Is Scottie Reources the answer to a lot of questions?

On October 23rd silver hit a 13-yr. high of $34.85/troy oz., and gold an all-time high of $2,759/oz. We’re in the middle of an EPIC precious metals bull market. What inning are we in? Some pundits believe we’re in inning 1 or 2, others 5, 6, or 7. No one thinks we’re in inning 8 or 9…

Any gold (“Au“) price above US$2,300/oz. is pretty damn good, and we’ve been at or above that level for nearly seven months, currently at $2,739/oz. Major & mid-tier producers are making so much free cash flow that they’re running out of things to do with it! Year-to-date the average daily Au price close is $2,326/oz.

Today’s spot price is $413/oz. higher than the y-t-d average, imagine 2025 averaging $2,950/oz. — the latest consensus from UBS, GS, CITI & BofA. We’re just 8% away from $2,950/oz…

Producers are paying down debt, buying back shares, and increasing dividends. The only thing left is M&A. On October 4th Ag/Au player Coeur Mining announced the acquisition of Silvercrest Metals for US$1.7 billion. Mid-tier miners are bulking up to be more attractive takeover targets themselves.

Despite the monster move in Au, many juniors have not reacted as they did in 2021-22 when juniors in the Golden Triangle of northwestern B.C., were top-performing stocks. Notice in the chart below that the top names are down 50% from 5-yr. highs. highs! Some of that is due to equity dilution, but still!

Hundreds of Au juniors will soar in the next 12-24 months. One name I continue to like is Scottie Resources (TSX-V: SCOT) / (OTC: SCTSF), a company that signed a 2% Gross Production Royalty with Franco-Nevada without having a maiden resource estimate.

In my view, for Franco to invest $9.6M pre-maiden resource it must be confident that Scottie has AT LEAST 2.0M high-grade ounces, with the potential for more. The time between booking 2M ounces and possibly 3-4M ounces (subject to a lot more drilling) will be years, but Franco is patient.

CEO Brad Rourke & VP of Exploration Thomas Mumford are rock stars. They deserve tremendous accolades for all their hard work. This critical validation of Scottie’s exploration methodology & trajectory is incredibly important.

With such good news and Au above $2,700/oz., Scottie’s valuation must be up big this year! Pause, checks notes... Nope, at $0.175 the Company is 67% below its 3Q/2020, COVID-19 high of $0.53. The day that SCOT touched $0.53, Au was just $1,977/oz…

Besides Newmont Mining, which acquired Newcrest, making it a major player in B.C., Teck Resources has JVs on two world-class projects, Galore Creek (50%) & Shaft Creek (75%), and has invested in American Eagle Gold. Freeport McMoRan & Boliden AB have invested in Amarc Resources.

Kinross, Centerra Gold, Seabridge, Coeur Mining & Hecla Mining are also active in B.C., and BHP acquired a 19.9% stake in Brixton Metals. Centerra has made two investments in juniors this year. Scottie’s 100%-owned, high-grade, road-assessable, Blueberry Contact Zone (“BCZ“), is a tiny portion of Scottie’s 58,500-hectare land portfolio.

The Company is sandwiched between Ascot Resources & Newmont, see the above map. Notice how close to Newmont’s Brucejack mine Scottie is. Newmont would be crazy not to acquire BOTH Scottie & Ascot, although it may not be in any rush to do so.

58,500 hectares in the heart of the Golden Triangle

The BCZ is ~25 km NW of Ascot’s Premier project, ~25 km south of Newmont’s Brucejack, and two km N-NE of the past-producing Scottie Gold Mine (“SGM“). Scottie has delivered excellent drill results, see below.

It has thirty-six! 100+ gram-meter intercepts (incl. two historical trenching/channel samples) with lengths averaging 14.5 m at a (weighted-avg.) grade of 13 g/t Au. The SGM project project that also hosts the BCZ has a permit allowing for the mining of up to 75,000 tonnes/yr., ~200 tonnes/day.

On October 24th Scottie released additional high-grade results including an interval of 8.8 g/t Au over 9.0 m from 87 m. Scottie is drilling 10,000 meters in 2024. Continued strong intervals are exciting given preliminary metallurgical testing. Using multiple methods & parameters, Au recoveries of 87.2% to 97.6% were achieved.

CEO Rourke and his technical team led by Mumford are excited by this preliminary met work because they were not sure how recoverable BCZ mineralization would be. This further de-risks the story. Readers should note that nearby Brucejack & Red Chris are mineralized to at least 1,800 m depth. Blueberry remains open at 525 m.

Combining Ascot/Scottie with Brucejack would generate considerable cost-saving opportunities, valuable operating flexibility & economies of scale. Newmont would have two large mills and benefit from the addition of several high-grade deposits totaling over 5M ounces.

While Newmont is best positioned to take out a combined Ascot/Scottie, Teck, Freeport, Kinross & Centerra are swimming in cash. In the chart below, notice that Scottie’s valuation is the second lowest, a 46% discount to the average of Goliath, Doubleview, American Eagle & Amarc.

A recent development in the Golden Triangle could result in Scottie being fast-tracked into production. Neighbor Ascot Resources is having issues mining enough ore to feed its mill. After the first pour in April, it suspended operations in September.

Ascot has ample infrastructure & resources, its valuation reached $500M in August, and the 2,500 tpd mill is in good working order. On October 21st a C$50M cash injection was announced, buying the company several more months to remedy the situation.

It seems reasonable that Scottie’s deposits could play a role in Ascot’s future, where plans had called for 150,000 ounces/yr. In my view, Scottie could start contributing up to 100,000 ounces/yr. within three years, and up to 150,000/yr. a year or two after that. No instant gratification, but a valuable incentive for Ascot stakeholders.

Ascot’s debt & equity holders would greatly benefit from the operating flexibility afforded by an incremental 2M+ high-grade ounces from the nearby BCZ & Scottie Gold Mine areas. These deposits are closer to the Premier mill than Ascot’s Red Mountain, which hosts 27% of 3.1M ounces.

Please take another look at the map. Ore from Red Mountain has to travel across Scottie’s property to get to the Premier mill. Arguably, Ascot & Scottie are meant to be joined. Scottie’s valuation at just $44M pales in comparison to what could be a $1 billion combined Ascot & Scottie operation late this decade.

Assuming Scottie has 2M ounces, that would be 39% of a combined 5.1M ounces. Ascot’s shares have nearly doubled from a recent low of $0.14. A lot of eyes are on Ascot, which means a lot of eyes are on Scottie. Assuming Scottie has 2M high-grade ounces, it’s valued at $22/oz. By contrast, Skeena is valued at ~$230/oz., albeit with a BFS on it and being fully funded.

Silver-heavy Dolly Varden trades at ~$210/Au Eq. oz. Ascot is still valued at ~$70/oz. even with its share price down 52% since August 27th. Turning back to Scottie, two million ounces at a profit margin of US$1,200 to $1,600/oz. would be US$2.4 – $3.2 billion (undiscounted) over the life of a mine.

While there remains a lot of moving parts, one thing for certain is that Ascot would greatly benefit from Scottie’s Au endowment. Perhaps Scottie could send its ore to Ascot’s 2,500 tpd mill, getting half the economics at a small fraction of the cost of building a standalone mine, mill & tailings facility.

Assuming a $1,400/oz. margin on 100,000 oz./yr., a 50/50 profits split, and another 25% off for Scottie’s operating expenses, shareholders could be looking at annual cash flow of C$72M starting in 2027 or 2028. Compare that to the Company’s valuation of C$44M.

All roads lead to high demand for Scottie’s high-grade ounces. With two large mills within ~25 km of the BCZ, it makes no sense for Scottie to build a third mill. It seems very likely that Scottie will be acquired or will truck its ore to a third-party mill. Either scenario would play out very well for shareholders.