When assessing the prospects of success for a junior exploration company in the natural resource mining space, there’s really only a few set of criteria that investors can go on. Does the company’s management team have the pedigree and proven track record for success? Does the geology for the project properties show potential? Is the company sufficiently capitalized to execute its strategy?
This is especially true now given the dramatic downturn in the mining industry over the last several years. Companies need to hit on all cylinders in order to withstand the slowdown. But for a new player like Black Widow Resources Inc. ($BWR:CA), fresh legs go a long way.
Founded in 2011 by an award-winning geologist, the company has targeted three promising projects in Ontario, Canada, with the flagship project recently shown to produce “compelling zinc (and copper) assay results from recent drill program.”
Given that the company only began trading publicly in April 2013, it has not had to deal with the major headwinds that have plagued other microcaps. In fact, as a result, Black Widow may also be in position to capitalize on the expected shakeout of the junior mining market. It is poised to do so.
Equities.com had the opportunity to speak with Neil Novak, CEO of Black Widow Resources and the former CEO of Spider Resources Inc. from June 2005 until its acquisition in August 2010 by Cliffs Natural Resources Inc. for $125 million, to discuss the company’s primary projects, long-term strategy, and opportunities in the junior exploration and mining space.
EQ: Can you provide us with a brief overview of Black Widow Resources and its operations?
Novak: Black Widow is a publicly traded natural resource company, which trades on the Toronto Venture Exchange. We’re a relatively small company focused on acquiring early-stage exploration projects and moving them into development, if they warrant it. We have three projects right now, all located in Ontario. The commodities we’re looking at are base metals, which include zinc, copper and lead, and a few precious metals like gold and silver. Of the three exploration projects, two are focused on base metals and one is a gold-focused project.
We’re an early-stage company. We’ve been trading on the TSX.V for just over a year with about 24 million shares outstanding. We also have aspirations to go to the OTCQX or the OCTQB in the near future, but we haven’t made that final decision yet.
EQ: Of the three properties that you mentioned, one is identified as your flagship project. What are the prospects for this project that you’re excited about?
Novak: Our flagship project is called Shunsby. It’s road-accessible and located between two major mining centers in Northern Ontario called Timmins and Sudbury. Both are world-class mining areas with lots of infrastructure for supporting an exploration and development project.
The Shunsby project was explored in the early 1950s until about 1993 by some larger companies, mainly Teck Exploration, Consolidated Mining Corp. (Cominco), and Placer Exploration. Their exploration identified several moderate- to high-grade occurrences of copper and zinc. But for large companies, it wasn’t enough for their liking. The size of the deposits were in the one million-ton range, which was quite a bit smaller than they had envisioned. These larger companies were looking for projects that were in the 10 to 20 million-ton range of the grade that they were encountering, affecting their bottom line.
But this size of project is exciting for a junior company, having a one or two million-ton deposit at 3% to 5% zinc with some copper credits and lead and silver credits as well, makes it an attractive near-surface development project. There is also much room to expand the resources by good systematic exploration.
The city of Timmins has an existing smelter that is approaching its’ end as the mine it was built for is nearing the end of production, there should be excess capacity for smelting in three to four years. That’s an opportunity in my mind. So in three to four years Black Widow could be in a position with this project to ship some concentrates over toward this smelter.
EQ: Your two other projects are the Gremlin and the Santa Maria/Sakoose. Where are you with them at right now?
Novak: The Gremlin Project is just north of an area called “The Ring of Fire” in Northern Ontario. It’s a base metal project way north in the swamplands, as such, it’s a challenging area to work. Having said this, there is some development projects going on in this region. The Gremlin project is a project that I picked up originally for Black Widow, and it’s one where I’m watching what’s going on with the other two companies that are developing their projects nearby. I’m quite familiar with working in the geographic challenges of the terrain, I understand the regional geology better than most, and I know how difficult it is to work up there.
Our other project is the Santa Maria/Sakoose, hosting a former producer of gold, and it’s near the town of Dryden in Northwestern Ontario. It’s quite close to four advanced gold projects that are being developed by others. There was about 3,500 ounces of gold produced back in the early 1900s using a small underground mining operation on the Sakoose portion of the project. But from my perspective, it’s an early-stage project, it needs a lot of work to try to get results from the geology and then see if it makes up something comparable to what’s happening with these other projects nearby.
EQ: What would you say is Black Widow’s competitive edge in this space? Is it the properties or the management experience, or something else that really sets you apart from the other companies that you compete with?
Novak: Well, Black Widow as I said earlier is a small company, and thus, it has very low overhead. Most of the money we raise in the equity market goes right into explorations. If, for example, we raise $1 million, then about $900,000 of that goes right into exploration and into the projects.
The Board of Directors and management team are really experienced in the junior mining space. We’ve worked together and have known each other for many years, and each bring to the table plenty of experience in different essential areas. More importantly, we have two well-seasoned geologists on the Board our Chairman Norman Brewster and myself. We have worked independently on various projects over the past 35 years and have come together on a number of occasions for different projects, and in my opinion we really work well as a team.
Back in the early 1990s, we came together to form a company called Spider Resources, Norm was its first President, and I was its VP Exploration. We ran that company from a startup to one with a market capitalization of $45 million a few years ago. It was then acquired by Cliffs Natural Resources in 2010 for $125 million. This company was a very successful and lucrative deal for the shareholders at the time and also through its 20-year history.
EQ: Spider Resources focused on the James Bay area in the Ring of Fire, which you said is an area you’re familiar with. Can you tell us more about your background and experience in this industry?
Novak: I’m a geologist with about 37 years of experience looking for projects in Canada and also worldwide. I started my career back in the early 1970s and was involved in a major uranium project, and then got interested in gold in the 1980s. Then, as my career developed in the early 1990’s, I got involved in a new commodity for North America, which was diamonds and looking for these here in Canada. It was kind of unusual, but we had just recently received news of a major discovery by a colleague of mine in the Northwest Territories.
They found a cluster of kimberlite pipes, and eventually brought a diamond mine into production. I was learning the diamond business on a few projects in South America and Africa where I was on assignment as a consultant, I came back to Canada to apply the knowledge to a target area in Ontario. I put my thoughts together and came up with an exploration model to go looking for diamonds up in Northern Ontario. We identified an area called the James Bay Lowlands as a probable area of diamond exploration potential.
Well, I got there in 1994, and within a few months, we discovered that DeBeers had been there a few years before me. They had already secretly found 16 kimberlites, all diamond bearing, and one of which happens to be a mine now. But from the work that we did, we were able to find another three kimberlites very quickly, that De Beers must have overlooked. It was pretty exciting at the time.
EQ: You were the CEO of Spider Resources and now you’re CEO of Black Widow Resources. There seems to be trend here. Are you infatuated with spiders?
Novak: Perhaps. Based upon the success I mentioned with Spider Resources, we started looking at various geophysical data sets of a very large area that surrounded the kimberlites we had just found, to see where else we could go looking for diamonds. We came up with an innovative airborne magnetic geophysical interpretation method that we developed in house, and then we applied that over most of Northern Ontario. What came out of our work was what we ended up calling the “Spider Phenomenon.” It’s a very large magnetic pattern that identifies long and deep geological structures.
These structures go on for hundreds and hundreds of kilometers. If you apply a simple algorithm to the magnetic data, you can see a central hub with leg-like projections radiating out from it, and it looks like a giant spider. That’s kind of a fun way to look at the data.
Then, if you look into these “spider legs” in more detail, by doing local airborne and ground surveys, you can see that there are little circular features on the legs or nearby the legs. We drill-tested these, many of them ended up being the kimberlites that we found. Many of the geologists that I deal with now interpret these radiating features as being great magnetic linear fractures in the earth’s crust. Like I said, they’re several hundreds of kilometers long and we expect that they are continuous right to the mantle of the earth. The fractures as a path of least resistance simply provide a conduit for the release of magma. These magmas can be kimberlite, the carrier of diamonds, or other related mafic or ultramafic magmas that also rise quickly from the mantle to the surface.
But that’s where I came up with the name of, first of all, Spider Resources, and then came up with the name Black Widow Resources—the black widow spider is a common and notorious spider. It’s an aggressive little spider that looks at targets and either moves on or makes a go of it.
EQ: In 2009, you won the PDAC Bill Dennis Prospector of the Year Award for your involvement in the discovery of the Ring of Fire. Tell us about that.
Novak: Well, as I kept on looking around these radiating arms and came up with lots of different kimberlites, I ended up discussing this whole spider phenomenon with a the president of DeBeers at the time in Canada. He suggested that we team up and become joint venture partners. So Spider Resources and DeBeers became joint venture partners in 2001, one of our drill tests encountered a massive sulfide occurrence that contained copper and zinc in very high concentrations. DeBeers, being a diamond company, told us it was not something they were interested in and told us to go ahead with our own program focused on base metals.
We proceeded to stake all the claims around the discovery site, this all ended up being a huge exploration success, that went on for several years. Eventually in late 2002, early 2003 a couple promoters got ahold of the information, staked the surrounding area, the project area was abuzz with activity, several small sulphide deposits were drilled off and other occurrences were discovered, including chromite (a strategic element in the manufacture of stainless steel). Exploration went on for several years until August 2007, when what was originally a kimberlite target was drill tested and confirmed to be a nickel – copper, platinum, palladium and gold deposit. All of the available land in the area was staked almost immediately forming a large ring, defined by an arcuate magnetically rendered feature about 150 kilometers in diameter. A few promoters named this area “The Ring of Fire”.
Right now, as I’m speaking to you, this project is the subject of much political controversy, locally, provincially and federally. Government officials estimate that $60 billion worth of metal has been defined in this area, warranting major infrastructure development estimated to be in the several billion dollar range, I was one of the pioneer geologists involved with its discovery.
EQ: Looking at Black Widow, what are some key milestones over the next 12 to 18 months that the investment community should pay attention to?
Novak: Well, we’ve got three projects, each at a different level of development. We just completed a small drilling project on Shunsby, our flagship base metal project. Over the next couple months, there will be some news coming out on that. Hopefully, it’s good news that will excite the market a little bit, and allow us to then refinance, and go back and continue drilling on this project.
I’m also looking to do another follow-up program in the fall of 2014 on the gold project in Dryden and if I’m successful in raising enough money, I’ll get back up to the Gremlin Project up in the James Bay Lowlands.
As a company, we have a long-term outlook on projects. You have to understand that a good project takes many years to develop, so you’re looking at a four to five-year exploration cycle before these projects are ready for development. They’re fairly early on in terms of our goals for these projects.
We’re in the exploration phase, so every drill hole could be exciting and could potentially generate a lot of news as we continue to drill. It’s one of those things that you need to keep on watching Black Widow to see what’s going on.
EQ: Is the company well-positioned to execute on these three-to-five-year cycles? Do you intend to add to your portfolio of projects during this period?
Novak: I’m always looking for new projects. I acquired these projects by issuing equity to various vendors of properties. But the long-term outlook is to move these projects along the exploration cycle to where they’re worthwhile to continue on with defining resources, and perhaps develop them into a mine.
Another thing is looking for other projects that have that potential as well. I’m very comfortable working in Canada in Ontario, but my aspirations as a company going forward is to start looking elsewhere into the rest of the Americas, in South America, and moving over to other countries.
Again, we’ve assembled quite a dynamic board and management team. Norman Brewster is a well-known international geologist and mining executive. He’s a very close friend and associate of mine that can be accessed at any time for his knowledge base and expertise. George Duguay brings many years of experience to the team, mostly in the financial community having provided corporate and transfer services to the resource sector for nearly four decades. Our corporate secretary Carmen Diges is a person of many talents. She’s comfortable working in many languages, and has a diverse client list, chairing the mining division of one of the larger law firms in Canada. Her firm has associate offices all over South America and Europe. So we have a very dynamic team ready to pounce on new projects as we go along.
EQ: Are there any other takeaways you want to leave for our readers as they follow Black Widow?
Novak: Once we get the Shunsby results we’ll be looking to review them and get them circulated publicly to investors and the industry. That’s one thing to pay attention to over the next few months.
Another important thing we’re really watching is, most people know that the share prices of junior exploration companies, particularly in Canada, have taken a big hit over the past three or four years. Some of them have reached all-time lows, trading at half a penny to a penny levels.
With us being a fairly new company, we haven’t suffered that huge collapse in our share price. We’ve definitely been affected by it, but not as much as some of the other companies out there. So I look at this as an opportunity to potentially acquire some of these other projects out there that may soon be going by the wayside as a result of some of these companies failing financially.
I’ve got my ear to the ground, following what’s going on to see if any new projects become available for a company like Black Widow to acquire at a good price. So I’d say definitely stay tuned for exploration news and watch what we’re doing at the corporate level.
For more information on Black Widow Resources, go to http://exploration.blackwidowresources.com/
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