December's annual tax ritual provided a number of opportunities. While miners have bounced off the December lows, the year is just getting started, so now what? Going forward, we prefer shares offering fundamental value improvement, which may increase share price in both a rising gold environment, and, if it so happens, another flat or soft year. These stocks have an opportunity to double in 2018 even if the mining sector remains flat.
Silvercorp Metals Inc. (SVM:TSX; SVM:NYSE). Bet you did not know that in the last (available) quarter (Q317), Silvercorp earned more money than Helca, Coeur Mining, First Majestic Silver, SSR (formerly Silver Standard), Tahoe, Endeavour Silver and Klondex COMBINED. A Canadian company, its high-grade silver mines in China produce a strong zinc/lead by-product, thus earnings have been excellent. We have the company at about an 8X current year PE. With $100 million in cash and no debt, SVM's $438 million market cap easily makes it the best value in silver mining.
In terms of China operations, by now, all skeptical doubts are finished. We believe there is less risk as a tax-paying operator in China, than about anywhere in Latin America, Africa, etc. Following the company for several years now, we have found management solid and conservative. We cannot say the shares are this cheap entirely because of poor investor communication, as there is almost no investor communication. We have also spoken with a former, highly experienced and well-regarded senior mining exec who visited the properties in depth and offered a highly favorable opinion, calling it "one of the best properties I've ever seen." In addition, Silvercorp now owns 32% of New Pacific Metals; already with nearly a billion ounces, this Bolivian silver developer has company-maker potential.
Marathon Gold Corp. (MOZ:TSX; MGDPF:OTC.MKTS) did not have much of a tax loss season as shares were up 125% in 2017, although consolidating for the past 11 months. We think that is a "tell" and great set-up; as shares outperforming the indexes, combined with heavy insider buying, confirms our view that this Newfoundland project is not only going to be a very profitable gold mine, but still a relative value. Already at nearly 3 million gold ounces, ongoing drilling is hitting consistently; initial PEA underway for Q2. Proven, serious and highly skilled management team has done it before, from grass roots exploration to ultimate sale. Well financed, without over-issuing warrants. Something we like. The good news is that management does very little to promote the shares, so you are not buying a lot of fluff. The bad news is there isn't much of any promotion; you may have to sit with shares during consolidation periods, although we think one just ended. Our opinion is that Marathon will be bought—that is management's plan also—for a nice payday between $3 and $4. About as sure as it gets for mine explorers/developers.
Wesdome Gold Mines Ltd. (WDO:TSX; WDOFF:OTC.MKTS). We were fortunate to buy shares in St. Andrew Goldfields right before the Kirkland Lake buyout in 2015, and while the KL trade continues to work, we think Duncan Middlemiss' new job, as CEO of Wesdome, has a much better chance of doubling your money in 2018. The driver here is the exciting high-grade gold discovery at the Kiena complex. Very few high-grade opportunities are left in Canada and with a market valuation only CA$286 million, we are surprised the company is still "single." Besides the obvious tax-loss selling, another factor throughout 2017 helped push the price extra low: a tiny investment fund—but a 20% Wesdome share owner—consistently sold shares. We don't know what the real story was and we don't especially care. Dumb things happen in mining; big shareholders telegraphing intentions allow investors to sell out ahead, driving prices lower, becoming a self-fulfilling prophecy, when, for a mere 7%, plenty of investment bankers would have placed the whole block, at what would have been much higher prices. That mistake is your gift. Wesdome should fundamentally improve over the coming year as the Kiena project matures; we see both value and opportunity for outsized returns.
Atlantic Gold Corp. (AGB:TSX.V; SPVEF:OTC.MKTS), had a good 2017, up nearly 100%. We first invested back in 2016—liking management, 35% insider ownership, production economics, and Nova Scotia location. Management has delivered; all is working well at Canada's newest gold mine. Efforts are now underway to expand mine life, which would significantly increase value. The company did it right—start small, then expand. Although you can fairly argue share structure is a bit blown out, with 42 million warrants/debentures still out at a $0.60 strike, and they are no longer the screaming buy of 2016, we note shares have now been consolidating for nearly nine months, allowing value to catch up. Mitigating factor: Atlantic should be included into the GDXJ ETF during 2018, which would add massive buying—such inclusion led to a sharp, nearly 75% spike in Wesdome last year. We think that is a decent bet for 2018 and are willing to sit since (probably) 10 million shares of new, net buying on a stock averaging 200,000 daily traded shares will have impact.
Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE) doesn't quite fit with the others and had rough year due to bunches of both bad luck and inept market communication. Who gets hit by lightning twice? Endeavour did. However, the bad news seems priced in and the company is on track to repair damages. Plus it is building several new mines, taking the company to around 15 million silver ounces, a number big enough to attract attention; even to work its way into the much larger GDX ETF. Endeavour has the balance sheet to get there. Although, like most silver miners, Endeavour needs higher prices to make decent money and we also have very low expectations for the upcoming fourth quarter numbers. Thus we view Endeavour as more of a second half story—yet we own shares now, feeling comfortable in the low $2s—in a strong metal environment, of which we are optimistic—ETF buying alone can really move these small, U.S.-listed miners—possibly even back to the 2016 highs of $6. Further, while CEO Brad Cooke may not be quite the glib, Vancouver smoothie, he is a mining professional and Endeavour has both cut costs and is growing production faster than peers. Any evidence management can deliver promised improvements should help the beaten down shares exponentially.
Frederick Lacy, president of California-based Fincom Investment Partners, began as a Chicago commodity broker in 1984, before heading west in 1987, joining Bateman Eichler, Hill Richards. Ultimately "retiring" in 2000 as a licensed Securities Principal and Managing Director of Investment Banking, he has been involved in numerous successful investments, including raising the institutional start-up capital for what became PetroHawk, subsequently purchased by BHP in 2011 for $15 billion. Fincom IP was one of the very few correctly calling both sides of oil's 2003-2014 bull market, repeatedly advising clients, months before the 2014 top, of a "100% chance of a bloodbath in oil." The firm also has a long-time involvement with technology, such as mobile payments in India; leading an early $13 million VC financing for a "ledger" software (a sector now commonly known as "blockchain"); other investments include 3D holographic display technology along with early mobile applications. Fincom's long-time clients are enormously successful investors. Some helped found/director of LNG pioneer Cheniere Energy; others founded Upfront Ventures, the #1 performing venture capital fund last decade. In 1989, Mr. Lacy hosted "The Venture Capitalist," which aired on (now) CNBC and he was invited to Beijing in 2006 to advise Chinese companies on entering the U.S. financial markets. Fincom Investment Partners is not accepting new clients and does not sell any subscription services.
Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.
1) Frederick Lacy: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Silvercorp, Marathon Gold, Wesdome, Atlantic Gold and Endeavour Silver. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company currently has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Klondex Mines. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclosures about sponsor fees.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.