Hunting Gold Stocks With A Rifle, Not A Shotgun
In this report I discuss Agnico Eagle, McEwen Mining, Alamos Gold, SilverCrest Metals, i-80 Gold, Goliath Resources, Dryden Gold, Canadian Gold Corp. and an unnamed pick.
During my 30 years working in the mining sector, I have heard it said many times that supply and demand doesn’t matter for the price of gold. For 20 of those 30 years, they have been right. The reason is that western players were able to control the price using highly leveraged derivatives. The price was driven through the paper market.
I’m not saying that as a conspiracy theory. Back in the 1990s, the culprit was actually the major mining companies that hedged their production. It was a great strategy when the price of gold was going down. They could sell their gold at higher prices than the spot price and promote how smart they were to be hedged.
But, then in 2001, the price went against them, and when it started to trade above their hedged prices their biggest investors started to ask questions and punished them. This caused them to have to close their hedges and was a catalyst for the gold bull market that lasted until 2011.
Back in the late 1990s, there was a big crowd of conspiracy theorists talking about a nefarious group of power players holding the price of gold down. What none of them mentioned was it was actually the major gold miners putting the gun to the head of the price of gold. Don’t be mistaken, the biggest culprit for the pressure on gold back then was the major miners and their hedging.
After 2012, we were well into the Free Money Era after the 2008 GFC. The free money made it easy to leverage up to trade the trends on Wall Street Stocks. It created a bubble most “investors” focused on, gold became out of favour. Once again, it became an easy trade to pound on gold shorting it through the paper market. That continued until late in 2015, when it got a little less easy as gold went sideways through 2016 to late 2018.
A few months into 2019, the easy paper trade to pound on gold got very difficult as it started a strong rally that took it up to $2000 by the middle of 2020. This was a higher high than the one in the later part of the 2001 to 2011 bull market run.
The action from 2012 until 2020, created a perfect cup formation, with a higher high on the right side of the cup. The handle was put in from mid 2020 until early 2022. Then for most of 2022, the paper shorts tried another battle to pressure the price, which concluded in the last quarter of 2022 with gold getting pushed down to just over $1600. Since then, it has no longer been an easy trade to push down the price of gold in the paper market, and it is only going to get harder.
From 2020 until early 2023, gold took three runs at $2000 and failed each time. But, instead of falling significantly after the early 2023 run to $2000, it showed relative strength. When I saw that happen prior to the PDAC, I wrote a couple articles describing why I thought gold was a coiled spring ready to break above $2100 and then set a series of record highs throughout 2024.
I’ve seen something happen several times during my career, when the crowd says something doesn’t matter. It doesn’t matter until it does, then it matters a lot and by then it is too late for those saying it doesn’t matter.
In the case of supply and demand in gold, it has reached the point that it is too late for the western players that are shorting gold in the paper market.
Effectively, what is happening in real time is the pricing of gold has gotten out of the hands of the paper market and is being driven by the people in China and India buying physical gold hand over fist, who are also competing with the eastern central banks that are not as interested in holding US dollars and US debt, and much more interested in increasing their reserves of physical gold.
The eastern parties aren’t buying paper gold, they are buying physical gold. In an amount that is pushing the price much higher as we have seen in the past month or so. They are seeing the debt crisis in the west, that is truly a Death Spiral of Debt. Plus, they want alternatives to the US dollar for international trade.
Some feel that the BRICS nations want to create their own currency to compete with the US dollar as the world reserve currency and the dominant currency for international trade. I think that is a long way from happening. What is happening right now, is they are making agreements to use their domestic currencies for international trade. But, that has its limitations as their domestic currencies aren’t exactly attractive for the other side of the trade.
The even bigger story to me is that I think gold will be the asset they use more for international trade. That alone will drive gold much higher as they will all need more of it to do their international trades in.
So gold serves two purposes for the BRICS nations. One is that they don’t need to hold as much US dollars as they move themselves to the Gold Standard. Secondly, they can use gold instead of so many US dollars for international trade. Heads gold wins, tails gold wins.
The supply of gold won’t be able to feed all the demand from the Chinese and Indian consumers buying, nor the central banks of the BRICS nations. This gets us back to the point that supply and demand doesn’t matter until it matters, then it is too late.
The western players have lost control of pricing gold with paper gold. Now the eastern players are pricing it based on supply and demand, and it is too late for the paper market to do anything about it. Can you hear me pounding on the table that gold is heading much higher?!
The other day I did an interview with Rick Rule. I think there are plenty of nuggets of wisdom in that interview.
Something that stood out to me when we were talking is how Rick spoke about the need to be selective in your investing in gold stocks. For example, he talked about index funds that hold the good, the bad and the ugly. Why invest in the bad and the ugly when you can focus on the good. I couldn’t agree more, if you're hunting for gold stocks it is much better to hunt with a rifle than a shotgun.
We also talked about how to hunt with a rifle. He mentioned resources that he has for free, others like his Investor Bootcamps and Conference in Boca Raton, Florida. In addition, he offers investors to send him a list of their stock holdings and he will rank them personally for free. I think investors should take him up on all those offers as it will make you a better gold stock hunter.
Another key thing we talked about that I really enjoyed was discussing how when sentiment improves for gold stocks, which ones move first and why.
Obviously, the household names like Barrick and Newmont, as well as index funds are first movers. But, when it comes to majors, I would much rather own Agnico Eagle than Barrick and Newmont. Agnico Eagle has been reporting records in reserves, production and operating revenue. You can see them already showing relative strength over Barrick and Newmont. Agnico Eagle is hunting majors with a rifle, while Barrick, Newmont and index funds are hunting with a shotgun.
Another group we talked about that are early movers when sentiment shifts in gold stocks are marginal producers. They have a higher all-in sustaining cost of producing gold. What happens when gold goes up is they turn from having some profit, or even losing money, to making money.
In this category, I think you can add torque by trying to look for ones that are making some profit, are making the moves to bring down their costs and also increase their production.
My favourite pick in this group is McEwen Mining. They are making the right moves on their gold mining operations to benefit greatly from higher gold prices. Plus, they own around 47% of McEwen Copper which has a top 10 undeveloped copper mine in size worldwide, with handsome grades that is also in the lowest cost quartile for undeveloped copper mines.
The world needs more copper mines, but the discoveries are down, the grades in discoveries are down and there are not enough copper mines in development. The gold miners see the supply issues and that the pipeline is not prepared to feed the demand coming from traditional energy in the developing world, nor for alternative energy, nor electric vehicles and the power grids in the developed world are not ready for any of this and need to be rebuilt.
All of this is going to need more copper production from existing mines, more new mines to be developed and more new discoveries.
McEwen Mining is positioned to make more money from their gold mines and they have a great copper mine of the future in their portfolio of assets as well. It is no wonder that they have been on a tremendous run since bottoming in late February and are making new 52-week highs. They are significantly outperforming their peers and the rising price of gold. This is another example of the benefits of hunting gold stocks with a rifle instead of a shotgun.
We also talked about the benefits of low cost producers. They are making a lot of free cash flow and as the price of gold goes higher, they will make even more.
When it comes to larger gold miners with low costs, I have two favourite picks in this category, one is Alamos Gold. They are producing gold well below the industry average, while also increasing production. They bought excellent assets when gold was much lower, on the cheap, and are turning those into low cost mines that will keep them at the bottom of the list in costs of producing gold. They have the recipe to be a stellar performer in a gold stock bull market, with the potential to significantly outperform their peers.
My other favourite low cost producer is much smaller than Alamos Gold, but for me I like them a bit better. I have been on the SilverCrest Metals story for a while in my reports and am more confident in their future now than ever before.
What stands out to me is that they are a relatively new gold and silver miner, they are only a few quarters into full commercial production. What impresses me the most about them is that they went into full commercial production with $100 million in debt. Since then, they have paid off all the debt, bought back stock and built up cash as well as gold and silver bullion to over $100 million.
That remarkable flip from debt to having a cash, and gold and silver, hoard is because their Las Chispas mine is a cash machine. It has low costs of production and high-grades. Alamos Gold and SilverCrest are top of the list for me when it comes to low cost producers that generate a lot of free cash flow. Ultimately, that opens them up to being able to buy back stock, pay dividends and also look for acquisitions.
The next group of early movers in a gold bull market are the developers. My favourite and it isn’t even close to any other developers is i-80 Gold.
They have only been a public company for a few years. They are the result of Premier Gold that was taken over by Equinox. The Premier Gold assets in Nevada were spunout to shareholders in the takeover to create i-80 Gold.
Since going public, they have added a remarkable group of assets and done key work to turn them into near term producers. It is very rare to find a junior mining company with three world class projects, which they have at McCoy-Cove, Granite Creek and Ruby Hill. Plus two processing facilities for them to use when bringing the three projects into production. All of this is in Nevada which is one of the best mining jurisdictions worldwide.
They have a goal to turn themselves into a 400 thousand ounce a year gold producer with these three projects. They have been drilling and advancing them during a tough market for gold stocks. When going through a bear market for gold stocks, pessimism is high and instead of being rewarded for their exemplary work, they have been punished over this past year.
But, I think they are ready to turn the corner. Mainly because of the quality of their various assets and the team they have with extensive experience finding mines, advancing them and building and operating Nevada gold mines for the majors.
Plus, from a technical perspective they have recently gone through a double bottom.
The final group that joins the gold stock bull market are the explorers. Hunting them with a rifle requires following their drilling results. I’ve been following gold exploration for 30 years and feel I have a pretty good eye for what to look for in drilling results. There are a few gold explorers that are at the top of my mind to discuss next.
Goliath Resources is my highest conviction gold discovery story. It is very rare for a gold explorer to make a pure grassroots discovery. Especially in a prolific mining camp, and one that finds a series of stacked gold zones with excellent recoveries. But, that is exactly what Goliath has found and I see the kind of results that suggests to me that they may have found a tier 1 gold discovery.
In that paragraph, I am well aware that I made a series of bold statements. I think they are justified by the evidence.
Their Golddigger project is in the Golden Triangle of British Columbia, which is a prolific mining camp well known for high-grade mines. Until recently, it was covered by glaciers which when they receded allowed their geological team to be the first to see the exposed rocks with outcropping mineralization.
During the past three seasons of drilling, they have found a series of stacked gold zones in the sediments, at the contact of the sediments and volcanics, as well as in the volcanics. They have released many high-grade holes.
What stands out the most to me is that over 30% of the holes have visible gold in them and they have over a 90% hit ratio of hitting gold in their drilling. This all suggests to me a big and powerful gold mineralizing system, that is high-grade and predictable. Those characteristics are rare and then when you consider the high recovery rates in their early metallurgical works easily makes this a special gold discovery.
Since early June of 2023, their stock has been trending sideways with an average price around 80 cents. Technical analysts like to say the longer the base the higher in space.
Two things that could give them tail winds are higher gold prices and their upcoming drilling season. I’m especially excited about the drilling that they will do in the volcanics below the sediments. They have already drilled into the gold system in the sediments, at the contact of the sediments and volcanics, as well as into the volcanics. Now the trick will be to chase the feeder system to the heat engine, I think they are onto that gateway in the volcanics.
Dryden Gold is another gold explorer that I am very positive about. In fact, I recently took a sizable position for me in their stock. This was because of historical results, their recent drilling and a recent interview that I did with their leaders.
During the interview, we discussed geological similarities between Red Lake, Ontario and their project in Dryden, Ontario. Maura Kolb is their President, she worked at the Red Lake Mine for Goldcorp. Her work in Red Lake, and her compilation of geological information about Red Lake and Dryden is very impressive.
We talked about the similarities and some key differences between these two regions. Both are orogenic gold systems, in rocks of the right age for such systems, and have the right deep crustal faults, secondary faulting and the right folding in the rocks. Of course, the most important is that they both have bonanza-grade gold in their systems.
In Red Lake, Goldcorp had to go down around 1000 metres to hit the bonanza-grade gold. On Dryden Gold’s project bonanza-grade gold had been drilled into in the first 100 metres of the surface. A possible explanation for this is erosion may have helped bring that part of the system virtually to the surface. If that is the case, and plenty more drilling will be needed to prove if that is what happened, they can reach it with relatively short drill holes.
Taking all of these things into consideration makes this an exceptional gold exploration story for me.
Canadian Gold Corp. has the Tartan mine in Manitoba. It only produced gold for a couple of years, but struggled when the price of gold was much lower. This doesn’t mean the project is a failure, it does mean that mining when it was done in the past was a failure. But, many times in the past when drilling around old mines or under them is where a new mine is found.
A perfect example of this is Goldcorp’s Red Lake Mine. It was a struggling mine when they were mining near the surface. Then they went deeper below the mine, found the bonanza-grade portion of the gold system, and when they were mining it they were one of the lowest cost producers of gold in the sector, and with the high-grade production generated exceptional free cash flow that made them one of the best performing gold stocks.
A common denominator of Goldcorp and Canadian Gold Corp. is that Rob McEwen was a big shareholder of both. Goldcorp is the past and Canadian Gold Corp. now.
What initially impressed me about the Tartan project is that in the old mine, there was a distinct high-grade gold zone with very good continuity that was going in a direction that suggested deeper drilling was needed. There were only a few historical holes deeper, but it had high-grade gold and showed that the gold system continued deeper.
Since Canadian Gold Corp. drilled deeper than the historical drilling, they confirmed that the gold system continues. From my own interpretation, it looks like not only does it continue deeper but it is bigger at depth.
To explore the deeper portions of the gold system they are using a mother hole and wedging holes off it to allow them to keep their drilling costs lower than drilling a series of holes starting at the surface.
It is still early days of drilling the depth potential of the orogenic gold system below the Tartan Mine. I like what I see so far and think they could also make additional discoveries at other targets on their project.
I also have an unnamed pick that you are going to hear a lot more about starting early next week when I interview their CEO. At the moment it is private, and as a private company they have been able to do some surprising things.
The key reason is the quality of their project. When I was first presented the geological story I was blown away by some key topics.
One is that it has historical oxide gold production in Nevada. Secondly, that past mining was confined to a small portion of a very large alteration zone. When gold bearing fluids interact with the country rock, it alters the country rock. As the saying goes, big systems leave big footprints.
In this case, there is a 20 square KM alteration zone, which makes it one of the largest in all of Nevada. I read a paper on the project and this project has been described as having similar geological characteristics to the Yanacocha mine, which is the largest gold mine in South America.
Upon further investigation I saw that the historical mining was only in the oxides at the surface in a series of open pits. The best of those pits was beyond the outcropping alteration zone under thin cover. Immediately what came to my mind was that they are only in a small portion of the alteration zone, the potential is that there could be more of these oxide deposits all along the outcropping alteration zone.
To make the oxide portion of the system more exciting, as the rocks go down the ridge hosting the outcropping alteration zone, they don’t stop, they just have thin cover. When the past miners on the project explored under that thin cover right beside the alteration zone, they found their best pit.
In my mind, that means the entire length of the alteration zone is highly prospective, and so is the thinly covered rock immediately beside it. Throughout the alteration zone are faults cutting through it that extend out into the covered area. In addition to big deposits leaving big footprints they also have faults associated with them that are the path the mineralization followed from deeper.
This is where their story gets even more exciting. Limited drilling into the sulphides under the oxides had hit high-grade gold. I can’t wait to see more results from their drilling to test the sulphides below the oxides.
I know I’m extremely impressed with their project and I’m looking forward to my audience learning more about the company next week when I interview their CEO.
In Closing
I think it is pretty clear to my regular readers and viewers of my reports that I’m very bullish on gold. But, I think the serious torque is in high quality gold stocks, especially if you are selective and can somewhat separate the wheat from the chaff.
One of the favourite quotes is from Bruce Lee who said, “Be like water making its way through cracks. Do not be assertive, but adjust to the object, and you shall find a way around or through it. If nothing within you stays rigid, outward things will disclose themselves.
Empty your mind, be formless. Shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle and it becomes the bottle. You put it in a teapot, it becomes the teapot. Now, water can flow or it can crash. Be water, my friend.”
When it comes to selecting gold stocks, I suggest you hunt with a golden rifle, be the golden rifle my friend. And do the homework, most don’t and it will give you a huge advantage over other investors.
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. Dryden Gold 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.