Gold In The Ground Is Very Cheap Which Is Often When It Starts Getting Valued Much More Highly
As regular readers of my reports know, I’m extremely bullish on gold and think it is going higher by multiples of its current price. The two main drivers of my outlook are the Death Spiral of Debt and the constant destruction of purchasing power of fiat currencies.
Due to these key factors, I see the world heading toward a modern Gold Standard that will see central bankers in and outside the BRICS nations back up their debt in a much more significant way with gold. Once that reaches a critical mass then gold will play a substantial role in international trade.
The debt and fiat currency system is broken. The pendulum has swung much too far and now more than ever it needs to swing back to the Gold Standard which forces discipline on the insane spending habits of politicians. It also will help take away some power from the Fed being the drug dealer for the politicians that are spending junkies. Yes Elon Musk, including your guy who is one of the worst ever.
There are two opportunities for investors to expose themselves to gold, one is above ground gold and the other is through gold in the ground. Of those two opportunities, I see gold in the ground as being the most mispriced these days, often trading for pennies on the dollar.
When a gold bull market starts, the first to join are the major gold miners, mid-tier miners, then the smaller gold miners. Followed by the gold mine developers with high-quality projects and then the explorers with important discoveries. This is also around the time when silver joins the gold bull market and the silver miners, silver mine developers and explorers with important silver discoveries join the party.
The follow through action down the food chain of precious metals has not really got going yet. But that is an if not when story and much like in the 2001 to 2011 gold bull market, it happens when investors least think it will.
We are still in the lack of conviction phase when it comes to the gold bull market. Although few believe it, I’m confident we are also at the cusp of the follow through down the food chain point in the cycle.
Which is why over the past several months I have been doing deep dives into projects of smaller miners, mine developers and explorers with important discoveries. What I have found is a tremendous amount of unrealized value that has not been unlocked yet.
I have done these deep dives for two key reasons. One is I see they are primed to head into a much more bullish cycle. Secondly, I wanted to prepare for a series of video reports on individual companies in which I will present their prospects for growth.
There are a couple of key factors that I believe investors on mining stocks need to pay attention to in order to recognize value that can be unlocked. One of those is where a company is on the Lassonde Curve.
I’m finding explorers with important discoveries that are still at the bottom of the left side of the Lassonde Curve. I also see several in the development discount window that are tremendous opportunities because there just aren’t enough in this phase and the industry needs many more.
In addition to being a small menu for investors to choose from. The valuations are not accurately reflecting the quality of the projects and many are primed to get much higher valuations as the price of gold and silver gain strength.
The most underloved are the explorers with important discoveries. Many of them are at the bottom of the left side of the Lassonde Curve and primed to start climbing up that side of the curve.
Drilling is the lifeblood of the mining sector. It is how miners increase their production, replace resources and build new mines. It is the key to moving projects in development toward production and then helps them grow from that point. And it is how explorers make new discoveries and turn them into important discoveries.
Understanding where a company’s project is on the Lassonde Curve is important, as is understanding where a project is in its mineralizing system. The latter point is a crucial one because depending on where the drilling is in the mineralizing system can have a huge impact on the grades. And by extension what can lead to remarkable moves in a stock.
Take for example epithermal veins systems which are an important source of high-grade silver and gold mining. High in the system is the quartz breccia zone and below that is the boiling zone, or some call it the bonanza-grade zone.
In the quartz breccia zone there is mixing of quartz and country rock. The precious metals are in the quartz and due to the mixing with the country rock it dilutes the grade.
Usually when drilling into the quartz breccia zone, getting modest grades of precious metals is an excellent result, but investors will look at the assay results and think the discovery is not great. But, the results are excellent because it points to a robust boiling zone below the quartz breccia zone. Understanding this zonation can create a spectacular investment opportunity for investors as the drilling into the quartz breccia can cause cheap valuations, but then when they tag the boiling zone below it then the game is on.
Another example of why it can pay to understand where a company is in the mineralizing system are orogenic gold systems, which are an important source of high-grade gold that can be mined at low costs.
Orogenic gold systems have very deep roots and if drilling high in the system the grades are modest compared to the bonanza-grade zone. A perfect example from the past was Goldcorp’s mine in Red Lake, Ontario. It was a struggling mine for a couple decades when they were mining close to the surface.
They crowdsourced their geological information in the Goldcorp Challenge offering prizes to winners of the challenge that could help unlock the ultimate potential of the mine. What came of it was that the winners opined that drilling deeper was the best game plan. Goldcorp did that and at 1000 metres below the surface they hit the bonanza-grade portion of the orogenic gold system.
That bonanza-grade portion was transformational, it enabled them to increase their production by 10 times, and make them one of the lowest cost gold miners in the business. They went from a valuation of $50 million to a multi-billion dollar company.
Determining where the drilling is in an orogenic gold system can be determined by the visible gold in the drill holes. High in the system, the visible gold is fine-grained with sporadic distribution. As the drilling progresses deeper the fine-grained gold will get more abundant and then transition to sporadic coarse-grained gold and then abundant coarse-grained gold.
Understanding the visible gold distribution in an orogenic gold system can seriously help investors assess the progress toward finding a mine.
Another thing to understand about epithermal systems and orogenic systems is that they are steeply dipping narrow veins that are high-grade systems in mines. The veins are steep and a metre to ten metres thick, so they aren’t made up of massive tonnage like in an open pit mine. What makes them into mines is that they are high-grade and mined with underground mining methods.
These are a couple examples of the importance of understanding where the drilling is within a precious metals system. There are more, and when I consider them it reminds me of something one of my mentors in geology told me many years ago. He told me to watch closely how the gold and other metals are distributed in the drill holes and the location of the various drill holes in a deposit. The key point is that to have a mine, it doesn’t just take grades, it also takes continuity.
I’m about to start doing a series of videos, in which I will use individual companies as case studies to show where companies are in their respective mineralizing systems. This work can help investors better understand the value proposition and how further drilling can unlock value.
All the best,
Allan Barry Laboucan
