Key Factors To Focus On With Gold Miners, Gold Developers And Gold Explorers
Agnico Eagle, Goliath Resources and Borealis Mining are featured in this report.
The looming rate cut by the Fed, which will be followed by several as the Fed moves back toward the Free Money Era, and increases to their balance sheet (as $7 trillion plus is the new normal) the gold price is set to go much higher by the end of 2024. I can see it going well over $2500 and march toward $3000 this year.
This has already been very bullish in best in class gold stocks and they are primed to go much higher. In this report, I wanted to go over the key factors I look for in gold miners, gold developers and gold explorers.
Key metrics that I focus on for gold miners are their growth in free cash flow, plus their ability to grow production and keep costs low.
These key factors are why I made Agnico Eagle a top pick over Newmont and Barrick months ago. On the key metrics Agnico Eagle is the leader of the pack.
In Agnico Eagle’s recent quarter they reported their third consecutive quarter of record free cash flow, while also reporting their efforts to bring down costs (they are already well under the industry average and getting better) and increase production. The key highlight from their second quarter 2024 report was that they had a record $500 million in free cash flow for the quarter.
As gold gains strength and brings more generalist investors, both retail and institutions, into gold stocks, they will focus on the major gold miners first. Then we will see them move down the gold stock food chain.
Agnico Eagle is outperforming gold, their peers and gold ETFs, they are an ideal candidate for investors that want exposure to gold with minimal risk. Without a doubt they are the best in breed when it comes to the major gold miners.
When it comes to developers, I primarily watch for the estimated capital costs (capex) to bring their project into production and the payback period for the capex. Another key metric is the internal rate of return (IRR) which is a key to a healthy gold mine (or any metals mine) that makes a lot of money, and can pay back the capex rapidly.
Before the economic assessments of a project, one can learn a lot about the potential from the resource estimates. Not all resource estimates are created equal. Many push the envelope of what goes into their resource estimates.
A couple key metrics I watch for in a resource estimate is the cutoff grade and the average grade. Looking at the cutoff grade, I watch for how they calculate it. I want to determine if they are using a comparable cutoff to nearby mines, or an industry standard. The ideal situation is when they select a series of inputs that reflect realistic costs of mining their resource for the style of its geology and reflect the jurisdiction it is in.
If they give great details about the inputs that go into their cutoff grade, I pay much more attention as they are trying to present it as what it would look like under real world mining conditions. If there's a big margin between the cutoff grade and average grade it tells about the potential economics, the wider the gap, the better the margin, the better the economics.
Many times during my career I have seen resource estimates that collect dust and take many years, if ever, to move to a preliminary economic assessment (PEA) to start the process of economic evaluation. The reason that happens is because they used loose numbers to come out with a resource estimate and they know it can’t pass the PEA test when economics gets wrapped around their resources.
This kind of a situation happens because explorers are in a rush to produce a resource estimate so they can promote that they have X amount of gold ounces. Another issue is that they are in such a rush that they do it well before they have reached the limits of their deposit. Even worse, their rush also caps the project in investors minds while their deposit has plenty of room to grow, it is usually a horrible strategic move.
I much prefer junior explorers that make a discovery to get closer to reaching the limits of their discovery and upon doing a resource estimate that they are ready to quickly do a PEA. The faster they are ready to make that transition is a key indicator to how serious management is about finding a mine and their confidence that their resource can pass the PEA test.
Those that rush into a resource estimate are often more interested in promotion to mine the public than to find a mine. One of the reasons they give is that it is needed in order for them to attract a buyout from a major. This is hogwash.
Every major mining company has resource modelers that take the drill hole data and use sophisticated modelling software, they are much more able to come up with a realistic resource than a junior. Plus, they aren’t going to make a takeover decision based on a junior's resource estimate, especially if it is one that pushes the envelope of what can go into their resource calculation.
When it comes to explorers looking for a discovery of a buried treasure or have made one, I follow some key rules of thumb that were taught to me by one of my mentors in geology. He was a brilliant exploration geologist, and like many talented people in any endeavour he was able to take complex issues and boil them down to what really matters and explain them to experts and non-experts.
Another indicator is that brilliant people on any subject are often eager teachers to those that want to learn. Bob Darney, who is sadly no longer with us, was such a man when it came to geology. I worked with him for many years, and as I was a sponge for information, he spent countless hours teaching me about exploration geology.
I miss him very much and cherish the time he spent mentoring me. I always recommend that investors do their homework, which includes getting on a call with the company and trying to talk with their key geologist. The best ones have little interest in promoting their stock and are eager to talk about their project.
I’m always trying to determine if a company is trying to mine the public or find a mine, investors in explorers should do the same. If you talk to management and they are focused on telling you about why their stock is going to go up, be careful. On the other hand, if they want to answer all your questions about their project and are focused on their project, it is a strong signal they are trying to find a mine.
It turns me off when a company has a focus on details to promote their stock over details about their project. Investors in exploration companies are well advised to avoid the former and pay attention to the latter. Obviously it is no guarantee of success, but it sure will help you differentiate between those that are trying to mine the public and those that are trying to find a mine.
Some of the lessons that Bob Darney taught me are burned into my mind. One gem was that he told me to follow the drilling with the drill rig that he loved to call the Truth Machine. He emphasized that I should pay close attention to where the drill holes are located relative to each other and the distribution of gold (or other metals) throughout the system and inside the holes as well.
When I worked with Bob Darney, it was well before all the modelling software available today. Instead we would plot the holes on sheets of plastic and then place them in a slotted wood base. This would give us a 3D model of what the zones looked like and continuity of the gold distribution in the context of the entire system and within each hole. Today there is fantastic software that does what we did the old fashioned way. I’m very happy I learned this way as I can still do it on paper and in my mind.
Thus, I can quickly visualize in my mind's eye what they have found and how it hangs together. Often we hear in geology that Grade is King. That is not true, because if you have a sporadic distribution of grades, you don’t have a mine. On the other hand mines have continuity of their grades. In reality, Grade and Continuity are King.
Another gem of knowledge Bob taught me sounds simple but is not easy to find. He said that all exploration starts out big, but often they get smaller as they employ the Truth Machine, while mines get better the more you drill them.
Readers of my reports and viewers of my interviews often see that I talk about alteration. When metals bearing fluids hit the country rock, they chemically alter the country rock leaving zones of alteration. This can be found in exposed rocks at the surface and in the drilling.
There is an old saying in mining that big systems leave big footprints and it is one to keep in mind when looking at an exploration project. Geologists use surface expressions of alteration to help them locate a project to drill and also when drilling the alteration helps them vector into the guts of the system.
Additionally, sometimes the system outcrops and can be sampled and points the explorer where to drill. In early phases of exploration, I pay plenty of attention to surface alteration and outcropping systems.
A perfect example of these factors playing out in real time is Goliath Resources which is my highest conviction gold discovery pick. I don’t talk about potential tier-1 discoveries lightly because I know how rare they are to find. Goliath has a discovery with that potential which is why they are my highest conviction gold discovery pick.
Their Surebet gold discovery in the Golden Triangle, was found as their geologists were flying around their Golddigger project and saw from the helicopter a very large zone of outcropping rocks. It goes from the valley floor for around 1000 metres to the top of a mountain and down the other side for an equal distance. That is a very big footprint that they sampled and found widespread gold mineralization.
Then they started drilling and found that the gold mineralization continued underneath the outcrop. Initially, what was very impressive was that they started seeing sporadic fine grained visible gold in the drill core from just below the outcrop with high-grade gold in the core.
Since then, they have drilled a bit over 200 drill holes and a very unique transition of gold has occurred in their drilling. As they have gone deeper into the gold system, the visible gold has increased in size and transitioned from fine grained sporadic visible gold to coarse grained and abundant visible gold. As they get deeper into the discovery, I think they will see a further transition to abundant coarse grained gold.
One of the issues with assaying for visible gold is how it makes its way to the lab and what they do with it at the lab. First they log the core, which is when the geologists will observe and document the visible gold. They have already predetermined where they will cut the core and which side will go to the lab.
This is done so that they don’t high-grade the sample and try to get as representative a sample as possible. They have to keep half under the reporting guidelines for checking the integrity of the results at a later date. The problem is that visible gold is not evenly distributed throughout the core and some of it can stay in the core box.
After they have their cut core sent to the lab. Using the fire assaying method, lab people crush it and then take a portion which they do their best to determine it to be representative and send that concentrate for assaying. They are not biased and it is representative as can be accomplished using this method, but it is not perfect.
A much better method for capturing most of the gold is using metallic screening. They crush the core and then put it through screens. Sort of like putting flour through a screen. With the gold sitting on the screen for measuring.
There is an even better method. Chrysos Corporation is an accredited lab operating in Australia, North America and Africa. Their method for determining the gold content in core uses a photon assaying method. First they crush the entire core, no cutting it in half. Then they take the crushed core and run all of it through an x-ray process to determine the gold (and other metals) content.
There are several advantages to this method over fire assaying or metallic screening. One is they analyse all of the core, no need for cutting. It doesn’t pull the gold out of the core, so all the core is leftover for further analysis. Plus, it is substantially faster and less costly.
It is a wonderful new technology that helps understand the entire gold content in the sample resulting in a highly accurate representative grade. Ideal for analysing core with visible gold in it. Goliath Resources has started the process to have their core analysed by Chrysos.
Earlier I mentioned the importance of continuity. One of the first signs of a large gold discovery with widespread gold mineralization is that they are predictable through their geologists' understanding of the system. Evidence this is happening Goliath’s Surebet gold discovery comes from the first eight holes of their 2024 drilling campaign.
In those holes they have hit gold mineralization on 100% of the holes and visible gold in 75% of them. One intersection of three in their first hole assayed in the 2024 drilling campaign returned 35.04 g/t gold over 6.34m ~true width. Two more intersections from that hole with assays pending as they are for the remaining seven holes.
The visible gold is abundant and they are also seeing coarse grained visible gold. Which is why I believe as they drill deeper into the system down the mountain toward the valley floor they will start to see abundant coarse grained visible gold.
Goliath’s Surebet discovery is passing the Bob Darney Test. As they put more holes into their gold discovery, it is getting better and better. This is a rare occurrence in gold exploration and is clearly showing the Truth Machine is onto a special gold discovery at Surebet.
Another gold exploration company that I am highly focused on is Borealis Mining, they are a sponsor of Rocks And Stocks News, please see the disclosure below. On Wednesday, August 7, 2024 they transitioned from a private company to a publicly traded junior gold stock.
I have been covering them through the going public process and mentioned that during my 30 years working in the mining sector, I have never seen a company so well prepared as a private company for success as a public company.
There are two Truth Machines in mining. The drill rig is the little Truth Machine and the big Truth Machine is the mine. Borealis Mining can employ both Truth Machines to grow the company.
Their project is in Nevada, they have a permitted mine for both oxide and sulphide mining, with a heap leach pad with material ready for leaching to recover gold. Beside that is a stockpile of material ready to go onto the lead pad. Plus, they have an ADR plant within a few hundred metres from the leach pad, to recover the gold and produce gold bars.
Earlier, I mentioned that I focus on large alteration zones as big systems leave big footprints. One of the largest in all of Nevada is at Borealis Mining’s project which is 20 square miles in size. Historical oxide mining was done in a series of pits on one side of the alteration zone representing approximately 10% of the zone.
The largest open pit, Freedom Flats, which was also the highest grade pit, is actually found just beside the alteration zone with only thin alluvial cover. Equally as impressive is right beside it, the historical drilling hit high-grade gold in the sulphides with thick intersections.
The alteration zone goes along a ridge right down to the alluvial cover. In addition, the series of pits line up along a structure that extends through the alteration and out into the alluvial cover. Gold bearing fluids need a pathway from deep to make their way to near the surface where the fault structures (or cracks in the earth) are the path of least resistance they follow.
The structure that the pits are lined up along go right through the middle of the Freedom Flats pit. In addition, there are also a series of structures cutting through the alteration zone and out into the covered area. Plus, there are cross cutting structures. The parallel structures and intersections of cross cutting structures are key places to drill for additional discoveries.
I’m also very excited about the potential for sulphide deposits associated with the oxide deposits at the surface. Minimal historical drilling tested the sulphide potential which is surprising as the past drilling hit thick intersections of high-grade gold and most certainly should have been followed up on. Borealis Mining has drilled holes into the sulphide targets while a private company, those holes are pending.
Future drilling will have a twofold strategy. One, is to look for oxide deposits that can quickly be brought into production which could be fast tracked because they have the permits and a processing facility.
The other focus of drilling will be into the sulphide targets. Permits are already in place to mine that material as well. It would need to be processed off the property, nearby Hecla has a mill that is one alternative and there other processing facilities within trucking distance.
Their mining assets include: an ADR plant, loaded heap leach pad, stockpile of material to be loaded onto the leach pad, plus wide open exploration for oxide and sulphide deposits.
The quality of these assets have attracted a who’s who of mining people including Tony Makuch who built Kirkland Lake Gold from a small junior miner to a big success when they were taken over. Bob Buchan (founder of Kinross) is also on the board as well as several very accomplished mining people that make up an impressive board of directors.
Borealis Mining has also been fortunate to have mining legends including Eric Sprott and Rob McEwen as key shareholders. The largest shareholder is Rob McEwen who bought out the entire stock position of Waterton (property vendor) and now owns approximately 17% of the issued shares.
It is very rare for a junior mining company to have such a stellar group of board members and key shareholders. Which speaks volumes to the quality of their assets. To put them together as a private company is pretty much unheard of. Plus, while private, during a challenging period to fund juniors, Borealis Mining was able to raise $15 million at an average price around C$0.50.
Based on all of the above points, it is clear why I have mentioned that during my 30-year career in mining, I have never seen a private junior so well prepared for success as a public junior miner.
I’m looking forward to news from their efforts to use the small Truth Machine (the drill rig) and the big Truth Machine (the mine) to become a junior gold miner with several key prospects for growth.
All the best,
Allan Barry Laboucan
Disclosure
Allan Barry Laboucan is a shareholder of Goliath Resources and also owns warrants to purchase additional shares. Borealis Mining is a sponsor of Rocks And Stocks News, content creation about them is for the benefit of the company. Sponsors also benefit readers of the reports as it makes content creation possible for no charge to readers. Allan Barry Laboucan is a shareholder of Borealis Mining and a consultant to the company.
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.