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.
