We Will Know The Real Gold Bull Market Is Getting Serious When The Gold Stocks Join The Party
Companies featured in this report are Agnico Eagle, Alamos Gold, McEwen Mining, SilverCrest Metals, Equinox Gold and i-80 Gold.
Yesterday, I wrote a report about why I have confidence in my speculation that gold is heading toward $20K within ten years. I closed that report mentioning the indicators that I follow to assess how early we are into a gold bull market.
The final example of a key indicator are the gold stocks. Early this year, they were being left for dead. Almost all of them were trading near their 52-week lows.
The 2024 PDAC is likely to be a seminal moment in the current gold bull market. Just before the PDAC started, gold started a major breakout. We also saw gold stocks make important lows and come to life.
To have a serious gold bull market, the gold stocks have to be bullish as well.
Several have recovered from their lows just prior to the PDAC, but most are still below their 52-week highs. A select group has not only come off their lows, they are making new 52-week highs. But that group is so small that as of this moment the gold stocks are not confirming we are in a serious gold bull market yet.
They have merely come back from the dead, very few are phoenixes rising from the ashes. When a much larger number of gold stocks are rising from the ashes and making new 52-week highs, we will know the serious gold bull market is underway.
A perfect example of a golden phoenix stock is our top pick for major gold mining stocks Agnico Eagle. Gold miners are struggling to increase production while gold is reaching record highs. Agnico Eagle isn’t suffering this fate. They are hitting record production and free cash flow.
Recently, they reported their second consecutive quarter of record free cash flow. Not many major gold mining companies can say that which is a key reason Agnico Eagle is significantly outpacing their peers.
In February, just prior to the PDAC, their low was around CAD $60.00, and the 52-week high then was around CAD $77.00. They closed on Friday at CAD $89.00, leaving most of their peers in the dust.
Barrick also made an important bottom in February, but they are still trading well below their 52-week high, same story for Newmont. The GDX fund is significantly outperforming Barrick and Newmont, but is currently trading right at its 52-week high.
Agnico Eagle has the recipe to significantly outperform their peers. Have record production and free cash flow. As gold goes higher, the increases in the price they get for their record production will juice up their free cash flow.
They are firing on all cylinders, the trends they are seeing in free cash flow growth and outperforming their peers are in great shape. I suspect we will see more of the same.
Another big gold miner that is significantly outperforming its peers is one of our special situation picks Alamos Gold. They aren’t outperforming to the same degree as Agnico Eagle, but I certainly think they can catch up. Nonetheless, they are significantly outperming Barrick, Newmont and the GDX.
Why I think they can catch up to Agnico Eagle and outperform them is that Alamos is one of the lowest cost producers of gold amongst their peers. I love low-cost producers because in a gold stock bull market they significantly outperform their peers as they generate exceptional free cash flow growth compared to their peers.
Goldcorp is a perfect example, as is Kirkland Lake Gold. When they were peer leading low cost producers, their stocks significantly outperformed their peers. To me, Alamos Gold is the current equivalent of Goldcorp and Kirkland Lake Gold.
In addition to being a low cost gold miner, they are increasing their production. This is a heck of a combination and puts them in a fantastic position to substantially outperform their peers and the bullish moves in gold.
The star performer amongst the gold mining stocks we feature in the report is McEwen Mining. A lot of gold miners are eager to increase their copper assets. McEwen Mining is well ahead of this trend as they own 47% of McEwen Copper. This is a wonderful compliment to their gold mining assets.
They also made an important low prior to the PDAC and since then have been on a tear. From the lows to recent highs, they are up 100%. This is much better than the performance of Barrick, Newmont, the GDX, and even Agnico Eagle and Alamos Gold.
Just a couple days ago, Bloomberg published an article that could have something to do with McEwen Mining’s stellar performance. In that article, which is behind a paywall so you will have to subscribe to read it, they wrote that anonymous sources are saying that one of Argentina’s biggest power suppliers are in talks to invest in McEwen Mining.
They also mentioned other wealthy groups in Argentina that are also interested in McEwen Copper’s Los Azules project. These various groups see the need for copper from Argentina and that Los Azules is an exceptional project that could provide much needed copper in Argentina.
It is always challenging to assess anonymous sources in an article. Coming from Bloomberg suggests there may be some truth to these rumours.
Without a doubt, something is helping McEwen Mining’s stock be on such a roll.
I’m a big fan of Silvercrest and have had them as a special situation pick for a while. They are a low cost producer of high-grade gold and silver that is generating a lot of free cash flow.
There just aren’t enough middle tier gold and silver miners which creates tremendous opportunities for long term growth. There are opportunities in gold and silver projects that aren’t big enough for the largest miner. Being a smaller miner building up cash puts them in the position to be an acquirer of these kinds of projects.
Another reason I admire the company is that in addition to building up cash, they are also holding on to some of their gold and silver. They don’t really need to sell it as they have plenty of cash. I would love to see more gold and silver miners do the same. The fact that they have that ability is due to the performance of their Las Chispas mine generating so much free cash flow.
Equinox Gold is a new addition to the special situations picks that was added shortly after they announced they were buying out the remaining 40% of the Greenstone Mine they didn’t own. This gives them 100% of a new mine about to go into production that will be one of Canada’s largest gold mines.
It will increase their production profile very significantly and in a rising gold market where gold miners are struggling to increase production they are one that is pulling it off.
This is a Ross Beaty company and he is a serial mining entrepreneur. They have a vision to turn this into a middle tier gold miner, there just aren’t enough of them for generalist investors to choose from.
Until I see optimism come down the gold stock food chain I will maintain that we are still very early in the gold bull market. As can be seen in the companies above, there is life in those names. But, it has not really come down the gold stock food chain, especially into developers.
A case in point is i-80 Gold (sponsor, see disclosure) which has gone through a challenging period over the past six months.
They recently raised $115 million that will enable them to get back on an aggressive path to advancing their key projects.
I did an interview with their CEO Ewan Downie a few days ago that will help you learn more about their growth plans. You can find it here.
In Closing
I make it my job to being relentless in researching the mining space to look for exceptional companies. The list above offer potential for leverage to the gold price.
The group of companies above are my picks with valuations over Canadian $500 million. I have another list below that level which I will present in my report tomorrow.
All the best,
Allan Barry Laboucan
Disclosure
i-80 Gold is a sponsor of Rocks And Stocks News, they are presented for the benefit of the company and for readers and viewers of Rocks And Stocks News reports. Allan Barry Laboucan has recently become a significant shareholder of their common shares and in their 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.
