Gold Seeker Report #31: This Week in Mining: Take Advantage of This Period of Consolidation

 

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This Week in Review: Metals prices continue to consolidate but should the price of gold drop below the 50day MA, there is a chance we see a larger correction, potentially testing $1,825-$1,850/oz. Regardless of whether this comes to fruition, it doesn’t change a thing except for providing another (and likely last) buying opportunity. The window is closing quickly to get into the mining stocks at these cheap valuations. Further, any correction in gold and gold stocks will be short-lived so it is best to put in some stink bids ahead of time and hope they get filled.  

At the September FOMC meeting, the Fed did nothing but assure the market cheap money and inflationary policies will remain intact until at least 2023. The Fed also said it would continue its asset purchase program for some-time. There are a number of near-term catalysts for the metal prices including monetary policy, fiscal policy (the two sides seem to be coming together on a stimulus bill before the election of $1.5T, which if implemented should move gold and silver prices beyond $2,000/oz. and $30/oz.). But that is immaterial as there will be one or multiple stimulus programs over the next 12-months. Lastly, the U.S. elections. If Biden wins, this should be incredibly supportive of gold prices and bad for equity prices. One thing is for sure, precious metal prices are headed considerably higher. If Trump wins, it will also be very supportive just not to the degree of a Biden win.

$AGI, $USAS, $AR.TO, $BTG, $CGC.V, $CXB.TO, $DSV.V, $EQX, $AG, $GCM.TO, $KGC, $MGR.V, $OR, $ROXG.TO, $SKE.TO, $TGZ.TO, $WM.TO

Alamos Gold: Reported the best surface exploration hole to date at Island Gold with high-grade mineralization intersected across significantly greater widths down-plunge from existing resources. Highlights include:

• 21.76m @ 26.89 g/t Au
• 15.02m @ 14.19 g/t Au

America’s Gold & Silver: The company continues to advance the recapitalization project at its Galena Complex, which saw a material increase in resources. The Galena complex is a JV between the company and Eric Sprott, with the company holding a 60% interest. M&I silver resources (on a 100% basis) increased by 10m oz. to 37.3m oz. Inferred silver resources increased from 39m oz. to 78.6m oz. or a 36% and 101% increase. The company fairly recently diluted shareholders as it has had trouble bringing Relief Canyon online and successfully ramping it up.

Argonaut Gold: The company continues to drill high-grade intercepts at its flagship development project, Magino project in Ontario.  Highlights include:

• 9m @ 13.4 g/t Au
• 3m @ 46.8 g/t Au
• 12.4m @ 10.6 g/t Au
• 5m @ 11 g/t Au
• 11m @ 4.4 g/t Au

This is important because mineralization in the Elbow zone is also observed in the central zone. It is also important because these high-grade intercepts are below the proposed open-pit.

B2Gold: Announced positive exploration drill results from near Fekola and Anaconda exploration drilling. Highlights include:

• New high-grade drill results from the Cardinal and FMZ zones extend the mineralization to over 3.5 kilometers along strike, continuing to indicate potential for additional gold deposits near the Fekola mine, with additional potential at depth and along strike.

• Resource infill drilling completed at the Cardinal zone, with an initial Inferred Mineral Resource estimate expected in the first quarter of 2021.
• Additional high-grade drill intercepts at the Mamba zone extend the mineralized zone by over one kilometer, to a total known strike length of approximately 2.2 kilometers (20 kilometers north of Fekola).
• Resource infill drilling at the Mamba zone in the Anaconda area approximately 90% complete, with an updated mineral resource estimate for the Anaconda area expected by the end of the fourth quarter of 2020.
• 9m @ 3.75 g/t Au (FMZ)
• 10.8m @ 13.34 g/t Au (FMZ)
• 14.9m @ 3.18 g/t Au (FMZ)
• 27.47m @ 3.34 g/t Au (Cardinal)
• 20.10m @ 15.47 g/t Au (Cardinal)
• 11.15m @ 6.18 g/t Au (Cardinal)
• 15m @ 8.85 g/t Au (Cardinal)
• 14.5m @ 2.55 g/t Au (Mamba)
• 31m @ 3.89 g/t Au (Mamba)

Caldas Gold: After a weak Q2 in terms of output, the company reported August 2020 gold production of 2,743 oz., up 66% over the July. For the first 8-months of the year, company-wide production sits at 14.15k oz. Au. The company should start to see the benefits of the mine optimization and see increased output from the Upper Zone. More importantly is the mine expansion at Marmato at depth, which is anticipated to be completed in 2023.  

Calibre Mining: The company continues to quietly put out excellent exploration results, this time at its Panteon deposit, Jabali West, Rosario, and Limon open-pits. The company currently has 14 diamond rigs drilling. Highlights include (infill + exploration drilling):

• 4.8m @ 149 g/t Au (the highest-grade intercept at Panteon)
• 2.8m @ 13.7 g/t Au (Panteon)
• 3.4m @ 7.7 g/t Au (Panteon)
• 3.3m @ 14.79 g/t Au (Limon O/P’s)
• 4.4m @ 9.57 g/t Au (Limon O/P’s)
• 7.6m @ 7.2 g/t Au (Limon O/P’s)
• 5.2m @ 6.29 g/t Au (Limon O/P’s)
• 7.3m @ 5.46 g/t Au (Jabali Underground)
• 1.7m @ 7.54 g/t Au (Jabali Underground)
• 7.4m @ 2.32 g/t Au (Rosario Prospect)
• 4.4m @ 2.23 g/t Au (Rosario Prospect)

The company has positioned itself for growth over the next couple of years (likely a lot more to come) as mining at Panteon will commence in Q1 2021 in addition to production coming online at the recently permitted Norte open-pit deposit, also in Q1 2021. Calibre is a relatively small junior producer but will the likely continued exploration success, the company could reach mid-tier status over the next several years. Production can increase significantly once it can feed the La Libertad mill at or near capacity. Calibre also has other development projects for future growth.

Discovery Metals: Announced the result from four diamond drill holes targeting bulk tonnage mineralization in the South Corridor at its Cordero project. This area has seen far less drilling relative to the North Corridor and will be focused for the remainder of the 55,000m phase I drill program. Highlights include:

• 401.7m @ 134 g/t AgEq
  • Including 30.3m @ 182 g/t AgEq, 112.3m @ 247 g/t AgEq, and 44m @ 241 g/t AgEq
• 26m @ 98 g/t AgEq
• 5.1m @ 427 g/t AgEq
• 1.6m @ 754 g/t AgEq
• 15.7m @ 186 g/t AgEq

Equinox Gold: The rapidly growing mid-tier producer completed the buildout of Castle Mountain Phase I, which will increase production by 45k oz. annually for the next couple of years until Phase II is complete, at which time production will increase to 200k oz. at low AISC. The company is working with members of the nearby Carrizalillo community to remove an illegal road blockade. Mining activities have been suspended since September 3^rd, 2020 at Los Filos; however, production could be on-going through leach pad solutions. This is rather common in Mexico and will likely require Equinox having to buy-off the community one way or another. The individuals allege non-compliance with the community social collaboration agreement signed in 2019.

First Majestic: As many have heard, Eric Sprott made a substantial C$78m investment in First Majestic via bought deal. While this is a vote of confidence in the company, I don’t understand why the company would unnecessarily dilute shareholders. Should the company use the funds to bring one or multiple mines on C&M back on-line (and engage is very aggressive exploration at these mines), it would make sense but the company is now generating cash flow, which is multiples higher relative to when silver prices were $18/oz. We will have to wait and see exactly what that money will be used for to determine whether it was a smart move or unnecessary dilution.

Gran Colombia: August 2020 production totaled 20.64k oz. Au, a 14% month over month increase. Production through the first two months of the quarter stands at 38.75k oz. Au and YTD production of 143k oz. The company still expects to produce 218-226k oz. in 2020. The company remains a buy-out target unless it makes a bid for another company or asset.

Kinross Gold: The company announced a quarterly $0.03/share dividend and provided guidance out to 2023 at declining costs. This is important because a 20% increase in production for a producer this size is substantial. Production is expected to grow steadily to 2.9m AuEq oz. in 2023. The growth will be driven by Tasiast 24k, higher production at Kupol, a mine life extension at Chirano, higher production from Fort Knox and Bald Mountain, as well as continue outperformance at Paracatu. The company could very maintain production levels of 2.7-3.0m AuEq oz. beyond 2023 as La Coipa will restart, followed by Lobo-Marte, Chulbatkan, and other projects in its portfolio. It could also engage in some M&A activity such that it acquires a producing and/or development asset which will increase longer-term production (4-8yrs) to 3.0m oz. p.a.

Magna Gold: The company announced the pre-feasibility study on the San Francisco mine and while it was almost exactly what I expected, the stock sold off on the news: Having talked with the President and CEO recently, I believe him and the management team will be able to implement optimization measures, which should put downward pressure on costs and see production closer to 90-100k oz. p.a. Highlights from the PFS include:

• Assuming a $1,950/oz. gold price, the NPV5% is $231m.
• Average AISC of $1,204/oz. – This is only an investable company during a bull market as it has tremendous leverage to the gold price.
• Average annual production of 70k oz. Au from 2021-2027 (initial 8yr mine life)
• There are no major capital investments required to resume full mining operations.

The company has identified several near-term expansion opportunities to both increase resources and production. There are also a number of regional targets being evaluated as potential satellite deposits. Lastly, the company is in the process of completing extensive metallurgical test program and evaluating a potential upgrade of the crushing and leaching operation to increase capacity and recovery rates. It is important to increase production such that it becomes at least a 95-100k oz. producer as that should result in a re-rating.

Osisko Gold Royalties: One of Osisko’s more sizeable streams will see the operation starting this month. The diamond mine came under pressure as prices have collapsed and are slowly recovering but remain at very depressed numbers. The new mine plan will result in cost reductions of over $30m over the next 16-months, greatly reducing the all-in cost of production. Osisko has committed to invest up to $7.5m. Osisko holds a 9.60% diamond stream and a 35.1% interest in the company. Shareholders and streamers have agreed to continue deferring payments on their instruments until April 2022 but will be made earlier if the financial situation of the company allows for it (which is really a function of diamond prices).

Roxgold: Announced new exploration results from the company’s Boussoura Project. Highlights from reverse circulation and diamond drilling include:

• 4.8m @ 27 g/t Au
• 9m @ 10.7 g/t Au
• 12m @ 5.7 g/t Au
• 22m @ 2.1 g/t Au
• 6.7m @ 6.4 g/t Au

Roxgold now has an exciting development project and well as this exploration project (with the potential for material to be trucked to its current mill in the future at Yaramoko). Over the next 2-3yrs, the company should graduate from being a mid-size junior producer into an emerging mid-tier producer. This is one of the premier West African producers along with B2Gold, Endeavour Mining, Teranga Gold, among others.  

Skeena Resources: Announced the discovery of high-grade gold-silver mineralization 600m below surface in the newly recognized Eskay Deeps prospect. Results presented here are from widely spaced deep exploration diamond drill holes into both the Eskay Deeps, hosted in the newly recognized Even Lower Mudstone unit and the Water Tower Zone. Drill highlights include:

• 17m @ 5.72 g/t Au
• 3.18m @ 15.38 g/t Au
• 14.50m @ 12.67 g/t Au + 22 g/t Ag
• 11m @ 5.75 g/t Au

Teranga Gold: The company is on track to meet 2020 guidance of 375-400k oz. Au. Beginning in 2021 (and the next 5yrs), company-wide production is estimated to average 533k oz. Au. The company also reported robust drill results at Afema, with widespread gold mineralization at the new Woulo Woulo discovery. This could be the company’s next development project as it can earn up to a 70% interest in the project should it incur $11m in expenditures over a 3yr period. Highlights include:

• 80.5m @ 1.64 g/t Au
• 41m @ 1.97 g/t Au
• 35m @ 1.64 g/t Au

Wallbridge Mining: The company acquire Balmoral Resources to expand the land package at its rapidly growing Fenelon project (and drilling has already shown continuity onto this land), which is its primary focus. Also included in the acquisition was Balmoral’s Detour East property, which isn’t the focus of the company. It entered into a non-binding term sheet with respect to a JV with Kirkland Lake Gold for this non-core asset.

Under the terms of the agreement, Kirkland Lake can earn a 75% interest in Detour East by making expenditures of totaling $35m. Wallbridge will grant Kirkland Lake the option to acquire up to a 50% undivided interest by funding phase I expenditures of $7.5m over 5yrs with a minimum commitment of $2.0 million in the first two years ($0.5 million by the first anniversary and $1.5 million by the second anniversary of entering into a definitive joint venture agreement). During the option period, Kirkland shall have the right to act as operator of the property. Kirkland will hold the right to acquire an additional 25% interest in the Property by incurring additional expenditures of $27.5 million within the first 5yrs. If either Party’s JV interest is reduced to 5% or less, that Party’s JV interest shall be automatically converted to a 1% net smelter return royalty and the JV shall be automatically terminated.  The surviving Party shall have a right of first offer with respect to the purchase or sale of the NSR by the non-surviving party. Wallbridge also announced a C$56m bought deal financing.