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Key Future Events and priority areas during 2010
Upcoming drilling plan
The company’s primary goal is to develop and pursue more focused drilling
programs at its three past producing mine properties to extend and expand
the current resource base.
The company has engaged Vadim Galkin, Ph.D. to complete a structural
analysis and technical evaluation of the Hy Lake properties and to prepare
an exploration targeting report. Dr. Galkin is a renowned expert in this field
Ubika Research: 36 Lombard St, Ste 700, Toronto, Ontario, Canada M5C 2X3 5
and was the winner of the semi-finalist prize in the Goldcorp Challenge for
his interpretation of the structural control on gold ore allocation.
We believe that Hy Lake has done significant work to consolidate all data
related to past drillings at its various Red Lake properties and has been
developing a regional geological and exploration model in collaboration with
Goldcorp.
During 2010, the company will focus on the following:
Rowan property data consolidation with Goldcorp geologist that will
lead to the development of the model in Goldcorp’s Gemcom
database.
Use the findings from the exploration target report to better locate
drill targets and carry a very focused and productive drilling program
at both Rowan and Mount Jamie properties during 2010 and
beyond. At Rowan, the company will work in collaboration with
Goldcorp’s technical team.
Continue the work to complete Rowan exploration report for Red
Lake Gold Mines (Goldcorp) that will help the company to meet the
commitment and exercise option to earn its 60% ownership rights,
as operator, at the Rowan Property.
We expect the company to focus on Mount Jamie and Rowan properties
during 2010, with a renewed drilling program. We anticipate that the
company will continue to work towards establishing a firm claim that there is
a contiguous stretch of strike zone between its three mine properties, which
will bolster its prospects of becoming a junior exploration company with
sizable gold exploration assets.
New resource estimates
The company has completed a revision of its resource estimates at its two
main properties, Mount Jamie and Rowan. We believe that Hy Lake is
working on updating the resource estimates for these properties. The
company had not yet filed a NI 43-101 compliant report for Rowan property
but we believe that it is working on a technical report that will involve
resource calculation for the Rowan property and will compliment an updated
technical report on the Mount Jamie property for the inclusion in a NI 43-101
compliant report. We also believe that as the drilling program gets underway
at these properties during 2010 and beyond, it will have more opportunities
to extend and expand the resource estimates and we believe that it should
be one of the core objectives of the company in next 12 to 18 months.
Move to the Toronto Stock Exchange
We understand that the company has been contemplating a move to the
Toronto Stock Exchange (TSX) for some time. It has taken the company
longer than it anticipated since an impending listing also requires the
company to raise additional capital to meet listing requirements. Due to
adverse capital market conditions during 2008 and the first half of 2009, the
company decided to postpone the capital raise for the listing requirement.
We understand that the company continues to actively pursue the listing at
the TSX and has put in place the necessary action plan that will enable this
Ubika Research: 36 Lombard St, Ste 700, Toronto, Ontario, Canada M5C 2X3 6
listing over the next three to six-month time period. A move to a bigger
exchange will allow the company to showcase its potential to a wider
investor audience and will potentially result in improved liquidity and better
visibility in the company’s stock.
Analysis and Recommendation
Since we initiated our coverage of the company in May 2008, Hy Lake has
worked with a consistent strategy to focus on gold exploration in the Red
Lake mining camp. The company had its challenges in meeting some
expectations during 2008 and 2009 because of adverse capital market
conditions and it is taking longer for the company to achieve its stated
objectives than we had originally anticipated.
We however note that the company could have raised additional
capital even during adverse market conditions but deliberately
decided to delay such raise. The company was in a position to postpone
the capital raise since it was ahead in meeting its spending commitment to
earn its 60% ownership rights at the Rowan property and did not need
immediate capital for this purpose. We believe that although the additional
capital raise would have helped the company to expedite a move to the
Toronto Stock Exchange and to carry a more aggressive drilling program at
different properties, it would have resulted in unnecessary and excessive
dilution for the existing shareholders due to low valuation for the company at
the time. Hence the decision to move slowly was probably in the best
interest of Hy Lake Gold ’s shareholders.
We continue to believe that among junior gold companies, Hy Lake
has one of the most promising exploration property package. It has
consistently obtained good drill results and has shown strong exploration
promise. There is strong evidence of gold mineralization associated with the
favourable Red Lake geology both along strike and below the historic
Rowan Mine and Red Summit Mine workings and along the Pipestone Bay -
St. Paul Bay Deformation Zone. If the company can follow through on a
drilling program that is able to continue along this strike and at depth, there
is a strong potential for it to find significant gold deposits and to develop
gold exploration assets to a significant size with the drilling programs
planned during 2010 and beyond.
Another factor that gives Hy Lake an advantage is its close relationship with
Goldcorp. Ubika Research continues to believe that Goldcorp will favour
properties that will add to its resource base and those that are in the wellknown
backyards of its largest mine. Goldcorp has a joint option in Hy Lake
Gold ’s Rowan property with two back-in rights. If Hy Lake can successfully
expand its resource base, a possible interest from Goldcorp will be very
real.
We expect the company to make a move to the TSX within a few months;
this will also provide a momentum to the stock as it gets better profile and
more liquidity. We will watch these developments closely and will continue
to evaluate and update our readers on the company’s progress.
We continue to rate Hy Lake Gold a SPECULATIVE BUY with a 12-month
target of Cdn$0.81 per share. (a potential 440% return from yesterday’s
close of $0.15).
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