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Investors are finally beginning to take notice of Kent Exploration (KEX, TSX-V) which broke out Friday, October 23, to a new 52-week high on massive volume of 4.3 million shares (it closed at 20 cents).  We stress the word “beginning” because in our view, as we reported in our detailed article on Kent October 19, this company represents an incredibly intriguing and exciting investment opportunity. 

Our message in this Special Alert is very simple:  With a market cap of just $6.4 million, our analysis is that Kent is still grossly undervalued and Friday’s breakout confirmed that a powerful bull market phase for this stock – quite possibly a dramatic phase – has indeed emerged. 

We have some additional insight to share in this report concerning Kent, including some comments from President and CEO Graeme O’Neill who was gracious with his time yesterday (Saturday, Oct. 24) and granted us a rather lengthy interview.  Due to time constraints and a sense of urgency given market developments, we are releasing an abbreviated report this morning with more details to follow in the days ahead.

Kent is clearly a special situation and a pleasure for us to highlight.  This company went public in August, 2006, and took advantage of the financial crisis to add very valuable projects at minimal cost.  The fundamentals and prospects have changed dramatically with this company, and the market is going to reward it with a significantly higher valuation as a result.  While not wanting to comment specifically of course on where he thinks his company’s share price is headed, O’Neill did say, “The market seems to want us to go higher.” 

At BullMarketRun we’re extremely selective in the junior resource companies we feature and put forward to investors, which is why we write up only a limited number of companies – we prefer quality over quantity.  Management is the first thing we look at -it’s our #1 criteria – because without superb or solid management, a company with the best properties in the world is either going to underperform or flat-out fail.  As simple as that.  In Kent, we have a very high degree of comfort in the management abilities of Graeme O’Neill to build a very successful junior resource company and deliver powerful returns to its shareholders.  We look for integrity and a commitment to ethical business practices, and we find all of these things in Kent.  This company is an emerging big winner with huge upside potential and very limited downside risk at current levels.

“This is not a one-dimensional, one-trick pony,” stated O’Neill in our Saturday chat.  “We have significant prospects that could bring extraordinary value.”  That’s quite a statement, we think, from someone who is about the furthest thing from a Howe Street promoter.   O’Neill, who’s 64 years old, was born in New Zealand and moved to British Columbia in 1971.  He has a strong business background and his skills are in planning, logistics and operations.  For an individual without a geological background, he’s extremely well versed in the areas of mining exploration and development.  He has very detailed knowledge of each of his company’s projects, and so he should.   He has recruited a strong team and has given them clear responsibilities.  He’s also a good listener.  Kent is O’Neill’s first public company and he’s highly motivated to “over-deliver” and develop it into something much bigger than it is today.  He’s a bright, patient man and a proven quick learner. 

So let’s dig a little deeper into a few things to expand on our first Kent report.  There is much going on with Kent at the moment.  We will touch on a few important areas in this special alert, including the exciting drill program underway at Flagstaff, and then provide additional information in the very near future. 

Last fall’s market crash and ensuing economic crisis created an enormous amount of fear and disruption.  O’Neill, to his credit, saw opportunities.  “A lot of companies were dropping everything they could, hunkering down for a long term bear market,” he stated. “The sense was, this wasn’t going to come back for two or three years.  I thought if it’s going to come back, if you’re not prepared for it, you’re going to miss it.  So that’s why I made some moves.”  One of those moves was hiring a top-notch geologist, Nancy Reardon; another may very well turn out to be a “company maker” as Kent picked up the Alexander River Prospect from the New Zealand government (Crown Minerals NZ). 

 

Alexander River Prospect

Folks, the market has yet to fully appreciate the significance of this particular property, which quite possibly could eventually rival OceanaGold’s very successful Globe Progress Mine located just 20 kilometres to the north.  Ironically, Oceana gave up Alexander as a result of last year’s market mayhem when it had to cut costs and go into survival mode.        

The Alexander Prospect, which includes the old Alexander Mine that produced about 40,000 ounces of gold prior to closing in 1943, was estimated by Macraes Mining (the precursor to Oceana) to contain an inferred (non-compliant) resource of 643,000 ounces of gold.  Macraes reported that an auriferous halo of sulphide hosted mineralization exists around the early mined reefs (similar, by the way, to Globe Progress) and that there is an inferred resource of approximately four million tons grading more than five grams per ton. 

A significant portion of the Alexander Prospect has yet to be systematically explored, however, and that has O’Neill thinking this property may have one million-plus ounce potential.  “From what we’re seeing here, this could go on for 2.5 kilometres (double the Macraes’ figure).  While we were reviewing some of the historic data, Nancy noted that there was a pan concentrate taken about three quarters of a kilometer away that ran 30 grams.  That’s a pretty significant pan concentrate, and it’s in another watershed…there appears to be least two parallel structures.  The whole gold belt stretches something like 40 or 50 kilometres north to south and over 100 small mines have been in operation.”

“The New Zealand government is good to deal with, very professional people,” explained O’Neill.  “After many years of unfriendly governments, they changed their whole mindset.  They’ve made a big commitment.  It’s a supportive environment, similar to Saskatchewan.  What I like to do, I like to go into an area and have someone say, ‘How can I help you’, and that is what I got there.  I was very impressed.” 

Kent will be aggressively exploring Alexander in the coming months and an NI-43-101 report on the property is expected to be completed by year-end.  The company has picked up other properties in New Zealand as well.  They are promising but not nearly as advanced as Alexander.    

 

Kent’s Push Into Australia

We’re also keeping a close eye on what Kent is doing in Australia with Teck as the two companies have partnered on the highly prospective Gnaweeda Gold Project.  Just 20 kilometres to the west is a district that has had a long history of gold mining, most notably from a number of major deposits in the Meekatharra-Wydgee Greenstone Belt.

“Teck is such a storied company and they don’t go into anything lightly with anyone,” said O’Neill.  “They were impressed with our technical team and I think that’s what actually tipped them to coming alongside us and working with us.  We had to beat out some other companies and we were fortunate to be able to strike a deal.  We’ve had Nancy working on the project now for quite a number of months going through all the detail and data that is available.” 

The Turnberry Prospect is the most advanced in the Gnaweeda package (Teck got some encouraging results in a 10-hole program).  “It is still relatively unexplored, though,” said O’Neill.  “Nancy has found some very interesting areas where she wants to put holes in.”

 

Flagstaff Drilling

The market is clearly starting to see the potential of a possible significant gold/silver discovery at Kent’s Flagstaff Property in Washington State, 15 miles south of Rossland, BC.

A high grade gold zone at fairly shallow depths appears to exist at this property (along the east side of the million-plus ton barite deposit) based on previous work by CE Minerals in the early 1980’s (while drilling for barite, this industrial minerals company encountered strong gold mineralization in several holes including a stunning 18-metre section that assayed 1.3 ounces per ton). 

The drills continue to turn at Flagstaff, but lips are sealed on how the program is progressing other than the fact that six holes have been completed (O’Neill says he has put everything in the hands of his geologists at Flagstaff and has even shielded himself from any knowledge of what these holes may be encountering).   The current drilling makes for a very intriguing situation, to say the least, given the historical information on this property and the high grade gold and silver values that have been reported. 

At BullMarketRun, we laid out a strong geological case in our October 19 report on Kent for an exploration breakthrough at Flagstaff.  It should be pointed out that barite drilling by Kent in late 2007 confirmed the barite grades reported by CE (in fact, Kent’s grades slightly exceeded CE’s grades).  If Kent can also confirm CE’s gold grades and widths, encountered in several holes, then look out because Kent’s share price will blast off like a rocket.  Finding a gold deposit can be like searching for a needle in a haystack, so Kent needs a little luck to go along with all of its hard work in nailing down what they believe are the precise drill locations of CE’s best gold intercepts.  Silver and zinc are also present at that property.         

 

Flagstaff Barite

As far as we know, Kent is the only publicly-traded company with a production-ready high-grade barite deposit (CE defined an historic deposit which they estimated at 1.3 million tons of 4.2 specific gravity barite).  Mine permits and a barite sales agreement are in place, though Kent still has to post a $140,000 reclamation bond.  Production could begin in the first half of next year.  Infrastructure is excellent at Flagstaff, and the actual mining operation would be fairly simple (blasting, excavating, upgrading) and low-cost. 

Kent recently completed a long-term sales agreement with Matovitch Mining Industries for 20,000 tons of barite annually at $40 per ton, but what we found interesting in our conversation with O’Neill was that he stated, “Matovitch has indicated if we can produce 40 or 50 thousand tons a year, they would take it all.” 

Annual production of 50,000 tons of high-grade barite would generate approximately $2,000,000 in cash flow for Kent.  “Including a fairly substantial fudge factor we’re looking at costs of about $20 a ton,” stated O’Neill. 

 

Other Interview Highlights

• With the proposed geographical spin-off of Kent (existing shareholders would receive one share in the new company – Archean Star Resources – for every four shares of Kent), don’t be surprised if another project or two is added to ‘Kent North America’.  “We are actively looking for solid projects,” stated O’Neill;

 

• O’Neill was quite bullish on Kent’s 100% owned Ivanhoe Creek Project in Nevada (gold, silver and bentonite).  “We’re looking at how to advance that one…we’re going to bring the 43-101 report up-to-date on that.”

 

• On securing Nancy Reardon:  “It was like manna sent from heaven…she has an enormous amount of respect in the local geological community.  I’m really impressed by her quick intelligence and her ability to learn new types of mineral deposits.”

 

• O’Neill is strongly invested in Kent and currently holds approximately 1.7 million shares (400,000 free trading and 1.3 million restricted) even after the selling of some stock last Friday which he confirmed.  The sale, he said, was merely to exercise warrants and/or options which will help beef up the treasury (the effect will also be to actually increase his percentage ownership).  He has approximately two million warrants (“I will use these for the benefit of the company”) and options on 450,000 additional shares.     

Conclusion

For a few months now, Kent shares have been under heavy accumulation and for good reason.  This is a well-run junior resource company with attractive assets and a compelling story.  We believe very strongly that the market is ultimately going to put a much higher valuation on Kent, and this could easily happen sooner rather than later.  A move to all-time highs (+ 40 cents) appears a near certainty based on both technical and fundamental factors.  Friday’s volume (Oct. 23) was extremely bullish.  It’s now clear this stock is in breakout mode and a rapid acceleration from the 20 cent level is clearly possible. 

The current drilling program at Flagstaff and the search for high-grade gold there has the potential to produce a dramatic upside move in the stock price.  And we believe the Alexander River Project in New Zealand is going to prove to be a big winner for Kent and its proposed spin-off, Archean Star Resources. 

News flow from Kent will be strong over the next several months. 

Investors should take comfort in the fact that this is a company on a solid foundation with a very low market cap ($6 million) given its current projects and overall discovery and cash flow potential.  It’s an exciting situation with many components that could drive shareholder value.    

Please read our disclaimer at the top of this page.  Invest wisely, and in most circumstances we suggest selling half of any investment that doubles in value.   

We know this sounds almost too good to be true, but thanks to technical analyst Clive Maund – one of the best in the precious metals business – we have come across a junior exploration company that presents one of the most intriguing investment opportunities we’ve seen in this current cycle.  Incredibly, it is trading at just 16 cents and has a market cap of only $5 million (but not for long). 

  We say “incredibly” because:

1. This company is currently drilling into some rich historical drill holes that returned such stunning results as 1.3 ounces of gold over 18 metres;
2. This company is very close to generating substantial cash flow from barite reserves of at least one million tons.  In fact, as far as we know, it is the only publicly-traded company in North America that can produce high-grade barite;
3. This company has just partnered with a major – Teck – on the highly prospective Gnaweeda gold project in Western Australia;
4. This company has just recently acquired a New Zealand gold property (a former producer) with an historical inferred resource of 643,000 ounces.

But wait….it gets even better!  This company is progressing so well, it’s about to give its shareholders a dividend!  Yes, a dividend in the form of shares in a publicly-traded spin-off that will hold and develop its very promising Australian and New Zealand gold properties.

And for a little bonus, how about if we throw in some 600 square kilometers of coal permits in Saskatchewan; a grassroots gold/silver property in Nevada that interestingly also contains high quality bentonite; and bonzana grade silver assays from a past-producing silver-lead-zinc property in southeastern British Columbia…

Do we have your attention yet?  We should, because the paltry $5 million market cap on this company is not going to last much longer. 

AND HERE IT IS…

The company we are referring to is Kent Exploration which trades on the TSX Venture Exchange under the symbol “KEX”.  Investors are just beginning to discover this little gem, so the time is perfect to accumulate a position.  The stock woke up out of a slumber

and jumped over 50% this past week on its highest volume of the year, and we have every reason to believe this move is only in its infancy and a major upside breakout is imminent.   Every company has a story, but the story behind Kent Exploration is truly fascinating with several moving parts as you’ll soon discover. 

We had heard about this company before but it was not on our current radar screen until the very perceptive Clive Maund brought it to people’s attention on his web site last week (www.clivemaund.com).  Clive is an accomplished technical analyst in the precious metals and commodities arena – truly one of the best in the business – and Kent jumped out at him recently for its very intriguing and bullish chart.  A stock chart can speak volumes about a company, and we do pay very close attention to technical indicators.  But we also like to look at the fundamental factors behind a stock.  With Kent, we have the Perfect Storm – the technicals and the fundamentals are both in agreement (strongly bullish) which confirms to us this stock is likely going to rocket much higher as Clive’s analysis suggests. 

There’s a lot going in with Kent at the moment, so let’s first look at the highlights and then we’ll get into a more detailed fundamental analysis of each area:

1.     Excellent Chance of Significant Gold/Silver Discovery

An aggressive drill program is currently underway at Kent’s Flagstaff Property in northeast Washington, 15 miles south of Rossland, BC, where geologists are following up on several outstanding historical drill holes (non-NI-43-101 compliant) including one that returned an amazing 1.3 ounces of gold over 18 metres.  Kent has done a lot of homework with this particular property – high grade gold and silver mineralization exists at fairly shallow depths (less than 75 metres), and we believe there’s a high probability of an exploration breakthrough at this property and possibly a significant discovery.  The market loves high grade, and this is exactly what Kent could be drilling into at the moment;

2.   Near-Term Cash Flow From Substantial High-Grade Barite Deposit:

At the same property in Washington, Kent is sitting on high-grade, open-pit barite reserves of at least one million tons – a substantial deposit.  Barite is currently selling for nearly $50 per ton, so it’s not hard to do the math here.    The company has already secured one buyer (Matovitch Mining Industries) in a long-term deal for 20,000 tons of barite annually, and is in discussions with others.  Earlier this year Kent received approval from the BLM (Bureau of Land Management) to mine up to 100,000 tons of barite per year from Flagstaff; 

3.  More Gold…..Down Under:    

Kent has recently partnered with Teck on the highly prospective Gnaweeda gold project in Western Australia which lies in an area that has produced over 3.5 million ounces of gold.  Historically, Teck does not take on just any junior as a partner, so it’s obvious they have a high degree of confidence in Kent’s ability to advance the Gnaweeda project. 

4.  The Next OceanaGold In New Zealand?

Kent has picked up three projects in a prolific mining camp in New Zealand (Reefton), where Oceana is very active, including the Alexander River prospect which contains an inferred resource (non-compliant) of 643,000 ounces of gold.  Kent has secured Nancy Reardon, a very respected geologist, to manage its exploration programs in both New Zealand and Australia.

5.  Shareholder Dividend – Kent To Spin-Off New Zealand/Australian Properties

In a strategic move that should unlock the value of its New Zealand and Australian assets, Kent recently announced a proposed spin-off company – Archean Star Resources  – which would trade on the TSX Venture Exchange and advance the company’s New Zealand and Australian properties.  Kent, in effect, is being split into two distinct geographical regions, and the proposal is that existing shareholders will receive one share in the new company for every four shares of Kent currently held.  

6.  And Another Little Bonus!

Kent offers exposure to the Saskatchewan coal play with permits covering approximately 600 square kilometres in close proximity to North American Gem’s “Adamas” discovery. 

In Nevada, Kent’s 100% Ivanhoe Project is a Midas-type gold-silver prospect located in the Carlin trend in very close proximity to Great Basin Gold’s Hollister Development Block.  The property also contains a bentonite deposit of undetermined size.

In the Slocan Mining District of Southeastern British Columbia, Kent holds the Silver Hill silver-lead-zinc prospect, a small past producer that yielded bonanza silver grades (167.4 opt) from a sampling program last year.  Between 1899 and 1952, 70,000 ounces of silver, 350,000 pounds of lead and 35,000 pounds of  zinc were reportedly recovered from Silver Hill with an average silver grade of 28.94 opt.      

FLAGSTAFF PROPERTY – HIGH-GRADE GOLD DISCOVERY POSSIBLE

Of immediate interest for us regarding Kent is the drilling currently underway at the Flagstaff property.  It has been proven that high grade gold and silver are both present at shallow depths (less than 75 metres) at Flagstaff, which up until now has never been systematically explored for precious metals.  The story behind this property, which Kent acquired through a lease option with the vendors in 2006, is nothing short of amazing, and needless to say the implications of a high-grade discovery at Flagstaff on Kent’s share price are enormous indeed.  On drill result speculation alone, Kent should garner tremendous interest in the days and weeks ahead. 

What particularly impresses us, and the reason we believe Kent could very well be on the verge of a discovery anytime now at Flagstaff, is the painstaking work this company has done following up on the historical drilling and exploration efforts of the Combustion Engineering Company (CE) from nearly 30 years ago.

While exploring for and proving reserves of barite, CE completed 19,000 feet of conventional circulation drilling (203 holes from 85 sites) at Flagstaff in 1981 along with the appropriate logging and mapping of holes.  They began actual mining of barite in the summer of 1982 and that continued for two years until the market for barite dropped off. 

CE was an industrial minerals company and didn’t have a whole lot of interest or expertise in the area of precious metals.  Their primary goal, obviously, was the definition of a barite orebody.   What’s interesting is that many of their holes along the east side of the barite deposit, in particular, contained significant and consistent gold values.

The geologic map for the area shows a fault along the east side of the barite deposit, and this fault is believed to be the controlling factor in a quartz vein that has been traced for a considerable distance.  A detailed September, 2008, report on the Flagstaff Property stated, “The current known strike length of the vein, from the prospect pit at the north end of the mine area to the intercept in CE Minerals drillhole 54E, is approximately 410 metres – certainly adequate strike length to develop a mineable orebody.  The strike length of the vein remains open at both ends…the fact that the vein is of a mineable width (>1 metre in most exposures) is also a definite plus.”

There were also several CE gold intercepts that did not correlate with the vein trace (secondary mineralized structures that will require further testing), and high grade silver values that were encountered on the south side of the barite deposit.  

Some of CE’s drill results are as follows:

Hole 32B            7 metres       0.40 ounces per ton

Hole 39C       18.3 metres       1.31 ounces per ton

Hole 50            6.1 metres       0.72 ounces per ton

                         5.8 metres       0.28 ounces per ton

Hole 52A     18.29 metres       1.30 ounces per ton

Hole 54E          9.1 metres       0.51 ounces per ton

In total, CE assayed 924 samples for gold and silver with very significant results, indicating a real potential for the discovery of a gold/silver orebody.

In 2008, Kent Exploration’s consulting geologists completed a painstaking and detailed process of trying to extrapolate the exact locations of most of CE Minerals’ drill holes that encountered significant gold and silver values, and to get a better overall understanding of the property’s structural controls in preparation for the drill program that is currently underway.  The September, 2008, report and can be viewed on the Kent web site.  This was an exhaustive and impressive effort – a necessary step for a successful drill campaign. 

Given the historical drill results from this property, and the apparent success on the part of Kent to accurately pinpoint those drill locations and gain a better overall understanding of the Flagstaff mineralized system, we have a high degree of confidence that the current drill program is going to yield positive and perhaps even dramatic results.  

   

BARITE DEPOSIT MEANS CASH FLOW FOR KENT

While Flagstaff is currently being explored for the possibility of hosting an economic gold/silver resource, Kent is preparing to begin to mine the estimated one million-plus tons of high-grade barite the property contains (CE Minerals defined an historic deposit which they estimated at 1.3 million tons of 4.2 specific gravity (SG) barite).

In May of this year Kent received approval from the Bureau of Land Management in Spokane to mine up to 100,000 tons per year of barite from the historic open-pit mine on the property.  Kent has also reported it has entered into a barite sales agreement with Matovitch Mining Industries which will purchase approximately 20,000 tons per year of 4.1 specific gravity barite from Flagstaff at a price of $40 per ton ($800,000 per year in cash flow for Kent).    With one buyer already secured, Kent seems to be making excellent progress in advancing this project and no doubt is in discussions with other potential users (EEStor Inc. rumored to be one of them – more on that in a moment). 

Kent stated in a July 17, 2008 news release:  “The Company is in possession of all of CE’s original 19,250 foot drill program data delineating the barite deposit.  The material includes drill logs, barite intersection assay data, tonnage calculations, drill sections and plans, a contour map showing the developed barite thickness, as well as a complete physical deposit model.  The Company conducted a limited diamond drilling program in the fall of 2007, the results of which substantially compared with the CE original data (our emphasis).  The deposit, which has been stripped and benched ready for mining, is accessible by good forest service roads.”

Because barite is heavy, soft, chemically inert and relatively inexpensive, its largest use is as a weighting agent in oil and gas drilling fluids.  It’s also used in products such as paints, plastics and rubber.  China, India and the United States are the world’s largest producers of barite, but most North American use of barite has to be imported.  There is clearly an opportunity for Kent to serve the North American market with its high-grade resource.  In 2006, as reported by the U.S. Geological Survey, 3.3 million tons of barite was used in North America and 2.75 million tons of that, or 83%, was imported.  A declining U.S. dollar should help to increase the appetite for domestically produced barite as imports of all products become more expensive.  As we mentioned earlier, there is no public company we are aware of, besides Kent, that is sitting on production-ready high-grade barite. 

An interesting angle to all of this surrounds EEStor, a Texas-based startup that has garnered considerable attention over its development of a breakthrough battery technology which would require high-grade barite and be extremely useful in electric cars.  There has been much controversy surrounding EEStor, but they have formed some very interesting partnerships with reputable groups so it’s a story worth keeping an eye on.  If EEStor’s technology proves successful, the demand for high-grade barite could soar and become the next lithium craze. 

 

KENT’S EXCITING PLAYS IN NEW ZEALAND AND AUSTRALIA

AND A DIVIDEND FOR KENT SHAREHOLDERS

Over the past six months Kent has astutely assembled a package of highly prospective gold properties in New Zealand and Australia, including a former gold producer with an inferred resource of 643,000 ounces.    We believe investors are just beginning to grasp the significance of what Kent has put together.  To unlock the true value of these projects, and to be better able to advance them, Kent is proposing a spin-off – Archean Star Resources – which will hold and develop these properties while Kent focuses on its North American assets.  A special meeting of shareholders to consider the plan is proposed for November 30, 2009, to approve the company issuing one common share of Archean Star for every four common shares, warrants or options held by Kent shareholders.  After all the necessary approvals it’s expected Archean Star will begin trading on the TSX Venture Exchange sometime during the first quarter of 2010.  

So let’s take a look at what Kent has been busy assembling in New Zealand and Australia:

Australia – Gnaweeda Gold Project

If you can partner with a company like Teck, you must have something going for you.  Just four months ago Kent and Teck executed an agreement whereby Kent can earn 100% of Teck’s interest in the Gnaweeda gold project in Western Australia (Teck currently has the right to earn a minimum 70 percent interest in Gnaweeda from Australian-listed Chalice Gold Mines, and will have the right to earn back 75% of Kent’s interest by funding at least $7.5 million in exploration and development expenditures).

Kent has access to all of Teck’s technical expertise with regard to Gnaweeda, a major project that covers a 28 kilometre strike length of the highly prospective  Gnaweeda Greenstone Belt.   Just 20 kilometres to the west is a district that has had a long history of gold mining, most notably from a number of major deposits in the Meekatharra-Wydgee Greenstone Belt.  Kent will be the operator of the Gnaweeda project during the option period under the watchful eye, as we mentioned earlier, of Nancy Reardon.

The Turnberry Prospect is the most advanced in the Gnaweeda package.  Teck has conducted some limited reverse circulation drilling at Turnberry (less than 300 metres depth) and seven out of 10 holes intersected significant mineralization including 4 metres of 17.77 grams per ton, 3 metres of 4.39 gpt, 3 metres of 11.88 gpt, one metre of 37.60 gpt, and one metre of 69.63 gpt.  An NI 43-101 report was recently released on Gnaweeda and stated:  “The Turnberry Prospect is defined by an approximately 2.5 kilometre long, 500 metre wide northeast trending drilled anomaly…the style of both the mineralization and alteration suggests the Gnaweeda property could host in-situ gold similar to the large Archean deposits mined in the neighboring Meekatharra-Wydgee Greenstone Belt.”   

Kent in New Zealand – The Next OceanaGold?

OceanaGold (OGC, TSX) is enjoying tremendous success in New Zealand at the moment with four operating mines.  Its stock has jumped from under 20 cents at the beginning of the year to over $1.00, and the company now commands a market cap of nearly $250 million.  There is gold in New Zealand – lots of it – and Kent has positioned itself to possibly become the next OceanaGold through its upcoming spin-off, Archean Star Resources.

Kent has acquired three properties of merit in the historic Reefton Gold Belt, where Oceana has succeeded so well, and the one property we are really excited about is Alexander River.  Just 20 kilometres south of Oceana’s Globe Progress Mine, the Alexander River prospect permit area covers 26 square kilometers and is the location of the former-producing Alexander Mine (to date there have been over 100 mines in the Reefton area, Alexander being one of them) which contains an inferred resource of 643,000 ounces of gold – yes, over half a million ounces (non-compliant).  That was the estimate given by Macraes Mining – the precursor to Oceana – in a filing with Crown Minerals NZ. 

Macraes reported that an auriferous halo of sulphide-hosted mineralization exists around the early mined reefs (similar, by the way, to Globe Progress) and that there was an inferred resource of approximately four million tons grading more than five grams per ton (643,000 ounces) in a shallow dipping structure from surface to the level 6 workings. 

The Alexander Mine, with a strike of approximately two kilometers, reportedly produced about 41,000 ounces of gold prior to closing in 1943 when further mine development was hampered by labour shortages.  Macraes rehabilitated the No. 6 level adit, mapped and sampled the underground workings and drilled seven underground holes between 1993 and 1996.  One hole reportedly intersected a nine-metre zone of 3.85 grams per ton, including 5.4 metres of 5.3 gpt, while another hole intersected 1.9 metres of 9.8 gpt.   

Kent will be performing exploration work at Alexander River before year-end and plans to conduct a drill campaign early next year.

It’s worth noting that OceanaGold has recently applied to Crown Minerals NZ to extend the boundaries of the mine permitted area at Globe Progress.  The western boundary of the proposed extension is in close proximity to the northeast boundary of Kent’s Reefton Project. 

In addition to Alexander River, Kent has two other promising Reefton properties to explore – the Lyell prospect and the Paparoa prospect.  These three properties give Kent a combined 800 square kilometers of very prospective properties in a prolific gold mining region.  

Conclusion

Kent President and CEO Graeme O’Neill, who is substantially invested in this company, has to be given credit for getting aggressive and seizing some valuable opportunities at the right time over the last number of months – without creating much shareholder dilution.  Kent made its debut on the TSX Venture Exchange at the end of August, 2006, and currently has just 32 million shares outstanding for a market cap of only $5 million.  If all warrants (12 million) and options (2.5 million) were exercised, Kent would add about $3 million to its treasury and have approximately 47 million shares outstanding. 

The market, in our view, has clearly not factored in the good possibility of a gold/silver discovery at Flagstaff, nor has it fully grasped the significance of what Kent has assembled in Australia and New Zealand – a substantial package of high quality gold prospects in proven gold camps, and a very advanced situation at Alexander River with ounces in the ground. 

At its current price – only 16 cents – Kent offers very significant upside potential and minimal downside risk, so the risk-reward ratio here is very attractive.  The fundamentals should drive this stock to considerably higher levels, as the technicals also suggest in Clive Maund’s analysis. 

Please read our disclaimer at the top of this page.  Invest wisely, and in most circumstances we suggest selling half of any investment that doubles in value.