December 7, 2009
TNR Gold Corp
December 2, 2009
Traded Toronto: TNR
U.S. OTC: TRRXF
Shares outstanding: 96.9 million
Recent Price: $0.29
Market Cap: $28 million
Toll Free Telephone: 800-667-4470
Website: http://www.tnrgoldcorp.com/
The following remarks are made largely on the basis of a recent conversation I have had with the management of TNR Gold Corp., a member of Jay’s Watchlist.
TNR Gold Corp. is employing the project generator model. For those of you who may not know what a project generator model is, a word of explanation is in order. “Project generators” are companies that pick up early stage exploration ground when there are historical or scientific reasons to believe a property is prospective for a given mineral. Because these properties are obtained at an early stage of development, the cost of obtaining them is very low.
As a project generator, TNR then uses its intellectual capital rather than hard currency capital to add value to its shareholders. By carrying out relatively low cost early exploration work, it demonstrates with greater confidence, the potential for a given property to host an economically viable mineral deposit. At that point in time, TNR hopes to bring in other companies that are willing and able to spend considerably more money to explore and advance those prospects toward production. TNR will generally retain a carried interest in those prospects into the future or at least a Net Smelter Return on any future production from the property. The prospect generator model is in theory a less risky model because, if other companies are spending considerable amounts of money, they can reduce the number of shares issued to raise capital.
TNR is Lithium Then Gold
Although the name of this company is TNR Gold Corp., management has positioned the company for maximum flexibility to allocate its resources into exploration for mineral resources most in demand. That’s why, despite its name being TNR Gold Corp., management is placing most of its emphasis on lithium exploration at this point in time.
I should also mention that the company’s primary geographical area of focus is in Argentina and that is where its number one lithium prospect is. It has 12 projects in the San Juan province of Argentina and one in the most Northern province, named Jujuy.
Aside from Argentina, TNR has projects in Alaska, Nevada, Canada and in Ireland. Its two projects in Nevada are lithium prospects.
Why Lithium over Gold?
TNR has focused on lithium given the commitment of various car manufactures to build battery powered automobiles. The most advanced battery technologies use a large amount of lithium. With Nissan and Federal Express committing to build the first electric cars in 2010, the demand for lithium is projected to rise dramatically in the years to come.
The most exciting lithium prospect for TNR is its Mariana prospect located 120 kilometers from the nearest town, that being Tolar Grande. This is a brine target rather than a hard rock target, which means it is cheaper to explore and less costly from which to produce lithium.
The Mariana project consists of several contiguous claims over 120 km2 covering the entire salar. Historical sampling reported significant lithium, boron, and potash levels in brines and sediments within the main body of the salar. Salares, or salt lakes, contain minerals dissolved in brines and some include buried layers of evaporate minerals. Four of seven water samples collected in the shallow subsurface over approximately 3 km returned values from 188 to 283 mg/L lithium, and 423 to 698 mg/L boron. This confirms that there are some brines present with concentrations similar to those found at producing salares in North and South America.
Current lithium production is coming from Chile, Australia and Argentina and a private company in Clayton Valley, on the California –Nevada border. Management believes that its Mariana prospect has the potential to become one of only a handful of lithium mines in the world to meet what is projected to be a surging demand for lithium.
Given the relative simplicity of mining lithium especially from brines as opposed to hard rock deposits, and the remote location of this prospect, management believes this prospect can be fast tracked with a conceivable feasibility date within 18 months. Assuming continued ongoing work points toward the potential for the Mariana to become a commercially viable lithium mine, we would expect TNR to either sell off this prospect or retain a carried interest in it through a joint venture or by issuing a dividend to shareholders. But I’m getting ahead of myself a bit here. There are no guarantees yet that the Mariana will be a commercially viable project promising as it may appear at this time.
Lithium prospects in Ontario and Nevada
On Oct. 19th, management reported some impressive lithium assays from grab samples on is 100% owned Mavis Lake Property in Northwestern Ontario. Sampling took place on this hard rock prospect over an area measuring 1.1 kilometers by 4.5 kilometers.
The company also has two lithium brine prospects in Nevada, those being at Fish Lake Valley and Mud Lake.
And on Nov. 10th the company announced that it signed an option to acquire a 100% interest in 1,076 hectare Sarcobatus Flats lithium brine property located 109 kilometers south of Tonopah, in Nye County, Nevada.
Management views these lithium prospects as being only the first few of several that it expects will catapult TNR into the number one lithium exploration company.
Gold Second Most Important Mineral for TNR
The company has an abundance of gold, silver and base metals properties located mostly in Argentina. Some of them such as the La Carolina in Argentina have had a fair amount of exploration progress made on them. Most of these prospects are largely gold and silver prospects with significant base metals potential. With a large number of highly prospective gold targets in the U.S. and Argentina, we think the prospects of developing significant intrinsic value for this company’s shares over the longer run are quite good.
The company’s most advanced prospect is its Shotgun project in Alaska, where a non 43-101 resource of approximately 1 million ounces on surface has been outlined. The average grade is just under 1 gram per tone. More exploration work will need to be carried out to determine whether this is a commercially viable gold project.
Dollars in the Ground
The company has a total of 33 or 34 prospects of which 18 are active. Ten of the total projects are currently joint-ventured. Of that total, seven out of ten are with Canadian Gold Hunter, a company that has subsequently been taken over by a Japanese group. At this time, it is uncertain what the plans of the Japanese group are with respect to those joint venture agreements, so the total amount of money to be spent by other companies is uncertain at this time. One project held by La Mancha is committed to spend $1 million in 2010. In due course, once questions of the Japanese concerns are answered, we would expect a clearer picture of how much money other companies are committed to spending to develop TNR’s various prospects.
MANAGEMENT
The Company’s management team has experience in all aspects of the mining industry, including the financing and marketing of public and private companies.
Gary Schellenberg, B.Sc. (Geology)Position: President
Mr. Schellenberg has been managing and financing public and private resource based companies for the past 20 years. His experience provides the Company with leadership and well defined corporate goals.
Paul Chung, B.Sc. (Geology), MBA Position: Director
International experience and expertise in the management of public companies over the past 19 years make Mr. Chung a valuable asset to the Company’s Board of Directors. He is directly involved in the day-to-day operations of the Company.
Jerry Bella, CGA Position: CFO
Mr. Bella is a Certified General Accountant with over 20 years experience as a director and CFO of various companies trading on the TSX Venture Exchange. He oversees all the financial affairs of the Company on a day to day basis and works closely with other senior management members in meeting TNR’s goals and objectives.
Michael Sieb, B.Sc, MBA Position: Chief Operating Officer
Brings 22 years of strong corporate growth and project management experience in international mining and exploration. Prior to joining TNR, Mr. Sieb was president of Brilliant Mining Ltd. which was named by the TSX50 “Top 10 Mining Companies on the TSX: V” for two consecutive years during his tenure. Mr. Sieb is recognized as a committed executive with an exceptional array of skills essential for operating and developing a premier mining company. He has earned a Masters of Business and Administration degree at the University of British Columbia and a Bachelor of Science Degree in Geology at Concordia University.
Ike Osmani, P.GeoPosition: Chief Geologist for South American Projects
Mr. Osmani brings 26 years of Canadian and international mineral exploration experience in gold, uranium and base metals and has provided exploration consulting services for numerous resource companies. He has 17 years of experience with major and junior exploration/mining companies and as an independent Consultant and 9 years with Ontario Geological Survey (Government of Ontario).
Roberto Lara, Geologist Position: Managing Director of South American Projects
Mr. Lara graduated from Universidad Nacional de San Juan in geology and has been involved in the mining industry in South America since 1988, mainly in the province of San Juan, Argentina. He previously was chief geologist from Crown Resources USA and consulted to numerous resource companies. Presently Mr. Lara is Vice president of Compañia Minera Solitario Argentina S.A., TNR Gold’s 100% subsidiary.
John Harrop, P.GeoPosition: Senior Geologist
Mr. Harrop has been involved in many aspects of gold and base metal exploration for 24 years. He has international field experience in North, Central and South America. He also has substantial experience developing and implementing new technology, such as GIS and 3D geophysics, which can provide competitive advantages to exploration teams.
Mr. Jerry Huang, BBAPosition: VP Corporate Development
Jerry graduated with a Bachelor of Business Administration and has had a successful career in private and publicly traded companies in a marketing, service, and sales capacity. Prior to this appointment, he was a senior advisor with a major Canadian bank, generating over $40 million dollars of secured equity and investments in 2007. Jerry is currently completing his MBA at Sauder School of Business at University of British Columbia.
FINANCING & LITHIUM SPIN OUT
At present, the company has a cash position of approximately $500,000. It is in the process of raising $3 million of which $2 million is slotted for funding a spinoff company named International Lithium. The proposal is to raise $3 million with the sale of $0.30 stock with each share carrying with it ½ share purchase warrant at $0.50. The completion of the sale of these shares would raise the number of shares outstanding to approximately 110 million.
Management is currently talking about a 4:1 spinoff, meaning that for every 4 share of TNR you currently hold, you will bet one share of International Lithium. I’m told that at most it will be a 5:1 spinoff. With 110 million shares outstanding in TNR, the total number of shares outstanding for the new International Lithium company would be between 22 million and 27.5 million shares. The $2 million in the new company will then be used exclusively for additional exploration and development of lithium projects.
We think this spin out idea is a very good one because we doubt very much the market is fully pricing both the lithium and gold prospects. A spin out of the lithium prospects should allow help to bring full value to shareholders as “green” orientated investors pay focus on what is currently an attractive investment theme.
More spin off to come?
As noted above, the company’s most advanced prospect is its Shotgun project in Alaska where a non 43-101 resource of approximately 1 million ounces on surface has been out lined. The average grade is just under 1 gram per tone. I understand management is having internal discussions about the potential to spin out the Shotgun prospect into another public company with a structure similar to that being proposed for the Lithium spin out. I believe that could very well add value to existing TNR shareholders.
SUMMARY: TNRs’ project generator model is a good low risk business model that enhances longer term gains through diversification. Shareholder risk from dilution is limited given the use of this model. We think the proposed spin off of the lithium property will add value for current shareholders.
Our main concern with the lithium prospects is the political sustainability of the move toward electric powered cars. My concerns arise out of my bearish global economic outlook and also a growing wavering on the part of various countries toward away from a commitment to halt what many think is man made global warming. If demand for lithium powered cars is truly in the early stages of a growth phase, then TNR and its spin off company should be in a good position to profit longer term. In any event, I believe the spinoff of the lithium properties should add value to existing TNR shareholders.
With a market cap of under $30 million, a lithium spin off possibly to be followed by the Shotgun spin off, not to mention numerous other prospects, precious metals and gold properties, we think TNR provides considerable upside potential for investors willing and able to hold these share for a protracted period of time, assuming, as I do, that the bull market in gold has several more years to run.
