On January 25, we posted these comments regarding Kent Exploration’s (KEX, TSX-V) pending gold/silver drill results from its Flagstaff Mountain Property in northeast Washington State:
“Truth is, we can speculate all we want about what those holes in October may have encountered, but we won’t know for sure until the news hits the wire. We’re hopeful, though, and at 20 cents we believe the risk-reward ratio here is exceptional.
The best-case scenario is that Kent confirms CE’s historical drill results – the stock blasts off like a rocket to new all-time highs.
The worst-case scenario is that every hole drilled at Flagstaff last October turns up empty – in that case, though, Kent is still sitting on a substantial high-grade barite deposit at Flagstaff, for which there is a guaranteed buyer when production commences through a deal with Matovitch Mining Industries, and the company has outstanding gold prospects in New Zealand and Australia which are coming along very nicely.”
Well, the worst-case scenario unfolded Friday afternoon with three of Kent’s nine holes delivering only anomalous gold and/or silver results. In short, they simply weren’t able to confirm in any way the impressive historical drill results obtained by CE Minerals. Why that is, we don’t know. Right now that’s not important.
No doubt some nervous nellies will be inclined to dump Kent stock Monday morning, but that would be a huge mistake in our view. Kent’s current market cap is only $6.3 million which we believe already undervalues the company based on the following:
1. Kent’s Alexander River Gold Property in New Zealand is a winner – it has a non-compliant resource of 640,000 ounces of gold with excellent potential for doubling that resource. Kent will be drilling this property in the near future, and recently they released some impressive trench assays from Alexander which confirmed (even exceeded in some cases) the historical grades. This will be an exciting property to drill and develop, and Kent has other assets in New Zealand as well;
2. Kent has partnered with Teck on the promising Gnaweeda Gold project in Australia where phase one drilling commences in 4-6 weeks. A total of 14 targets have been identified at Gnaweeda which covers a strike length of 28 kilometres. Gnaweeda is going to be rolled into Archean Star Resources (www.archeanstar.com), a dividend spin-off for Kent shareholders who will receive one Archean Star share for every four Kent shares they own (upon all regulatory and shareholder approvals);
3. Flagstaff barite: While Kent has come up empty for now in its search for precious metals at Flagstaff, what they do have there is high grade barite – and lots of it. Kent is the only publicly traded company we’re aware of with a production-ready high grade barite deposit, and we anticipate they’ll begin mining barite there as early as this summer. Mine permits and a barite sales agreement are in place, though Kent still has to post a $140,000 reclamation bond. 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 a conversation with O’Neill last fall 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.
Kent will remain a core holding in the BullMarketRun.com portfolio and we will be adding to our position on any weakness for the following reasons:
– Extremely well-managed junior exploration company;
– Tight share structure – only 35 million o/s;
– Pending cash flow from barite deposit;
– Potential million-plus ounce gold deposit at Alexander River in New Zealand, in close proximity to Oceana’s Globe Progress Mine, plus other prospects in New Zealand;
– Partnership with Teck on developing the promising Gnaweeda Gold Project in Australia;
– Archean Star dividend;
– Additional gold, silver, coal and zinc interests in Nevada, British Columbia, and Saskatchewan.
Any weakness in the Kent share price from the Flagstaff gold/silver results will present an incredible opportunity for investors to acquire a solid company at a substantial discount to its real value and long term prospects. That’s how we invest and that’s how money is made in the markets.
As O’Neill declared to us, “This is not a one-dimensional, one-trick pony.” “We have significant prospects that could bring extraordinary value.”
