Disclosure: The following represents my opinions only. I am long NRN. I have not been paid or compensated by NRN for writing this.
I’m a big believer in the idea that the universe has a way of telling you things if you’re paying attention. You can call it superstition, but when you think about it, superstition can be one of the roots of optimism… and when it comes to the exploration game, having a sense of optimism is not optional. And why am I thinking about optimism? A little storytelling is required here. A friend of mine has two boys who collect those little Hot Wheels cars. Those cars come out in sets, and in each set, there is what’s known as a “super treasure hunt” version of one of the cars. It has different paint, different wheels, and different detailing than its “mainline” version. Finding one is like finding a gold nugget in a river, and yesterday evening I found one that I’ll give to the boys this weekend. To find one of these cars, you have to be optimistic — because if you take the time to go to the store, odds are that someone else has been there before you looking for the same thing — and the only way to know is to go there yourself.
Keeping all that in mind, I’m going to draw an analogy to junior mining exploration here. When it comes to investing in junior mining exploration companies, I find that you either have to be crazy, or optimistic, or a little of both. The odds are always stacked against you, and pre-drill data is just data until someone comes up with the goods in a drill core. Sure, you know what you hope to find, but Mother Nature is the only one in control. All you can do is tease out as much information as you can before drilling, come up with a target model, and run with it. Most often you fall flat on your face, but we all know the stories where fortunes have been made on the back of that rare bird called “discovery”. Hitting a mining discovery is like finding a super-treasure-hunt Hot Wheels car. It doesn’t happen often, but when it does, it’s pretty sweet. Naturally, this is leading to a specific idea that I have, which is Northern Shield Resources (NRN.V, last at $0.055).
A little background first. I’ve known the CEO of Northern Shield, Ian Bliss, for nearly twenty years. I first saw him on BNN one September back in 2005 or so. He was chasing a platinum target in Ontario that had the potential for big scale (Ian thinks big). That project eventually attracted Impala Platinum as a JV partner, and NRN toiled away trying to home-in on reef-type PGE mineralization within its layered mafic intrusion. In the end, it didn’t pan out. Over the years, Ian has generated and tested a variety of other targets, but to date he’s never made a big score. This is not for lack of ability, lack of dedication, or lack of quality targets/projects. Ian has always had those in spades. He leans on academics at a variety of universities, supports graduate level studies, and maintains a broad network of contacts in business and industry. The guy is relentless, but as of late, the market hasn’t been paying much attention to what Ian has been up to, and it shows in the share price. At the time of writing this note, NRN trades at a nickel and has about 100 million shares out, for a market cap of about $5 million. The company’s current focus is on a property called Root and Cellar, located within an extensional corridor of the Burin Peninsula in Newfoundland. The project area has excellent access and infrastructure (you can get there in a two-wheel drive car), which means that if Ian finds something, development costs will be lower and the odds of actually building a mine are higher. But the key word there is “if”, because at this stage Root and Cellar is just a target, but drilling should start in the month of June, so truth time isn’t far away.
And what is the exploration model at Root and Cellar? Ian believes that NRN has a preserved epithermal system, of which NRN has only drilled the shallowest portions, with the main target — the boiling zone — now targeted at depth. The project is located within an extensional structural corridor of the Burin Peninsula, which is important, because you need an extensional structural regime to generate the space in which epithermal systems form. Support for the target is found both in the rocks and in the geophysics. At surface, the company has uncovered heavily altered rocks with up to 78 g/t of gold in 700 g/t of tellurium in them. The tellurium is interesting, because tellurium can be associated with alkaline magmatism, which is known for producing economic gold deposits. The gold is interesting too, because (a) you know there’s gold in the system, and (b) the gold is in rocks that are still very high in the system, potentially having been mobilized from below. Ian has also identified a different set of geochemical indicators (specifically, sodium-potassium ratios) to help vector in on the core of the system based on geochemical trends seen in other known epithermal deposits. The geophysics over the modelled core of the system shows a large magnetic low that extends to depth, in line with a chargeability high, both of which are coincident with gold in samples and trenches at surface.
NRN drilled Root and Cellar to shallow depths in 2023, intersecting narrow high-grade (10 g/t over 1.5m) and broad low-grade mineralization (34m of 0.6 g/t) in rocks exhibiting heavy alteration with textures indicative of being in the shallow part of an epithermal system. The rocks are totally cooked and that gold didn’t fall out of the sky, so the natural question is, “What lurks beneath?” The cost of testing the target at depth (-200-300m deep) is low and NRN will start drilling next month.
In terms of the roulette wheel that is the junior exploration game, I think this is a good setup. The market cap is tiny, the potential is large (think millions of ounces of gold), and the stock is not far from all-time lows. The risk-reward is interesting. My max loss potential here is 100% if the stock goes to zero. Given that Ian has been doing this for 20 years, I have no doubt that if Root and Cellar doesn’t work out, he’ll find another target — this guy is a fighter. So is my downside really 100%? Probably not, but mentally, I have to be prepared for a total loss here. The upside though? Oh, I don’t know. Maybe 5000-10000% (a 50-100 bagger) in the blue-sky case… something like that. A market cap in terms of hundreds of millions is a fair dream. So, the market math says that this project has a 1 in 50 to 1 in 100 chance of hitting. What does the data say the odds are? That’s the question. For me, there’s no doubt that this is a valid target… and I might handicap the odds of success at more like 1 in 10 or 1 in 5. That means that the odds are still HEAVILY stacked against me, but if I’m an optimist, which I am, there’s an asymmetry here that I can get exposure to as long as I’m comfortable with the potential total loss of my investment. I can’t manage Mother Nature, but I can manage my risk through the amount of capital that I expose to this project… never risking more than I’m willing to lose. This is as high risk as it gets, which is why the risk-reward is what it is, full stop.
At worst, I’ll add another notch in my belt of “things that didn’t work out”, but in the success case, I score the elusive super treasure hunt Hot Wheels car. The Lundin organization has always had a motto of “no guts, no glory” and guts are in high demand when it comes to the exploration game. This is no exception. I highlight NRN here today because my recent Hot Wheels find reminds me that sometimes things do workout in the exploration game… and you have to be paying attention to know what might be worth your time. Obviously, I think this is worth my time and a bit of my capital… I’m long the stock and also played on the first tranche of NRN’s recent financing at 4 cents, which came with a 10c warrant, good for two years. The initial program is expected to start next month, and will consist of 10-15 holes totalling 2000-3000m of drilling. Will it hit? Maybe, maybe not — the odds are still stacked against me — but when you’re looking for something that’s rare, you have to love the hunt or there’s no point in coming out to play. But, in the off chance that you do find what you’re looking for, it can make for a pretty sweet (pay)day… because there’s nothing quite like beating the odds.
I’ve linked to NRN’s corporate slide deck here (NRN slide deck) for anyone that feels the itch. Ian does a good job of summarizing the prospect and is always keen to talk to people about his project.
Happy hunting.