A Smart Speculator's Low-Risk Gold Play
Contributed Opinion

1. Brian Leni: I, or members of my immediate household or family, own securities of: Kenorland Minerals. I determined which companies would be included in this article based on my research and understanding of the sector.
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The longer I have been an investor in the resource sector, the more willing I am to give up upside for the sake of protecting my downside. For many, especially newbie investors, that may sound crazy. But the more resource cycles you experience and the more money that is lost in those down portions of the cycle, the more I think you'll understand my point of view.

In my view, so much of being a successful speculator in the junior mining world is linked to your ability to not lose it all before hitting the bull markets. Having experienced two bull markets in my investing career, I can attest to the truly spectacular nature. Even your mistakes can make you money, hence why a bull market is the author of a bear market.

One always follows the other.

Parlaying that to mineral exploration, I think that the project generation business model is the lowest-risk way to speculate on new discoveries. The project generation business model is executed by management teams with high geological acumen, who assemble high-potential project portfolios, which are then optioned to larger, senior mining companies.

Firstly, senior mining companies have the large treasuries needed to explore discovery targets effectively.  Secondly, senior mining companies have the cash flow and size to risk spending $10M on exploration and come up empty handed.

It's a drop in the bucket compared to their MCAP.

In a joint venture (JV) deal, the junior gives up 70% to 80% of the project ownership in exchange for upfront cash, an exploration spending requirement, and, if lucky, an underlying royalty.

If no discovery is made, the project comes back to the junior with no loss or financial risk — it's a beautiful thing.

That said, I don't think that every project generation company is a MUST buy — they aren't!

You still have to be selective in what you invest in. To me, you want to be looking for an X-Factor in the companies you're looking at. X-Factors can represent a number of things, but most importantly it's what makes them undervalued by the market.

When it comes to project generation companies, the one that sticks out to me is Kenorland Minerals Ltd. (KLD:TSX.V; KLDCF:OTCMKTS; 3WQO:FSE).

KLD's X-Factor is their 4% NSR on the Frotet project in Quebec. Originally, the Frotet project was part of a JV agreement between KLD and Sumitomo. KLD staked and did the initial groundwork but then optioned the project to Sumitomo to do the expensive and riskiest work — drilling.

The rest is now history as Frotet was put on the radar of the market with the Regnault discovery. The headline intercept was 29m of 8.47 grams per tonne (g/t) gold in the project's maiden drill program.

To add to the Regnault discovery's allure, it was a blind target that they drilled into. Meaning that it was only through a regional-scale glacial till sampling program that the target was identified. There was no outcrop mineralization that was encountered before drilling.

Exploration of this sort is truly speculator, and I think it represents much of the future for discoveries in tier #1 jurisdictions like Canada.

The outcropping, easy-to-find deposits have mostly been found. With this success now solidly confirmed on their resume, KLD leads the mineral exploration world in undercover mineral exploration.

This is another X-Factor that shouldn't be overlooked.

Getting back to the Frotet, KLD's minority stake was turned into a 4%NSR on the project last year. A phenomenal outcome for a junior mining company. Companies like Andre Gaumond's Virginia Gold Mines were made on discoveries just like this.

For Virginia Gold Mines, it was their Elenore discovery.

For KLD, I think at this moment in time, the 4% NSR on Frotet is worth more than their current MCAP.

You, therefore, get KLD's extensive portfolio of JVed projects (in Quebec, Ontario and Alaska) and nearly $26M in cash for free.

To me, it's that X-Factor scenario that speculators need to be looking for.

Next to the underlying value in Frotet, KLD shareholders can look forward to the drilling at the highly prospective South Uchi project in northern Ontario.

Late last year, South Uchi was JVed to a private exploration company, Auranova Resources. Auranova was no doubt attracted to the 85,196ha project which contains roughly 12km gold in till anomaly — the Papaonga target.

The anomaly is not only large in size, but with an HMC sample with 91% pristine gold grains and a grain count of 951, it really stands out. Auranova has since raised $10M from a list of the who's who of the mining sector.

Now, with the money and drill permit in hand, they will move forward with the maiden drill program in February.

Personally, looking at the Papaonga target, I think that South Uchi is much more prospective than Frotet was. With that in mind and KLD being the only way to play this speculation in the public markets, I expect this to be a very exciting year for shareholders.

Exploration is risky but has the potential to return multiples on your original investment if a discovery is made, despite where you are in the cycle.

As an experienced investor in the space, I highly suggest you look at project generation companies and, more directly, do some due diligence on Kenorland Minerals.

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