The Summer To Remember For Gold Has Set Things Up For A Strong Remainder Of 2024

Featured companies in this report are McEwen Mining, McEwen Copper, Alta Copper and i-80 Gold. They are my top picks of gold and copper developers.

This summer, we have seen takeover offers in both gold and copper, Gold Fields has made an offer for Osisko in gold, with BHP and Lundin Mining making an offer for Filo in copper. With gold in such a powerful move, it is likely we will see more M&A action, on copper the supply chain is weak and every major mining company wants more copper projects.

In my weekend report, I talked about a group of companies that could be active in M&A for gold. In this report I will discuss gold developers that could see strategic investment from bigger companies. I will also discuss copper developers that have the kind of projects that majors are looking to acquire.

Gold is strong and the majors are in drastic need of new mines to replace their old mines. When it comes to smaller miners that could move the needle for the majors, the cupboard is empty.

They need more projects in development, but there is also a small menu in that category. Although I see some, they look underloved and in need of funding help with strategic investments from majors.

A key reason that there aren’t enough projects in development is because for much too long the explorers have been starved for funding which has resulted in not enough projects that move into development.

I often report about the strong demand coming for gold as the world is on a clear path to returning to the Gold Standard. Gold bulls understand this well, what is not as well understood, especially by generalist investors, is how broken the supply chain is now and will be for many years.

The old mines that the gold miners are producing from are struggling to increase production despite gold being at record highs against every fiat currency. As a group, the gold miners are finding it very difficult to replace what they are mining from the old mines with new mines. 

This is a key reason that supply will stay weak for many years. Secondly, it is an important part of the argument to be bullish for gold, with weak supply of physical gold and strong demand for physical gold, it is a perfect storm for gold to go much higher.

Explorers with great gold discoveries could also benefit from strategic investments. As gold goes higher, with not enough projects in development and the need for exploration success, majors will make more strategic investments in explorers. I can see the potential for a trend to develop that visionary gold miners will want to become the partner of choice for explorers.

Drastic times call for drastic measures and when it comes to the supply chain for gold, the supply chain is broken from the biggest gold miners all the way down to the explorers.

When I first got into the mining business, South Africa was by far the leading gold mining country and have now slipped under 10th place. They under invested in gold exploration, and new mine development, so the gold supply chain was broken. 

These long-term issues have dramatically impacted the gold production from South Africa and they are now happening worldwide in the gold mining industry. If South Africa saw such a remarkable drop in gold production, and the global gold supply chain is suffering from the same issues, worldwide gold production can suffer a similar fate. 

We are already seeing signs that it has already started as gold production has peaked and is starting to decline. Looking at the current mines, what is in development and lack of enough exploration to find important gold discoveries, it is clear that the decline in production is here to stay for a very long time.

It doesn’t matter if the price goes through the roof, the industry needs to find the mines, develop them, permit them, fund them and then build them. The costs to accomplish these steps have never been so high, nor has it ever taken so long. Not that long ago the timeline used to be under ten years, now it is well over ten years. 

You can’t just turn on production because the price of gold is at record levels against every currency. Ask the gold miners that are struggling to increase production now while the price of gold is making new records. Their answer would be we would like to but we can’t.

If they can’t now, and the pipeline of mines in development and advanced exploration is so weak, it isn’t going to change for a very long time. We are in the midst of seeing a South Africanisation of the gold mining sector across the board. If you think it can’t happen, you are not watching the entire gold supply chain closely enough.

The exact same arguments about the supply chain issues for gold can also be made for copper. Just when the demand is very powerful and growing from rebuilding aging power grids in developed countries, building power grids in developing countries, alternative energy, technology like cloud computing, crypto currency mining, artificial intelligence and electric vehicles. The supply is struggling to meet current demand and is not prepared for short-term and long-term demand.

Every major mining company wants more copper assets, yet they have a small menu to choose from for projects in development and important discoveries. That is why projects that look to be big enough to move the needle for a major miner are a hot commodity.

We can see that in the C$4.2 billion takeover offer that BHP and Lundin Mining made for Filo. They have a copper development project in Argentina which looks to be big enough for a major. One of the problems with projects that are big enough for a major is that there just aren’t many of them out there that fit the bill.

Meanwhile, the demand just keeps growing rapidly, so that every copper development project needs to come into production and it still won’t be enough to stop the trend of putting overwhelming strain on the supply chain. All the projects in the pipeline will not be able to replace the old mines that the miners have been relying upon and are being mined out.

Supply crunches in copper going forward are going to happen and the price of copper is going much higher. It is needed to incentivize building of all the projects in development and to help fund a rapid increase in exploration. 

Exploration has been lagging behind what is needed as important copper discoveries have fallen off the map over the past two decades. Lots of people want all these modern products, but the money hasn’t gone into the pipeline to make them and make them work.

Developers 

There is a very small menu when it comes to gold and copper developers. I’m always on the hunt for these kinds of companies, but it is a struggle to find ones that I can confidently make as picks. The first two are copper developers and the third is a gold developer.

McEwen Mining

McEwen Mining started out as a turnaround pick because in the second half of 2022 their stock had been punished and I didn’t think their copper development project was adequately appreciated. I still consider them a turnaround pick in motion due to my opinion that their copper asset is still under appreciated. 

They are a bit of a hybrid as they own a big chunk of a world-class copper development project in Argentina and also have gold mining operations. With their copper assets being under appreciated their gold mines are being discounted to zero. The combination of their mix of assets being discounted is why I consider them a turnaround pick in motion.

Plus, the leader of the company, and its largest shareholder is Rob McEwen. He is a legend in the mining industry due to his success building Goldcorp from a tiny junior to a huge success, plus his success as an investor in mining stocks. 

He has been an innovator in mining for many years, going back to the Goldcorp Challenge that helped them find the bonanza-grade portion of their Red Lake Mine. This propelled them to being one of the lowest cost gold miners, that mined very high-grade gold, thus generating remarkable free cash flow, that made them one of the top performing gold mining stocks in the business during Rob McEwen’s tenure running the company.

Now he has his sights set on building a big success in copper mining through McEwen Copper’s Los Azules copper development project in Argentina. He wants to build it into a mine of the future to set an example of what a modern mine should look like when it is built.

We have been fortunate at Rocks And Stocks News that Rob McEwen has been a regular guest since the second half of 2022. The viewers and myself have learned a great deal from him about McEwen Mining, McEwen Copper, and his thoughts on gold and copper as well as his views on investing in mining stocks.

As Rob McEwen has been a long-term bull on gold, he has told us on past shows that he converts every project into what it would look like as a gold mine. It is kind of jaw dropping when he explains what Los Azules would look like as a gold mine. 

Taking into consideration the metrics in the PEA, it would be a gold mine that produces gold for around one-third the average costs that the gold miners produce gold at. It would produce at a level that is considered a Tier-1 gold mine and it would be in production for over 30 years.

In my terms, it would be a free cash flow of a copper mine that would be in production for decades. Those are really hard to find. Even the copper development project that Filo has doesn’t stack up when you look at the grades, cost of production, size and life of mine.

In a recent news release, they talked about the efforts President Javier Milei has introduced to promote mining in Argentina. They perfectly described it as Milei Magic. Mining will help transform the economy of Argentina, President Milei clearly sees that and is working toward making it happen. 

His various initiatives are going to result in an economic turnaround for the country that his people will adore him for accomplishing. I believe it will also elevate Argentina to be an example for other Latin American countries and others throughout the world. It is already happening, during the much talked about podcast with Elon Musk and former President Trump, they had glowing things to say about President Milei’s efforts to bring prosperity to Argentina.

When it comes to copper development projects in Argentina, Los Azules is an exceptional copper mine of the future. The kind that every major mining company is coveting.

Alta Copper (sponsor, see disclosure below)

Alta Copper’s Canariaco copper development is in Peru. Until recently, Peru was led by politicians that were making mining difficult in the country. But, it certainly looks like some of that Milei Magic is rubbing off on the current leadership. 

Their top mining person in government has been making very positive comments about the importance of mining to Peru. Even better, they are making changes to welcome mining investment in the country. Recently, Southern Copper Corp (owned by Mexican mining giant Grupo Mexico) has decided that due to the changes in Peru toward mining that they are reviving construction of their Tia Maria copper project. This is a strong signal that Peru is open for business again when it comes to mining.

In recent interviews by the top mining person in the Peruvian government, he stressed that they want to fast track development of copper projects. He specifically mentioned Tia Maria and Canariaco that are at the top of their list.

Canariaco is one of the top 10 highest grade and lowest cost copper development projects in the world held by a junior. Evidence that it is a copper development project that is a major mining company sized project, is that Fortescue owns a little over 30% of the shares of Alta Copper. 

Companies like Fortescue don’t own big blocks of shares like that in a junior as an investment in a stock play, they do it because they want a foot in the door for a project they are impressed with that meets their criteria.

Another encouraging sign of how much they like the project is that due to their shareholdings, they had the ability to put a person on the Alta Copper board of directors. They chose their best mine builder and mine operator to take that position.

Ultimately, Canariaco has all the hallmarks of a future copper mine, a remaining question is who will build it?

i-80 Gold (sponsor, see disclosure below)

i-80 Gold has put together three world-class assets that collectively have historical resources of 14 million ounces of gold and a silver resource that is one of the largest undeveloped silver projects in North America. Plus, they have two processing plants to produce precious and base metals from their various deposits.

Since acquiring the historical resources, they have completed extensive drilling to increase the size of the resources and have made a series of important discoveries that have enhanced the quality of their McCoy-Cove, Granite Creek and Ruby Hill projects. I’ve been watching their news releases very closely and dug deeper into them with a series of interviews with their CEO, Ewan Downie. 

The grades and continuity are very impressive (you can see them for yourself on their website) and look to be able to add significantly to their resources. They are working on updates to the historical resources and I’m looking forward to seeing how much they improve upon them. They already have resources that are similar to what mid-tiers have yet they are still a junior mining company.

They have the assets to build the company into a much larger mining company focused on Nevada which is one of the best mining jurisdictions in the world. 

They are one of only a few mining companies that trade on the NYSE, which puts them in a great position to attract American generalist investors that want exposure to gold companies.

I’ve made the argument that with the bullish move in gold and the performance of the largest gold miners having just entered the gold bull market a few months ago, that it will catch the attention of generalist investors. 

As they move into the gold stocks, they will start to look down the gold stock food chain, and when it comes to gold developers, it is a small menu. When you stack i-80 Gold’s assets up against their gold developer peers, the menu gets even smaller. Especially if you put in the criteria that they have to be in a top mining jurisdiction like Nevada.

In Closing

There are plenty of reasons to be bullish on gold and copper. Mergers and acquisitions have picked up this summer for both. 

Next, it looks like the developers of these metals will start attracting more interest from investors as well as major miners that need more projects in development and with exploration success to help them replace what they mine from their old mines.

The entire supply chains for gold and copper, from the biggest miners to explorers have long-term structural issues. This is very bullish for gold and copper, as well as the companies with high-quality mines, development projects and explorers.

All the best,

Allan Barry Laboucan

Disclosure

Alta Copper 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 Alta Copper shares. i-80 Gold 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 i-80 Gold shares and its tradable warrants.

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.