Wednesday 26 September 2018

Meet Garibaldi's baby Voisey

Garibaldi (TSXV: GGI) created lots of hype last year by making insinuations that they had discovered a new nickel deposit that could rival Voisey's Bay.  Eric Sprott was a believer and validated the story, so lots of investors bought into GGI, resulting in a market cap north of $300 million.  An impressive feat given the recent state of the mining sector!

Based on the latest drilling, I congratulate Garibaldi on the birth of baby Voisey.  Aww, it's so small and cute!  Dr. Peter Lightfoot must be a proud papa.

What this baby is still lacking is some size.  The market seems to have clued in on this, when in reality it shouldn't have come as a surprise because this is how exploration typically plays out.  Geology is tricky and involves a lot of luck.  I've met Dr. Lightfoot and I think he is a very knowledgeable and enthusiastic gentleman.  Maybe Nickel Mountain does grow into something big, but it will take lots of time and drilling...and some luck, which factored in large with the discovery of Voisey's Bay.

I took issue with Garibaldi last year for poor disclosure (e.g., disclosure of massive sulphide intervals without assays, core pics on the website) and excessive promotion that suggested this could be another Voisey's Bay.  The playbook was different this year and the company was ominously quiet.  But, drinkers of the Garibaldi Kool-aid hung in there.  Some investors with rose coloured glasses even convinced themselves that the company was sitting on spectacular results and waiting for the right time to announce them.  Come on people, this is mining!  Good news travels by jet and bad news travels by boat.  Also, while Garibaldi is hardly a shining star when it comes to good disclosure, not releasing material information in a timely manner is a big regulatory no no.

I'm not technically proficient enough to take a stab at the current resource size of Nickel Mountain.  But, fortunately we have the insight of the Angry Geologist.  While I add pictures of babies to maps, he/she puts the drill data in Leapfrog and comes up with resource estimates.  If you're interested at all in GGI, definitely go check out the Angry Geologist blog post.  The Angry Geologist currently estimates 304,535 tonnes grading over 2% nickel or 760,174 tonnes grading over 1% nickel (or about 0.5% of the Voisey's Bay resource).  That means a lot more needs to be found before this is a viable deposit that could turn into a mine.
The Angry Geologist
The lesson here is that junior mining investors often get ahead of reality, especially when spurned on with aggressive promotion.  To their credit, Garibaldi did pull in capital at high prices to drill the deposit and most investors are now aware of the story.  To me, there is still not enough evidence to suggest that this baby deposit will grow into a monster, like Voisey's Bay.  But, it is a cute baby deposit with really nice grades in a market devoid of good nickel sulphide deposits.

Diamond Fields, the legendary company behind Voisey's Bay, offers some insight.  It took a couple of years for drill results and new discoveries to demonstrate the size potential and there were pullbacks in the share price along the way.
Diamond Fields chart - Visual Capitalist

Garibaldi's market cap is now about $200 million and they have about $20 million in cash.  The two small, high grade nickel zones are not compelling enough on their own to get me to buy at the current valuation, but there is certainly potential for additional zones.  Given the current market backdrop, I still believe there are more compelling investments in the junior mining sector with more attractive risk-reward profiles.  However, I might be a buyer of GGI if the share price gets closer to $1.25 to $1.50 or would pay more if the company hits another zone of massive sulphides that proves their hypothesis of multiple lenses.

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