Gold Is Primed To Break Through $2100 Yet Few Gold Stock Investors Believe This Will Be Bullish For Gold Stocks
The report begins with bullish arguments for gold and gold stocks. Then covers special situations picks McEwan Mining, i-80 Gold, Goliath Resources, Meridian Mining, Alta Copper and SilverCrest Metals
There was a nice trend developing in the last quarter of 2023 for gold and gold stocks. It was helped by the Fed getting dovish in their December meeting. During the press conference, Chairman Powell made several comments indicating that the Fed was preparing to lower rates, which many started to feel would likely be by as early as March, 2024.
Then in the January, 2024 meeting, he was less dovish due to economic reports that suggested March would be too early. This put a bit of pressure on gold but even more downward pressure on the gold stocks.
During the last quarter of 2023, the major gold stocks, gold stock ETFs and smaller gold stocks bottomed and were starting a more positive trend. Then in January and into February they returned to weakness and have given back most of the gains.
A key catalyst for gold and gold stocks that many are watching with intense focus is when the Fed will lower interest rates. If the economic numbers look to be softening which will give the Fed the dot plots they are looking for, confidence goes up. If the numbers are strong, regardless of the reality that they constantly get revised down, investors in the gold stocks panic and sell on the lows.
Even though the action in gold is giving reasons to be optimistic. It bottomed in early October, 2023, at a little over $1800, and since late November, 2023, it has stayed above $2000. The gold stocks also bottomed in early October and then firmed up nicely from their lows, until recently when for the most part they have given back all the gains and are now back to the October lows.
In early October, 2023, the US dollar (USD) index topped at 107 and by the end of December, 2023 it traded down to 100. This action is a precursor to what will happen when the Fed actually lowers rates. There are plenty of reasons why they will lower in 2024, one key reason is that it is an election year.
Trump has already said he won’t appoint Powell if he gets in, not only will Powell be ousted but many of his team will get the pink slip as well. Even though Biden doesn’t know where he is half the time, they will prefer him as it will allow Powell and his crew to keep their spots at the Fed.
What surprises me is how currency traders focus so much on the headlines and don’t dig deeper. The devil is in the details, but the trading is usually on the headline not the details.
A perfect example is the January, 2024 Fed meeting and the runup to it. The economic numbers came out stronger than expected which had the currency traders taking a March cut off the table. Then the Fed announced no change to interest rates, and at the press conference took a March cut off the table.
On the Sunday after the Fed meeting, Powell did a 60 Minutes interview, repeating what he had said during his press conference and during the question and answer session after his speech. At both of those events he basically said they want more evidence inflation is trending toward 2% and that they don’t want to move too early.
So the headlines became no change to rates at this meeting, no cut in March and they need more data before they cut.
Reading between the lines paints a different picture. They are done raising rates and the next move will be to lower rates. They believe the evidence in the data dot plots haven’t reached where they feel comfortable cutting rates yet, but they are coming, even if they have to manufacture them.
Manufacturing them to fit their narrative is exactly what they do. We have seen this time and time again, yet traders still pay attention like the data is real. Case in point, the economic numbers come out to justify the Fed’s hawkish policy, then consistently get revised down. Everybody pays attention to the initial data and ignores the revisions.
I get it, traders will trade. They will use any excuse to trade because they make money on trades. They play along with the smoke and mirrors show coming out of the government economic data and the Fed’s commentary.
Powell brings the dogs and ponies out to do their dance, and the Wall Street traders use their computer trading on rinse and repeat. The trend is their friend until it changes and a big change is coming.
Take a wild guess what is going to start showing up in the economic data? If you pick that the data starts trending toward lower inflation that gives the Fed the dot plots to start lowering rates in an election year, you win the prize.
It really doesn’t matter that the Free Money Era after the 2008 GFC has created a Death Spiral of Debt, even though it should. The current debt servicing costs is around $1 trillion, don’t be surprised when it comes in closer to $2 trillion than $1 trillion in 2024.
You also shouldn’t be surprised when the deficit is well over $2 trillion in 2024. The politicians have two hot wars to fund, and it looks like other countries are on the verge of joining in to make the military spending keep growing. Plus, the politicians need to persuade voters to back them in the election.
These things combined makes it a certainty that the deficit will get worse and the debt will keep climbing from its current level of $34 trillion to nearly $40 trillion by the end of the first year of the next president's term. No matter who wins, $50 trillion is in the cards by the end of the next president’s full term.
Trump’s campaign will include talking about the debt crisis, and inflation because voters feel that pain and will blame Bidenomics. Meanwhile Biden and his crew will keep spending because that is their path to reelection. Who knows which side will win, but you can rest assured that whoever is in the White House, the Washington politicians in power will keep spending.
They will all promise they will cut spending and address the debt crisis while campaigning, but just like traders trade, politicians spend. It’s what they do. The only difference between the left and right is where they overspend. The Death Spiral of Debt is here to stay no matter who the political leaders are, the only thing they are good at is making sure the debt keeps growing.
The Fed will keep the Ponzi Scheme going by lowering rates so they can pump more debt into the system to help the Biden administration stay in power. They will crank up the fiat money printing press to keep the house of cards from falling in.
The central bankers in the East see the writing on the wall and are moving to a new Gold Standard in real time. Economics has a way of fixing stupid and it was a remarkably stupid move for central bankers to go off the Gold Standard in the first place.
Allowing politicians in the G7 nations to have the ability to print money excessively and politicians to spend on what is perceived to be an unlimited credit card is why the US and the world is in a Death Spiral of Debt.
The central bankers in the G7 nations can ignore the debt crisis, but those in the BRICS nations are not. They see the same smoke and mirrors coming from the Fed and instead of buying into it, they are reducing their reserves of USD and US debt, while significantly increasing their gold reserves.
There are two reasons for their actions. They know the ramifications of the Death Spiral of Debt and are protecting themselves by being on a Gold Standard. The second reason is that they want a competitor to the US dollar for trade.
On the international trade front we are regularly seeing the BRICS nations striking trade deals in their domestic currencies. Another trend is developing that is very bullish for gold as they are also making trade pacts to transact in gold. It is clear to anybody watching that the BRICS nations want options to the USD for trade. This is not discussed much in the media in the G7 countries, nonetheless it is happening in real time.
Plenty of things are lining up for an imminent strong move above $2100 for gold. Yet the investors in gold stocks don’t seem to think the factors lining up for gold will be bullish for gold stocks.
To summarize the bullish indicators for gold, there is a global debt crisis led by America with over $34 trillion of debt, and annual budget deficits well over $2 trillion that look to grow with two hot wars to help fund. There are other countries that look to be lining up to put pressure on the US military in the Middle East. Interest on the debt is over $1 trillion and looks headed toward $2 trillion with the Fed ignoring the effects of their interest rate policy.
The weight of the Death Spiral of Debt is overwhelming with interest rates where they are and 2024 is an election year. The Fed has stopped raising rates, and the next moves will be to lower rates. Maybe not in March, but it is coming. The overwhelming Death Spiral of Debt is one reason that they have to lower, the second big one is that the Fed doesn’t want Trump to win and will lend a helping hand to Biden with lower rates.
Lower rates will take pressure off voters that are drowning in debt, and the labor market is not being kind to them either. The labor force participation rate is dropping. More government jobs are being created than in the private sector. When it comes to the private sector, there are plenty of layoffs at big companies and those people switch from high paying jobs to lower paying jobs. Yet, they are still counted the same way in the statistics.
The headline makes it look like the labor market is strong, while in reality it is far from it. The currency traders take the headline labor numbers to mean the Fed will not lower rates and pile into the USD. Which puts pressure on gold. The US dollar is very overbought on the idea that the Fed isn’t getting prepared to lower rates, despite the Death Spiral of Debt and election season about to get in high gear.
While the USD is overbought, gold is significantly oversold from a technical perspective. Meanwhile demand from China, India and the BRICS central bankers is powerful, as can be seen in the latest World Gold Council report that gold demand hit a new record in 2023. This follows 2022 that was also a new record and they are expecting 2024 to be another record year for gold demand from the central bankers in the BRICS nations.
This is a powerful trend for gold, especially when considering that the supply chain for gold is weak and getting weaker. The supply chain is broken from the major miners all the way down to the explorers. For much too long there has not been enough money spent on exploration that lead to new discoveries that could then be moved into development.
With not enough projects in development it means that the small gold miners have growth issues, same with the mid-tier gold miners and majors. A chain is only as strong as its weakest link. From the explorers all the way up to the majors, all the links on the gold supply chain are broken.
The issues with the gold supply chain, and the demand for gold, have the stage set for gold to go much higher. Gold has broken through $2000 and it is trading like that is the new base. A key technical indicator I’m watching for is gold to break through $2100. After that I can see a series of new all time highs during 2024.
Looking at the way the gold stocks are trading, it is clear most gold stock investors have no confidence that 2024 will be a good year for the gold stocks. They see gold doing very well but then look at the prices of their gold stocks which gives them no confidence.
It is important to note that if you look at who is buying gold, Chinese, Indians and BRICS nations' central bankers the big picture becomes clearer. Those groups buy gold, not gold stocks.
So the next logical question is to ask what will help the gold stocks recover from their depressed valuations? One potential catalyst is when gold goes over $2100 and starts making new record highs against the USD.
They say that the cure for low prices is low prices. Gold stocks definitely are suffering from low prices. Something else that few seem to pay attention to is that the trading volume on the gold stocks is also very low.
When I’m watching for a bearish trend to get more bullish, I look for low valuations and low trading volumes. Plus, I look for the modest ardent bulls to be licking their wounds and feeling like the bear market will never end. We are there now.
Let’s Look At Some Gold Stocks
Barrick Gold
Barrick’s stock bottomed in early October, 2023, then rallied by around 20% from its bottom by late December, 2023. It hit a wall and has given back all the gains and is now trading down to the October lows. Although they, like other majors, have healthy margins between their cost of production and the current price of gold, they are not getting any joy in their stocks. Investors in major gold stocks are seeing them buying back their stocks and paying dividends, but they want growth. They abandoned exploration many years ago, so they can’t really grow with the drill bit. There aren’t enough mid-tiers, small miners and developers for them to use the acquisition route for growth. I think this will put them in the position that they will have to invest in the smaller companies to help the minor league teams get stronger. I can see the writing on the wall that they will want to be considered the partner of choice for the minor league players. I’ve seen a trend developing over the past couple years that instead of doing junior abusive deals, majors are doing junior-friendly deals. This tells me they see the need to be the partner of choice and I expect to see more junior-friendly deals as it will show they are committed to growth. I can see Barrick being a significant player in doing these kinds of deals and also helping their smaller partners with key technical expertise.
Newmont Corporation
Newmont also suffered during 2023, they made their year low in early November, and had a significant rally off those lows by the end of December. Then in 2024 they gave back all those gains and they are trading lower than the November lows. They went down the acquisition path to secure their future growth by taking over Newcrest, but haven’t been rewarded for it. In fact, they have been punished for it. During a bear market, investors are grumpy and will use any reason to sell. In the long run, they probably made a good strategic move to buy Newcrest as it will help them stay as the number one gold miner. When big companies buy other big companies there is almost always a period that investors want to see how integrating the acquisition works out. Newmont is going through that phase now and we will see if this is an accretive acquisition. Ultimately, I think they have limited options to buy growth and I think they will also have to be seen as the partner of choice for the minor leagues of the gold mining space. I’m certain we will see Newmont also enter this game by making some junior-friendly deals by putting money into the small miners, developers and explorers.
VanEck Gold Miners ETF
This ETF is one of the most highly watched gold stock ETFs that is often referred to by its stock symbol GDX. It has followed a similar path as Newmont and Barrick, actually doing somewhat better. It also bottomed in early October, 2023, then rallied and ended 2023 significantly off the October lows. It has given back most of the gains but not all of them. As I think gold is oversold and a rally is imminent, it looks like the GDX can make a higher low and rally off it.
Summary Of The Major Gold Stocks
When looking for a signal that gold stocks are moving out of a bear market and into a more bullish trend, the biggest gold miners will be the first to move. It was looking like that was happening during the last quarter of 2023.
But, we didn’t get the follow through in early 2024. In fact, we got sucker punched and the two largest gold miners gave back all the gains after they bottomed in the last quarter of 2023 and rallied off the lows.
We saw similar action in the GDX, but it is showing maybe a ray of hope as it hasn’t given back all the gains it made after the rally off the lows in the last quarter of 2023.
Personally, I never invest in major gold mining companies. They don’t have the risk reward profile that I like. But, I do follow them because they are first movers when generalist investors start getting bullish on gold stocks. They are top of mind companies when generalist investors think of gold mining stocks. GDX isn’t for me either as I prefer picking my own stocks instead of following an index of stocks because you have to take the whole basket when some of them I like and others I have no interest in owning.
Nonetheless, when generalist investors consider owning gold stocks, the household names of the biggest gold miners and GDX are the first to come to mind.
That is why they are the first movers and can give strong signals that generalist investors are getting more active in the gold stocks. We started to see that in the last quarter of 2023 when the USD traders were starting to anticipate that the FED would lower rates in March, 2024.
A March rate cut may be off the table, but it is clear the FED has stopped raising rates and the next move will be to lower. It is a when not if question for me based on the factors mentioned earlier in this report.
I think the USD traders will make moves before it actually happens. They won’t want to wait for the event to happen as when it does a lot of traders will be trying to head for the exit when they actually pull the trigger on lowering rates.
The USD is looking significantly overbought at the moment while gold looks primed to make a move into new record territory against the USD. Ultimately, improving the sentiment toward depressed gold stocks which are at very low bases from the majors all the way down the food chain to the explorers.
Nobody really believes we are at a magical time for gold stocks, just like they were nonbelievers prior to the 2001 to 2011 gold bull market. I do, as I’ve seen this movie before.
Special Situations Picks
McEwen Mining
I originally made McEwen Mining a pick for two key reasons. One is that I was aware they were having issues at their gold mines, but felt they were getting overly punished and most were disregarding their efforts to turn them around. The second reason was I was impressed with their Los Azules copper project that the market was pretty much ignoring a couple years ago.
Shortly after making them a pick in the reports, I reached out to Rob McEwen inviting him to come on Rocks And Stocks News. He graciously accepted and since then has been a regular guest. I enjoy having Rob McEwen on the shows because he was the founder of Goldcorp and built it from a hugely successful gold mining company during his tenure. In addition, he is a very successful investor in mining stocks. His regular interviews helps my audience learn about the growth efforts at McEwen Mining and he also offers his insights as an investor in the mining industry which is tremendously beneficial for the Rocks And Stocks News audience.
Over the past couple years, the team at McEwen Mining has been focused on improving the gold mining operations. It is paying off as can be seen in their recent report on 2023 performance. They saw progress on their production and brought down costs of producing gold. Showing that their efforts to turn things around at their gold mines are moving in the right direction.
Additionally, they are doing a lot of exploration drilling. I believe this is an important factor to consider as Goldcorp was a small struggling mine that drilled below the mine workings and discovered the bonanza-grade gold zone that transformed the company into one of the lowest cost producers in the industry with very high margins. They certainly haven’t hit something like Goldcorp’s Red Lake Mine, but I am seeing signs that they are having significant success with their drilling that few are paying attention to. The only way to hit a game changer discovery is through drilling, I’m keenly watching their drilling to see if they can make history repeat.
Over the past year and a half, they have seen their stock bottom and double almost entirely because of their holdings in the private company McEwen Copper, of which McEwen Mining owns 44.7%. Stellantis, one of the world’s largest car makers, owns 19.4%. Nuton, a Rio Tinto venture, owns 14.5% and Rob McEwen owns 12.9%.
When Nuton made an investment into McEwen Copper, it brought significant investor attention to McEwen Mining. They have a proprietary method to extract copper from deposits like McEwen Copper has at the Los Azules project. Shortly after Nuton made its first investment, Stellantis made their investment into McEwen Copper. I think this surprised many because it was the first time a major car maker made an investment into a copper project. Then Nuton raised their stake in McEwen Copper with a second investment.
Los Azules is an impressive copper project, it is one of the top 10 undeveloped copper projects in the world. It is also in the lowest cost quartile for companies on the list of undeveloped copper projects. They currently have 20 drill rigs on the property and have drilled 36,000 metres of a planned 55,000 metre drill campaign. The information from this drilling will be used for them to complete a Feasibility Study. They should have plenty of news flow to report assays from the extensive drill program underway.
Rob McEwen is very adept at spotting value that is not being rewarded and is well aware of tremendous opportunities in undervalued mining companies. In addition to publicly commenting on how oversold the mining sector is, he also sees a need for consolidation in the sector, especially with smaller companies. When he originally started building Goldcorp, it was through consolidating a few companies to make Goldcorp. I can see the potential for this to be an avenue of growth for McEwen Mining.
When I look at McEwen Mining, I see a gold miner that is doing the work to turn around their gold mines that went through a challenging period. I also see the exploration potential through the aggressive drilling they are doing. A gold miner can grow production through improving operations at their current mines, as well as with exploration success and additionally through acquisitions. I see the realistic potential for all of these endeavours to be paths to growth.
Plus, they have a big interest in McEwen Mining that has an exceptional copper project in the top 10 of undeveloped copper projects in the world. That also is in the lowest cost quartile of undeveloped copper projects. The world needs a lot more copper, and the copper mining business needs more projects like Los Azules.
Collectively, when you look at their various assets, plus their team and their investors, it makes for a unique story in the mining space. Yet, there are exploration companies with higher valuations. I believe the drivers of growth for the company are not well understood, in a more bullish market for copper and gold, they will shine brighter.
i-80 Gold
i-80 Gold is my highest conviction pick as a production growth story. They are developing three future mines at the same time. Some of the common denominators amongst McCoy-Cove, Granite Creek and Ruby Hill are high-grade deposits that are all growing with aggressive drilling; they all have excellent predictability and continuity.
It is often said in the mining business that “grade is king.” That isn’t entirely accurate. For example if you have high-grade metal, but it is spread out with gaps between it, the mine will struggle because of the waste rock between the high-grade metals. Therefore, in reality, “grade and continuity are king.” It is very rare to find three high-grade projects with impressive continuity in one mine developer, but that is exactly what i-80 has at there projects in Nevada.
Simultaneously drilling three projects to infill, expand and explore for new discoveries, while also moving them toward production is an ambitious plan. But, that is exactly how small miners are built into big miners.
The only knock against the company is that they are trying to accomplish this in a challenging market for mining companies. Sure that is a steep hill to climb, but it would take much longer trying to time the market and pull it off with perfect timing. Mine builders should focus on building mines, not trying to time the market with precision.
To pull off their ambitious goals needs certain attributes. First and foremost are the projects. One of their key assets is Ruby Hill. They have an incredible group of discoveries on the project including a Carlin style gold zone which is located on the west side of an historical open pit. To the south of the pit is a group of high-grade CRD zones that in addition to zinc-lead-silver is juiced up with secondary enrichment of high-grade gold. To the east side of the pit is a high-grade skarn zone.
These various zones can all be reached with the same network of underground workings. Finding a project like this is rare, especially with the high-grades in the various zones.
They are getting attention for it, a few months ago they signed a letter of intent with an unnamed mining company to develop the project as partners. They are working their way through due diligence and the paperwork to finalize the deal. An interesting point is that there were a few companies interested in partnering with i-80 Gold to develop the project so i-80 Gold was able to pick the best fit for them. They were attracted to the unnamed company because it enabled i-80 Gold to keep a majority ownership enabling them to be the operator which means they keep their future in their own hands. Until it has been completed, it has to be considered a potential deal. Ewan Downie has been a serial mining entrepreneur with a reputation for making good deals. I like his chances to do it again.
Their Granite Creek project is another exceptional project. They recently had a news release with drilling results. Their CEO, Ewan Downie put the project into perspective with his quote in the news release. He stated, “The continuity of high-grade mineralization in the South Pacific Zone is outstanding. The results from our 2023 definition programs demonstrate the potential for the SPZ to be a significant deposit located on strike from one of North America’s largest gold mining operations. Mineralization remains open at depth and along strike to the north with the average intercept grade in the northern extension definition program of approximately 15 g/t gold with true widths ranging up to 15 metres.”
Shortly after that news release, they put out drill results from their McCoy-Cove property. In that news release their Chief Geologist, Tyler Hill had a great quote that describes the project very well. He stated, “Deposits with continuous high-grade gold mineralization over substantial widths like those at Cove are rare. Our ongoing program continues to confirm that Cove is one of the highest-grade, development-stage, projects in North America. Mineralization remains open for expansion and significant exploration targets exist on the large land package.”
It is clear they have the right assets to reach their goals. Another important factor is people. They are led by Ewan Downie who built Wolfden Resources from a small exploration company to get taken over. Before getting bought out, they spun out their gold assets to create Premier Gold. They turned Premier Gold into a gold miner, then got bought out by Equinox for Premier’s Greenstone project. They spun out Premier’s Nevada projects to create i-80 Gold.
Since i-80 Gold went public a few years ago, Ewan and his key team that have been with him for many years surrounded themselves with mine builders and operators. All of them came from majors in Nevada where they built up extensive experience building and operating some of the most successful mines in Nevada. As they say in sports, they have a deep bench.
Jurisdiction is also very important when building a high growth miner. I-80 Gold is completely focused on Nevada which is consistently ranked as one of the top jurisdictions in the world for mining.
Access to capital is crucial, they have been able to finance all of their developments to date, while delivering exceptional results. This has a way of putting a mining company in the good books with their financiers. The deal they are working on for Ruby Hill will take pressure off them, which will enable them to keep on the aggressive pace of developing Granite Creek and McCoy-Cove.
The past few years have not been kind to gold stocks, but during that period, i-80 Gold has over delivered with their drilling. Ultimately, the quality of their projects, people and jurisdiction put them in a unique position to deliver with their stated production growth goals. If they do deliver on their growth goals, it will give them a peer leading growth profile.
The bottom line is that there are not nearly enough companies like i-80 Gold in the mining space, many more are drastically needed. Investors in the sector looking for companies of this size have few options. What they will have a hard time doing is finding ones with three projects of the quality of McCoy-Cove, Granite Creek and Ruby Hill.
Goliath Resources
When I first started covering the company it was due to their Surebet Zone discovery. They followed that up with the Bonanza Zone discovery below the Surebet Zone. During the 2023 drilling season, they made a game changer discovery of the Golden Gate Zone.
The various discoveries at their Golddigger project are pure grassroots discoveries. They were made due to retreating glaciers and snowpack that exposed impressive zones that had never been seen by human eyes. Their geological team saw the potential and in three short seasons of drilling have made a series of impressive discoveries. Making things even more exciting is that Golddigger is at the southern end of the prolific Golden Triangle of British Columbia, Canada.
Surebet got them started, when their geological team saw an outcrop of mineralization that goes from one side of the mountain to the peak and then down the other side. It has been traced for nearly 2 square kilometres and around 700 metres of vertical relief from the top of the mountain down to the valley. Drilling has led them to outline a zone that has an average thickness of 6 metres and an average grade at nearly 9.04 g/t AuEq. The top of it is outcropping, and they have drilled a large zone which is contained within Hazelton sediments.
Directly below Surebet is the Bonanza Zone which is located at the contact of the sediments and volcanics. This contact can be traced over a long distance. Drilling has shown similar grades and thickness as the Surebet Zone and it remains open. In addition to increasing the size and grade of the Bonanza Zone during 2023, their prospecting efforts came across an important discovery on the east edge of the zone called Jackpot. What makes the Jackpot discovery so impressive is that it is very close to Bonanza, slightly below Bonanza and entirely in the volcanics.
Under the Bonanza Zone is the Golden Gate Zone which is a new discovery that they drilled into during the 2023 drilling season. They found it toward the end of the drilling season, so they have only got limited drill holes into it so far. The Golden Gate Zone is entirely in the volcanics. So it shows that the high-grade gold mineralization continues into the top of the volcanics. I will be watching with excited anticipation for them to get a bunch of holes into volcanics in the 2024 drilling season, as this could be part of the feeder system that caused the gold mineralization at the Surebet and Bonanza zones.
It is not easy to make grassroots discoveries, especially in a place like the Golden Triangle. What makes the Surebet, Bonanza and Golden Gates zones so impressive is that they have returned many hits of high-grade gold, and a remarkable amount of visible gold. The system is very well behaved with impressive continuity and it is predictable as they have hit gold mineralization with over 90% of their holes. It is clearly showing that it is a large and powerful mineralizing system with the highest zone being Surebet in the sediments, right below it is the Bonanza Zone at the transition from the sediments into the volcanics, then below that into the Golden Gate Zone in the volcanics.
I can’t wait for the 2024 drilling season to crank up in a few months to expand their drilling into the Surebet, Bonanza and Golden Gate zones. When I describe what they have found to non geologists, I present it as a three layered cake. The top layer being Surebet and Bonanza in the sediments and at the contact of the sediments and volcanics. The middle layer being in the volcanics and somewhere below that the bottom layer being the potential heat engine for the entire system.
I’ve been in the exploration business for the past three decades, I know very well how rare gold discoveries like Goliath’s are to find. Which is why Goliath is my highest conviction gold discovery story.
Meridian Mining
When I first learned of Meridian, what stood out the most to me was the impressive numbers in their preliminary economic assessment (PEA). Highlighted by low capex to build, high IRR and rapid payback of the capex of less than one year of production.
I’m a big fan of volcanogenic massive sulphide deposits, especially the gold-copper variety. They have two zones, Cabacal and Santa Helena. They start at the surface and they assessed the economics based on an open pit operation. Another interesting aspect is that they have secondary gold enrichment, with that portion of the system still to be drilled.
Most mines these days are looking at well over a billion dollars to build, what makes Meridian’s Cabacal project so impressive is that the capex in the PEA is less than $200 million. Most mines these days need a major mining company with deep pockets to build them. Cabacal is the kind of project that can be built by a junior mining company.
Equally as impressive is the internal rate of return that is nearly 60% which makes it one of the highest IRR undeveloped gold-copper projects in the mining sector. Low operating costs and high grades relative to the opex is why they have such a high IRR.
Another factor that makes their PEA and deposits impressive is that it is all based on the Cabacal deposit. That is where they will build the processing plant, and it will be the hub for other deposits. The other deposit they have been drilling to expand is Santa Helena, it won’t have to worry about building its own processing plant, it will use the one at nearby Cabacal. Which means that Santa Helena is a bonus deposit that benefits from the Cabacal plant.
It is important to note that VMS deposits are found in clusters, so far they have only been drilling on Cabacal and Santa Helena. Beyond those two deposits, they have a series of geophysical anomalies much like Cabacal and Santa Helena. They have a large land package that looks to contain an entire VMS belt.
The exploration potential at Cabacal and Santa Helena is still open along strike, and they have this secondary gold overprint that is juicing up the VMS deposits, the depth potential to explore the gold overprint is wide open as well. Then they have a series of other targets along the belt that are great exploration targets.
The Cabacal project is an infrastructure rich region of Brazil, which is one of the best mining jurisdictions in South America. Practically every major mining company is in the country with mines or wants to be. This is a great indicator of the friendliness toward mining in a country and Brazil is one of the best on the continent.
Another benefit of Brazil is mining people. Brazil is a mature mining country with an excellent geoscience education system that produces plenty of mining people. Even in places like Canada, the number of students entering universities to study geology is very low considering the demand for them.
There is a people problem in mining, but Brazil doesn’t have that issue. This can be seen in the Brazilian based team. They have all the local expertise needed to advance the project toward production.
The low capex, high IRR, fast payback of capex, the quality of known deposits and the exploration potential beyond those known deposits are why this is my highest conviction story for gold-copper companies in the development stages.
Alta Copper
Alta Copper is a special situation for me primarily because they have a top 10 undeveloped copper project in size and grade worldwide held by a junior mining company. More copper projects like these are needed to meet copper demand and for mining companies to develop.
They already have a major in Fortescue interested as they own a large shareholding in Alta Copper. I also think it is important to note that Fortescue nominated one of their top mine builders to the Alta Copper board of directors.
They are working on an optimized PEA, with the help of Whittle Consulting that are experts at optimizing projects. The past PEA already showed robust economics using less than the current copper price. With the copper price up and the optimization with Whittle Consulting I’m very excited to see the new PEA.
Additionally, they are planning to do more drilling, as the zones on the project are open for expansion. Most of the past drilling has been done at the Canariaco Norte zone, with minimal drilling at Canariaco Sur and Quebrada Verde. Canariaco Norte and Canariaco Sur are very close to each other with no drilling in between them. My guess is they would like to see if those two zones are one.
One thing that stood out to me from a recent interview I did with Alta Copper’s chairman Giulio Bonifacio was when he talked about the strategies for the optimized PEA. He talked about how they could look at it in a couple of ways. One would be to start with a smaller operation and ramp it up, which is the way a small company would go about developing it. The other is to go with a much bigger operation, which is how a major mining company would go about developing it.
Considering that they already have a major as a large shareholder, they decided to go with the bigger operation assessment as Canariaco already shows it is the kind of project that would need to be developed by a major.
I’m very bullish on copper because of the supply and demand fundamentals. Copper production is down at the major mines, discoveries are down, average mining grades are down. Meanwhile demand is strong and getting stronger as the world transitions to alternative energy sources and electrical vehicles. Plus, the aging power grids in developed nations need to be updated to meet the transitions and then you also have the needs for power grids in developing nations.
I’m always looking for good copper stories, but they are hard to find. Especially those in the development stages, there just aren’t enough. Most in the development stages are held by much larger companies than Alta Copper.
Silvercrest Mining
Silvercrest is a relatively new gold-silver mining company, only in their first few quarters of full commercial production. They entered full commercial production owing around $100 million, and in a short period of time they have paid off all their debt and are now sitting on around $100 million in cash.
The reason they have been able to pay off the debt and build up cash so rapidly is they have a low cost of production and high grades which results in generating exceptional free cash flow.
They have exciting options to use the cash. They can put it back into replacing what they mine and to grow their resources. Additionally, they can buy back stock, which they have been doing and consider paying dividends. Plus, this gives them opportunities to be on the hunt for acquisitions.
One model for a small miner to grow into a mid-tier is to bring a high margin project into production then use the free cash flow to buy other deposits that aren’t big enough to move the needle for mid-tier and major mining companies. There are very few small miners out there, especially with high margin projects so they are well positioned to use this model for growth.
Another model for growth is with the drill bit on their own project. They have a cluster of epithermal veins, but have only done extensive work on a couple of them. The known veins are open for expansion and the remaining veins in the cluster are underexplored.
They have mentioned that having a processing plant already paid for helps the economics on the other veins on their project. Plus, they are looking outside their own ground for nearby deposits that could benefit from using their plant for processing.
They are probably not big enough for a major to take them over, mid-tiers could definitely have a look. The smaller miners could also team up to make a bigger mining company, they could be a company to lead a consolidation with their impressive free cash flow.
In Closing
While gold is doing very well, gold stocks are suffering from depressed valuations. Gold is primed to break out above $2100 and make a series of new record highs against the USD.
Based on the valuations of gold stocks from the largest miners, down to the explorers, few believe a bull market for gold stocks is coming. I’m not one of those people.
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. Meridian Mining is a sponsor of Rocks And Stocks News. Alta Copper is a sponsor of Rocks And Stocks News, and Allan Barry Laboucan is a shareholder.
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.