Disclosure: Blue Lagoon Resources Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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Resuming Coverage
* Blue Lagoon Resources Inc. has paid FRC a fee for research coverage and distribution of reports. * Qualified Person: Ted Vander Wart, P.Geo., a consultant to Blue Lagoon Resources (BLLG).*
*BLLG is a part of the CSE25 Index, which represents the top 25 companies on the CSE by MCAP.
* Subsequent to Q3-FY2025, BLLG completed a $4.9M equity financings
Price and Volume (1-year)
Portfolio Summary
Two gold projects and one copper project in B.C.
Well-connected; 50-minute drive from Smithers. The project benefits from strong support from the Lake Babine First Nation - an important factor in its development and restart. Note that local community support is often key to a project's success, with many resource-rich projects stalled globally due to its absence
Dome Mountain Gold Project (100% interest)
This advanced-stage project, covering 21,541 hectares, is located within the Omineca Mining Division, approximately 38 km east of the town of Smithers in northwest B.C.
History and Mineralization
Mineralization was discovered on the property in the 1800s. Mineral claims were first staked in 1914. The project has since been explored by multiple parties (including well-known names such as Timmins and Noranda), and was also briefly mined in 1992-93, resulting in the recovery of 43,900 tonnes, at a high grade of 12 gpt gold. (Qualified Person: Dr. Gilles Arseneau, P. Geo., ARSENEAU Consulting Services Inc.)
The property hosts high-grade (Au, minor Ag) veins, characterized by quartz with lesser carbonate and sulphide mineralization. The principal zone of mineralization is known as the Boulder Vein System, comprised of the Boulder, Boulder East and Argillite veins. In addition to the Boulder Vein System, 15 other veins have been identified on the property. As almost all of the prior work was focused on the Boulder Main vein, management estimates that 90% of the land package is untested.
Historically mined 43,900 tonnes at 12 gpt gold
90% of the land package is untested, with only six out of 15 known gold veins tested by BLLG
Resources & Infrastructure
The current resource estimate, based on 355 holes/42,869 m, is limited to the mineralization of the Boulder Main vein.
High-grade, underground resources totaling 234 Koz Au, and 1.2 Moz Ag
The project is moving swiftly toward production, leveraging existing underground workings, infrastructure, a water treatment facility, and road networks
Processing Agreement & Production
BLLG has a milling profit share agreement with Nicola Mining for up to 75,000 tonnes per year (200 tpd).
Nicola has participated in BLLG’s financings, and currently owns 7.4M shares, (representing 5% of BLLG’s equity), demonstrating their commitment to the partnership. Additionally, Nicola has extended a $2M unsecured line of credit to BLLG
The mill is capable of processing 200 tpd through crushing, grinding, and flotation; permitting is underway to increase capacity to 500 tpd. Deal terms and profit-sharing percentages were not disclosed
However, for valuation purposes, and based on comparable deals, we assume that profit will be split 70% to BLLG and 30% to Nicola
Nicola has an offtake agreement with Ocean Partners, a UK-based trading company that will purchase concentrates. Nicola currently has active milling agreements with two juniors, BLLG and Talisker Resources. It is also planning to process 3,000-4,000 tonnes of bulk samples from its Dominion Creek gold-silver project; however, this volume is relatively small compared to the proposed operations of BLLG and Talisker.
Throughput will likely be split between BLLG and Talisker
BLLG is anticipated to truck their maximum allowed 150 tpd to Nicola. Given that Talisker has announced plans to truck over 100 tpd to Nicola, and the mill’s capacity is only 200 tpd, for valuation purposes, we assume the facility will be split equally between BLLG and Talisker at 100 tpd each in the first year. That said, Nicola holds an equity interest in BLLG but not in Talisker, and BLLG’s resource is of higher grade. These two factors suggest that Nicola may show a preference for processing BLLG’s material.
Nicola’s mill is approximately 900 km from Dome Mountain. While long-distance trucking is typically challenging and cost-prohibitive for large operations, Dome Mountain’s relatively small scale (100–150 tpd), and high-grade material (~9 g/t Au), make it feasible. This was demonstrated in 2021, when BLLG transported 5,000 tonnes of mineralized material to Nicola using three trucks per day, achieving 95% gold recovery, and generating $1.6M in revenue at US$1,800/oz gold.
To maintain daily throughput of 100–150 tpd, BLLG will use three to five trucks. Estimated trucking costs range from US$200 to US$300 per oz recovered. Should near-term exploration lead to a meaningful resource expansion, we believe management may evaluate the construction of an on-site mill, which we estimate would require $30–$50M in CAPEX. In addition to Nicola’s Merritt mill, there are a few other potential toll milling options for BLLG. However, Merritt is currently the only facility in the region permitted for custom milling. Other mills, such as the New Afton mill (owned by New Gold Inc./TSX: NDG), have excess capacity to process BLLG’s material but would require additional permitting to do so.
Trucking strategy and mill logistics
Resource Upside
A total of 596 holes, including 43 underground holes, have been drilled across the property, totaling 89,982 m. Surface drillholes averaged 160 m in depth. Between 2020 and 2023, BLLG focused on the Boulder vein system, drilling up to 150 m below the current resource envelope, as well as several other targets.
Over $80M has been spent on Dome Mountain since 1985, including $30M by BLLG since 2020. BLLG drilled 187 holes/48,937 m into the Boulder vein system, and other targets
The property was last drilled in 2023 (10 holes/2,909 m
BLLG’s drilling outside the current resource envelope intersected high gold and silver grades, indicating the high-grade nature of the area
The current resource estimate does not include drilling from the 2022 to 2023 infill drill campaigns. Several of these holes intersected the Boulder and Argillite veins, extending the mineralized zone by at least 550 m along strike, and >200 m down dip, indicating the project’s potential to host over 1 Moz of gold on the Boulder vein alone.
In 2021, BLLG discovered two new targets, Chance Corridor and Federal Creek. The nearby historic Forks area, less than 1 km away, also offers additional targets for future resource growth.
90% of the project area remains untested. The current resource envelope measures 530 m long x 200 m deep. We believe there is resource expansion potential, as the deposit remains open in multiple directions
A Mag survey highlighted a potential eastern extension of the Boulder vein (in red)
Multiple high-grade veins, extending up to 20 km along strike, are not included in the current resource estimate. BLLG’s immediate exploration focus is the Argillite vein, parallel to Boulder, with grades ~25% higher
The company plans to use cash flow from production to potentially expand its resources through three main strategies:
Upcoming Catalysts
The company plans to process 55,000 tpy (150 tpd), targeting annual gold recovery of 15 Koz at a projected grade of 9 g/t, and 95% recovery. They are also applying to increase capacity to 75,000 tpy (200 tpd), which could boost annual gold output to 20 Koz. We note that these targets depend on milling space availability at the Merritt mill, and whether Nicola prioritizes BLLG’s material over others. As mentioned above, BLLG also has alternative toll milling options.
Management is aiming to produce 15 Koz in year one
Due to the existing infrastructure and upgrades performed by the company in the past five years, management’s projected CAPEX from now until commercial production is just US$1.5M. We estimate total cash costs (mining, trucking, and processing) of US$1,200-US$1,400 per ounce, with profits likely split 70% (BLLG): 30% (Nicola).
Other Projects
BLLG has no immediate plans for these projects
Management and Board
Management, board, and founding shareholders own 14%. Two out of three directors are independent
Brief biographies of the management team and important consultants and advisory members, as provided by the company, who are assisting the transition from exploration to production, follow:
Rana Vig – CEO & Director
Rana has over 35 years of business experience during which time he has helped to launch five business ventures in private industry. He has been involved in publicly traded companies since 2010, and from 2011 to 2016 he was the President of Musgrove Minerals, an Idaho focused gold and copper junior, and from 2013 to 2016, he was the Chairman and CEO of Continental Precious Minerals Inc., a TSX senior board listed junior. In 2018, he became the CEO of Lead Ventures and led its re-structuring by acquiring Curaleaf Holdings Inc. (CURA) which raised $520M, making it the largest Canadian cannabis financing in history. Shortly after that he took the helm of Rockbridge Resources, a failed Oil and Gas venture, which he re-structured by acquiring Harvest Health & Recreation (HARV) that closed a $300M financing – making it the third largest cannabis financing of 2018.
Bill Cronk- Chief Geologist
Mr. Cronk has over 25 years of experience as a geologist and manager of exploration programs for precious and base metal deposits. He has worked in Africa, Europe as well as North and South America with expertise that ranges from grass roots reconnaissance up to advanced stage and pre-feasibility work. Mr. Cronk worked for mining industry leaders such as Dundee Precious Metals, and Northern Empire - which was acquired by NY listed Coeur Mining.
Norman Brewster – Independent Director
Mr. Brewster is President, Director, and CEO of Cadillac Ventures Inc., with projects in Ontario and New Brunswick, and has served on numerous public and private boards in the mineral industry. Previously, he led Iberian Minerals Corp. in developing Spain’s Aguas Teñidas Mine and acquiring the Condestable Mine in Peru, oversaw major company sales, and holds science and education degrees from Acadia University.
Gurdeep Bains – Independent Director
Mr. Bains is a Chartered Professional Accountant with a BBA from Simon Fraser University. He has held senior roles at KPMG, Canaccord Genuity, and served as CFO at OK Tire Stores Inc. and Zenabis Ltd.
Peter Bojtos, P.Eng – Technical Advisor
Mr. Bojtos is a Professional Engineer with over 50 years of global mining experience, having evaluated properties in nearly 80 countries and been involved in operations in 30 of them. He has led more than 15 major acquisitions, mergers, or sales involving 24 mines, participated in the financing and development of 19 mines, and currently serves as Chairman of Avino Silver & Gold Mines Ltd.
Yannis Tsitos – Chair of Mining Committee
Mr. Tsitos has over 35 years of mining industry experience, including 19 years with BHP Billiton, where he served as New Business Development Manager for Minerals Exploration and executed over 60 mining agreements worldwide. Originally a physicist-geophysicist, he sits on several company boards, has contributed to multiple deposit discoveries, published industry articles, and is a strong advocate for anti-corruption policies in mining.
Roy Edvardsen – Dome Mountain Mine Manager
Mr. Edvardsen has over 40 years of mining industry experience, holding roles from mine superintendent to underground mine manager. He has extensive expertise in underground mining and safety, with key positions at the Wolverine Mine, Ekati Diamond Mine, and Eskay Creek Gold Mine.
Wayne Kindrat - Underground Mining Specialist & Contractor
Mr. Kindrat has over 40 years of mining and construction experience, starting at age 10 at Cronin Mine and later holding key roles at Skyline, New-Hawk, and Timmons Nickel mines. He has extensive hands-on expertise in underground mining and safety, and a long history with Dome Mountain Mine, where he has contributed to multiple development phases and now serves as a valuable member of Blue Lagoon’s Mining Committee.
Steve Cutler - Mining Consultant
Mr. Cutler, founder and President of Roughstock, has over 40 years of mining experience, specializing in underground operations. He has overseen underground mine design and management since 1997, including as General Manager at Stillwater’s East Boulder Mine, and founded Roughstock Mining in 2012 to serve mines across North America.
Financials
Strong balance sheet, driven by a recent $4.9M equity financing. The company has a $2M unsecured line of credit from Nicola; no drawdown yet. Can raise up to $5M from in-the-money options and warrants
Valuation and Rating
Our models are based on a 15-year mine life, producing 18 Koz AuEq per year
We assume the company will gradually increase throughput from 100 tpd in year one, to 200 tpd by year four. Given Nicola’s equity interest in BLLG, along with BLLG’s higher-grade resource, we assume Nicola will prioritize BLLG’s materials for processing
Our DCF valuation is $0.99/share
Our valuation ranges from $0.67 to $1.14 per share, based on varying throughput assumptions between 100 tpd and 200 tpd
BLLG is trading at a 70% discount to comparable junior gold miners. Applying sector multiples, we arrived at a fair value estimate of $1.24/share on BLLG
We are resuming coverage on BLLG with a BUY rating, and a fair value estimate of $1.11/share (the average of our DCF and comparables valuations). With pre-production starting soon, and commercial production expected by Q4-2025, we believe BLLG is well-positioned to generate strong cash flows from a modest but high-grade operation. Given favorable gold market conditions, and upcoming operational milestones, we maintain a positive outlook, and view BLLG as a compelling opportunity in the junior mining space.
Our valuation is highly sensitive to gold prices
Risks
We believe the company is exposed to the following key risks (not exhaustive):
