Gold Standard 2.0 Will Be Incredible For Gold Stocks
Although the current gold bull market is not playing out exactly the same way as the one from 2001 to 2011, it has many of the same hallmarks.
During Act 1, gold had been left for dead during the Dotcom Era, but as the Chinese and Indian economies were emerging, the retail buyers in those countries were aggressively buying gold. Part of the problem that caused gold to be left for dead was the gold miners were aggressively hedging their gold production.
Every time gold would rally, they would build up their hedges and cap the price. When the Chinese and Indian buyers started to overwhelm the hedging of the gold miners, gold blasted off and went on a decade long bull market.
The stage is set for Act 2 to outperform Act 1 and be a long running Broadway hit.
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Spotlight On A Top Pick
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McEwen Mining is pretty much completely being followed for their interest in private company McEwen Copper. I would argue that even based on the entire valuation being focused on McEwen Copper that even then it is being discounted, while their gold mining business is left by the wayside.
McEwen Copper’s Los Azules is a no-brainer to become a spectacular future copper mine. It is in the top 10 of undeveloped copper mines and also in the lowest cost quartile for copper development projects. Rio Tinto’s Nuton venture thinks highly of it as they have invested $100 million into McEwen Copper.
There is a great analogue for price discovery of how underappreciated Los Azules is when looking at the takeover bid by BHP and Lundin Mining that offered C$4.5 billion for Filo Corp. The new venture will have Filo’s project Filo del Sol and Lundin’s Josemaria. Los Azules, Filo del Sol and Josemaria are all in the same province of Argentina.
But, and this is a big but, Los Azules is larger than Filo del Sol and Josemaria combined, plus has a lower cost of production. Filo del Sol and Josemaria are at elevations equal to base camp Everest, while Los Azules is a few thousand metres lower in elevation.
If Filo del Sol alone is worth C$4.5 billion, it is important to point out that Los Azules is valued at around 25% of that valuation. Looking at the metrics and elevation difference between Filo del Sol and Josemaria, there is a strong argument to be made that Los Azules will be a mine many years before Filo del Sol and Josemaria.
Another engine of growth for McEwen Mining is their gold mines. They are a high cost producer, but they are working on efforts to bring down costs and increase production. Combined with the current price of gold which is helping improve the bottom lines for their gold mining operations.
But the real gem for me in McEwen Mining gold projects is the exploration potential at their Fox Complex. I’ve done my homework on the exploration potential and feel they have an explorer’s dream project at the Fox Complex.
The exploration potential at the Fox Complex reminds me a lot of Goldcorp’s success while Rob McEwen was running the company. It was a small struggling gold miner, then they drilled deeper below the mine workings, hit the bonanza-grade portion of the system, and the rest was history.
The bonanza-grade portion of the system helped them increase their production by ten times, plus it was very low-cost to mine and was a free cash flow machine that made Goldcorp under Rob McEwen’s leadership one of the best performing gold miners in the business.
Everybody following McEwen Mining seems to be entirely focused on the copper story. While I don’t hear anybody following the company talk about the potential for a Goldcorp type success with the drill rig, except for me.
McEwen Copper has an exceptional copper project that will be a remarkable future copper mine. McEwen Mining has impressive growth potential in copper and gold.
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In Act 1, the US dollar (USD) was strong, this time around it is hailed by USD bulls as the least dirty shirt in the pile of dirty shirts. Back then, the debt situation was nothing like it is now as it is massive and in a Death Spiral of Debt with the straw that will break the debt camel’s back being the cost of servicing the debt.
During Act 1, prior to the show opening, tech stocks were trading at insane valuations due to the Dotcom boom. Which is a lot like we have now with tech stocks trading at extremely stretched valuations and Bitcoin taking on the role of the Dotcom stocks. The Dotcom bust was a major player in sending gold much higher as well as the gold stocks.
We are still in the earliest part for Act 2 of the Gold Bull play, the curtain hasn’t even fully opened yet. Until February of this year, the gold stocks were left for dead. But, they have improved since then, with the best in breed gold miners doing very well. The smaller gold stocks for the most part are still zombies.
In Act 2, the Chinese and Indians are still important players, but the central bankers of the BRICS nations are doing the heavy lifting as they put themselves on their own Gold Standards. To date, the generalist investors in the West have only dipped their toes in and they are tepid in their enthusiasm.
Ultimately, the Death Spiral of Debt is going to force the revenge of the Gold Standard. It is by far the soundest money in a world of dirty shirt fiat currencies. Currently, golf is in second place when it comes to reserve currencies, it has passed the Euro and has the USD in its crosshairs.
Act 2 of the Gold Bull play is going to make Act 1 look like the third opening act at a concert.
Smart money investors will be well rewarded for positioning themselves for the Gold Standard 2.0.
All the best,
Allan Barry Laboucan
Disclosure
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.
