Is June Sell-off in RISE Gold Corp. Overdone?

Rise Gold Corp. {CSE: RISE} / {OTC: RYES} is a new U.S. gold (“Au“) junior, but with a story that dates back to 1863.  Not only is Rise Gold sitting on a past producing mine site, but the 100% owned (on private land, with no royaltiesIdaho-Maryland (“I-M“) Mine was a famous and nationally significant producer in the Grass Valley – Nevada City District in northern California.  Mineralization is known to have consistent high-grade gold in quartz veins over significant vertical extents.  Based on historical records, the I-M Mine produced a total of ~2.4 M ounces Au at an average mill head grade of ~0.50 oz./ton  (17.1 g/tonne).  

Readers and shareholders who know the story likely heard about it from the Company’s CEO, President & Director Ben Mossman.  Ben is a mining engineer with over 15 years in the mining industry including experience in capital markets, project evaluation, acquisitions, mine operations and development.  He has worked at 8 producing underground mines with production rates ranging from 250 to 3,000 tpd.  {see full bio}.  Chairman Alan Edwards and Independent Director Tom Vehrs add a great deal of mining / engineering / exploration & geological clout to the team.  {See May 2017 Rise Gold podcast}. 

Rise Gold proposes to explore the I-M Property, located in Nevada County, near the city of Grass Valley, California.  The property comprises ~93 acres of surface land and ~2,800 acres of mineral rights.  Rise has an option to purchase an additional 82 acres of surface land, the site of a former saw mill.  The Company is currently preparing drill sites for commencement, this autumn, of exploration drilling to test the down-dip extensions of the #1, #3 and other past-producing veins at the I-M Mine.

The Company is planning a preliminary drilling program from surface in an area that does not require a discretionary permit, provided that no water is discharged offsite and disturbance is less than 1 acre and 1,000 cubic yards of material.  The proposed project area is on private land, so no permits or consultations with the US Bureau of Land Management (BLM) or the US Forest Service (USFS) will be required.

Northern California, leading U.S. gold producer from 1937-1941….

The I-M Mine was reportedly the second largest in the U.S. in 1940, producing about 129,000 ounces Au that year.  In the late 1930’s-1941, the mine had been so successful that substantial planning and capital was invested in order to increase production to well over 200,000 ounces/yr.  Major work completed by mid-1942 included a new head frame and crusher to double mill throughput from 1,000 to 2,000 tons per day.  

However, by U.S. Government Executive Order, gold mines nationwide were shut down in October 1942 for the duration of World War II.  Note:  {There’s a great deal of history surrounding the mine and the district, so much so that several books have been written, here are 2 of the best….  MacBoyle’s Gold and Gold In Quartz}

When the mine was finally able to restart, a lack of funding and internal company issues, coupled with the decision to hire “tribute miners,” who did not follow the mine plan, resulted in decreased productivity and production.

Further hindered by years of an unchanged (fixed) gold price, (despite significant mining cost inflation), meaningful recovery from the forced war-time shutdown never occurred.  As can be seen in the production chart below, the best post-war year barely barely touched 60,000 ounces Au, vs. an average of about 116,000 ounces/yr. from 1937-1941. 

From 1950 on, production and profits slid, and in 1956 the mine closed, and hasn’t re-opened since.  I-M wasn’t the only mine that folded, Newmont’s Empire-Star, another very successful gold mine in the Grass Valley camp, closed that same year.  Other mines in the State suffered the same fate.  One can see what the industry was up against by using an online inflation calculator…. the $35/oz. fixed price of Au in 1956 would be equivalent to about $300-$350/oz. today!  

To recap, a tremendously successful high-grade mine with multiple veins, several reportedly open at depth, was shut down at literally the peak year of its 92-year mine life in 1942, not for lack of reserves (scale) or capital or grade, or economics or demand.  That flourishing mine remains today, untouched for 61 years…. frozen in time.  There are multiple areas of known high-grade gold mineralization and areas that are open at depth.  The old-timers had planned to double production to ~250 thousand ounces/yr., which would have been a world-class operation by any measure.

High risk, early-stage, but low valuation, high-grade, past producer….

Rise Gold is a new, small-cap junior mining company that owns an exciting, but early-stage project.  As reiterated in the Technical Report, the Company is focused on mineral exploration and is not contemplating the permitting or re-opening of the I-M Mine at this time.  But in my opinion, someone, be it Rise Gold or a larger player, will move this project forward.  

The targets that being pursued represent multi-million ounce potential, the kind of size top 30 global gold producers desperately need to replace production.  Recall, many Majors and mid-tiers curtailed or exited the exploration & development arena in the 2012-2015 gold industry swoon.  Look at this graph of projected production for large-cap producers out until 2020…. 

Scalable, high-grade Au projects with clean, 95%+ (historical) Au recoveries, in stable countries are increasingly sought after.  Just ‘Google’ June-2017 gold headlines; like Barrick Gold’s troubles in Tanzania, or AngloGold Ashanti’s water problem at a municipal level in Colombia (a vote to ban mining….), or protesters blocking access to Tahoe Resources’ flagship operation in Guatemala.  

If exploration leads the project to a stage requiring more involved and detailed mine-level permitting, environmental and/or other legal work, Rise has retained the top legal firm in the State.  Mitchell Chadwick Attorneys have permitted > 200 mines in California.  They represent companies regarding all phases of mining operations, incl. due diligence and acquisition of mining sites/mineral rights, permitting and environmental review, litigation, permit compliance issues, and final reclamation.  

Mitchell Chadwick attorneys have extensive experience obtaining all local, state & federal mining entitlements, incl. conditional use permits and reclamation plans under the Surface Mining & Reclamation Act.  NOTE:  {see pages 3-2 & 3-3 of Technical Report for more on Mitchell Chadwick}

Rise’s recently completed NI 43-101 Technical Report (by Amec Foster Wheeler Americas Ltd.) is very well done (seriously), with several low-tech sections for the layperson.  The status of the project, it’s early stage, is further described as follows, {page 1-6}

“The Idaho-Maryland project has several good exploration targets.  Each of these targets is substantial in size and warrant exploration drilling.”  {see June 1st press release on multiple drill targets identified} 

Rise has not completed any exploration survey or sampling programs on the Property but has completed a very substantial desktop exploration study through which it compiled and digitized an extensive collection of historical data that had been preserved since 1956.  The data compilation work allowed Rise to develop an accurate diamond drill hole database, 3D mine model and geological model, and to summarize production records.  In my opinion, this information alone is worth well more than the market cap. 

Conclusion

Investors in Rise Gold Corp. are betting that exploration this year and next will pick up where the old-timers left off, namely right in the middle of high-grade gold.  For the first time, a very substantial amount of historic records of the Idaho-Maryland Mine such as production records and data, financial statements, development reports, survey data, exploration drill results, maps showing mine workings, geological information, and assay results have been compiled and digitized.  This information, in the hands of expert geologists and mine engineers, with the aid of modern technology (61 years worth of advancements since I-M Mine closed) place Rise in a promising position to move the project forward.  

With a market cap of ~US$ 8.5 M and zero debt, there doesn’t seem to be a lot of credit ascribed to the considerable amount of historical exploration & development dollars invested in decades past on the data & infrastructure / mine workings now owned by the Company.  The inflation-adjusted replacement cost of all that effort, (samples, drilling, lab work, mapping, studies, surveys, reports, tunnels, adits, declines, drifts, etc.) must be well into the tens of millions of US$.  As I write this article today, June 26th, shares have been hammered by 50% in just two weeks from 30c to 15c.  Is the sell-off overdone?

Disclosures:  The content of this article is for illustrative and informational purposes only.  Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research[ER] including but not limited to, commentary, opinions, views, assumptions, reported facts, estimates, calculations, etc. is to be considered implicit or explicit, investment advice. Further, nothing contained herein is a recommendation or solicitation to buy or sell any security.  Mr. Epstein and [ER] are not responsible for investment actions taken by the reader.  Mr. 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. Mr. Epstein and [ER] are not directly employed by any company, group, organization, party or person.  Shares of Rise Gold Corp 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 consult with their own licensed or registered financial advisors before making investment decisions.

At the time this article was posted, Peter Epstein owned shares in Rise Gold and the Company was an advertiser on [ER]. By virtue of ownership of the Company’s shares and it being an advertiser on [ER], Peter Epstein should be considered biased in his views on the Company.  Readers understand and agree that they must conduct their own research, above and beyond reading this article. While the author believes he’s diligent in screening out companies that 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. 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.