Augen Gold

Trelawney Makes Hostile Bid to Consolidate Timmins Style Gold Camp

Augen Gold Corp

GLD:CDNX
AUGNF:OTC

SP… $0.32
Shares Out… 127.7M
Market Cap… $41M



Augen Gold (GLD) CEO David Mason is in the fight of his life to retain control of his company as Trelawney Exploration (TRR) has launched a hostile takeover bid for the shares of Augen in an all share deal at 0.066 per share of TRR. The deal values Augen Gold at roughly $0.32 or a $50M market cap company fully diluted. Augen Gold has one of the most sought after gold exploration and development properties in Ontario located in the South Swayze Greenstone Belt between Timmins and Sudbury. This area is thought to be the next Timmins or Kirkland Lake style gold camp.

Augen Gold owns the dominant 40km long land position in the area which surrounds TRR’s recent discovery at Cote Lake at the east end of the property. This emerging gold camp has added 5M oz’s in 2011 between GLD and TRR. Augen recently announced a 1M ounce inferred resource at Jerome at the west end of the gold belt and Trelawney announced a 4.2M oz maiden resource at their Cote Lake discovery. These two multi-million ounce resources at either end of the gold belt demonstrate the blueksy potential of the area to host several multimillion ounce gold deposits.



Trelawney Bid Grossly Undervalues Timmins like Potential

Trelawney’s discovery at Cote Lake has pushed the share price from $0.80 to over $5 and a lofty $700M valuation. The huge rise in share price has allowed them to announce an all share deal that takes advantage of the recent gains made by Trelawney and severely undervalue Augen’s assets. The bid is opportunistic and predatory as Augen’s land position is 4 times the size of TRR and they have already identified 3 bonafide mulit-million ounce gold targets on their massive project.

Their gold project contains…

1. A former producer with a NI43-101 resource of 1 million ounces at the Jerome Mine
2. A promising high grade gold discovery just east of the Jerome Mine at North Shore
3. Claims surrounding one of the hottest gold discoveries of the past year at Cote Lake coming within 200 meters of 520 meters @ 1.44 g/t of gold.

Each of GLD’s projects could justify a $30M - $40M market cap gold company with multi-million ounce discovery potential at all three sites. GLD valued on its inferred resource alone trades at $40 per ounce where Trelawney trades at $166 per ounce of gold. Four times the value!!!This just starts to demonstrate the extreme discount that GLD trades at compared to TRR. Augen has four times the land position in an area that has seen little exploration and is projected to be the next hot gold camp in Ontario. If Augen was valued similarly to Trelawney on just an ounce to ounce basis, GLD should trade closer to $1.20 than $0.32. Trelawney has jumped at the chance to consolidate this very valuable land package that has the potential to support several operating gold mines and produce over a million ounces a year.

The Swayze Greenstone Belt has all the characteristics of another Timmins or Kirkland Lake gold camp. If Trelawney consolidates a gold camp that produces over 50M oz’s of gold over its lifetime, then TRR is truly committing grand theft larceny against Augen Gold shareholders.

The two reasons why TRR can’t pass up GLD at the current prices…

1. W. COTE LAKE
2. Long term TIMMINS camp potential

Cote Lake, Cote Lake, Cote Lake!!

From all indications the Cote Lake deposit dips towards Augen’s lands and in certain sections the border comes within 200 meters of open mineralization. The deposit dips to the north at depth which leaves a good chance that the source of the gold deposit lies on the border at depth or even run entirely onto the GLD property. The richest zone of Cote Lake comes within 200 meters of the border with Trelawney’s best hole on the project intersecting 520.28 meters grading 1.44 g/t au. Chances are very good that GLD hits this summer. When GLD announced plans to drill the border fall of last year, the share price shot up from $0.20 to $0.65.



Unfortunately relations between the two companies have soured to the point where both companies stopped drilling in that area so not to lose a negotiating position to the other party. These claims have been the subject of bitter fighting between Augen and Trelawney ever since. Augen stopped drilling because they needed to implement a shareholder rights plan to protect shareholders from a takeover bid by Trelawney when they hit at the border. In TRR’s case, they stopped drilling because every stepout hole brought Cote Lake mineralization closer to the GLD/TRR border and made GLD’s claims about the source running onto W Cote Lake that much more credible.

GLD is extremely undervalued and TRR needs the West Cote Lake claims irrespective of mineralization or not. Every second TRR delays, means that Augen Gold moves closer to a discovery on their side of the border.

TRR announces new outcrop 500 meters south of Cote Lake

Recent developments from Trelawney should actually convince GLD shareholders not tender their shares and for newcomers to buy as much as they can at current prices.

TRR announced a mineralized outcrop 500 meters south of Cote Lake on the same lines where all the speculation at the border is. This gives added credence to the theory that there may be a secondary north south relationship to mineralization at Cote Lake extending from the main zone on either side. There is a very good chance that GLD will drill long intervals of gold at the border this summer sending Augen Gold’s share price through the roof on a discovery similar to that of TRR.

That is… if Augen can hold out long enough to get the results back.



Any discovery made at Cote Lake on GLD lands strengthens GLD’s bargaining position exponentially. To the point where TRR will be forced to pay 3 or 4 times the current bid as speculators will run to the discovery forcing the share price much higher. It could also induce a new bid from another buyer. When you consider they are already extremely undervalued based on their Jerome project alone, most shareholders outside of the group with TRR will not tender their bids at the current price. If GLD can resist the first takeover bid by TRR then things will look much different 3 months from now. It is why TRR is acting to move fast in a hostile takeover ignoring the shareholders rights plan.

David Mason is on the verge of several multi-million ounce discoveries over the next couple years.

If GLD shareholders give in to TRR now… they lose their leverage to what was going to be very big drivers of this stock. Yes they will gain a quality development play at Cote Lake which will eventually be a $20 stock on its own, but they lose the four digit type leverage that comes with a small cap developer in what is going to be a very hot gold camp. The hostile takeover makes GLD a very compelling buy. It is a play on TRR in the very least with a free option. If TRR fails in the current bid, they will be forced to sweeten the deal fast as they have tipped their intentions regarding GLD and more investors will come to the play driving up the stock. Especially since Greg Gibson is trying his best to head off a Cote Lake discovery on Augen lands. With 2 major drill programs at either end of GLD's massive property, things are just heating up at Augen Gold.

How often do you get that kind of deal?

You buy GLD to get a top 5 development play and a blue sky lottery ticket!



Big time high grade discovery in the making at North Shore

The latest round of results at North Shore indicate a very large and extensive high grade gold system covering 1.8km of strike with at least 8-10 identified structures. Recent drilling has hit 5 holes above 20g/t that cover more than a kilometer of strike length between the high grade intersections. The 3 highlighted holes below cover over 600 meters of strike length outlining an extensive shallow high grade zone.

• 10.6 g/t au over 10.50 meters including 66.8 g/t au over 1.5 meters
• 6.72 g/t au over 11.19 meters including 24 g/t over 1.5 meters
• 6.58 g/t au over 4.12 meters including 23.2 g/t over 1.12 meters

The North Shore is starting to show an very high grade nature to the mineralization on the West side of the South Swayze Greenstone Belt. TRR is not matching these results in exploration at their medium grade Chester Mine. If Greg Gibson of TRR doesn’t act now, he may never get a better opportunity to run away with GLD at such discounted prices. Investors will eventually realize the importance of the high grade discovery at North Shore that extends mineralization at the million ounce Jerome Mine several kilometers to the east where the North Shore discovery is. 5 of 11 holes above 20 g/t is well above average, if not spectacular.



As GLD continues to produce high grade results and better define the zones to depth at North Shore, it will quickly develop into a very rich deposit capable of supporting a mine at much lower gold prices. Cote Lake may have difficulty making money much below a $1000 gold price as the mineralization is low grade. Chasing 20g/t rock over decent widths will always be profitable, no matter what the price. With a core high grade zone covering over 1000 meter strike length within an 1800 meter long zone... it makes North Shore a large and very exciting high grade project to develop with consistent high grade hits.

“It appears we are well into defining what could be the largest gold occurrence in the entire South Swayze gold belt form Jerome to through to and including Chester Township.”

David Mason, CEO of Augen Gold

Forget about the Cote Lake battle for a minute. Mason doesn’t even care about Cote Lake and is a secondary focus to Augen Gold. Mason thinks he has hooked a much bigger fish at North Shore. Results are backing up the theory of the Jerome Extension covering several kilometers of strike. Jerome and North Shore have the potential to have high grade from surface to depths of well over 1000 meters typical of Timmins and Kirkland Lake…. the Jerome Extension, particularly the North Shore could easily grow into a project greater than 10 million ounces of gold.

The Last Stand… GLD’s Shareholder Rights Plan

There is a huge opportunity for investment in GLD as TRR most likely won’t gain a permitted bid under the shareholder rights plan the first time around. It grossly misvalues Augen’s projects and is opportunistic in nature and most GLD shareholders know it. The investors who locked up their shares to Trelawney have a bias in ownership towards TRR so they benefit even at a discounted price with the transaction essentially being a transfer of title for guys like Sprott and Pinetree. The shareholder rights plan requires an additional 50% of the shares other than the group that is trying to takeover. TRR’s original lock down was 42% which means TRR needs another 24% of the outstanding shares for a total of 66% to be a permitted bid according to the rights plan. Currently TRR has locked up another 5% and has 3% ownership which means TRR needs 16% more of the shares to qualify as a permited bid.

Neither party at present knows if TRR will gain the shares to allow a permitted bid so at the moment it is nail biting time, but it does look likely Augen will survive this first round. It will buy GLD a bit of time to come out with some market moving results from Cote Lake or the North Shore... if they survive the initial bid. It also gives them time to look for a white knight or even let TRR sweeten the bid. The big hope for Augen Gold’s David Mason is to try and hold out long enough to prove that the Cote Lake deposit does extend on their land which will force TRR into making a much bigger bid. With drilling resumed at W. Cote Lake and a major discovery at north shore in progress, GLD is just starting to unlock their true value which is well over $1. The longer GLD shareholders can hold out and resist the TRR bid… the more Augen Gold can capitalize on the short term wealth drivers and ultimately force a much higher bid for the company.

TRR’s Bid Grossly Undervalues Augen Gold’s Assets

People just don’t go to these lengths to fight over a property if there wasn’t something there. With control over the Swayze Greenstone belt being fought over twice in the past 18 months, this has been a highly contested property. GLD has 3 drivers of growth coming from the value of a million ounce resource, extending Cote Lake onto GLD land and an exciting high grade discovery at North Shore… the time to buy GLD is now.

The takeover battle makes this story that much more exciting and puts a floor in the share price with little risk. TRR sees the extreme value opportunity that GLD represents or wouldn’t be offering $0.32 in an initial opportunistic hostile bid. They wouldn’t have tipped their hand this soon if they didn’t think GLD has the goods. The shrewd investor should read between the lines here and see the big league potential of this hot story and a takeover battle brewing. GLD is a company that is on the extreme buy list when you add the takeover factor and possibility TRR will be forced to make a higher bid.

Buying GLD is the same as putting in a bid for Trelawney, with the added bonus' of a sweetened offer and a major discovery at Cote Lake on GLD lands.

How often do you get that kind of deal? Buy GLD to get a top 5 development play and a free option on several triple digit drivers. If GLD can hold out long enough and hit on the border… then TRR may have to pay in excess of $1 for GLD.

4 times the current value!!!

As an investment... GLD is a win-win situation

The downside… a top 5 development play in TRR in a consolidated Timmins style gold camp

The upside... a blue sky multi dollar stock in the middle of takeover battle

Augen Gold is on the conviction buy list anywhere under $0.50.


Christopher Skidmore

Beat the Market Stock Picks

QE3 to Save US Markets this Summer

From the June 1st Newsletter...

QE3 to Save Us Markets this Summer

US Markets in Correction Mode

The US market rally ended in May this year as predicted while commodities markets continued to sell off as investors took a more defensive position. Grandmother’s portfolio was beating almost everyone else in May. Some think this is sector rotation in preparing for a market sell-off predicated by a Euro debt crisis, but the stage is not set for a major sell-off to come together yet. Anyone telling you a double dip is around the corner is as offside as a foreign banker in a New York hotel room. If you park your butt at Grandma’s house for more than a quarter eating grilled cheese sandwiches and Campbell’s soup, you will get fat, left behind and unable to finish the race. This is seasonal rotation at best.

The markets will eventually continue the trend up and climb the wall of worry. With a season of poorer than expected economic data and consumer sentiment, the markets will chop around for awhile as we wait out the US Fed humming and hawing about how to introduce QE3 to the world this summer. The FED has a policy of debt monetization while they still can, and the term easing to me infers an ongoing process, not just a one off like QE2. Once the markets know that QE3 is official and in the books, then off to the races we go again. The Fed will most likely pause for most of the summer and markets will falter in July, but rumors about another round of QE should appear early in August. QE is all about debt monetization.

Right now the US FED is playing a game of monopoly with the rest of world. The FED is the banker and playing with the banks money while every other player plays with their own cash earned hard by passing go. How long can this game of cheating at monopoly keep up for the FED? Until someone either changes the rules or at least makes someone else the banker.


Some changes that would limit the FED’s actions…

• Name a new reserve world currency
• Put global monetary supply on the gold standard
• Create an alternative financial block

Europe Keeps Pushing their Debt Woes into the Future

As long as Europe pushes back their debt crisis by issuing more debt to solve the current liquidity woes for Greece amidst stagnant economic conditions in the debt ridden nations, Europe is creating a bigger problem down the road. The peripherals have it tough because they are extremely limited by the Euro and being able to compete with exports on a global scale by not having the advantage of a falling currency. They all saw short term gain and jumped at the chance of being an economic bloc with the purchasing power of the Euro buying all the goods they wanted, but that advantage soon waned as they lost their competitive advantage to countries like Germany which benefit from a weaker Euro. As peripherals lost jobs to more efficient European industries the cash dries up and having that once so prestigious purchasing power of the Euro means nothing when you have no money.

The peripherals have lost this key advantage in a normal economic cycle of a nation and make it that much tougher to get out of recession having to compete against more efficient German industries with the same currency. With austerity programs in place, it makes it even that much tougher to create revenue and these countries are now in the position of selling state assets. With no chance of turning around their export economies because of a Euro that makes it impossible for these countries to realign and trade or even pay back the debt in cheaper dollars like the route the USA is following... it creates a situation that is going to get worse until the folks running Europe (the Germans) realize that a debt restructuring is in order if Greece is to remain in the Union. What do they demand instead of a restructuring? Assets… they want to own every piece Greece they can and are trying to squeeze every state asset out of Greece they think they will part with. This is stuff that will eventually start wars… Do the Greeks want the Germans to own the Acropolis?

As long as they keep forcing these expensive patchwork conditions on Greece, nothing is fixed. It is just pushed back into the future with a bigger overall bill piling up. Now we are looking at sometime in 2012 when Euro debt woes may come to a head, at least in Greece. There are also a lot of other shoes that can drop in Europe that concern me much more than Greece. If countries like Italy and Spain’s economic conditions worsen, these are two countries that could potentially pull the European block apart. For a continent that has had a history of fighting itself, I am surprised the European Union lasted as long as it has. If debt woes are contained to Greece, Portugal, Ireland with Italy and Spain escaping any real damage and turning their economies around… the European Union will survive.

The Americans applaud Europe and the Germans pushing back their debt problems because as long as Europe can push it back no one is even concerned with the US debt load which will be an even bigger mess. At least when the USA mess comes to burden we know how it will be dealt it, with debt monetization until hyperinflation becomes such a worldwide problem that a restructuring becomes no other alternative. This is something you can prepare for. Buy Gold. Buy Silver. Buy strategic commodities.

Outlook Strong for Precious Metals

Now that Euro debt woes are back on the decline as Greece looks like they will remain solvent past June 30, precious metals should soften up a bit until the end of June. Sentiment will remain extremely strong so I do not expect much of a sell-off. Gold is a conviction buy anywhere under $1500 around the 50 day moving average on the charts. I expect any form of QE3 will push precious metals to record highs this summer and fall. I have a $1750 target on gold and $60 plus targets for silver in the late fall. Over the next 2 months is the last great entry point for a ride to the next level in precious metals. At $1545 I might even short gold for a quick trade to the downside as conditions are not right for a breakout in precious metals yet.

If you don’t own any physical metal

I strongly suggest us retail guys back up the truck on physical silver anywhere under $40. This is a high leveraged second chance at a great entry point. Silver may sell-off a bit more in June but I think this PM has bottomed. I expect the price to firm up even more as investors realize that the bull market in precious metals is far from over while the world deals with debt problems that will eventually spiral out of control. The longer the world pushes back its debt problems, the stronger the outlook for commodities like gold and silver as they trade as alternative monetary assets to currencies that are either being debased at an alarming rate (USD) or suppressed for economic reasons (Yuan). The only solution to a debt burden that cannot conceivably be paid back is debt monetization, which is the current solution or an eventual restructuring.

Canadian markets are consolidating to an early summer buy point.

The Canadian markets rolled over earlier than usual this year with a breakdown occurring in early March. The TSX roared back to life only to form a technical double top pattern. Since early April the Canadian markets have gone in a definitive selling trend that looks to continue at least until later on in June when the Canadian market may have a chance to bottom. So far the pattern the TSX is making on the weekly is identical to that of last summer with the only exception being weakness a bit earlier than usual this year. Since the start of this bull market in March of 2009, the Canadian market has bottomed at the end of June and the beginning of July like clockwork. If we are going to get continuation in this bull market and I am still strongly in the bull camp for the next 12 months, I fully expect the TSX to bottom in June/July. While US markets go through a period of earnings uncertainty, poorer economic data and continuing debt worries, I expect materials based assets to make the turn which they seemed to have made in most bellweather sectors like Ags.



There is some good value appearing in the market. Two sectors that I expect to outperform and have put in a definitive bottom are the Ag sector and the Iron Ore market. These markets should provide good continuation in momentum from last summer and fall as supply demand constraints, rumors of consortiums and price fixing dominate the market. Both sectors have consolidated longer than others and great supply and demand factors exist in both markets with quite a few development opportunities existing. The fundamentals scream out major opportunities to find grassroots projects that will turn into million tonne producers in both sectors. Especially with India clamoring and balking at Canfor’s potash prices demanding a discount. It is obvious they are going to invest in greenfield projects in Ethiopia which is good for companies like AAA and FED, but these projects are still 3 – 5 years away from production in the Danakil Basin.

Another sector that is completely oversold is the gold market and represents one of the biggest group of mispriced assets. There is some real value presenting itself in this group in all categories from explorer to producer. Although the producers are much closer to their 52 week highs than most of the explorers which are lagging with a lot of quality gold names trading close to their 52 week lows. This is a great opportunity to load up on names that are cheap, well financed and have big programs trying to define the ounces. There are several gold company’s trading at 52 week lows that should be trading much higher. This sector is my value bet that will outperform as gold breaks out to new highs over the summer.

Another sector that stalled out and should not have with a extreme breakout in spot prices is the REE sector. One issue here is that demand is being vastly underestimated and I would not be surprised to see demand forecasts ramped up to beyond 300,000t by 2015. There are some extremely cheap REE stocks that represent great value and is another sector that I expect to breakout this summer with most stocks making 52 week highs this summer.


Beat the Market Featured Company Report for June


Commerce Resources CCE-V $0.73

Commerce Resources will be coming out with results soon that will expand Ashram significantly. They drilled more than 50% deeper to 600 meters so are expanding the area drilled and the depth profile. If the results match previous assays then CCE could potentially double the tonnage at Ashram. I won’t say I told you so but this company has a project that should be valued at much closer to AVL and QRM than its current value. I rarely put targets on stocks, but once CCE has defined the boundries of Ashram, upgraded the confidence and done some intial metwork that indicates Ashram can produce cost effectively… CCE should be a $2.50 stock.

CuOro Resources CUA-V $2.10

CurOro Resources announced they closed their special warrant financing as well as a PP that that Hudbay participated in to keep their interest at 10.8%. CUA went on a nice run and probably would be trading much higher, but the financing announcement killed the initial run. Now that the financing is closed, this stock is ready to start to climb higher. CUA should hit $3 pretty easily as they start drilling Santa Elena this summer. The company is currently in negotiations with a drill contractor for a 25,000 meter program to commence once the contract is awarded. CuOro has an extremely exciting program defining a high grade copper resource with fast-track potential to production. They are one of the few explorers in Columbia looking for copper and have a great chance of hitting high grade porphyry like Inmet’s recent high grade announcement. CUA has all the key components to establish a resource quickly and efficiently and bring Santa Elena to a production in a timely manner.

Gold Companies are extremely cheap as represented by these 4

Calibre Mining Corp CXB-V $0.165

CXB does not come much cheaper. Since our feature at $0.175 they have added almost a million ounces which values Calibre at roughly $20 per inferred ounce not taking into account the recent drilling success at Riscos de Oro and prospecting success at Santa Maria, Bonanza and Primavera prospects.

Since our feature in late February Calibre has…

• Established an initial resource at Cerro Aeropuerto of +800k oz aueq
  • 707,750 oz’s of gold @ 3.64 g/t au
  • 3,144,500 oz’s of silver @ 16.16 g/t ag

• Drill best holes to date at Riscos de Oro
  • `10.6 meters grading 7.69 g/t au and 211.87 g/t ag
  • 5.4 meters grading 10.25 g/t au and 288.25 g/t ag

• Identified a new large gold in soil anomaly 850 meters long by 350 meters wide

You can’t take a walk in the golden triangle in Nicaragua without tripping over gold. It literally oozes out of the ground with an industry that was been in hiatus for 30 years. CXB is extremely undervalued and in my opinion will define multiple multimillion ounce projects. La Luz and Riscos de Oro are the two most advanced targets, but more drilling success at Riscos will certainly lead to a much larger definition program by Calibre. The grades and widths at Riscos are just too good to ignore and may be the project that CXB chooses to advance first. CXB easily has 2 million ounces between 2 projects and has multiple grassroots projects that could be just as good. Calibre is a company that should start to gain some traction in the second half of the year. They have projects that are a cut above the rest.

NioGold Mining NOX-V $0.38

NioGold is a steady performer and choose to keep NOX in my featured list because this is an area that an investor needs to be exposed to. NOX is busy adding value and once this years program is wrapped up are well on their way to defining a multimillion ounce resource at Marban Block. They continue to deliver impressive results from both the Marban and Norlartic deposits.

Results from Marban Block cover a 1,050 meter strike with depths up to 300 meters and include…

• 30,100 g/t au over 0.5 meters
• 1.8 g/t au over 56.3 meters

Recent results from Norlartic cover a 500 meter strike exploring the western extent of the deposit up to 200 meters depth include…

• 7.4 g/t au over 9.3 meters
• 2.1 g/t over 28 meters

NioGold also made a favorable deal with GeoMega and owns well over 2 million shares of GMA. They are also drilling their 100% owned Malartic property where they hit gold on the first pass discover two important mineralized structures intersecting 3.65 g/t au over 6.5 meters and another zone for which assays are still pending. NOX is well financed, has 3 gold prospects being drilled right now and exposure to an excellent Rare Earth discovery that Geo Mega is exploring. NioGold should be an excellent gold explorer adding value for the net 3 years as they aggressively drill out their properties along the golden highway.

Mineral Mountain MMV-V $0.49

Mineral Mountain continues in a holding pattern which is good because MMV keeps on adding value with their exploration programs. It will set up Mineral Mountain on a nice run this summer when gold stocks turn around in unison. The exploration program at the Cook Zone Porphyry is shaping up better than expected and has potential to come together at depth. MMV released one of the best intersections to date from the Cook Zone with a 62.5 meter interval grading 1.45 g/t au. In addition to the Cook Zone, MMV will be starting to aggressively explore what I believe to be a potential company maker with their Kootenay Arc project. If they can prove a Carlin Type Trend in the Kootenay arc then MMV will roar to life much like ATAC did last year. A theory is a theory until proven, but the Bakers have shown they can do it with Rainy River and are going to explore what they think are some of the highest potential grassroots properties across Canada.

Edgewater Exploration EDW-V $0.90

EDW has had some very good success lately increasing the resource at Corcoesto by 30% and discovering a new gold zone that has turned up some the best results to date down in Enchi. With recent positive events at Enchi and Corcoesto, Edgewater is starting to look like another good gold value proposition. The drill program got off to a rough start at Enchi but the latest discovery gives EDW a very good gold zone to go after.

Recent events at Corcoesto…

• Confirms community support for gold project
• Increases inferred resource 30% and total resource of 1.474M oz’s at a grade 1.7 g/t au
• Initiating scoping study for Corcoesto

Highlights from Enchi Drilling…

New discovery at Sewun South

• 2.01 g/t au over 29 meters
• 1.59 g/t au over 17 meters
• 1.15 g/t au over 26 meters

Solace Resources SOR-V

A Staking Coup at Thor Lake

Solace Resources Corp SOR-V

SP… $0.20
Shares Out… 15.2M
Fully Diluted… 21.2M
Market Cap… $3 million


Initiating coverage @ $0.20


Sometimes it is better to be lucky than good and in the case of Zimtu Capital’s prospecting partner Jody Dahrouge, he has put the two qualities together to generate one of the best rare earth exploration opportunities anywhere in North America. As luck would have it, Jody was browsing the NWT Mineral Titles Online System when he saw claims covering the Blachford Lake Intrusive Complex to the west and north of Avalon Rare Metals didn’t have a clear owner. Further investigation with the mining recorder in the NWT revealed that a clerical mistake had been made as government maps continued to show the claims in good standing, however official records revealed that they had lapsed during the crash of 2008. Stumbling across such highly prospective claims left open for staking in your office is certainly a once in a life time stroke of luck, especially when those claims put you within 1,500 meters of the heart of Avalon’s Nechalacho Heavy Rare Earth Deposit. A major coup in the area as Avalon would never intentionally allow for claims to be staked in such close proximity to their flagship project. Jody immediately teamed up with Zimtu, hired a helicopter out of Yellowknife and started staking claims covering the rest of the Blachford Lake intrusive complex.

The helicopter activity in the area got Randy O’Keefe (Avalon’s camp manager) wondering what they were up to and after a quick walk of the property he realized that someone was staking land next to Nechalacho in Thor Lake. From the fact that O’keefe was unable to stake some of the highest priority claims, just 800 meters west of T-Zone North, leads me to believe that the helicopter activity caught O’keefe completely off guard. Avalon was able to stake only portions of open claims, 40% of which are now under dispute with Solace. The other 60% of the claims have been granted to Solace and now make up the company’s Blachford Lake Rare Earth Project. Even if the staking dispute goes against Solace Resources, at minimum Solace stands to have a material position in the area right next to Nechalacho in a known mineralized trend.

Avalon’s Nechalacho $2B Project

The Blachford Lake Intrusive Complex is host to a 315Mt @ 1.36% TREO heavy rare earth deposit currently under development by Avalon Rare Metals. The Nechalacho project is a massive 20 year mining project worth net present value of $1.77B at a 10% discount rate. The project is valued at relatively conservative long term rare metals prices and is slated for production in 2015. If valued at current rare earth prices, their project balloons to a jaw dropping $7.65B at 10% and $9.22B at 8% which is extremely rich for any type of mining project. So having staked land that lies within 800 meters of a project with such robust economics is a major coup for Jody, Zimtu, and Solace Resources who have acquired the properties from Zimtu Capital. It is also a great opportunity for the market to speculate on Thor Lake as there is now a highly leveraged explorer advancing properties in the area along with Avalon Rare Metals.


The Solace BLAT 2 Claim Covers the Potential NW Extension to Nechalacho

The crown jewel of the package is BLAT 2, which lies 800 meters west of T-Zone North. The claims are on strike with Avalon Resources Nechalcho deposit centered 1.5 km to the southeast and a rare earth showing 5km to the northwest called the TAL showing. This one claim that Avalon was unable to stake has arguably the highest priority targets within the area outside of Avalon's claims. Solace Resources has all the ground covering any possible expansion of Nechalacho to the northwest. BLAT 2 covers almost 2km of prospective strike expansion to Nechalacho and is at the heart of a developing rare earth mineralized trend.

The prospects look great for SOR making a rare earth discovery as magnetics also confirm an identifiable trend crossing the BLAT 2 claims towards the TAL showing several kilometers to the northwest from Nechalacho. Solace Resources will have a crew on the ground this summer doing initial prospecting and geophsysical work in preparation for an exploratory drill program later in the year to test the extents of the mineralization at the Blachford Lake Intrusive Complex. Solace has made one of the more exciting acquisitions of summer making a big splash into a highly prospective area that Avalon had exclusivity to before this winter’s staking rush at Blachford Lake.

Bachford Lake REE Project highlight’s…

• 800 meters from T-Zone North and 1,500 meters from the heart of Nechalacho's Lake Zone
• Magnetics indicate trend to northwest
• Rare earth mineralization on either side of the property
• Potential for unique or favorable mineralization within the complex
• Covers potential NW extension to the Nechalacho deposit

Building Material Shareholder Value

Considering the company is currently valued at a mere $3M market cap at $0.20, there is a very good opportunity for Solace to build shareholder value from the bottom up exploring just 800 meters west of one of the largest heavy rare earth projects anywhere in world that is slated for production. Avalon is a $600M market cap company which is almost 200 times the size of Solace Resources market cap and has a project that is worth almost $10B at current rare metals prices. If everything works for Solace, they will have a land position that is close to half the size of Avalon’s original claims so a premium will build into Solace’s share price just on their land position beside Nechalacho. Blachford Lake Intrusive Complex is a highly sought after area for heavy rare earth exploration and development with mineralized showings from one end of the intrusive complex to the other. Having the right address is everything so this acquisition will bring a speculative element to the area as SOR is the only highly leveraged micro cap explorer to speculate on in the Thor Lake area.

What makes SOR even more highly prospective for a material discovery is the complex nature of the rare earths. In this industry where everyone is starting from the ground up, all the deposits are being analyzed to see which ones have the best metallurgy, mineral composition and mining project. It is an industry where mining companies tailor their product to end use more than any other industry. Finding a new mineralized zone at The Blachford Lake Project could give SOR many possibilities, including having unique rare earth composition, higher grades or an area of softer host rock or courser mineralization which would be better for processing. Whatever the case, if SOR can demonstrate unique qualities to the rest of the mineral complex then it could spell for a quick takeout by Avalon who will be intent on producing from the most amenable areas in the intrusive complex.

Any rare earth discovery of any size or composition will have material value to SOR’s share price as the company is just so cheap. The share price has no expectations built into it and has barely budged after announcing the acquisition. In fact it is not even close to the year highs of the previous shell at $0.40. There is already huge value built into this stock and the market has just missed this one.

Solace's Blachford Lake Project is worth much more than the $3M market cap implies.


Solace Resources Investment Highlights

• The only leveraged investment to Avalon Rare Metals
• Potential premium for highly sought after address
• High probability of exploration success
• Currently undervalued – extremely cheap for project
• Established land position regardless of dispute process
• Management team (Zimtu) is successful in building grassroots rare metals companies – Commerce Resources

The Option Agreement

Zimtu has optioned the Blachford Claims to Solace Resources SOR-V which was a shell company with a very tight float of about 6.7 million shares. The deal requires SOR to issue 2.5 million shares to Zimtu and cash payments of $200,000. It is structured to be non-dilutive to Solace and shows confidence in the future prospects for success of the company building shareholder value with taking an initial 30% stake in the company. SOR has also announced seed financing of $600,000 at $0.10 and a full warrant at $0.15 which should get Solace Resources through the initial exploration program this summer.


Initial Comparisons for Valuation

It is hard to value early exploration companies, certainly where there are no other juniors. A good comparison would be Search Minerals SMY-V who is exploring a property in the area of Strange Lake where Quest Minerals QRM has a very large heavy rare earth deposit bordering Labrador and Quebec. Search Minerals currently trades around a $20M market cap which would be a great initial target for Solace Resources as they start exploring, identifying and refining targets this summer. They are different plays yes, but SOR has a great story developing with explroing a possible nw extension to Nechalacho. A $20M market cap would put Solace at $1 fully diluted value which is 5 times its current value which should highlight the extreme investment opportunity with Solace. Search is a highly prospective explorer near QRM and SOR is a highly prospective explorer near AVL. Explorers are often valued on speculation with SMY and SOR having somewhat equal speculative value. SOR is right at the beginning of its story and has no where to go but up with an extremely tight float, very little selling, and the word just getting out about the staking coup at Thor Lake. Anyone buying Solace today is buying it to see this highly prospective story develop at Blachford.


SOR has all the key elements of a great story

Luck so far has been on Solace’s side getting a key acquisition in this highly sought after area. They are even luckier that O’Keefe was unable to stake the highest priority areas. SOR is free to work on the BLAT 2 claim and portions of two others while the rest of the claims are in dispute. This leaves Solace in an enviable position of not being at the mercy of Avalon or the Mining Recorder’s Office, and have a nice little package to develop ASAP. Any claims added to this package will compliment SOR’s highly prospective BLAT 2 claims covering a possible NW extension of Nechalacho.

No matter what happens in the dispute process, Avalon has a new neighbor who is exploring only 800 meters west of their T- Zone North. SOR is worth a lot more than the current $3 million market cap implies. There is a good arbitrage opportunity here as Solace starts to spread the word that they are a player in by AVL. Solace is the cheapest rare earth company on the market with one of the most enviable speculative rare earth properties an explorer could possibly have.

This is a perfect fit for the TFSA as the Blachford Lake Rare Earth Property could develop into a significant rare earth trend where a discovery will bring immediate value to SOR. At $0.20 cents this is the best rare earth opportunity on the market with little downside risk, is extremely undervalued and one of the highest leveraged companies to discovery.

SOR has all the key elements of making a great story. It is in the right area beside a giant like Avalon exploring possible extensions to Nechalacho, it is priced right, and the float is extremely tight. The story has just begun and has the chance to develop into something big located beside what is considered a very strategic and extemely valuable heavy rare earth project. Solace Resources is one of the best ground floor investments on the market this summer and is rated an extreme buy based on perceived value of its highly prospective project and the growth potential. SOR has a very high chance of success in defining possible extensions to Avalon’s 300Mt Nechalacho Rare Earth Deposit.

SOR is a 5 star extreme value speculative growth buy with no where to go but up.



Disclosure: $5k investment in the recent financing.