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Prospect Generator Got Away, But Now Returns
Contributed Opinion

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Adrian Day Fund manager Adrian Day discusses a mineral exploration company that has added value through the drill bit.

In recommending Evrim Resources Corp. (EVM:TSX.V, CA$1.06), at the beginning of the year, there seemed no rush to buy. But coincidentally, another newsletter writer, well respected, recommended the stock on the same say, calling it his pick of the year. The stock shot up and we missed buying at our limit. His recommendation took the stock from 25 cents to 30 cents the same day. We decided not to chase it, but the stock never looked back.

Following that, some strong drill results and a subsequent initial resource estimate were released on its Ermitaño property, optioned to First Majestic, and on which Evrim retains a 2% royalty. These items of news took the stock first to 40 cents, and then to 50 cents.

Immediately thereafter, trench results from an untested, 100% owned project, Cuale, were released, including an astonishing 1.28 grams per tonne over 351 meters (of which a more astonishing 2 grams plus per tonne over 193 meters). The stock shot up to 90 cents. Further results the following week, including 106 meters grading 13.6 g/t, took the stock to a high over $1.50. Yes, we missed it alright. This is one case where a strict buy limit worked to our disadvantage. Of course, in January we did not know that Cuale had this kind of potential; it was just one more property, untested, in Evrim's portfolio.

Progress on many fronts

Since these results, there have been several developments on other properties: a drill permit has been received on another joint-ventured high-grade property (Cerro Cascaron), partner Antofagasta has commenced drilling to earn into the Axe project in British Columbia, and Coeur has signed an agreement to earn into the Sarape project (near Ermitaño). So Evrim has been busy indeed. But the focus is on Cuale, where Evrim announced a $1.5 million exploration program, including follow-up trenching (to extend the footprint of mineralization), geophysics, and 3,000 meters of drilling.

The truth test comes soon

The drill permit has been delayed for a minor environmental report, but results from the trenching and geophysics are expected soon. This might provide an idea of the extent of the outcropping mineralization at the first zone, La Gloria; the potential for new zones, including on nearby hills; and an idea of potential at depth. Drilling will commence as soon as the company receives its permit, perhaps next month. The proof of the pudding will be in the drilling, of course. As a high sulphidation system, ounces could grow quickly; it's no surprise that several majors are looking at the project already. Other similar systems have been gobbled up very early in the exploration process, one after 20 holes, another after just seven.

Risk-reward is favorable

Further success is not, of course, certain—it is possible that drilling will show mineralization is very shallow; it is possible that the existing trenching has defined the bulk of the footprint; it is possible that there are no additional deposits—but the odds of success are reasonably high, the potential huge, and the risk moderate, given all the other things Evrim has going on.

Failure at Cuale would see the stock give back the gains from the initial release. But with a market cap of US$60 million, Evrim is by no means expensive. The company's value is supported by its Ermitaño royalty (on which I put a back-of-the-envelope value of $30 million); around C$5.5 million in cash; plus all the other joint-ventures (seven currently) and other projects, with near-term drilling results on at least five of those projects (in addition to Cuale). There is risk, but on a risk-reward basis, it looks very attractive.

And Evrim has some of the best management, technical teams, and board of directors—honest, diligent, shareholder-friendly—of any exploration company, one of the key reasons I recommended back in January. (Note: clients of my management firm own over 12.5% of the company.)

Buy Evrim at the current market, with a limit of C$1.09. I don't think we'll miss it this time (unless someone else recommends it overnight!).

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."


1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Evrim Resources. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Evrim Resources. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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5) From time to time, Streetwise Reports and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports (including members of their household) own securities of Evrim Resources, a company mentioned in this article.

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