Rocks And Stocks News Report On The Importance Of The Lassonde Curve With Examples Of Companies And Where Their Projects Place Them On The Lassonde Curve
This is part 2. In this report, featured companies are Silvercrest Metals, Blackrock Silver and Amex Exploration.
We had a nice move in the price of gold yesterday that immediately had me thinking this could be the breakout we have all been looking for. From a technical analysis perspective there are a couple key prices I will be watching.
One is that gold has never had a monthly close above $2000, tomorrow we will know if it happens this time. The second is if gold can get over $2100. I have a feeling that could happen very soon as well, maybe within days. If gold can pass those two milestones, there is a high likelihood that this breakout is for real.
As we all know, sentiment toward gold stocks has been brutal for an extended period. A good question is why is gold approaching all time highs while gold stocks are at all time lows?
The answer is probably tied to who has been buying gold. The key buyers have been China, India and central bankers. For the most part, it hasn’t been from investors in the west, which I believe is confirmed by the poor sentiment in the price of gold stocks.
The important technical indicators of a new monthly high close in gold and a new high in the price could change the poor sentiment toward gold companies. I will have comfort that is happening when we see investors start getting more active in the big gold mining stocks.
Another factor currently plaguing the gold stocks is the annual tax loss selling season. Investors in mining stocks are probably a little, or a lot, gun-shy that this seasonal trend has not run its course. If gold gains strength, it could subdue this seasonal trend.
After seeing gold break out yesterday, I was pleasantly surprised to see green on my radar screen of stocks. Some even significantly outperformed the percentage increase in the gold price.
What seemed to be the reason for today’s action in gold was when one of the key people at the Fed, who is known for being a hawk, mentioned that there is a possibility the Fed could start lowering rates in the not too distant future.
Beyond the action today, I have a laundry list of reasons to believe gold has the potential to go higher. The primary one being that I believe the US is in a death spiral of debt that will only get worse.
The national debt is now around $34 trillion, the deficit will be over $2 trillion and the payment to service the debt is an astounding $1 trillion. Maybe the death spiral of debt can be slowed if the politicians would slow down spending, which will happen when pigs fly.
Whether on the left or the right, you can be sure of one thing, politicians like to spend money. They don’t know how to pull away from the trough. Both sides of the political divide are incapable of agreeing on anything. Except spending. They consistently make a mockery of the debt ceiling and since raising it recently, promptly added a couple trillion more onto the debt in short order.
Military spending is going to keep rising as they have two wars to fund. They are being pulled in two directions that they can’t afford. Some have said the recent actions in the price of gold is a war premium. I don’t think that is accurate, what I see is that it brought into focus how bad the debt problem is in the US.
The whole house of cards was built on the free money era after the 2008 economic collapse. Made more troublesome from the rapid rate increases by the Fed to fight what they thought was transitory inflation. It doesn’t take a brilliant economist to figure out if you start from free money, then jack up interest rates rapidly to fight inflation, that problems will arise. It is simple math.
Regular folks as always are feeling the pain the most. Housing sales have dropped precipitously. Delinquencies on car loan payments are rising in a big way. Credit card debt is over 20%. Yesterday, it was reported that consumers are taking money out of their retirement plans to help make ends meet.
Commercial real estate is a ticking time bomb suffering from much too high vacancy rates and their debt is going to be rolling over in the coming months. They will have to go to their lenders and ask for loans that they can’t service at current interest rates and their alarming vacancy rates.
Supply of gold has many issues. Head grades at current mines have been in decline for many years. That is what happens when you have to go deeper for lower grades in old mines. The resources at majors are suspect from buying too many iffy projects during the 2001 to 2011 bull market. Meanwhile they are depleting their reserves and not replacing their reserves fast enough.
The pipeline when looking at development and exploration is suffering from not enough financial support to fund exploration for much too long. Exploration is hard, and getting harder. Most of the outcropping easy to find deposits have already been found. Now explorers have to go deeper and that takes science, money and time. But, the explorers are underfunded and don’t have enough supportive shareholders to allow them the opportunity to do what they need to do in order to make discoveries.
The new mine developers, that there aren’t remotely enough of to replace what the miners mine each year have issues. It takes longer to go through permitting and the developer needs more money to turn projects into mines and supportive shareholders that will give them the time they need.
The only answer to all these issues are higher gold prices. Which could make an environment where shareholders hold on for dear life instead of using good news events to sell out as fast as they can.
A key catalyst is likely weakness in the US dollar. The Fed has caused too many problems from the free money era, followed by jacking up rates too high to not break things in a disastrous way. They have to lower rates to keep the house of cards from crumbling. Which they will. They have to keep their Ponzi scheme alive and hope they can grow their way out of the problems they created without the politicians reigning in spending.
People in China and India know the value of protecting some of their wealth with gold. Central bankers throughout the world know they have to reduce their US debt and US dollar holdings and increase their gold holdings. They buy gold, not gold stocks.
I don’t think it will be long before western investors realize if they want to protect their wealth, gold is a good option. I would argue better than US debt or US dollars. Meanwhile high quality explorers, developers and miners are trading at low bases and detached from the price of gold.
While trading at this low base the trading volume is at extremely low levels. From a technical analysis perspective, whether looking at a bullish trend or a bearish one, when the volume dries up a change in direction is nigh.
In my most recent written report, I wrote about how important it is for investors in mining stocks to understand where the companies they own stock in are on the Lassonde Curve. Equally important is what they are finding with the drill rig.
In that report I also wrote about a group of companies as examples of what companies are finding with their drilling and where they are on the Lassonde Curve. I have a new group for this report.
Silvercrest Metals recently brought their Las Chispas gold and silver mine in Mexico into full commercial production. When they did, they were sitting on close to $100 million in debt they needed to build the mine. In the first two quarters of full commercial production they paid off all the debt and are now sitting on nearly $100 million of cash.
They were able to pull this off because their mine has low costs of production, high grades, high margins and generates a lot of free cash flow.
Their valuation was punished a few months ago when they put out a technical report. The key things from the report concerning folks was that the costs of production were much higher than in the feasibility study and that the resources had decreased. The feasibility study was done well before the inflation of the past couple years and when the cost of production went up it made some of the resources drop.
Even though the cost of production was higher, they still have a low cost of production. The bigger issue seemed to be for many was the drop in the size of the resource and by extension a decrease in the mine life.
A higher silver price will bring back some of those lost ounces. Epithermal vein mines often start out with mine lifes in the 5 to 10 year window. Then as they are mining they often have no problem replacing what they mine out.
They can also have very long lives when all is said and done. Take for example the cluster of epithermal veins at Fresnillo, Mexico. They went into production in the 1500s and are still in production. No, I'm not saying Las Chispas will be a mine for hundreds of years. The point is that as mining is happening, epithermal veins can keep being drilled to replace what is mined.
They have a cluster of many epithermal veins with most of their work focused on a couple of them. The ones they are focused on have room to grow and then they have the rest of the cluster. The mine is already paid for, so the other veins benefit from not needing the grade and size to justify the capital costs to build a mine. They are in close proximity to the processing facility and could be trucked over to it cheaply.
In the big picture, the reduced resources and higher costs are not troublesome to me. Higher gold and silver prices can have a material impact on both. Plus, they have a lot of other veins to drill off.
At the pace they are growing their cash position they can keep buying back stock, which they have done, they have the goal of paying dividends which looks achievable and they have the free cash flow to fund growth. They are just getting out of the sweet spot as a company moves from the development window of the Lassonde Curve and looks to have the potential to move up the right side of the Lassonde Curve.
I see a lot of similarities between Blackrock Silver and Silvercrest when they were at similar points of doing their first couple of resource estimates. Primarily that their early resource estimates are similar in grade and size while also being wide open to grow.
Not all resource estimates are created equal. One of the criteria is that they need to only include what has a realistic potential to be mined. This can be loose or tightly interpreted. What I find very interesting about Blackrock’s is that they went into good detail about the costs of mining and how that led them to calculating their cutoff grades.
The cutoff grade in a resource estimate is very important because it basically tells you what the ones doing the resource estimate think is what the costs will be to mine it. So they feel everything above that is gravy. Having a healthy gap between the cutoff and the average grade is an indication that it could be a low cost and high-grade project. Blackrock’s updated resource estimate is 100 million ounces of silver equivalent with a 200 g/t cutoff and 500 g/t silver equivalent grade.
The resource is contained within a 3km strike length that remains open internally and along strike to the north. Inside the strike length they have plenty of portions of it to add ounces and shows the potential that it is all one system. Future drilling will be focused on filling in the gaps inside the strike. Plus, it is still open along strike to expand as well.
Looking at it in comparison to other undeveloped silver-gold deposits, it ranks highly for size and at the top of the list for grade. There just aren’t many of these kinds of projects in the development stages. Making it more attractive is that it is on private land in Nevada, right beside a city, and it has excellent metallurgical characteristics. Just like Silvercrest’s Las Chispas mine, it is an epithermal vein system.
Upcoming catalysts are more drilling and doing a preliminary economic assessment. The drilling will be focused on expanding the resource inside the strike and where it is open along the strike. This will give them additional information for the preliminary economic assessment. I appreciate that the company is looking at doing representative resource estimates that will give them a leg up for the preliminary economic assessment.
The work they have done to date puts them in the development discount window of the Lassonde Curve. As there are just not enough projects with the potential to be low cost and high-grade projects, I have confidence that there are several much bigger companies with plenty of experience mining epithermal veins following their developments closely.
Amex Exploration is a company that I started covering a few years ago shortly after they announced their discovery hole. Since then I covered them many times in the reports including several interviews. They have done 100s of thousands of metres of drilling and continued to expand on their known deposits and make new discoveries.
The two most drilled zones are their High Grade Zone and the Denise Zone. Originally, I was impressed with the early holes into the High Grade Zone. It has high-grade gold mineralization from at the surface to over 1000 metres at depth. Equally as impressive is the continuity of the high-grade gold mineralization.
Many people in mining say that grade is king, I agree that is important, but equally as important is the continuity. Spotty distribution of high-grade gold doesn’t make a mine, it is the continuity that makes a mine. At their High Grade Zone they have the hard to find combination of high-grade gold with continuity.
The Denise Zone is literally right beside the High Grade Zone. It is a bulk tonnage open pit target that has a high-grade portion at depth in close proximity to the High Grade Zone. For an open pit target it has high grades. It offers a second important aspect in that they could start with it, if the economics prove up, and this would give them easy access to the High Grade Zone where they could transition to underground mining.
Within a 10 km radius, they have found other zones that will make it into the resource estimate they are working on. They feel it will be out in the first quarter of 2024. They have 6 rigs on the project working hard to drill enough on the various zones to include in the resource estimate.
In the second quarter of 2024, they plan on reporting a preliminary economic assessment. I have recently mentioned that I think the best strategy for an explorer is to keep drilling to the point that they can do a preliminary economic assessment while the ink is still drying on the resource estimate. That is their game plan.
The project is only a few short kms outside the town of Normetal, Quebec. There is a paved road to the project and it is so close to town that they have cell coverage. Nearby infrastructure has very positive impacts on the economics of a potential mine. Another important factor is that they have done metallurgical work that shows exceptional recovery rates. Quebec is one of the top mining jurisdictions in the world.
They are moving into the development discount window of the Lassonde Curve armed with an exceptional project, in a great jurisdiction. There are not nearly enough high-grade gold projects moving into the development stages. Practically every major gold mining company in the business has to be watching them closely.
I wanted to present a new mining company in the early days on the right side of the Lassonde Curve, one that is in the development discount window of the Lassonde Curve and one about to enter it. Companies in the development discount window can be a less risky alternative to explorers. I believe we are on the verge of better sentiment for gold stocks and metals stocks that should be good for companies with high quality projects in the development discount window.
There just aren’t enough projects in development to help replace what miners are mining out. The mining sector needs many more.
Silvercrest Mining is a featured pick at Rocks And Stocks News. Amex Exploration is a long term featured pick and a former sponsor at Rocks And Stocks News, their sponsorship expired in May of 2022. Blackrock Silver is a featured pick at Rocks And Stocks News, and until recently was a sponsor.
All the best,
Allan Barry Laboucan
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. This funding helps cover the costs of research and reporting on the sponsors and picks that aren’t sponsors. 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.