Category: Junior Mining

Vancouver, British Columbia–(Newsfile Corp. – September 6, 2024) – Riverside Resources Inc. (TSXV: RRI) (OTCQB: RVSDF) (FSE: 5YY) (“Riverside” or the “Company”), is pleased to announce that on September 4, 2024, it entered into a Letter of Intent with Questcorp Mining Inc. (CSE: QQQ) (“Questcorp”), whereby the Company will grant an option (the “Transaction”) to Questcorp for the acquisition of a one-hundred percent (100%) interest in the La Union project (the “Project”) located in Sonora, Mexico. Riverside will receive $100,000 and 19.9% in the ownership of Questcorp upon Questcorp investing $5,500,000 into the Project over a period of 4 years from the date of completing the Definitive Agreement.

Union is a large, carbonate-hosted gold district with high grade gold-zinc and a former mining operation of the Penoles Mining Company of Mexico. The Project has drive up access, private ranch surface ownership, and geologic features similar to the major carbonate replacement deposits located in Arizona and further east in Mexico. Union has past drilling and mining at multiple production centers which have been consolidated over the past 5 years by Riverside. Riverside now controls over 22 sq km with favorable limestone host rocks, large alteration footprint and many small mine workings which provide more than 8 drill ready target areas with the central former Union Mine and the Famosa Mine as two key immediate target areas.

“We are excited to partner this top-quality Project, consolidated and worked up by Riverside. To now work with Questcorp to go forward with the exploration program and continued development is an excellent collaboration and fits both companies’ business models.” said John Mark Staude, President and CEO of Riverside. “Riverside has extensive operational capacity in Mexico and can rapidly move ahead with Questcorp to unlock the value of La Union Project. Riverside being a significant shareholder of Questcorp with an initial 9.9% on signing the Definitive Agreement aligns our interests to see success for Union and the companies.”

Transaction Details:

In accordance with the terms of the Transaction, Questcorp can acquire a one-hundred percent (100%) interest in the Project in consideration for completion of a series of cash payments totaling $100,000, the issuance of 19.9% of the outstanding common shares of the Questcorp, and the incurrence of no less than $5,500,000 of exploration expenditures on the Project by Questcorp, as follows:

Deadline	Cash Payment	Share Issuance	Exploration Expenditures
Entering into Letter of Intent	(Paid) $12,500	Nil	N/A
Closing of the Transaction (Signing of the Definitive Agreement and conditions)	$12,500	*9.9%	N/A
First Anniversary of Closing	Nil	*14.9%	$1,000,000
Second Anniversary of Closing	$25,000	*19.9%	$1,250,000
Third Anniversary of Closing	$25,000	*19.9%	$1,500,000
Fourth Anniversary of Closing	$25,000	*19.9%	$1,750,000
Total	$100,000	*19.9%	$5,500,000

*Expressed as a cumulative total percentage of the undiluted issued and outstanding common shares of the Company

as of the applicable payment date, and assuming Riverside has not previously disposed of any common shares

**All dollar amounts in this news release are in Canadian dollars

Riverside will remain the program operator for the Project during the term of the option using its local team based in Hermosillo, Sonora and with support from the Vancouver, Canada exploration office. Following exercise of the option, Riverside will retain a two-and-one-half percent (2.5%) net smelter returns royalty on commercial production from the Project.

Exploration work by Riverside over the past 12 months has improved the geologic and structural contextual understanding of the past mines and overall potential areas of mineralization including possibilities for a deeper Laramide age porphyry Cu-Au target as found to the north at Ajo and eastward along the abundant Cu porphyry belt of Sonora- Arizona. Surface sampling recently completed by Riverside has continued to find gold and the tailings from the past mine operators, located in a number of locations on the property, have shown extensive gold zones in oxide ores.

Completion of the Transaction remains subject to a number of conditions, including the finalization of definitive documentation, completion of the Concurrent Financing by Questcorp for gross proceeds of no less than $1,500,000, receipt of any required regulatory, shareholder and third-party consents, approval of the Canadian Securities Exchange, and the satisfaction of other customary closing conditions. Riverside has been paid the initial $12,500 and will be paid the second $12,500 upon signing the Definitive Agreement.

Readers are cautioned that the Letter of Intent does not bind Questcorp to complete the Transaction. Should the Definitive Agreement not be done then the Letter of Intent will automatically terminate after forty-five days. The Transaction cannot close until the required approvals are obtained and the foregoing conditions satisfied. There can be no assurance that the Transaction will be completed as proposed or at all.

Qualified Person:

This news release was reviewed and approved by Freeman Smith, P.Geo., a non-independent qualified person to Riverside Resources, who is responsible for ensuring that the geologic information provided within this news release is accurate and who acts as a “qualified person” under National Instrument 43-101 Standards of Disclosure for Mineral Projects.

About Riverside Resources Inc.:

Riverside is a well-funded exploration company driven by value generation and discovery. The Company has over $5 million in cash, no debt and less than 75 million shares outstanding with a strong portfolio of gold-silver and copper assets and royalties in North America. Riverside has extensive experience and knowledge operating in Mexico and Canada and leverages its large database to generate a portfolio of prospective mineral properties. In addition to Riverside’s own exploration spending, the Company also strives to diversify risk by securing joint-venture and spin-out partnerships to advance multiple assets simultaneously and create more chances for discovery. Riverside has properties available for option, with information available on the Company’s website at www.rivres.com.

ON BEHALF OF RIVERSIDE RESOURCES INC.

“John-Mark Staude”

Dr. John-Mark Staude, President & CEO

For additional information contact:

John-Mark Staude
President, CEO
Riverside Resources Inc.
info@rivres.com
Phone: (778) 327-6671
Fax: (778) 327-6675
Web: www.rivres.com

Eric Negraeff
Investor Relations
Riverside Resources Inc.
Phone: (778) 327-6671
TF: (877) RIV-RES1
Web: www.rivres.com

Certain statements in this press release may be considered forward-looking information. These statements can be identified by the use of forward-looking terminology (e.g., “expect”,” estimates”, “intends”, “anticipates”, “believes”, “plans”). Such information involves known and unknown risks — including the availability of funds, the results of financing and exploration activities, the interpretation of exploration results and other geological data, or unanticipated costs and expenses and other risks identified by Riverside in its public securities filings that may cause actual events to differ materially from current expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/222177

By: Tekoa Da Silva

9/4/2024

Over the years as an advisor and investor, I’ve spoken to hundreds of mainly natural resource investors. A topic I’ve always found difficult to explain, which is vitally important to understanding a stock, is the different between ‘share price’ and ‘market capitalization’ (also known as ‘market cap’).

In this article we’ll discuss why these two items are important and different from each other, and explore how knowing the difference will allow one to determine the true ‘price paid’ for a stock (or business). Knowing the true price of a business will provide one with a competitive edge, which is particularly important when investing in natural resource shares.

Countless times we’ve been part of investment discussions, where the question of buying a stock comes up. Invariably, the question “How much did you pay?” is asked. Ten out of ten investors will tell you, “I paid $100 per share for Apple (or Barrick Gold)”.

If we then ask, “How much did you pay for the business”? Ninety-nine out of one hundred investors will repeat themselves, and say, “I paid $100 per share.” The odd man out, or the 100th investor would instead say, “I paid $100 per share, at a market capitalization of $100 billion”. In other words, this rare fellow understands that while he paid $100 per share, he actually paid $100 billion, notionally, for the business itself.

How does this compute?

The share price represents the price of a single fractional share of a business. If we wanted to purchase the entire business, we would need to purchase every share issued by the company. If the company has issued 100 million shares (referred to as ‘shares outstanding’) – we would need to purchase all 100 million, in order to purchase the business in its entirety.

How do we calculate how much money is needed to purchase an entire business?

This is where market capitalization comes into play. Market cap is simply the total number of shares issued, multiplied by the share price.

To use our earlier example – if we bought Apple stock at $100 per share, and if (hypothetically speaking) there were 100 million shares outstanding – that would imply a market cap of $10 billion. Therefore, $10 billion would be needed to ‘notionally’ purchase the entire company.

In reality, there are other moving parts involved in purchasing an entire company, but this is a simplified explanation of ‘market cap’.

The best place to find the outstanding share count of a company is the most recent quarterly or annual report. This report can usually be found on the investor relations page of the company’s website, or through the stock exchange or regulatory filing website for the country in question.

When investing in natural resource shares, one must pay extra close attention to market capitalization and outstanding share count. The reason is that outstanding share count can change rapidly over time, and in most cases the number only grows in size.

In the natural resource and mining sector, there are four asset categories: 1. Major producers, 2. Junior producers, 3. Development stage companies, and 4. Exploration stage companies.

Most companies in the bottom three asset categories are ‘negative cash flowing.’ Meaning, they lose money from year to year just staying in business. “How can a company remain in business if it loses money?” you might ask.

Well, the approach taken for most natural resource companies is to issue more stock (shares) and sell it to investors privately in the form of a private placement, or ‘equity offering’.

(Side note: Some investors jokingly refer to profligate junior resource issuers who ‘over-issue’ shares, as “Mining the Stock Market” as opposed to mining anything from the ground.)

When the process of share issuance continues over time, it causes outstanding share count to grow, and when multiplied by the market price – causes market cap to continually grow. Therefore, while the share price of a company may remain the same or decline over time, the expansion or contraction of outstanding share count may cause the market cap (or ‘price paid for the business’) to increase or decrease.

Given that most companies in the bottom three asset classes of the natural resource space are negative cash-flowing, investors need to anticipate share count expansion over time.

The brutal fact, is that each additional share issued by the company represents a ‘slice of the pie’ taken from your plate, as the investor. Your interest in the company is diluted, unless you continue to purchase additional shares, as they are issued.

Why would a company issue more shares – isn’t that a form of theft, and are they cheating me out of my investment?

In defense of management teams, there are many ways in which a share issuance may be helpful to investors (the term we might use is ‘accretive’). For example, let’s say a management team wishes to purchase a strip of property adjacent to their own company’s operating gold mine.

If they issue shares and exchange them for the strip of property, the transaction may be deemed beneficial to shareholders, despite the share dilution. Whether or not the transaction is beneficial would be a separate set of calculations – namely, deciding what the shares exchanged are ‘worth’, and what the strip of property is worth – and whether there is a reasonable rate of return, on the ‘notional’ value spent on the property.

A company may also issue additional shares, with the intended use of funds going toward purchasing complimentary assets which may reduce the cost of operations. As an example – purchasing a fleet of vehicles or other machinery, versus leasing the same. Whether or not the transaction is beneficial would be determined by the details – comparing the value of the shares issued, versus the cost savings gained.

Quite often in the natural resource space, and nearly always by the exploration stage companies – share issuances generate funds to pay employee salaries and ‘keep the lights on’ (also known as general & administrative expense). Many exploration companies survive by continuous financings, year after year, without assurance of continued survival – throughout which, share count continually grows.

A common term for describing the rate of annual consumption of funds of negative cash flowing resource companies, is called ‘Burn Rate’. As an example, a company may have a $2 million cash balance on hand, with an expected expense or Burn Rate of $2 million per annum. Therefore, we know the company will run out of money within 12 months or less, and will need to conduct a financing.

The odds of an exploration company exploring a project on their own, funded solely by their shareholders, and discovering a Tier 1 (highly profitable) deposit, is akin to the odds of winning the lottery. When such a remote set of survival odds are combined with a negative cash flowing business model, it becomes clear, that ‘sole-funded’ exploration companies are among the riskiest market sectors on the planet.

Let’s take a look at a hypothetical example of market cap expansion, via share count:

Beaverbrook Gold Exploration Company (a fictitious company) – has an outstanding share count of 100,000,000 as of its most recent annual report. The market price is $.10 per share. If we multiply this share price against the outstanding share count, we arrive at a market cap (or price to buy the business as a whole), of $10,000,000.00.

The company has $2 million cash on hand, which they estimate will cover exploration expenditures and general & administrative expense for 1 year – a $2 million per annum Burn Rate, in other words.

With that knowledge, we know the company will need to raise additional funds within 12 months or less, and if they expect another year of $2 million in expenditures – then we know it will likely be a $2 million financing (assuming they wish to ask the market for that amount).

A common financing practice to attract investors is to offer shares at a discount to the market price. If our hypothetical company offers a $2mm share issuance, let’s assume they offer the shares at a price of $.08 per share – a 20% discount to market. This would imply issuance of an additional 25,000,000 shares, bringing the total share count up to 125,000,000 – diluting existing shareholders’ interests by 20%.

In response to seeing the offering, some shareholders decide to sell their shares, and the market price drops to $.08, matching the recent offering price. However, since the share count grew – the market cap, using the new share price of $.08 – comes out to $10,000,000 – matching precisely the prior market cap, when there were fewer shares outstanding priced at $.10.

In this circumstance the share price dropped by 20%, but the ‘price of the business’ – market cap in other words, stayed the same. This is an incredibly important dynamic to keep track of when investing in the junior resource space, or any negative cash flowing sectors for that matter. The negative cash flows, year after year, accumulate in the form of ballooning share structures (rising share counts), diluting one’s interest in the underlying company fairly quickly.

The process resembles a musical accordion, expanding to enormous proportions as the music is played:

For many ‘sole-funded’ exploration companies, the speed of annual share issuance is so rapid, that within just a few years – say 3-5 – hundreds of millions of additional shares are issued. The speed and size of share issuance may cause the ‘accordion’ share structure to bloat beyond recognition.

After blowing out the share structure, many companies carry out share consolidations (also known as ‘rollbacks’ or ‘reverse share splits’). A share consolidation might entail 10, 20, 50, or even 100 shares, being condensed and replaced by as few as 1 single post-consolidation share.

Other instances may see shareholders completely wiped out through bankruptcy or other reorganization, with subsequent launching of a new separate company under a different name (in order to shed stigma associated with the prior corporate failure).

There are however a few segments of the junior resource space which generate mildly lower speeds of share dilution. Conservatively run ‘Prospect Generator’ and ‘Optionality Deposit’ companies may meet this criterion. We will discuss ‘Prospect Generator’ model companies at a later date.

Optionality companies typically possess one or more large resource deposits that exhibit ‘leverage’ to a higher commodity price. In simple terms, this means a deposit that is not economic to extract at today’s commodity pricing, but could potentially become economic should the price of a commodity such as gold, silver or copper, double or triple in price – with assumed production costs remaining the same.

The hoped-for strategic intent (from an investor’s viewpoint) of optionality strategy company management teams, is to spend as little money as possible on development, and general & administrative expense, while preserving the deposit’s good & marketable condition. Preserving capital helps preserve the share structure of the company – ie. decelerating share expansion as much as possible.

There are a few optionality companies that engage in exploratory drilling to increase the resource base of an existing deposit, advance feasibility study work, and/or acquire additional optionality deposits over time. ‘Active’ optionality deposit companies of this type will consequently produce share expansion at a faster speed.

Let’s take a look at a few examples of optionality companies, and inspect share price, share count, and market cap over time, of each.

Please note however – this exercise is meant to observe changes over time related to share price, share count, and market cap only. The examples used here do not represent an endorsement of quality or investment ‘attraction’.

For a snapshot of corporate development changes over time, and changes to what a business is ‘worth’ from an intrinsic standpoint – that would be a separate exercise outside the scope of this article.

The following statistical displays are one of many information gathering processes. Inspection of corporate developments over time would require review of the balance sheet, asset and resource base of the company, and income (or loss) statement.

The first company we’ll look at is Chesapeake Gold. As illustrated by the red line below – the share price declined from CAD $4.60 to approximately CAD $1.82 over the last 20 year period, from January 2004 to September 2024. This is over a 50% decline:

As illustrated by the blue line above, the outstanding share count increased from about 17 million to over 67 million during the same 20 year period; nearly a 4x increase.

This resulted in a market cap (price of the business) increase, as illustrated by the green line, which over the same 20 year period grew from about CAD $81 million to over CAD $122 million – an increase of over 50%.

In this example, over the 20 year period, shareholders experienced a 50%+ share price decline, while the price of the business itself rose by over 50% – due to expansion of share count, and consequently, market cap.

The second company we’ll look at is Seabridge Gold. As illustrated by the red line below – the share price increased from CAD $4.75 to approximately CAD $23.71 over the last 20 year period, from January 2004 to September 2024. This is roughly a 5x move higher:

As illustrated by the blue line above, the outstanding share count increased from about 26 million to over 87 million during the same 20 year period; over a 3x increase.

This resulted in a market cap (price of the business) increase, as illustrated by the green line, which over the same 20 year period grew from about CAD $124 million to a recent high over CAD $2.08 billion – an increase of over 16x.

In this example, over the 20 year period, shareholders experienced nearly a 400% gain on their shares, while the price of the business itself rose by over 16x – due to expansion of share count, and consequently, market cap.

The last company we’ll look at is Northern Dynasty. As illustrated by the red line below – the share price decreased from USD $6.15 to approximately USD $0.35 over the last 20 year period, from January 2004 to September 2024. This is nearly a 95% decline:

As illustrated by the blue line above, the outstanding share count increased from about 23 million to over 537 million during the same 20 year period; over a 23x increase.

This resulted in a market cap (price of the business) increase, as illustrated by the green line, which over the same 20 year period grew from about USD $143 million to over USD $186 million – an increase of over 30%.

In this example, over the 20 year period, shareholders experienced nearly a 95% share price decline, while the price of the business itself rose by over 30% – due to expansion of share count, and consequently, market cap.

To further dampen this picture – a common assumption made by nonprofessional investors when looking at a 20-year price chart of Northern Dynasty – is that the USD $18.00 per share price peak generated in 2011, as a matter of course, should be recovered during the next precious metal equity ‘bull market’. From the current USD $.35 share price this would imply a 50x move higher.

When looking at the price of the business – the 2011 market cap peaked around USD $1.7 billion. The current market cap is roughly USD $186 million. Recovering the prior market cap high from here, would imply a 9x move higher – not a 50x move. A 9x move higher in the share price and market cap from here (assuming no further expansion of share count), would imply a share price of USD $3.15 – a far cry, from the majestic heights of USD $18.00 per share, exhibited at the 2011 peak.

The reason the market cap revisitation multiple is lower than some expect, is explained by the blue line in the Northern Dynasty chart above – outstanding share count ballooned by over 23x, during the 20 year period.

A counterargument for a higher Northern Dynasty (or any other company) market cap might rest in the real fact that ‘2011’ US dollars are not the same as ‘2024’ US dollars. The US dollar has weakened to the extent that in January 2011 only 1,360 US dollars were required to purchase an ounce of gold, whereas in September 2024 it takes 2,513 US dollars to purchase an ounce of gold – nearly a 50% loss of purchasing power, during the period.

If we measure Northern Dynasty’s January 2011 market cap peak in gold terms – it would indicate an approximate 1,266,705 gold ounce market cap. If Northern Dynasty today revisited that same market cap peak, in gold ounce terms – at USD $2513 per oz. gold, it would imply a USD market cap of $3.183 billion. A market cap increase to that size would imply about a 17x move higher, from here.

There is speculative prospect of further USD devaluation, which offers the potential of driving market caps higher for all ‘hard asset’ businesses. It is up to individual investors and speculators, to decide if they wish to factor currency devaluation into their approach.

The difference between ‘share price’ and ‘market capitalization’ is stark. Without knowing the quantity and difference between the two, an investor will not know how much he or she is paying for a business.

Many investors discuss share price, but not many engage market cap discussions. Market cap is determined by outstanding share count, which like a musical accordion, can expand and contract greatly over time.

To increase survival odds, investors and speculators should consider visiting with company financial statements over time. The statements will indicate whether share count has been expanding or contracting. It is an especially important metric to follow in the junior natural resource space.

This tool (market cap monitoring) will contribute to your competitive edge. And most investors are unaware of it.

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