, in any way whatsoever, implicit or explicit investment advice. Further, nothing contained herein is a recommendation or solicitation to buy, hold or sell any security. The content contained herein is not directed at any individual or group. Peter Epstein and Epstein Research [ER] are not responsible, under any circumstances whatsoever, for investment actions taken by the reader. Peter Epstein and  [ER] have never been, and are not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and they do not perform market making activities. Peter Epstein and [ER] are not directly employed by any company, group, organization, party or person. The shares of Centenera Mining are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Peter Epstein owned shares and stock options of Centenera Mining and the Company was a sponsor of Epstein ResearchReaders understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. Mr. Epstein & [ER] are not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. Mr. Epstein & [ER] are not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. Mr. Epstein and [ER] are not experts in any company, industry sector or investment topic.