Argo Gold takes a winning turn

Marc Challande
May 31, 2022
minute read

Argo Gold (ARQ.CN) is primarily focused on mineral resources. The junior exploration mining company took a turn in early 2022 to be also involved in the oil & gas assets, marked by two LOIs for project opportunities. The company partnered with Jasper Mining Corporation (JSP.V) in late August to share technical knowledge and expertise.

Argo Gold’s gold and zinc projects

Fundamentally, Argo Gold is a mining exploration company owning 100% of its properties. The company is involved in the Uchi Gold Belt, which is the 2nd most prolific gold belt in the Canadian Shield, hosting several multi-million ounce deposits. Out of the several Argo Gold’s properties, We could highlight the Uchi Gold project, located west of Uchi Lake at the south end of a series of historical gold mines (Uchi Mine) on a north-south trend. Exploration to date confirms multiple mineralized trends and high-grade gold mineralization. The company also owns silver and zinc projects.

Argo’s oil and gas initiative

As countries are turning toward “greener” energies, the EV initiative transformation timeline is multiple decades. Oil and gas are realistically the predominant energy in the world and represent 90% of the transportation industry in the United States in 2020. This sector has plenty of opportunities. The exploration of oil and gas enable companies to enter almost directly into development and production, resulting in direct cash flow. Canada is currently producing 5% of the world’s supply. It has the highest environmental standards for oil and gas exploration, and production can mitigate crippling oil & gas prices and supply concerns.

Argo Gold will use traditional drilled wells vs. the oil sands, which is way more eco-friendly. In comparison, conventional oil is worth 23 MtCO₂e (Metric tons of carbon dioxide equivalent) vs 80 MtCO₂e for the oil sands.

Argo Gold decisively grabbed its chance and reviewed more than 20 oil and gas opportunities, signed a dozen of Confidentiality and Nondisclosure Agreements (CA), and retained multiple experts for due diligence. After months of research, the company entered into two Letters of Intent (LOI) to acquire 100% of mineral rights on two prospects in Southern Alberta subject to a Gross Overriding Royalty (GOR) in exchange for drilling one vertical exploration hole on each prospect. Furthermore, four additional well locations have been identified on the two prospects. What is the positive outlook? The estimated yield on the two initial exploration wells could result in 100 to 150 barrels of crude oil (bbl) per day, representing 275,000 bbl oil and 300,000 bbl oil, respectively. If we get a WTI (West Texas Intermediate) of USD 90, these two properties could mean CAD 32.4M and CAD 35.5M opportunities. The cost per well into production is $0.7M, and the estimated annual revenue is $5M per well with an operating life of 6 years. If you take a look at the company’s current valuation ($5.6M on September 4), you will see the company’s potential growth is vast, and its market cap is strongly undervalued.

To augment the chances of the company’s success, a strategic alliance has been organized with Jasper Mining Corporation (JSP.V), a company gathering more than 100 years of combined experience in financing and operating oil and gas properties in Western Canada. The company’s latest acquisition involved more than 200 individuals and 20,000 BOE (Barrel Of Oil) per day, which flowed predominantly through several deep-cut sour gas plants.

Share Structure/Financials

On August 26, Argo Gold released its financial statement for the period ending June 30. The company has almost 66M shares outstanding and 20M warrants. Focusing on warrants, they are divided into two portions with 11.2M warrants (Sprott warrants) at an exercise price of $0.12 expiring on February 2023 (and can potentially raise $1.3M) and the second portion of 8.7M warrants at an exercise price of $0.24 (German Warrants) and expiring sooner as their end limit is on December 2022. Argo Gold also has renowned shareholders involved. The most famous one is probably Eric Sprott, who has an 16% stake in the company. Other investment firms are part of it, including Accilent Capital (9% stake) and Northfield Capital Corporation (4.5% stake). Another relevant piece of information is the team owns 6.6% of the company. Insiders or significant shareholders have executed no buys or sells. The latest event occurred in December 2021 when The Sprott Foundation opened its balance in the company. About the balance sheet, the company reported $408k in cash for $587k in current assets and $932k in mineral properties, for a total assets value of $1.5M for no debt.

On the stock price side, it witnessed a 52-week high of $0.20 (September 2021) and is now hovering slightly above its 52-week low of $0.055. The company is traded on three different exchanges: ARQ.CN for Canada, ARBTF for the USA, and A2ASDS for Germany.

Bottom Line

Argo Gold (ARQ.CN) decided to go on a winning turn. If the company was primarily focused on mining explorations, being involved in the oil and gas sector would generate more revenue with $5M estimated per well, bringing a recurring revenue with cash flow. Keep in mind, the company entered into a strategic alliance with Jasper Mining Corporation to share technical knowledge and expertise. The short-term might seem quiet but the company's long-term outlook is very optimistic.