Despite jumping 17% yesterday, James Bay Minerals (ASX: JBY) is still trading at a mouthwatering 128% discount to East Coast Research’s (ECR) $1.46 fair valuation on the Canada-focused small cap explorer.
While Perth-based James Bay Minerals is best known for its 346 sqm of prospective lithium desposits within the James Bay region of Canada, it’s the miner’s gold play in Nevada that the Sydney-based research company (ECR) believes warrants a major re-rating.
Expanded scale
Having recently expanded the scale of its gold project in Lander County, Nevada following the land grab of 66 new claims, Independence now boasts a high-grade JORC-compliant inferred Mineral Resources Estimate of 980,000 ounces at 6.67%/t gold in deep skarn mineralisation.
There’s also a near surface epithermal component of 290,000 oz at 0.4g/t gold in the Indicated category and 90,000 oz at 0.32g/t gold in the Inferred category.
After recently initiating coverage on the miner, ECR believes its valuation rationale is warranted based on a number of different dynamics, including:
- Comparison with peer companies.
- The project’s location in a tier-one mining jurisdiction.
- It has potential for low-cost processing.
Key catalysts
Key catalysts that could drive the miner’s share price towards ERC’s fair valuation include the results of a 4,000m drilling campaign, a positive scoping study and upgraded Mineral Resource Estimate, and continued strength in gold prices - with prices surging 28% year-to-date.
“We maintain a bullish outlook on long term gold prices, driven by the metal’s status as the eternal standard of value and utility and the expectation of a gradual decrease in real interest rates in the mid to long-term,” ERC notes.
To arrive at its fair valuation of the stock, ERC employed an asset-based comparable valuation approach using the current peer group average EV/weighted average resource multiple of $151.2 /oz gold.
Successful metallurgical testing could further enhance commercial viability.
Takeover potential
ERC has also flagged a takeover potential due to the shallow resources and proximity to Phoenix Mine.
An open pit and underground mining operation in the city of Phoenix in the Boundary Country region of British Columbia, Phoenix Mine is 16 kilometres south of Battle Mountain providing it with ready access to mining infrastructure such as power, water, roads and a skilled workforce.
A producer of copper/gold concentrate, copper cathode and gold dore, Phoenix is owned and operated by Nevada Gold Mines, a joint venture between Barrick Gold Corporation (61.5%) and Newmont Corporation (38.5%).
“The project’s location within the Phoenix Mine Complex Plan of Operations provides access to advanced permitting pathways, potentially reducing the mine approval timeline to just 8–12 months — approximately two years faster than usual,” ECR’s report notes.
Phoenix produces over 200,000 ounces of gold and more than 20,000 tonnes of copper annually, primarily through heap leaching of oxide ores.
It’s understood that the site's location grants it access to advanced permitting. This could reduce the mine approval timeline to just 8–12 months — about two years faster than usual.
James Bay estimates this could result in cost savings of between $2 million and $5 million.
Independence could potentially use the same heap leaching extraction method, leading to a lower-cost operation with fewer and simpler processing steps than other gold extraction techniques.
Compelling investment opportunity
In summary, ERC’s full report suggests James Bay Minerals presents a compelling investment opportunity, due to its undervalued assets, exploration potential, and favourable market conditions in the gold sector.
Ongoing drilling also suggests that mineralisation extends well beyond the currently defined Resource at Independence, representing a massive upside potential to the currently defined Resource.
With the skarn system open in all directions and new targets emerging in the lower Pumpernickel Formation - which lies between the skarn and epithermal zones - ECR concludes that exploration potential remains strong.
As a leading gold-producing state in the U.S., Nevada also offers a favourable tax structure, efficient permitting processes, and access to grants, making it an attractive destination for mining investment.
“As sentiment toward small-cap stocks improves and gold remains strong, James Bay is well-positioned for a re-rating,” said ECR.
“The company is actively pursuing value-accretive initiatives, including a 4,000m RC drilling campaign targeting high-grade zones like the Rebel Trend and North Hill, which could significantly expand the resource base.”
Key risks
Despite the potential for a re-rating, ECR reminds investors that risks remain high.
While James Bay's valuation is heavily correlated with gold prices, ECR notes that prolonged downturns could affect its investment case.
In addition to ongoing funding risks – given that it relies on capital markets to finance operations - delays in resource updates or negative geological revisions could equally dampen investor sentiment.
Peer comparison
At present, the company does not generate free cash flow and is still completing a scoping study for the Independence Gold Project.
Given the absence of cash flows and a completed economic assessment, ECR believes a resource-based valuation method — anchored in peer group multiples — is appropriate (see table).
