Expert Interview; Dr. Quinton Hennigh on B.C. gold junior Blue Lagoon Resources

Dr. Quinton Hennigh is an economic geologist with 25 years’ experience, mainly in gold. Early in his career he explored for Majors including Homestake Mining (now Barrick Gold), Newcrest & Newmont, before entering the junior metals / mining sector in 2007. Dr, Hennigh received his Ph.D. in geology/geochemistry from the Colorado School of Mines.

He’s been involved with Canadian-listed gold companies incl. Gold Canyon Resources, where he led exploration at the 5M oz. Springpole alkaline gold project near Red Lake Ontario. In 2010 he helped start Novo Resources, assembling its Australian exploration portfolio.

He’s currently president & co-chairman of Novo and full-time geologic & technical director at Crescat Capital LLC., a Denver-based investment manager. Dr. Hennigh is providing critical geologic & technical expertise to the companies in Crescat’s investment portfolio (incl. helping to select which companies to invest in).

What attracted you to Blue Lagoon Resources? Please give readers the 60-second, “elevator pitch.”

I came across Blue Lagoon Resources (CSE: BLLG) / (OTCQB: BLAGF) two months ago. To be honest, it was a company I knew little about. Its flagship Dome Mountain gold project had been in private hands for over a decade before CEO Rana Vig picked it up. I spoke at length with Rana & his Chief Geologist Bill Cronk.

They showed us high grades, near-term production / toll milling plans, upcoming exploration of the 18,935-hectare Dome Mountain project, etc. Crescat puts a lot of faith in the technical teams of the companies we invest in. I was very impressed with Bill’s vast experience, knowledge & track record.

What really grabbed me was the nature of deposit, the style of the high-grade system. The mineralogy reminds me of a type of deposit I like, a deposit with a lot of upside. I think Dome Mountain hosts mineralization in the family of alkaline gold deposits.

Magmas with alkaline metals like potassium can generate deep-rooted, high-grade gold veins & shoots. These are rare systems, but can be quite prolific. So, the elevator pitch is that this could be a very high-grade, multi-million ounce gold deposit in a great jurisdiction [B.C., Canada].

Every metals & mining junior on the planet wants the QH stamp of approval. Most don’t get it. What are you looking for in an investment opportunity?

Crescat and I are looking for high risk / high reward opportunities that the market hasn’t uncovered. So, high-quality exploration stories, pre-discovery stage companies at attractive valuations, run by strong mgmt. teams.

I think that’s the sweet spot, the best risk/reward, finding a lesser known company that could delineate say a 2 or 3 million ounce [high-grade] deposit in a safe, prolific jurisdiction.

Majors demand projects that can turn into mines producing 200-300k ounces/yr. for 10+ years (at a minimum). I think BLLG has a real shot at reaching that threshold.

I want projects that can develop into high-margin operations big enough for mid-tier & Major producers to care. At Crescat, we’re risk-takers, so we want companies unafraid of aggressive drill programs and management teams open to discuss their plans with us and seriously consider our points of view.

If BLLG were merely building a profitable, but small mine — I wouldn’t have cared. I seek substantial blue-sky potential, 3x-10x return opportunities. For BLLG, it’s all about the exploration potential at Dome Mountain.

If my thesis on geology & structure is correct, BLLG could be sitting on a multi-million ounce gold project. And, the grade should hold up nicely as the deposit grows. [Note: BLLG’s current resource = ~180k (Ind. + Inf.) ounces gold, at a weighted-avg. grade of ~9.6 g/t].

Grade is King, and Dome Mountain shows ample evidence of blockbuster grade. Yet just one of 15 known

Please describe the exploration potential at Dome Mountain.

Again, this was what attracted me to BLLG. If this property proves to be what I think it is, there could certainly be a few million ounces here. The data I’ve seen reminds me of the Buritica project (now a mine) in Colombia.

Buritica has sheeted veins, multiple high-grade vein systems. A lot of high-grade ounces packed into a small footprint. At BLLG I hope to see deeper drilling, and across broader targets. Don’t infill drill to prove up one million ounces, explore to show us the potential for three million ounces.

What companies might be interested in acquiring Blue Lagoon? 

Good question. A big part of my thesis, I want to invest in projects that will be desirable takeover targets. BLLG already has high-grade, that’s what mid-tier & Majors want. I know that inside some of the bigger companies, they have an understanding of what type system this is. Honestly, this should catch the attention of Majors.

Blue Lagoon offers a high/risk, high-return investment proposition. Is this a double or triple type of opportunity? More? Less?

I feel the low bar at Crescat is for at least a triple. I know that sounds flippant, but it’s for real. Exploration is tremendously important. So, if exploration doesn’t confirm our thesis, then our opinions change. I’m looking for mgmt. teams willing & able to change directions if/when necessary.

Besides technical teams & grade, metallurgy & First Nation relations are also important. These systems tend to have good metallurgy, so again a high-margin mine prospect.

As mentioned, the existing resource is nearly 10 g/t gold. How well might that blockbuster grade hold up as the resource grows? 

Yes, that’s why I got so excited about this story! The prior owners focused on just 10% of the property to bring it into production faster. But most of the last decade was a bad market for gold juniors. If this is this type of deposit I hope it is, the grade should hold up.

The new targets mgmt. will be testing will be telling. With Buritica I watched over the years as they consistently drilled and hit high-grade along strike & down dip. With an Enterprise Value of ~C$45M, there’s tremendous upside here.

Really high-grade deposits can be worth hundreds of dollars per ounce in the ground. Sophisticated investors can read between the lines. If BLLG delivers a one million ounce resource next year, but there’s line of sight to 2 or 3 million ounces, that would not be lost on companies looking to acquire high-margin projects in safe, prolific mining camps.

Based on everything you’ve said, why do you think this company is valued at just C$45M [after consideration of C$9M in cash]?

I think most investors are not aware of this story. It’s new to the market. At Crescat we’re bullish on precious metals, a bull market could resume as BLLG continues to drill high impact holes.

New high-grade discoveries get the attention, look at Newfoundland’s New Found Gold for example. Infill drilling will not get you a 5x-10x return.

Blue Lagoon Resources (CSE: BLLG) / (OTCQB: BLAGF) is cashed up with C$9M in the bank and is months away from being cash flow positive from a small-scale mining operation (sending run-of-mine ore to a toll-miller).

There’s going to be a lot of cash available to aggressively drill Dome Mountain — and not just on the 10% of the project already drilled, but across several drill-ready targets. I’m very excited to see what that drilling will uncover.

Thank you Quinton, I agree with your assessment that there’s tremendous blue-sky potential at Dome Mountain. I look forward to following the (largely self-funded) advancement of this company-making project!

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