Fire River Gold: Bright Spots But Iffy

Fire River Gold managed to come up with a bonanza-length intercept for one of its drill cores recently assayed after being carved out. The drill hole in question had an intercept of 28.8 g/t of gold over 13.7 m. That's a bonanza-grade hole, even if the others in the tranche haven't shown the same promise. Better yet, its values weren't that far from the surface.


The property they're driling is a closed mine that Fire River is planning to reactivate. It's the Nixon Fork Mine, which is slated to reopen this year. The company has a Preliminary Economic Assessment (PEA) that estimates a very low capital cost of $7 million to re-open the mine. Unfortunately, the PEA only forecasts two additional years of production and a Net Present Value (NPV) for the project of only $60.9 million. The projected internal rate of return is amazingly high, but the NPV is only 50% above Fire Lake's current market capitalization of $40.163 million.


There's no capital-raising quagmire for this company. After the PEA was released, the company announced a private placement (PP) of $7 million. Although the funds aren't all slated for the recovery work, the value of the planned PP is the same as the capital-cost forecast.

Despite that drill result, issued before the market opened today, Fire River was caught in the junior-explorer downdraft that hammered a lot of juniors. Instead of taking off, the stock closed down 3 cents at 46.5 cents. So, the PP price might have to be lowered to, say, 45 cents or put on hold until the stock recovers.

From what I've seen, and this is only the result of my own sketchy due diligence (yours may differ), the Nixon Fork is going to be re-opened. The trouble with the stock is, despite the winning economics of the project, the NPV per share isn't that much higher than the currently beaten down stock price. There isn't much of a discount. Moreover, management is going to have to do something in two years to find a new revenue stream. Its other two projects, both in Alaska, have had little exploration work done. Even if a mineable deposit is found on one of those properties, it wouldn't be in production for a minimum of five to seven years in the future.


That said, there's two ways in which this company could be a good speculation. The base case used for the PEA is $1,200/oz. If gold goes up significantly higher, the mine will churn out a lot more money during its two years. Secondly, drill holes like the one highlighted in the first paragraph may end up significantly expanding the deposit. That would make for more gold, and might even make for a three-year life if the company's lucky. That bonanza-grade hole was assayed after the PEA was released; it isn't included in the resource estimate.


From my angle, the company strategy look like this: a move into production using the two-year framework while simultaneously drilling more in an effort to expand the minable deposit within those two years. Once the money property is squared away, Fire River might try for another promising property or turn attention to its Alaska properties. Either way, unless management can find another closed mine, there will be a revenue gap even if they secure or prove out another mineable deposit. The short life of the Nixon Fork, even if all goes well, is what makes this company iffy.


Depite those drawbacks, it can be snapped up at a fairly low price thanks to the junior explorer washout today. The bonanza-hole kicker was ignored.


Below is a one-year chart of Fire River, from Stockcharts.com:






The Moral Of The Story: Sadly but truly, a low-risk speculation doesn't have much profit in it and not much blue sky to justify a ramp-up in valuation. Near producers with low market caps in this junior-gold environment likely deserve their market caps, or not much more. Kickers are iffy, and they should be evaluated skeptically.


Disclosure: None; I own no shares of the company.