Thesis Gold + Benchmark Metals, 1 + 1 = 3 in northern B.C. Canada

M&A activity in B.C., Canada has outpaced many jurisdictions in N. America, but I believe this is just the beginning of a multiyear M&A binge. Newmont is acquiring Newcrest, in part for its Brucejack mine and 70% interest in the Red Chris mine.

Teck Resources is selling its coking coal operations and could be an acquirer gold-heavy projects in B.C. It already has JVs on two world-class projects, Galore Creek (50%) & Shaft Creek (75%) and recently made an equity investment in tiny American Eagle Gold.

Freeport McMoRan, Boliden AB, Kinross, Centerra Gold, Seabridge Gold & Hecla Mining are invested in B.C., BHP recently acquired a 19.9% stake in Brixton Metals.

The most recent transaction of note is the planned merger of Thesis Gold (TSX-v: TAU) / (OTCQX: THSGF) & Benchmark Metals (TSX-v: BNCH) / (OTCQX: BNCHF). See new corporate presentation.

The combined company has a pro forma enterprise value {market cap + debt – cash} of $75M on June 26th, well below that of fellow B.C. juniors at similar stages, Eskay Mining & Dolly Varden.

I strongly believe a combined Thesis + Benchmark will itself be acquired as soon as next year. Newmont, Teck, Freeport & Centerra have assets closest to the Thesis Ranch & Benchmark Lawyers projects, but the merged company will be a compelling target to others as well.

Post merger the Company will move forward as Thesis Gold, linking development of the PEA-stage Lawyers project to the adjacent high-quality exploration results & considerable drill targets at the Ranch project.

Management plans to turbocharge Benchmark’s 3.55M oz. Au Eq. resource at Lawyers with some very high-grade, near-surface mineralization at Ranch.

Both companies have attractive projects, but with a pro forma $28M in cash, Ranch & Lawyers can be advanced more efficiently & cost effectively as a unified Tier-1 project.

The management teams believe that $40M in savings is possible in the first two years alone by sharing camps, realizing economies of scale & achieving operating synergies.

I don’t use the phrase, “Tier-1 project” lightly. This will be a 32,500 ha land package tied to an attractive PEA, poised to drill a combined 50,000 meters at Ranch (30k) & Lawyers (20k). Fifty thousand meters in the next 4-5 months is a serious amount of drilling.

By mid-2024, a new mineral resource estimate will be released, likely surpassing 5.0M Au Eq. ounces, with ample room to grow beyond that.

That would be well more Au Eq. ounces than Ascot Resources currently has, and about as many (5.6M) as Skeena Resources recently reported. Both of those companies are more advanced, but have an average valuation of $335M vs. Thesis Gold’s pro forma valuation of $75M.

In 2H 2024 an updated & enhanced PEA will be delivered. Benefitting from economies of scale, logistical & operational improvements, the new PEA should have a longer mine life and/or increased annual production, a higher NPV / IRR and an improved ratio of NPV to cap-ex.

Combining Ranch & Lawyers does a lot more than increase the # of ounces. The combined project will support a larger mill. Having multiple mine sites enhances operating flexibility & stability.

Ranch’s high-grade intervals, incl. 19.6 g/t Au over 34 meters, 26.9 g/t / 13 m & 17.5 g/t / 33 m should allow for the mining of higher-grade zones earlier in the mine plan.

Readers are reminded that the Lawyers project is thought to host ~400k underground ounces at 5.0+ g/t Au Eq.

Benchmark’s existing PEA has a 12-yr. mine life & a 24.1% after-tax IRR — mining 1.5 g/t ore at an assumed long-term Au price ~$200/oz. below today’s spot price. Although cap-ex & op-ex will increase due to inflationary pressures, the AISC in the existing PEA is low at $786/oz.

Even assuming a 20-25% increase in the AISC to $943-$983/oz., it will remain below $1,000/oz. vs. an average of $1,289/oz. from select gold producers in 1st qtr. 2023, as per S&P Global Market Intelligence.

Notice that Newmont’s AISC came in at $1,376/oz. It would clearly benefit from acquiring a long-lived, Canadian project with an AISC under $1,000/oz. Thesis is less < 100 km from Centerra’s advanced-stage Kemess project, making it potentially attractive to that $1.2B mid-tier player.

Imagine the potential economics in a new PEA that extends mine life several years, AND/OR increases annual production, AND mines meaningfully higher-grade gold for much of the initial decade.

An acquirer like Newmont could drill more aggressively to [potentially] book 6 or 7M ounces at Ranch & Lawyers by the end of 2025, enough to mine 250k ounces/yr. for 25 years.

With mining cost inflation rising at an alarming rate for many gold producers, the obvious solution is to grow via acquisitions. Economies of scale can tame per ounce costs.

It’s painful to invest hundreds of millions over 10-15 years looking for new discoveries and then developing mines, especially in countries that are not Canada, the U.S., or Australia. By contrast, new Thesis could reach initial production within five years.

Of the top three gold producing countries last year, #1 was China. Russia was tied with Australia for the #2 spot. What’s wrong with this picture!?! Canada is both a safe-haven & a desirable green mining jurisdiction with nearly 100% low-cost hydro-electric & nuclear power.

New Thesis is very attractively valued at a pro forma $75M, just $15/oz. in the ground, assuming 5M ounces in the next resource update. M&A transactions take place at 2x to 10x that $15/oz. figure, depending on how hot the gold market is. Sabina Gold & Silver was recently acquired by B2Gold for ~$130/oz.

Sabina had a higher grade, well more advanced project than new Thesis, but it’s in the more difficult jurisdiction of Nunavut. It has an after-tax NPV of US$860M. I believe next year’s upgraded PEA for the combined Ranch + Lawyers could have the same, or a higher, after-tax NPV.

Post merger, if Thesis’ enterprise value remains around $75M, it could be trading at less than 10% of its upcoming after-tax NPV. $15 per pro forma oz. and under 10% of after-tax NPV are both ultra-cheap valuations even compared to other high-quality, oversold gold juniors.

These valuations are more applicable to companies with projects in very remote or unsafe areas. Or, companies with high technical risk and/or elevated op-ex / cap-ex. Or, companies with mediocre (or worse) mgmt. teams. In my view, new Thesis does not fall into any of those categories, not even close.

As gold juniors come back into favor, exciting stories like that of the new Thesis Gold (TSX-v: TAU) / (OTCQX: THSGF) will attract a lot of attention. Today’s valuation could fall with a weak market, but probably not that much.

Yet by the end of next year, it could easily be up 100%-200%+, especially as M&A heats up and gold retakes $2,000/oz. In Q1 1980 gold hit an inflation-adjusted all-time high above $3,200/oz., so the low-to-mid $2,000’s/oz. in 2024 or 2025 is hardly a stretch.

See new corporate presentation.

Disclosures: The content of this article is for information only. Readers understand & agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Thesis Gold, incl. but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market-making activities. [ER] is not directly employed by any company, group, organization, party, or person. The shares of Thesis Gold 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 investment decisions.

At the time this article was originally posted, Peter Epstein owned shares o Thesis Gold and the Company was an advertiser on [ER].

Readers should consider me biased in my view of the Company. Readers 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 reason, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is 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. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector, or investment topic.