Marcelo_minka/E+ via Getty Images

Marcelo_minka/E+ via Getty Images

In a recent interview, I outlined the criteria I use in picking natural resources stocks, including high-quality assets, a technically-competent and shareholder-friendly management, and an adequate margin of safety.

Rarely does a stock meet all three of these criteria. The vast majority of stocks cannot withstand scrutiny; they usually fail one, two, or even all three criteria.

In this article, let's examine ATEX Resources Inc. (ATX.TSX-V)(EAT3.FSX)(ECRTF). As will be demonstrated below, I believe that the serially-successful ATEX team has acquired a copper-gold project of exceptionally high quality, and that the project can deliver enormous returns, as exploration progresses and upon proper promotion.

The Valeriano property comprises 15 exploitation and 2 exploration concessions covering 3,705-ha in an area that is some 3,800-4,400 masl. Valeriano is located 125km southeast of Vallenar of Atacama Region, northern Chile, with good road access and available water. It is contiguous to and enclosed within the advanced El Encierro copper-gold project of Barrick (GOLD) and Antofagasta (OTC:ANFGF)(Fig. 1).

Fig. 1. A geological map of northern Chile, a topographic map of the Atacama region, and the concession map of the Valeriano project. Martinez and Maksymowicz

Fig. 1. A geological map of northern Chile, a topographic map of the Atacama region, and the concession map of the Valeriano project.

ATEX entered into an option agreement with Sociedad Contractual Minera Valleno on August 29, 2019, to acquire a 100% interest in the Valeriano copper-gold property by paying US$12.0 million, issuing 2.0 million units of ATEX, and incurring work commitments of US$15 million over four years. The property is subject to a 2.5% net smelter royalty payable on any metal production.

The option term was subsequently extended to five years due to the Covid-19 pandemic, at a cost of US$250,000 payable on August 29, 2021.

ATEX is supposed to earn a 49% interest by September 1, 2023, by spending US$15.0 million (US$10.0 million during the first two years, including 8,000m of drilling), and to earn a 100% interest by September 1, 2025, by spending $5.0 million over the final two years (Table 1).

Table 1. An explanation of the Valeriano option agreement. ATEX

Table 1. An explanation of the Valeriano option agreement.

Valeriano was initially explored by Phelps Dodge (FCX) in 1989‐1991, and Barrick in 1995‐1997 for near-surface oxide gold mineralization, which drilled a total of 12,577m in 47 relatively shallow holes. After having optioned the property in 2010, Hochschild Mining (OTCQX:HCHDF) drilled additional 14,270m in 16 holes in the subsequent three years. Hochschild intersected 848-1,194m of porphyry-style mineralization grading 0.54-0.73% CuEq in three deep holes, thus confirming the existence of a vertically-zoned hydrothermal alteration and mineralization pattern.

In September 2020, ATEX released the maiden NI 43-101 compliant mineral resource estimates for the Valeriano project based on historical drilling (Table 2).

Table 2. The 2020 mineral resource estimates for the Valeriano gold oxide epithermal deposit (upper) and the Valeriano copper gold porphyry deposit (lower), at 0.275 g/t Au and 0.5% CuEq cut-off grades, and assuming US$3/lb Cu, US$1,800/oz Au and US$25/oz Ag for equivalent calculation ATEX November 13, 2020, technical report

Table 2. The 2020 mineral resource estimates for the Valeriano gold oxide epithermal deposit (upper) and the Valeriano copper gold porphyry deposit (lower), at 0.275 g/t Au and 0.5% CuEq cut-off grades, and assuming US$3/lb Cu, US$1,800/oz Au and US$25/oz Ag for equivalent calculation

ATEX also conducted initial metallurgical test work beginning July 2020, using drill core from previous drill programs.

Some 13 bottle roll leach tests achieved average gold recoveries of 70.8%, suggesting the oxide gold mineralization at Valeriano is amenable to heap leach, pending further detailed metallurgical test work using samples provided by the 2021 drilling program.

In February 2021, ATEX commenced the mobilization of drilling and related support equipment to the Valeriano project, aiming to expand the existing near-surface oxide gold resource and convert some of inferred gold resources to the measured and indicated categories. Although 3,000m reverse circulation drilling program was originally planned, the company ended up drilling 1,708m in 12 reverse circulation drill holes, including ten drilled into the gold oxide deposit. These holes returned intervals of >0.2 g/t gold mineralization hosted within the volcaniclastic upper unit, including 40m grading 1.25 g/t gold and 4.06 g/t silver and 50m grading 0.68 g/t gold and 2.18 g/t silver (Fig. 2).

During surface mapping, ATEX discovered the so-called GBV zone, a new zone of gold mineralization comprising mineralized grey banded-quartz veins that cut brecciated rhyolite.

Fig. 2. Geological map of the Valeriano gold oxide deposit, shown with historical and 2021 drill holes (left), and a schematic cross section showing both the near-surface oxide gold deposit and the porphyry copper-gold deposit (right) ATEX presentation

Fig. 2. Geological map of the Valeriano gold oxide deposit, shown with historical and 2021 drill holes (left), and a schematic cross section showing both the near-surface oxide gold deposit and the porphyry copper-gold deposit (right)

New porphyries were identified on the surface, implying the occurrence of a new mineralized cluster that is higher in the sequence (Fig. 2). This is not only confirmed by the relogging of historical drill holes but also evident in historical geophysical surveys (Fig. 3).

Fig. 3. Maps of magnetic anomaly and IP chargeability, showing the location of the higher-level porphyry corridor in red rectangle, the northeast magnetic anomalies consistent with the GBV trend in white rectangle, and the extent of surface occurrence of porphyritic rocks and veinlets in aqua blue ATEX presentation

Fig. 3. Maps of magnetic anomaly and IP chargeability, showing the location of the higher-level porphyry corridor in red rectangle, the northeast magnetic anomalies consistent with the GBV trend in white rectangle, and the extent of surface occurrence of porphyritic rocks and veinlets in aqua blue

On January 6, 2022, ATEX said two diamond drill rigs would be mobilized in mid-January 2022 to drill 6,000m to further test the historical intersection of 1,194m at 0.73% CuEq. The drilling program will be finished in March 2022, with assay results expected probably in April or May 2022.

The Valeriano porphyry deposit is not shabby at all when compared with other copper porphyry projects in the world. That 0.714% CuEq over 1,194m reported by ATEX ranks comfortably among the global top ten intersections of the last two years, including the best holes of Solaris Resources (OTCQB:SLSSF), Regulus Resources (OTCQX:RGLSF), and Aldebaran Resources (OTCQX:ADBRF).

The Valeriano porphyry deposit may prove to be considerably larger than the 5.07 Blb CuEq of inferred resources as reported in the 2020 technical study. Firstly, the presently-defined deposit is known to be open in all lateral directions and down-dip. Secondly, the new porphyry target identified in the southeast suggests that multiple phases of porphyry intrusions may have occurred, which bodes well for finding significantly more resources. ATEX plans to conduct detailed geophysical surveys on the new target so as to formulate a drilling program.

For all the above upside, ATEX Resources currently has a paltry enterprise value of US$30 million on a fully-diluted basis. The in-situ mineral resources are only valued at US$0.0059/lb CuEq, substantially below industry transaction metrics, suggesting deep undervaluation.

Investors have been wary of the political risk associated with Chile. An updated mining royalty bill was passed by the Lower House in May 2021 and is now in the Senate for debate, with the timing and the final terms of the new royalty uncertain. A constitutional assembly elected by the Chilean people is drafting a post-Pinochet constitution. Leftist millennial Gabriel Boric defeated far-right candidate José Antonio Kast on December 19, 2021, becoming Chilean president.

As I said in a recent article of Chilean political risk,

"However, as compared with failed states such as the Kyrgyz and Tanzania that confiscated mines operated by foreign companies, the Sahel countries where mining workers were killed by terrorists, or some developed countries where it takes decades to permit a mine, Chile may not be that bad a jurisdiction after all, even with higher royalty. Increasing state take seems to become a global trend as metal prices rise. By the time this round of state take hike is done, Chile may once gain end up being an extraordinarily attractive mining jurisdiction."

As an exploration play, the share price of ATEX is largely independently of the copper or gold prices. The stock has been fluctuating within the C$0.10-0.40 range in the last three years, reacting little to the copper or gold prices (Fig. 4). The primary driver of the share price is expected to be news flow generated by the exploration program.

Fig. 4. Stock chart of ATEX Resources, as compared with gold Modified from Barchart

Fig. 4. Stock chart of ATEX Resources, as compared with gold

Drilling deep holes into the Valeriano porphyry will be extremely costly. However, getting Lassonde's endorsement should help immensely in future financing. Besides, the exercise of warrants and options, all of which are now in the money, should add considerably to the company's coffer.

ATEX trades on TSX-V with sufficient liquidity. It also trades on the OTC-Pink board, with thin liquidity.

The ATEX team consists of a number of serially successful entrepreneurs.

The management, board, and advisory committee own a 22% interest in the company, giving them substantial skin in the game. They have participated in recent financing rounds.

ATEX seems to check a lot of boxes:

In view of the extremely attractive risk-reward profile, I have opened a starter position in ATEX. Depending on the news flow of the 6,000m, two-rig drill program that was scheduled to begin in mid-January and finish by March 2022, I plan to add to the position prior to the assay results. With my fingers crossed, an opportunity may appear in early April 2022 when the hold period for the 59.8 million units from December 2 private placement ends.

ATEX is just one example of the numerous hidden-gem ideas uncovered by Laurentian Research for the members of The Natural Resources Hub, a one-stop Marketplace service for the commodity super-cycle.

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This article was written by

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Disclosure: Besides myself, TNRH is fortunate enough to have multiple other contributing authors who post articles for and share their views with our thriving community. These authors include Silver Coast Research, ..., among others. I'd like to emphasize that the articles contributed by these authors are the product of their respective independent research and analysis.

Disclosure: I/we have a beneficial long position in the shares of ECRTF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.