As Gold Stocks Pass An Inflection Point, Several Are Well Positioned To Benefit From The Powerful Gold Bull Market

Featured companies in this report are Agnico Eagle, Alamos Gold, SilverCrest Metals, McEwen Mining, i-80 Gold, Goliath Resources and Borealis Mining.

Sometimes, I wonder if readers of my reports that see how bullish I am on gold stocks think I want a bull market for all gold stock boats to be lifted. As gold stocks enter the powerful gold bull market. Just to be clear, I don’t. 

Plenty of gold stocks have no business rising with the tide, when boats with holes rise it means that capital could be allocated into better boats. One of the things that I have noticed over the years is that investors in gold stocks, from retail to institutions, are not great at allocating capital.

Much too often, funds chase stock promotion and stock momentum, not rocks. 

For most of my career, the industry has been pretty bad at allocating capital. I look at some projects getting funded and think, wow, that project shouldn’t be getting that much funding. While I see others that are no-brainers that struggle to get the proper funding that is warranted based on the rocks.

The evidence is out there for everybody to see. When it comes to exploration of gold, silver and copper, there has been chronic underinvestment and poor allocation for too many years. The result is that there have not been nearly enough discoveries. This affects replacement of new deposits as miners mine out their deposits. 

The severity of the problem can be seen in the amount of projects that advance from discovery into development. The result is that there are not nearly enough development projects in the pipeline to adequately replace what the miners mine.

More evidence can be seen in the production numbers. Gold production has peaked and is going into decline, while gold is making record highs. Economics 101 teaches that when prices go up, production goes up. This is not happening.

Silver is in an even more severe situation. Physical silver supply is in a deficit from demand for it as an industrial metal crucial for solar energy, and as a monetary metal. We often hear that the cure for low prices is low prices. Meanwhile as demand for silver is powerful, supply is weak, while gold is making new record highs, silver is only a bit over half of its record highs.

Copper also has tremendous supply and demand fundamentals. Demand is powerful and set to overwhelm supply. Which is why every major mining company wants more copper assets as they see the writing on the wall. If you look at the decline in discoveries over the past couple decades and not enough copper projects in development, the stage is set for copper supply shocks for many years. 

It is not only the retail and institutional investors that fail in capital allocation. Many of the miners are just as bad. During the 2001 to 2011 gold bull market, when it came to M&A, which there was a lot of, the majors got bigger for the sake of getting bigger. Not to get better.

Over a decade after the peak of the last gold bull market, several major gold miners are still suffering from the errors of their past ways because several are struggling to increase production while gold is in a powerful gold bull market and making a series of new record highs in 2024.

A good portion of why I am so bullish on gold, silver and copper is because I see structural problems when it comes to the supply chains of these metals. Basically, the supply chains are broken from the miners, through to the developers and down to exploration.

Of course demand is also crucially important and due to the structural problems that have broken the supply chains, demand is going to overwhelm supply and drive prices of the metals much higher.

I’m happy to report that since gold had an important breakout over $2100 hundred earlier this year and now is around $2500, I’m seeing an encouraging sign of much healthier capital allocation.I’m hopeful as gold makes a run toward $3000 this year that this trend continues.

A perfect example comes from the top 3 gold miners. While Newmont and Barrick are struggling to increase production and bring down costs, their stocks are still well off their record highs as gold is making new record highs. Yet, Agnico Eagle has made 3 consecutive quarters of records in free cash flow, and impressively reached half a billion dollars in free cash flow during the second quarter of 2024.

They are also delivering on their efforts to increase production and bring down costs from a cost base that is well below the average costs for the gold mining business. Their shareholders have been rewarded significantly more than the owners of gold, other majors, and gold ETFs, as they make new record highs in their stock.

When it comes to gold miners, it is all about following their free cash flow growth, and efforts to increase production, their current costs of producing an ounce of gold and their efforts to bring down costs. Agnico Eagle is hitting it out of the park on all of these metrics and significantly outperforming their peers Newmont and Barrick on those metrics and for the shareholders.

I saw something very exciting recently when Gold Fields took a run at Osisko with their takeover offer. I saw that both gold and gold stocks reacted in a bullish way. Gold is in a very powerful bull market that I see will take it multiples of its current price. But until the first quarter of 2024, the gold stocks were in a prolonged bear market. 

As gold had an impressive breakout above $2100 and then made a series of record highs, the largest gold stocks have joined the gold bull market, but not so much down the gold stock food chain.

I see the gold stocks at an inflection point, that will take them much higher as gold goes much higher. Equally as important, I’m seeing improvement at the capital allocation which is getting much better at separating the wheat from the chaff.

When it comes to M&A in the behemoth gold miners, it is a no-brainer for Newmont and Barrick to take a run at Agnico Eagle. If either of them were able to pull it off, the combined companies would have the market capitalization and free cash flow profile that would attract some of the biggest generalist institution into them.

This alone is a compelling argument, but it is also realistic to think that Agnico Eagle should turn it down because as a standalone they are hitting it out of the park in all the key metrics, outperforming their peers and well positioned to continue that trend.

Another of the gold mining picks in the reports is Alamos Gold. Although they are much smaller than the Big 3. They are also generating record free cash flow, as well as increasing production and bringing down costs from a base that is well below the average cost of production and on its way to being one of the lowest cost gold miners in the business.

Their shareholders have also been rewarded as the stock is making a series of new record highs and outperforming gold. 

They are definitely punching above their weight class. It is an easy argument that when it comes to M&A, they can be both a target and a buyer of other gold miners. I love that they are super disciplined about not growing to be bigger for the sake of being bigger, instead they want to grow to be better.

Further down the food chain, SilverCrest Metals is also punching above its weight class. They have one of the best new gold and silver mines in the business that is only around one year into full commercial production. 

Their Las Chispas mine is a great mine. It has allowed them to quickly pay off their debt to build the mine and build up a warchest of cash, gold and silver that exceeds the debt they held prior to going into full commercial production. That is what happens when a mine has a low cost of production and high grades of gold and silver. 

SilverCrest’s shareholders have been well rewarded with a 52-week low in the third quarter of 2023 when they traded down to a little under C$6.00 per share. Recently they hit a 52-week high of a bit better than C$14.00 per share.

McEwen Mining is a gold miner that a few years ago was in serious struggles with their gold mines and holding a spectacular copper development project. In the third quarter of 2022, when their stock was trading around C$4.00 per share, I recognized them as a terrific turn around story. So, I invited Rob McEwen on for an interview that morphed into a series of interviews.

I got really lucky with my timing because not long after that first interview, McEwen Mining’s subsidiary, private company McEwen Copper, brought on key shareholders. One of them was Rio Tinto’s Nuton and the other was one of the world’s largest car makers, Stellantis.

Nuton and Stellantis shined a light on the quality of McEwen Copper’s Los Azules project. It is a remarkable project as it is one of the world’s top 10 undeveloped copper projects made even better because it is in the lowest cost quartile of estimated costs of production for copper development projects.

Recently, a spotlight has been focused on Los Azules when BHP and Lundin made a takeover offer for Filo Corp. Filo is also a copper development company in Argentina just like McEwen Copper.

Although McEwen Mining is up dramatically since their low in the third quarter of 2022, taking into consideration the apples to apples comparison between Filo’s assets and McEwen Copper’s Los Azules, they still look to be significantly undervalued. 

In addition to being undervalued for their interest in McEwen Copper, McEwen Mining’s gold mining operations are being valued at next to nothing. I would make the argument that McEwen Mining is still a turnaround story playing out. With a copper development project that every major mining company in the world that wants additional copper projects is following closely.

My latest top pick for a turnaround story in mining is i-80 Gold, who is a sponsor, see disclosure below. They are simultaneously developing three world-class mines in Nevada. It is my opinion that they have suffered from a group of shorters that have picked on them because they are a mine developer with an ambitious plan to develop three mines at the same time.

Sometimes shorts can pile on in a ridiculous way when a stock is going down, similar to the way that longs can overdo it when a stock is unjustifiably running to the nose bleeds. No matter what sector you look at for a turnaround play, first they need to stop going down, then start improving from their beaten down price.

To do that in mining, one thing that helps for a developer is that gold is in a powerful bull market. We have that in spades. Another important factor is how far along they are in the development phases and how close they are to the sweet spot of the Lassonde Curve when a company transitions from developer into producer. 

i-80 Gold is at the beginning of the sweet spot as they have started trial mining at their Granite Creek project. This is a fantastic high-grade gold mine. It has consistently delivered high-grade gold drill results over thick intersections with excellent continuity.

Made even more impressive is that it is open to the north and to its immediate north is a massive 25 million ounce gold mine. They share the same kinds of rocks. With Granite Creek wide open in the direction of the giant mine.

My favourite part of the gold stock food chain are the explorers. Not only because they offer the chance for wealth building performance, but also because the gold mining sector greatly needs new discoveries with the potential to become future mines. 

My highest conviction gold discovery pick is Goliath Resources due to the remarkable gold discovery they have made at their Surebet discovery in the Golden Triangle of British Columbia.

I spent a lot of my career as a consultant to mining companies in diamond exploration. So, when I look at exploration for any metal I think of it like a diamond exploration project. In diamond exploration, we use diamond indicator minerals to help lead to the diamond bearing kimberlite that they came from. 

Once a diamond bearing kimberlite is discovered, then the micro diamonds from drilling are plotted on a diamond distribution curve which helps assess the potential for commercial diamonds and their frequency. 

Diamond exploration and diamond assessment is very hard because commercial diamonds are very small, a one carat diamond only weighs 0.20 of a gram. In exploration you are using a small diameter drill core to find something that is very small and valuable. It is a very hard endeavour, but there are significant parallels that help in exploration for gold and other metals.

Often, I see investors get very focused on the grades of gold in a high-grade gold discovery. It is natural because those can move the market so much in a junior gold explorer. But, I look at things differently because of the Nugget Effect in high-grade gold discoveries, which is child’s play compared to that effect in diamonds.

In diamond exploration it is basically about following breadcrumbs to find the prize. The same thing happens for me in high-grade gold exploration.

The first breadcrumb for Goliath was after the receding of glaciers and permanent snowpack at the Surebet discovery, it revealed a massive outcrop of mineralized rock. It went from the valley floor up to the top of a mountain for around 1000 metres and down the other side of the mountain for around the same distance. It literally looks like the tip of an iceberg.

Following the discovery of the outcrop by their geologists, they started drilling below the outcrop and as they drill the system has grown to have a vertical relief of 700 metres that remains open in all directions.

They have seen a fantastic trend of finding visible gold. At the top of the system the gold is fine grained and sporadic. Below that they have found abundant visible gold with some coarse grained gold. This is leading them to the heat engine that is responsible for the gold mineralization.

Next, I think they will find more occurrences of coarse grained visible gold, then abundant coarse grained visible gold as they get closer to the heat engine.

I mentioned to a friend the other day, that based on the grades associated with the visible gold, I don’t even need to see the gold grades, I am most interested in the transition of the visible gold from fine grained sporadic at the top, then abundant fine grained gold with some coarse grained gold and next I foresee the potential for abundant coarse grained gold.

This assessment is all based on the progression of following the breadcrumbs in a diamond discovery. I am seeing a parallel progression with the Surebet discovery. The best thing is that as they put more drill holes into the Surebet discovery it gets better and better.

Which reminds me of one of my mentors in geology Bob Darney. He gave me a great rule of thumb many years ago that I call the Bob Darney Test. He said that all exploration projects start out big, then when they are drilled they get smaller, but mines get better and better the more you drill them. Surebet is passing the Bob Darney Test with flying colours. 

If I had to put a grade on it, that grade would be A+, which is why Goliath Resources is my highest conviction gold discovery pick.

My other top pick in gold exploration is Borealis Mining (sponsor, see disclosure below) which I think is going to grow rapidly. They only started trading as a public company last week, what they did as a private company is why I say that in my 30-years in the mining business, I have never seen a private company so well prepared for success as a public company.

The first step was they got a great gold project in Nevada. Which enabled them to put together a who’s who of mining people on their board of directors. This includes the guy that built Kirkland Lake Gold from a small junior miner, into a huge success that was taken over for several billion dollars. In addition, the founder of Kinross is also on their board, as well as other highly accomplished mining executives.

As a private company they also had the good fortune to attract two legends in the mining business that made their fortunes as investors in mining stocks. Eric Sprott came in just prior to them going public paying 50 cents per share. 

Another astute mining stock investor Rob McEwen came in months before the company went public. He is very active in Nevada and quickly recognized the potential of the project Borealis Mining had purchased. 

Borealis Mining got the project from Waterton. They had amassed a fantastic group of assets when gold was much cheaper. They are winding down their fund and are known to be pretty relentless in selling their stock positions they got when selling their projects.

After recognizing the potential of Borealis’ project and the potential overhang in the market from Waterton. He decided he wanted to take out Waterton’s entire stock position. A deal was made and it quickly closed, now Rob McEwen owns more than 15% of the stock in Borealis.

In past reports I have explained why I am so impressed with the Borealis Mining project and would like to invite you to read those reports. Early in my due diligence I read a scientific paper about the project and what jumped off the pages was that based on the historical drilling and geological work, the writer compared it to the Yanacocha Mine, which is South America’s best gold mine.

If they only get a smaller version of Yanacocha, Borealis Mining will grow into a much larger company. 

In Closing

I am seeing gold stocks at an inflection point that will bring them into the gold bull market. Earlier I expressed my hope that the investors in mining get better at capital allocation into gold stocks that helps see a better separation of the wheat from the chaff.

I’m seeing evidence of better filtering by gold stock investors into gold stocks. 

The companies in this report are picks that I think will go through the inflection point and come out the other side looking even better.

Allan Barry Laboucan

Disclosure

i-80 Gold is a sponsor of Rocks And Stocks News, content creation about them is for the benefit of the company. Sponsors also benefit readers of the reports as it makes content creation possible for no charge to readers. Allan Barry Laboucan is a shareholder of i-80 Gold shares and tradable warrants. Allan Barry Laboucan is a shareholder of Goliath Resource and owns warrants that are well in the money that give him the ability to increase his position. Borealis Mining is a sponsor of Rocks And Stocks News, content creation about them is for the benefit of the company. Sponsors also benefit readers of the reports as it makes content creation possible for no charge to readers. Allan Barry Laboucan is a shareholder of Borealis Mining shares and a consultant to the company.

Rocks And Stocks News does not make buying or selling recommendations. The reports are for information purposes only. Sponsors pay a fee to Rocks And Stocks News for content creation. The business model of Rocks And Stocks News is to fund research and reporting on the sector, picks and sponsors through corporate sponsorship. We are thankful to sponsors for enabling commentary free of charge to readers and viewers of the reports. When reporting on sponsors it is on behalf of the sponsors discussed in the portion of the report mentioning the sponsor. Before making any investment decision it is important for you to speak with your financial advisors to consider your risk profile. It is also important to do your homework. To help in that process, Rocks And Stocks News means to be a gateway by doing reports and interviews of management of sponsors and picks. The reports and interviews should not be considered investment advice. Allan Barry Laboucan is the founder and owner of Rocks And Stocks News, he has worked in the mining sector since 1993 and has been reporting on the sector since 2005. He has worked with and been mentored by very talented geoscientists in geology, geochemistry and geophysics. He uses the skills he has picked up during his career to assess sponsors and picks in the reports. Whether a company is a pick or a sponsor they go through the same filter and are reported on when important news is made that Allan Barry Laboucan wants to discuss on the Rocks And Stocks News platform. He may own shares in sponsors and picks for investment purposes which he discloses when discussing them in the reports.