Transatlantic Mining Corp. (TSXV:TCO, FRA:TMS) – The Perfect Bootstrap

Palisade Research November 30, 2016
Category: Research

 

Current Price: C$0.055
Shares Outstanding: ~214 million
Market Capitalization: C$11.8 million
52-Week Range: C$0.03 – C$0.145
Cash: ~C$1.0 million

Transatlantic Mining has quietly reached the pinnacle of all mining companies: positive cash flow. Its US Grant mine, located in Virginia City, Montana, has poured its first gold as part of a trial and proof-of-concept run, and now the company is looking to produce 10,000-20,000 ounces of gold in 2017, and looking to double capacity up to 40,000 in 2018. With evidence of an economically feasible mining operation on hand, Transatlantic is ready to reach its next milestone and grow significantly in the coming months.

Background – Quietly Putting Together The Pieces

Transatlantic Mining’s flagship project is the US Grant Mine, located close to the original gold discovery in Montana; a district that has so far produced over 9 million ounces of gold from alluvial operations and high-grade veins. Even today, there are several operating mines located close to US Grant, ranging from open-pit operations to small-scale underground ones.

The mine’s own system of mineralization consists of 45-degree veins ranging from 0.5 to 7 meters in width. The company says that even though the US Grant vein has been mapped over 1,200 meters on surface, historical mining was conducted over a surface length of just 600 meters, leaving a large and undeveloped area for the company to further explore.

In addition, existing veins are known to dip up to 220 meters in depth and extend over 1,200-3,700 meters on surface.

The first lode claim was staked at US Grant almost 150 years ago. Existing mill was opened exactly forty years ago, in 1976. However, in 1988 both the mine and the mill were put on indefinite halt.

We reemphasize there has been little exploration on the property. However, some of the historical (non-NI 43-101 compliant) drill results were exciting, pointing at multi-gram per tonne vein systems:

  • DDH-USG-88-6: 0.6m of 7.2 g/t AuEq (3.5 g/t Au, 269.1 g/t Ag)
  • DDH-USG-88-2: 2.6m of 13.1 g/t AuEq (10.7 g/t Au, 170.2 g/t Ag)

 

Results from level 3 Adit, one of the Transatlantic’s top-priority targets, included:

  • DDH-1125-13: 1.6m of 28.8 g/t AuEq (22.1 g/t Au and 515.4 g/t Ag)

 

Recent sampling from Level 3 delivered some encouraging results. Pink areas in the below chart indicate sampling results in excess of 15 g/t gold equivalent:

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In 2016, Transatlantic started its own four-month due diligence campaign that resulted in the company signing a lease agreement to develop and re-start mining operations at US Grant.

Now Transatlantic has rights to production and toll proceeds from US Grant and an option to purchase it for $6 million, due in three US$2 million annual installments.

For the whole duration of this agreement, the company will be entitled to any mining revenue. It has been test-mining US Grant since January 2016 and has already optimized its mining activities. The company’s technical team has 26 historical drill holes to work with, and are following existing, semi-explored veins, and this has proven to be potentially profitable. Existing veins fulfill two roles: they show the company where to look for ore and they may already contain ore available for mining at a lower cost than the less-developed areas.

Transatlantic is also working to enhance its understanding of deeper US Grant areas, like Level 3. This lowest level is the easiest to reach given the infrastructure already in place. The company plans to start diamond drilling activities below this level, and sampling results from nearby areas have already been positive. If successful, they should enhance the company’s understanding of the underlying structures. Transatlantic says that sampling results from nearby areas have been positive.

In November, Transatlantic reported that it produced 17 ounces of gold as part of its mill commissioning process. The company achieved recoveries of 88.6% for gold and 68.1% for silver. The ore fed into the mill came from lower-grade zones. The company says that the results will be part of its progress toward a full-scale production decision.

To wrap up, US Grant has existing infrastructure and accessible levels from which Transatlantic start mining gold commercially as it ramps up and includes other areas, namely the Monitor Copper-Gold-Silver Project in Idaho.

Monitor is Transatlantic’s second project. It contains a copper-gold-silver body of mineralization located in the famous Coeur D’Alene mining district.

Much like the US Grant property, Monitor has been mined in the past. Reportedly, the namesake Monitor vein and the Richmond vein produced copper at 5% to 15% grades correspondingly, with gold and silver as by-products.

Exploration and mining at Monitor stopped in 1923, Transatlantic restarted drilling back in June 2015. Having invested $700,000 into this property as part of the initial drilling program, the company drilled 14 holes and released the results in September 2015.

Drilling confirmed historic mining diagrams. Some of the best drill results included:

  • DHM#2: 1.9 meters of 3.4% Cu
  • DHM#8: 1.2 meters of 2.9% Cu, including 0.6 meters at 4.3% Cu and 5 g/t Ag
  • DHM#10: 1.0 meters of 4.8% Cu, including 0.6 meters at 6.8% Cu and 10.6 g/t Ag

Monitor complements the company’s main value proposition, US Grant. While the main focus is on bringing US Grant to full-scale production, the solid grades and rising copper prices make Monitor a nice addition to the company’s total value.

The Management – Proven Team From Northern Star Resources (ASX:NST, Mkt Cap: C$2.2 billion)

At the head of the company is Bernie Sostak, Transatlantic’s Executive Chairman. Mr. Sostak has over 25 years of experience in the gold mining industry. His most recent role was General Manager of Business Development & Technical Services for Northern Star Resources. Bernie played a crucial role in building NST during its highest growth phase, from 2010 to 2014. He was one of the leaders of a team responsible for identifying, evaluating, (deal) structuring & integrating the acquisition of four mines.

Prior, Mr. Sostak was Director of Resource & Reserve Strategy for Barrick Gold (TSX: ABX, ABX). His experience includes the management of mineral resources & reserves, resource estimation, sourcing and evaluating mining assets, mine planning & operations, technical risk analysis, project portfolio management and deal structuring.

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The company’s CEO is Rob Tindall. He has more than 10 years of experience in the finance industry. He was involved in multiple mining and energy projects around the world. The company’s management and director team is equipped with a combination of technical and financial skills. This makes it capable of both conducting focused geological work and being able to raise capital to finance exploration, development, and mining activities.

Financials – Self-Funding The Ramp-Up

In October, Transatlantic closed a $4 million private placement, having issued 79.4 million shares at $0.05 per share and approximately 24.6 million warrants.

The placement should provide Transatlantic with funds to finance its activities up until the point where its US Grant mine becomes cash-flow positive.

Post-financing, the company has approximately 214 million shares outstanding. It’s quite a lot, yet we keep in mind that TCO is close to production and will be self-funding the coming payments for US Grant. For a company at that stage, this share count is not surprising.

The company currently has around C$1 million in the bank, which should last it for the next several months. Management believes that the next lease payment for US$2 million in May 2017 will be paid with internal cash flow, however, we still expect some time next year it will conduct a private placement to top up the coffers. By that time, its share price should be higher than it is today based on the increasing certainty of the economic feasibility of the US Grant property.

Management has stated that Transatlantic’s goal for mid next year is to prove it will be a 50,000 ounces of per year producer with a minimum 10 years of mine life. The company currently has two drills running, and will be releasing several key news releases in the next thirty days, including the maiden NI 43-101-compliant resource and PEA, assays from October drill holes, and an update on the Monitor copper-gold project in Idaho.

We expect the coming resource and PEA will lay down the foundation for Transatlantic’s growth, but we are not expecting barn-burning numbers because the studies are based on just the historic holes and simple trenching. The material news will be next year, when both the resource and PEA are updated with the new drilling. We also believe a significant debt-financing is in the pipes, and this will allow TCO to upgrade its facilities and to further consolidate the area.

From the current levels, we see significant upside in the next several months. For these reasons, Transatlantic Mining is a key holding in our developer portfolio.

Palisade Global Investments Limited holds shares of Transatlantic Mining. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

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One Comment on “Transatlantic Mining Corp. (TSXV:TCO, FRA:TMS) – The Perfect Bootstrap”

Dana Vatamaniuck says:

I have been reading the information on this company from a few different sources and what I see is quite impressive. I think the company should now “get the word” out as they are coming into production. There is no mention in “Marketwatch” or “Zerohedge” to name a couple. This would bring the share price up, which would help cash flow. I will say, what I read of the 1.4 ton sample revealed, I almost fell out of my chair. I have bought a lot of shares and I’m buying more!! This company in terms of shares is my largest holding as I see the share price going through the roof.

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