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:
- 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;
- 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;
- This company has just partnered with a major – Teck – on the highly prospective Gnaweeda gold project in Western Australia;
- 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.
