Following The Truth Machine In Gold Stocks
The drill rig is the lifeblood of the mining sector which is why it is often called the Truth Machine. Use it wisely and it can be the game changer that leads to remarkable growth.
Over the past few decades the majors have pretty much abandoned grassroots exploration, now they focus their exploration drilling in and around their known mines. Which is a key reason that they struggle to replace what they mine with the Truth Machine. Instead they have to buy assets from explorers, developers, junior miners and mid-tier miners.
It is a key reason that from a strategic perspective they need to be considered the partner of choice for those smaller than them. I think of the explorers, developers, junior miners and mid-tier miners as the minor leagues in the industry and the major miners are the big leagues.
We’ve all heard the saying that a chain is only as strong as its weakest link. When it comes to the mining food chain, the weakest link is the exploration companies. Many of them are starved for cash to do the hard work of exploration to make discoveries. Yet, the gold and copper mining sector, which are two of the key metals I follow closely, are in drastic need of new discoveries.
Next up the food chain are the developers that are advancing through the various stages to assess the viability of their discoveries to become future mines. If they have passed the economic tests, then they are working through permitting and building mines. There aren’t enough of them, many more projects are needed in development to help replace what the miners mine.
The developer cupboard is bare and plenty of the developers are weak as well, sometimes as weak as the explorers. This can be a lucrative opportunity for investors that want exposure to gold with less risk. Key catalysts for growth are; a higher price of gold, majors buying developers, and moving down the development window of the Lassonde Curve to enter the sweet spot just prior to turning their mine on.
Next in the mining food chain are the small miners that have gone through the sweet spot of the development window of the Lassonde Curve and turned on their mines. This is another avenue for investors that want exposure to gold with less risk. In this category, I look for a couple of things.
One is how their new mine is performing, it takes time to ramp them up to full commercial production and institutional investors usually will wait. Another thing I pay a lot of attention to is their pipeline of projects to grow their productions, as this can be where there is hidden value as most will be focused on the shiny new mine.
The mid-tier miners are the ones that have the potential to grow into the next major mining company. During the 2001 to 2011 gold bull market, companies of this size in the mining sector were hollowed out when the majors bought many out. They used to play a very important role as they could look at buying out, or building projects that weren’t big enough for the majors. Building those and making them profitable mines, while stringing several together could move the needle for a major to take them over.
The smaller miners and mid-tiers are opportunities for investors that want exposure to gold, while having less risk. As the menu is not very big at these levels, if we get more investors coming into gold stocks, there aren’t a lot of them to consider. They offer substantial prospects for growth that can also make them excellent performers often able to significantly outperform the majors.
No matter what size of company you look at in the gold stocks most are trading at depressed valuations. The sentiment for gold stocks is very bad. If you look at what they have in the ground, they are trading near all-time low valuations. I haven’t seen it this bad since just before the 2001 to 2011 gold bull market. If you like buying things on the cheap, gold stocks are a great place to go hunting.
While gold stocks valuations are at depressed levels from a historical perspective, gold is trading at record prices against practically every currency and it looks like 2024 will be a year that several new record prices for gold in US dollar terms will be set.
Demand is strong, while supply is weak. The key reason that the supply chain will stay weak is that no matter where you look on the gold food chain the links are broken. Only higher gold prices will help fix the broken links.
The majors are not able to replace what they mine each year, and they have a limited menu of smaller companies in the farm teams to take over. The inevitable result of this issue is that the majors will need to turn into the partner of choice for the farm teams. I follow the majors, but don’t report on them often. If I were looking for investments in majors, I would focus on two things. One area is on those with the highest margins amongst their peers. The second is those that see and act on the strategy to become the partner of choice for the companies lower down the gold mining food chain as it will show a commitment to growth.
A key problem at the mid-tier level of gold miners is that there just aren’t enough of them, the sector needs more. A key reason is that they can look at building mines that aren’t big enough to move the needle for the majors. This makes them potential buyers of companies further down the food chain and that is needed greatly in the gold mining sector. Much like the majors, I follow companies of this size but rarely report on them. If I was looking at companies in this size, I would focus on high margin producers, with a strong pipeline of high margin mines, and those that want to be the partner of choice for the smaller companies.
I leave the majors and mid-tiers for others to report on. They have plenty of brokerage house coverage, and media coverage. I prefer the smaller miners, developers and explorers. They have less coverage, more growth potential and tend to have valuations more out of touch with reality than the majors and mid-tiers.
When it comes to the smaller miners, it is all about new mines, their pipeline of new mines that are high margin stories. For them, it is all about growth. For investors they have more risk than the majors and mid-tiers, but also more torque to bullish moves in gold. Drilling is another key factor for these companies so I watch them closely for what they hit with the Truth Machine.
For the developers, I focus on where they are in the development window of the Lassonde Curve. There are not enough of them to significantly help with the supply chain that is being mined out by the majors and mid-tiers. I especially watch them when they are at the sweet spot prior to putting a new mine into production.
Explorers are the ones I follow the closest. They are more risky but when they deliver with the drilling they can have remarkable growth. I’m a gambler and treasure hunter at heart. For my risk profile and long career in the mining sector this is my favourite spot to look for mispriced risk reward dynamics. With the explorers it is all about the drilling and what they hit with the Truth Machine.
They are the weakest link in the gold mining food chain, but I would argue they are the most needed. Without enough exploration, there aren’t enough discoveries, which by extensions results in not enough new mines being developed, not enough small miners, not enough mid-tiers and not enough options for the majors to look to buy out to replace what they mine.
So we get what we have now. Broken chains all along the gold supply chain. Which means the supply chain will stay weak for many years. This is all very bullish because the demand is strong and looks to get stronger.
Add all this up and we have gold primed to go much higher and the gold stocks to move off their depressed valuations. The last time that happened, during the 2001 to 2011 gold bull market, it was a magical time for those that took advantage of the depressed prices in the gold stocks and rode the waves of the gold bull market.
Gold Stocks To Watch
In this section I will mention a group of companies that are in the key categories that I mentioned earlier. Including some in the smaller miners category, developers and explorers.
i-80 Gold
This company was formed a few years ago when Premier Gold was bought out by Equinox. They spun out Premier Gold’s Nevada projects to create i-80 Gold. It is the same key people running Premier Gold, who prior to their success building Premier Gold, built Wolfden Resources from a tiny junior that made an important discovery and was bought out.
Their CEO Ewan Downie was the CEO of Premier Gold and Wolfden Resources. He has a knack for buying assets at reasonable prices and then enhancing them with drilling. To see how good i-80 Gold is at buying assets and enhancing them with drilling just go to their website and check out the headlines of all their press releases since they became a public company.
What you will find is that they are very aggressive with the drill rig and consistently put out remarkable news from their drilling. A perfect example can be seen just in the past two weeks. This week they announced excellent results from their FAD deposit and last week it was from their Hilltop deposits. These back to back great news releases are not isolated cases, just go back through their news releases since they started trading. You will see more of the same, great news release after great news release.
The only knock against the company is they are simultaneously developing three new mines. Some don’t believe they can pull it off. I’m not one of those people. Mainly because I’ve known Ewan Downie for 20 years and have watched him pull off things that many thought he couldn’t throughout his career.
At McCoy-Cove they have a high-grade gold project that is one of the highest grade undeveloped gold projects in North America. At Granite Creek they have an impressive deposit called the South Pacific Zone. It has many high-grade gold hits with thick intersections and it is growing every time they put more drill holes into it.
Around a year and a half ago Granite Creek was their key project, rightfully so because it clearly is showing world class discovery potential. But, then they started drilling at Ruby Hill which displaced Granite Creek as their key project.
There they found a Carlin gold deposit called Ruby Deeps. Not far away they followed that discovery up by hitting a series of CRD deposits at Hilltop, with high-grade zinc-lead-silver and an overprint of high-grade gold. Then they found very high-grade hits at the Blackjack skarn discovery. Ruby Deeps, Hilltop and Blackjack are literally right beside each other, so close that they can all be mined from the same network of underground workings.
They have a wonderful problem. At McCoy-Cove, Granite Creek and Ruby Hill they have three projects that consistently deliver great results with drilling and are all moving toward production. Drilling and developing three projects at the same time is no small feat. Ewan has surrounded himself with an exceptional team with extensive experience building and operating mines for majors in Nevada.
Ultimately, with the quality of their assets and team, they have the realistic potential of growing from a small miner into one of the largest Nevada focused mining companies. I say realistic because of the quality of their assets. I can clearly see them being a growing miner with a peer leading growth profile.
McEwen Mining
Rob McEwen is a serial mining entrepreneur that built Goldcorp from a tiny company into one of the largest gold miners that had tremendous growth during his tenure running the company. At one time it was one of the lowest cost gold miners, with exceptional high-grade that had high margins which made them one of the best performing gold miners.
In addition, throughout his career he has also been a very successful investor in mining stocks. He is very adept at recognizing trends before the crowd arrives, and finding mining stocks that he personally takes a big position in before they are well recognized and has patience to see them grow to be much larger companies.
He has been a regular guest on Rocks And Stocks News shows which I greatly appreciate. He tells us about his efforts to grow McEwen Mining and gives insights into how he looks at things as an investor in the mining sector.
McEwen Mining has two engines for growth at the corporate level. One is their gold mining operations, the other is a potential copper mine of the future at the Los Azules copper project. Los Azules is a massive copper project of the future, it ranks as one of the top 10 undeveloped copper mines that is in the lowest cost production quartile for projects on that list. Los Azules is owned by McEwen Copper, with McEwen Mining owning a little under 50% of McEwen Copper.
Over the past year and a bit McEwen Copper has helped drive the valuation of McEwen Copper from multiple year lows to around double its price from the lows. When Nuton, a Rio Tinto venture, made a substantial investment into McEwen Copper investors started taking notice.
Shortly after that investment, Stellantis (one of the major car makers) made a large investment into McEwen Copper. This was the first time a major car maker made an investment into a copper project. Then Nuton made a second investment into McEwen Copper. These three investments into McEwen Copper are a pretty good endorsement of the potential of Los Azules.
The developments at McEwen Copper have overshadowed the work McEwen Mining is doing to improve the performance at their operating gold mines. They are doing the work to bring down the costs of production and also increase production.
In addition, they are doing a lot of exploration drilling at their gold mines. I’ve seen news releases of success they are having with their exploration drilling that few seem to recognize. It is worth noting that Goldcorp was a struggling miner that drilled under their underground mine workings and hit the bonanza-grade zone that was the game changer that led them to remarkable success. I don’t think many believe that the drilling could lead to game changing success for McEwen Mining gold mines. I do.
Another possible engine for growth that few talk about for McEwen Mining is that Rob McEwen has been a successful mine builder and investor in mining stocks. These two skills can be combined for the benefit of McEwen Mining. I see some great projects trading at depressed valuations. I’ve heard Rob McEwen call this a delicious time to be buying mining stocks. To me, it would be a brilliant move for McEwen Mining to make some junior-friendly investments into depressed valuation juniors.
Not only could it be lucrative for the company, it could send the message loud and clear that McEwen Mining is a gold mining company first with an exceptional copper project to boot. It could also propel them into being considered a partner of choice for smaller companies. If that is a good strategy for majors, I think it could be a remarkable growth driver for McEwen Mining.
Now For Some Explorers
Goliath Resources
Goliath is my highest conviction gold discovery story. I may have to keep repeating that until more folks take notice.
I was initially impressed with the Surebet discovery. Partially due to the big outcrop of mineralization that goes from one side of the mountain to the other. As the saying goes, big deposits leave big footprints and the outcropping zone at Surebet is very big.
Most importantly, they drilled Surebet below the outcrop and found a big zone sitting under the outcrop in the sediments. They kept drilling below the Surebet zone and discovered the Bonanza zone at the contact of the sediments and the volcanics. What stands out to me about Bonanza is that it is double the size of the Surebet zone with a similar high average grade.
Then they drilled below Bonanza this year and found Golden Gate with high-grade to bonanza-grade in the volcanics. Based on the models, it looks like Surebet and Golden Gate are the same system. They have the same dip with a slight offset. I think Golden Gate is a game changer for already remarkable discoveries at the Surebet and Bonanza zones.
The reason is that it shows the system keeps going into the volcanics. So we can see the system is in the sediments at Surebet, then continues into Bonanza at the transition between the sediments and volcanics and then into the volcanics in the Golden Gate discovery.
Some key questions that remain are how far does it go into the volcanics and will that lead to the heat engine source of what caused the mineralization in the extensions of the system at Surebet, Bonanza and Golden Gate.
I'm very excited that the 2024 drilling will have a key focus on drilling into the volcanics. I kind of think of it as a three layered cake. The stuff they have found so far is the top layer of the cake. Somewhere below there has to be a bottom layer which is the source of the mineralizing system. The in-between layer is the feeder that brought the mineralization from the source to the top layer.
Another exciting aspect is that once I saw the updated model of the Bonanza Zone I immediately thought, where is the feeder for that? I think the answer could be the newly reported discovery called Jackpot. It is very close to the eastern edge of the model for the Bonanza Zone. It looks like it could be an extension of the Bonanza Zone. I was impressed that it is just outside the eastern side of the Bonanza Zone model, slightly below and in the volcanics.
I imagine the geological team will be excited to get some holes into Jackpot this season. It returned very high-grade sample results from the volcanics in what could be associated with the Bonanza Zone.
I'm also impressed with their regional exploration results as they have excellent potential for discoveries as well. One of those discoveries is the Treasure Island target. It is a large outcrop with ice surrounding it. Sort of like an island poking out of the ice. Based on the sample grades that returned high-grade gold and high-grade copper, it has certainly shown the potential to have buried treasures below. I’m also very impressed that there is widespread alteration throughout the outcrop. They have already designed a drilling plan for Treasure Island that is focused on the alteration on the property where they also got high-grade sample results.
I’ve written about a trend I’ve seen of more junior-friendly investments by bigger companies. I think that trend is just starting and the bigger companies look to want to become the partner of choice for smaller companies. Based on what I see from Goliath’s discoveries and regional exploration, I think they are an excellent candidate to see junior-friendly investments from bigger companies.
Exploits Discovery
I enjoy following explorers when I can see they have the potential to make new discoveries. Recently, I did an interview with Ken Tylee, VP Exploration for Exploits Discovery. It was a great opportunity to discuss their current drilling campaign.
They are in the emerging high-grade gold discovery play around Gander, Newfoundland. A couple years ago New Found Gold made a series of impressive high-grade gold discoveries. Exploits Discovery saw this happening and was able to get a very large land package in the camp. In 2023, they added their newest package of ground called the Bullseye project, which is where they are drilling now.
Bullseye is located to the immediate north of New Found Gold’s ground. At the north end of New Found Gold’s claims, they have made three impressive discoveries called Everest, Jackpot and Honeypot. The key structures associated with these discoveries all come onto Exploits’ ground. In fact, the discoveries are within a few hundred metres of the claim boundary between Exploits and New Found Gold.
Ken Tylee has an impressive resume, having worked for major mining companies in similar geological settings as those found near Gander. Our recent interview was a great chance to discuss the reasoning behind their current drilling.
Basically, they are drill testing the theory that what New Found Gold drilled into could extend onto Exploits’ claims. It certainly is not a pie in the sky theory as the same rocks and structures are on their ground. Now they have the drill rig working away to see if they also have part of what New Found Gold has found next door.
The exploration camp in the Gander region has the potential of being an important belt similar to some of the important districts for mining in Canada. Ken Tylee has worked in those important mining camps, he knows what to look for and how to go about testing their theory.
I’m keenly watching for results from their drilling as I love the exploration for buried treasures in places where others have been found nearby. A good place to look for new discoveries of high-grade gold is next door to where others have already been found. Stay tuned, I know I am.
Dryden Gold
This company is another exploration company with an ongoing drill program with pending assays. I started following them a few months ago, when they were doing interviews prior to them going public. They are a newly trading junior in the past couple of weeks, but have been very active well before going public.
I’m always impressed when I see juniors that are actively using digital media to get their story out. It is a fantastic way for them to get their story out to a broad audience at the push of a button.
Within a few days of them becoming a publicly traded company, I had the pleasure of interviewing two of the leaders of their team. Trey Wasser and Maura Kolb were kind enough to join me for a lengthy interview to discuss the company.
In Trey Wasser, they have an industry veteran who thought he could retire after building Ely Gold Royalties from a $6 million valuation, which was bought out for $300 million, making it a great success story that handsomely rewarded shareholders. His plan of retiring didn’t work out, this business although hard at times, is a lot of fun as well, especially when they built a winner like Ely Gold Royalties.
What enabled them to build Ely Gold Royalties was they focused on acquiring large land packages in highly prospective areas then farming them out and retaining a royalty. It is much like the prospect generator model. Virginia Gold was a prospect generator that had a project that they just couldn’t farm out and instead drilled it and found what would become the Eleonore Mine. When I follow companies that farm out projects for royalties or to joint venture them, I always watch for when they find a project too good for them to farm out.
Some of Trey’s associates approached him about trying to catch lightning in a bottle again. Which ruined his retirement plan, but they are using the same game plan, to acquire large land packages in a highly prospective region, which led them to Dryden, Ontario. Where they assembled an impressive land package that was underexplored and just screaming to be drilled. Something that they couldn’t farm out and had to use to build Dryden Gold.
As luck would have it, they found out that Maura Kolb was available, and she had tons of experience in Red Lake, Ontario, which is not far from Dryden, and that she lived in Dryden. She is a very talented geologist, with extensive knowledge of orogenic gold systems, and being in Dryden knows all the local mining people very well.
You can always read news releases, corporate presentations and websites, but it is nothing like talking to the folks behind that information. I had a great time talking with Maura about why she jumped at the chance to work with Dryden Gold, well before it was a public company. We also got to talk rocks, which is one of my favourite things to talk about.
We talked about the geological similarities between Red Lake, Ontario and Dryden. Those included; they share the old rocks needed for orogenic gold systems, that have the same kind of faults or cracks in the earth’s crust that enable the gold bearing fluids to make their way from very deep to close to the surface. Most importantly, high-grade to bonanza-grade gold has been drilled into on their ground. In fact, even some extremely high-grade gold. Did I mention I love high-grade gold?
Now the trick is to find enough of it to hopefully discover a gold mine like up the road in Red Lake. To do that, they have an excellent plan. They are looking at the ground with a fresh set of eyes, doing a focused drill program using geophysics, geochemistry, geology and structural geology to explore for more of that high-grade gold.
They put together such an impressive land package and team, that they were able to get substantial funding before they went public and during the IPO. Due to Trey’s contact in the business because of what they did with Ely Gold Royalties, they were able to attract an impressive roster of shareholders.
Including legendary mining investors Rob McEwen and Eric Sprott. Two gentlemen that have had long careers spotting trends well before the crowd arrived and invested in mining stocks that went on to have remarkable success.
As a newly minted public exploration company, Dryden Gold is cashed up, drilling, and hitting the ground running. I like their chances to make important discoveries and will be watching for their first batch of pending assay results, more drilling and more assays. They are definitely worth the effort to do your homework on.
Canadian Gold Corp.
An important saying in the mining industry is that a great place to look for a new mine is in the shadows of an old mine. Canadian Gold Corp. is doing just that, actually they are drilling below the shadows.
Their Tartan Gold Mine project was a past producer for a couple of years in the late 1980s. It has a network of underground workings. It fell on hard times and stopped operations. The underground workings only went down a few hundred metres. There were a few holes drilled under the workings that hit high-grade gold, but they never got a chance to get down to it and mine it.
Canadian Gold Corp. saw the depth potential and drilled some holes to test if the high-grade continues. So far so good. They have only completed minimal drilling at depth, but they hit high-grade gold over significant widths.
When I first started looking at Canadian Gold Corp. I noticed in the model of the zone that was mined there was a high-grade core to the mineralization with very good continuity. In addition, it was dipping in the same direction as where the deeper holes hit similar grades. What has impressed me with the limited deep drilling is that it looks like the zone is getting bigger at depth.
I think of it kind of like the top of an ice cream cone that is upside down. The old mine workings are at the tip of the cone, and it looks to be getting wider at depth. This is exactly what you want to see in an orogenic gold system. They have very deep roots, the gold forms deep where there is the right temperature, this is the heat engine and source of the gold mineralization.
Take for example the Red Lake Mine, it was a struggling mine for many years when it mined the top of an orogenic gold system. Then Goldcorp drilled well below the old mine workings and at around 1000 metres deep they got into the bonanza-grade portion of the system. From there it kept going and going. It was low cost to mine, and with the extreme high-grade it generated exceptional free cash flow. It made Goldcorp one of the best performing gold mining companies, the rest is history so to speak.
Canadian Gold Corp’s largest shareholder is Rob McEwen, he owns 37% of the company. He knows a thing or two about orogenic gold systems as he built Goldcorp from a tiny company into one of the best performing gold mining companies during his tenure running the company.
I’m looking forward to more drilling and assay results to chase the high-grade gold to depth. This is another exploration company worth your time to do your homework on.
In Closing
I see impressive trends developing for gold and the gold stocks that have us on the verge of magical times for the sector. Few believe it, which gives me higher conviction as I’ve seen this movie before. It is just like the couple of years prior to the 2001 to 2011 gold bull market.
Another trend that I see developing is that majors are starting to do junior-friendly deals to try to become the partner of choice for the smaller companies. I think this trend will gain strength, mainly because it is needed. For the smaller companies, we need more of them to be funded to make discoveries and add to projects in development that become new mines.
The majors need new mines to replace what they mine. Ultimately, I think they also need to become the partners of choice to show their commitment to growth. Paying dividends and buying back stock are not the drivers of growth investors want. They want new mines.
All the best,
Allan Barry Laboucan
Disclosure
i-80 Gold is a sponsor of Rocks And Stocks News. Goliath Resources is a sponsor of Rocks And Stocks News, and Allan Barry Laboucan is a shareholder and holds warrants to purchase additional shares. Exploits Discovery is a sponsor of Rocks And Stocks News.
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. This funding helps cover the costs of research and reporting on the sponsors and picks that aren’t sponsors. 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.