Introduction

I am going to assume that the investor taking his crucial time to read this article already understands the fundamentals of gold and is bullish on its future or interested in the cheap valuations of the mining sector.

There is too much literature and articles and videos on gold bulls and conversely gold bears. We do not have time to cover the philosophical nor the fundamentals for gold in this article (unlike my platinum/palladium article). This is strictly a junior gold exploration companies critique.

But I will say this, there has never been a time that sovereign nations could print their way out debt and not cause a national currency crisis. And I expect gold bullion and gold mining equities to go much higher, an so do legendary investors such as Marc Faber, Jim Rogers, Rick Rule, Peter Schiff, and Eric Sprott.

The Gold Equities Market: On Fire Sale

As many investors in the resource sector have fallen victim to since late 2011, the public sentiment changing from bullish on gold to bearish, the prices have declined far dramatically in gold equities relative to the gold bullion price.

The investor should look for themselves:

With gold underperforming, the gold equities have been slaughtered. But with the fundamentals for gold still stronger, in-fact they are actually stronger more than ever, this is a phenomenal time for value investors and contrarians to begin shopping for beaten down mining companies, especially the juniors.

It is safe to assume that the mining shares have become an attractive bargain at these low prices.

“For what Facebook was paying for WhatsApp, you could buy the entire South African gold sector, plus throw in North America and all the [gold] reserves and all the capital that went with it,” Orrell added.

And as Rick Rule has boldly claimed, when a market is down 70%, that necessarily means that the market is inherently 70% less risky.

What the investor needs to focus on in this downturn: what companies have quality projects trading below rational valuations that in time will unlock ultimate shareholder value?

Temex Resources: Appetizing Low Hanging Fruit

Temex Resources is a Canadian based junior exploration company with an intriguing portfolio of gold and silver properties in Ontario. And the most fascinating part: their deposit’s are located in Timmins - Canada’s largest gold camp and world class mining district.

Temex Resources has two flagship properties that are both in advanced stage drilling and have completed the NI 43-101 resource estimate for both projects. Highlights are:

1. Whitney Gold Project - Metallurgy of 98% recovery. The
   NI 43-101 RESOURCES WITH 3.0 G/T CUT-OFF GRADE: TOTAL M+I is 3.22 mt (million ton) with 6.85 g/t (grams per ton) containing 708,600 oz’s gold. There is an additional inferred 1.00 mt with 5.34 g/t containing 170,700 oz’s.
2. Juby Gold Project - Lower grade bulk tonnage. The NI 43-101 RESOURCES WITH A 0.40 g/t CUT-OFF GRADE: Indicated is 26.6 mt with 1.28 g/t containing 1,090,400 oz’s gold. There is an additional 96.2 mt with 0.94 g/t containing 2,908,000 oz’s gold.

(SOURCE:TEMEX FACT SHEET)

The company also has a silver project named Gowganda Silver Projectand the Latchford gold project. Both of these properties have interesting potential which the company plans to continue drilling.

The Latchford Gold Project represents a “blue sky” gold project initiated in early 2004 following the discovery by prospecting of bonanza-style gold mineralization which returned 6,222 g/t gold from random grab samples of a calcite vein hosted in a block of detached bedrock.

GoldCorp’s 40% Stake in Whitney

GoldCorp has a 40% stake in Temex resources Whitney high grade gold deposit, leaving Temex with 60%.

(SOURCE: TEMEX PRESENATION)

It only makes sense that GoldCorp, one of the worlds largest and low cost gold producers, has a stake in the Temex property. It is right in the middle of the rest of GoldCorp’s mines. The investor should think carefully of the probabilities that a take over, similar from what GoldCorp had attempted with Osisko Mining, could happen with the Whitney Project. The company already has engaged in a 40/60 joint venture for Temex to continue drilling, which recently had substantial near surface high grade drill results come in, click this link for the highlights released June 17, 2014.

The investor only has to look at the Timmins camp production comparisons to see the what the potential is for this high grade deposit currently:

(SOURCE: TEMEX PRESENTATION)

The Whitney Gold Project that GoldCorp is so interested in has an incredible benchmark:

• High grade
• Excellent mining and milling infrastructure
• Metallurgy with a 98% recovery
• Low capital costs and production timeline
• Strong resource growth potential (link for May drill results)

It is clear that Temex is on to something big here. Even if the share price has not shown it, Mr. Market will wake up, sooner than later.

The Best Place to Find a Mine is Next to a Mine

Please note the locations of the two flagship projects by Temmex and what surrounds the properties:

If none of the above has intrigued the investor up to now, this will. The location’s of the Whitney gold project is right next to Lake Shore Gold, GoldCorp, St. Andrew Goldfields and Primero properties.

The location of the Juby gold project is right in between IAMGOLD’s Cote’ mine and AuRico Gold’s Young-Davidson mine.

There has been recent investment and mergers and acquisitions in the region:

• Osisko mines was aquired by Yamana Gold and Agnico Eagle
• IAMGOLD aquired Trelawney at $74 EV/oz
• AuRico Gold recently developed the Young-Davidson mine.

The Juby gold project is wholly owned by Temex Resources (100%) and it is a lower grade, bulk tonnage deposit with higher grade gold targets. The company claims that there is excellent exploration upside and with the amazing discovery costs of less than $2 an ounce of gold.

If investors paid any attention to the IAMGOLD’s CEO last October, staying committed to low grade gold being the future, than this is the time to review his comments and start speculating if his words will hold true.

VALUATIONS

For the valuations section of this article I would like to begin with the following that will be used:

• 1 troy ounce = 31.1 grams
• Mt = million ton
• G/t = grams – per – ton

By following a simple formula we will be able to find the present value of ore in each deposit:

Whitney gold project has reported 6.85 g/t within 3.22 mt.
6.85 divided by 31.1 = 0.22 oz per ton.

With gold selling at $1,300/ounce ($1,300 X 0.22) each ton is equal to $286 dollars of gold in it. With the Whitney property thus far containing 3.22 Mt, the deposits worth, before operating costs, is $920,920,000.

Juby gold project has reported 1.28 g/t within 26.6 mt.
1.28 divided by 31.1 = 0.04 oz per ton.

With gold selling at $1,300/ounce ($1,300 X 0.04) each ton is equal to $54 dollars of gold in it. With the Juby property thus far containing 26.6 Mt, the deposits worth, before operating costs, is $1,436,400,000.

Gowganda silver project has reported 47.5 g/t within 1.94 mt.
47.5 divided by 31.1 = 1.5 oz per ton.

With silver selling at $20/ounce ($20 X 1.5) each ton is equal to $31 dollars of silver in it. With the Gowganda property thus far containing 1.94 Mt, the deposits worth, before operating costs, is $59,260,450.

It is clear that Temex has resources and a combined property value before expenses at $2,416,580,450. And the properties continue being drilled and increasing precious metal content.

What the investor should really focus on is the leverage to the gold/silver price. Imagine the valuations at $1,500 gold and $30 silver.

• Whitney project = $1,062,600,000
• Juby project = $1,596,000,000
• Gowganda project = $87,300,000
• Properties combined value = $2,745,900,000

These are impressive numbers, especially with a fully diluted market cap of only $16 million. In-fact if you took the fully diluted shares, 227 million, and divide it by the combined properties at $1500 dollar gold and $30 dollar silver, each share would be worth $12.30/per-share.

Now, obviously there is Opex (operating expenses) and Capex (capital expenditures) costs that will take away from the values. But nonetheless there will be strong margins, especially at the Whitney high grade deposit.

In the junior sphere, you can buy some companies for nearly $10/oz of gold in the ground.

One of the juniors that I’ve consistently talked about is Temex Resources Corp which has about 4 million ounces (4 Moz) of gold in the ground in Ontario, Canada, says Ian Gordon.

Shareholders and Company Overview

Temex resources has an impressive amount of institutional and major shareholders:

• Sprott Global
• GoldCorp
• US Global
• Libra
• Pinetree
• Teck

The company has $4 million dollars in the treasury at the end of May 2014.

There are 185.7 million basic shares issued and outstanding

The company has 24.5 million warrants (range $0.18-0.40) and 4.9 million broker warrants, finder options and 11.7 million stock options (range $0.13-.040).

In total, there is 227 million shares outstanding with a market cap of $14.8 million dollars (share price trading at $.08)

The company has enough cash to last at-least another year of their drilling so further dilution in year 2014 is not likely.

Conclusion: Phenomenal Upside With Limited Risk

Personally, if Sprott and GoldCorp are involved in financing the drilling of this company, I know it has potential. And from what we have already seen from the high grades, and growing, from The Whitney project and the location of the low grade, bulk tonnage Juby project, the company is terribly undervalued compared to many other junior explorer companies.

By purchasing a share of Temex Resources the investor gets the following:

• Exposure to the leverage in the gold price
• The high grade Whitney Project, which has resource grades exceed production grades of producers in region, is 40% joint operated by GoldCorp
• The low grade, bulk tonnage Juby project that is 100% owned with high grade targets with EV/oz < $1.
• A silver project at the Gowganda mineral property that is 100% owned and the Latchford project which represents a “blue sky” project.
• A stable and safe mining jurisdiction
• All properties located next to major producers in the world class Timmins mining district — Strong possible take over target.
• A proven management team that has expanded its drilling and increased reserves.
• Impressive funding from world class resource institutions, such as Sprott.
• Enough cash ($4 million at May 31, 2014) in the bank to last at-least another year at current drilling pace.

There are many companies in the gold space that are going to their intrinsic value – zero. But there are others that have quality assets in politically safe jurisdictions trading for mere pennies. Temex Resources is one of those companies. I hope this article has at-least intrigued the investor enough to do diligent research on this company.

Remember the old investment quote for dealing with bear markets, “Pick right, sit tight.” And the prudent value investor has this company sitting tight in their portfolio.

DISCLAIMER: I AM LONG TEMEX RESOURCES AND IAMGOLD CORP AND A SHAREHOLDER OF BOTH COMPANIES