THE CRITICAL INVESTOR

This article by Gwen Preston has been published earlier at December 12, 2019 at Resource Maven. This republication is part of a syndication agreement with Genesis Metals.

All pictures are company material, unless stated otherwise.

Genesis Metals (TSXV:GIS) has been around for a decade. Over that time it worked and dropped a few projects, but more importantly it found two projects that the team really liked. The bear market made it hard to raise capital so work programs were limited. The work that was done returned good results, good enough that a strong technical team took an interest in the company early this year.

I should clarify: a few key people asked the technical team to take a look at the Chevrier project. Those people were John Robins and Jim Paterson, founders of the Discovery Group (Great Bear, Kaminak, Bluestone, Northern Empire, Fireweed, etc). Genesis had long been associated with the Discovery Group because president Jeff Sundar has supported several of the group’s companies through a board position or similar, but GIS had not officially been part of the group until early 2019 when Paterson decided to rotate his Northern Empire winnings into the stock.

Paterson cleaned up the market (ie bought up lots of the stock available for sale) and joined as an advisor. With him came a few other advisors and board members who strengthened the deal. And Paterson asked Rob Carpenter and his consulting group, Vector Geoscience, to dive into Chevrier.

Carpenter led the discovery of the Coffee deposits (that propelled Kaminak to a $520-million takeover by Goldcorp). He’s an experienced geologist with a strong eye for projects with real potential.

Carpenter first looked at Chevrier because Paterson asked him to do so, but kept going because he liked what he saw. In short order he and the two other geologists at Vector reanalyzed the known data, planned and executed a summer exploration program (till sampling, prospecting and mapping), and generated a host of ideas for a land package where they saw:

• Consistent gold endowment – multiple strong till anomalies and gold across all major lithologies (rock types)
• Regional gold endowment – there are six gold deposits within 20 km, including the highgrade Monster Lake deposit (433,000 oz. at 12.1 g/t gold) and the large, low-grade Nelligan deposit (3.1M oz. at 1.02 g/t gold)
• Insufficient focus on grade – the existing resource averages 1 g/t but includes multiple highgrade hits. Orogenic gold deposits always have raking shoots of high-grade gold; those have not been identified let alone targeted yet at Chevrier
• Prime location – Chevrier has a highway, powerline, and rail line running through it. It’s right beside the mining town of Chibougamou

Most recently, Genesis found a new president and CEO in David Terry. Terry is a PhD geologist with a laudable track record. As Terry put it to me: “I saw Genesis as a company that was trading like a shell but that has a good gold resource with a great address and really strong exploration potential with multiple untested targets.”

Now, with a strong team of people and a plan of attack for Chevrier, Genesis is relaunching. They are rolling back the share structure 5 for 1 and raising $3.5 million by selling units for $0.225. Each unit comprises a share and half a warrant; full warrants are exercisable at $0.35 for two years.

There are no guarantees in exploration. Work to date plus the Vector team’s re-interpretation have revealed some intriguing potential at Chevrier, starting with growing the known zones and boosting the grades and continuing with testing a host of new targets. Evidence and regional endowment suggest good odds of success.

One important consideration, though, is that Genesis is now a Discovery Group company with a very strong set of people on its board and management, a tight share structure, and access to capital (this raise is oversubscribed). That means the vehicle will find a new route if Chevrier doesn’t work. The Discovery Group office is among the first door that prospectors and juniors with good projects for sale knock on, which means they see all kinds of interesting assets and opportunities.

At this point investing in GIS is a bet on a relaunched explorer with capital, a tight structure, and a project in a prime jurisdiction with a host of new, drill-ready targets. Since exploration is an adventure (for better or worse), I appreciate that GIS also has backing from the Discovery Group, which gives me confidence the company would come up with another good opportunity if Chevrier doesn’t work out.

The Chevrier Project

The Abitibi is an incredible gold camp. It has produced 170 million oz. already, from an outlined endowment of 270 million oz. After working projects around the world Terry is happy to be in the Abitibi where, he jokes, “If you were to drill a hole at any gas station here you’d have a better chance of making a gold discovery than at most exploration projects in the world.”

Chevrier is at the east end of the Abitibi, near the town of Chibougamou. There are five gold deposits within 20 km of the project. The closest are Monster Lake, a high-grade deposit 15 km southwest 3 along strike from Chevrier Main, and Nelligan, a large low-grade deposit 10 km south of Monster Lake.

Chevrier itself hosts two defined deposits, at the Main and East zones. The two zones and their indicated and inferred counts add up to about 600,000 oz. The defined ounces are a start, though the known deposits are nothing that the market will care about in their current state. The count is too small and half of the Main zone ounces are an underground resource averaging only about 1.5 g/t gold.

Carpenter and his geo partners, Alan Wainright and Daniel MacNeil, wouldn’t have been interested in those numbers. But technical teams don’t just believe other people’s data compilations – they start with the raw data and drawn their own conclusions. “One of the first things we look at is the distribution of gold and grade across the property,” MacNeil told me in a call yesterday. “If we see a range of grades and gold occurring across multiple rock types, we have confidence there is a good overall endowment. At Chevrier, we have gold just all over the place.”

“And the existing deposits add to that by showing at least two places with a critical mass of mineralization that’s continuous enough to define a resource. That adds to the endowment argument.” Talking about endowment, though, is like talking about potential: it’s good but the market isn’t going to care unless it generates exciting numbers.

Genesis’ two-phase drill program in 2017 shows that opportunity exists too. The first phase of drilling returned results in line with the resource grades. The second phase returned much higher grades, including 8.7 g/t gold over 21 metres, 5.06 g/t gold over 8.5 metres, and 4.5 g/t gold over 12.5 metres. Higher-grade hits like that are scattered through the resource model, which for the Main zone comprises four steeply dipping lenses.

Looking at a long section from X to X’, we start to see two things:

• The raking shoots of higher grade gold (marked by the white arrows) have not been delineated
• The deposit is very thinly drilled, especially below 150 metres

Orogenic gold deposits like Chevrier always have shoots of high grade mineralization. Understanding the controls on and extents of those shoots is often key to unlocking the value in these deposits. And that work has not been done at all at Chevrier.

So this is the first plank of the new exploration plan at Chevrier: to figure out and follow the high grade within the known zones. Success would boost the grade and grow the count. By how much? Time, also known as exploration success, will tell.

The second plank considers the rest of the property. It’s a big land position and lack of funds in the past means it hadn’t been systematically reviewed. Team Carpenter started with magnetics data to track prospective corridors. They then completed a till sampling program in the summer. Till sampling here meant using track-mounted excavators to take soil samples that were analyzed for gold grains. Gold grains give information in two ways – more grains is better, to start, but the shape of gold grains also gives information about how far they have traveled. Rounded grained have moved a fair distance, rolled and rubbed in soils being pulled along by glaciers, while gold grains with irregular shapes are close to their hard rock origins.

Genesis has not actually released the results of the till sampling work. They say the work outlined multiple targets, many of which are stronger than those around the known deposits. That’s certainly good and immediately raises the question of whether the best is yet to come. The hesitation around announcing the results is that several of the best targets are near the property boundary. As such Genesis is working to expand its land position, and wants to do so before others know what its till sampling program revealed. “It’s always good when invested money makes a project better, especially when the money tested new areas and ideas” is how Terry summarized the situation.

The Plan

The Carpenter-MacNeil-Wainright team has taken the entire geologic model back to data. That work has outlined targets for immediate drilling to expand the known deposits and target those high-grade shoots. That work will get underway immediately; drill pads are already being built. 6 The till anomalies are not ready to be drilled. As soon as the snow melts the team will shrink the anomalies to drill target size via prospecting, mapping, and trenching. Those targets should be ready for drilling later in the summer.

With the $3.5 million in this raise Genesis should be able to complete up to 10,000 metres of drilling. Also: the share structure will be rolled back on Monday 5-for-1. Pro-forma (assuming the financing closes full) the company will have roughly 40 million shares outstanding. At $0.225 that means a market capitalization of $9 million, with $3.5 million in the bank.

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This concludes the guest post by Gwen Preston about Genesis Metals.

I hope you will find this article interesting and useful, and will have further interest in upcoming articles on mining. To never miss a thing, please subscribe to my free newsletter, in order to get an email notice of my new articles soon after they are published.

Disclaimer:

The Critical Investor is not a registered investment advisor, currently has no position in this stock but was a long term holder in the recent past, is contemplating to open a new position as the current Corona virus effects on the markets have worn off, and Genesis Metals is a syndication sponsoring company. The Critical Investor is compensated for the syndication of this article by Genesis Metals. All facts are to be checked by the reader. For more information go to www.genesismetalscorp.com and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.