The Gold Report: The metal mining sector is undergoing many of the same types of issues as the energy sector. What is your candid assessment of the near future for gold, silver and the base metals?
Etienne Moshevich: My outlook for the sector is very similar to that of the overall energy market—the world needs gold and the commodity isn't going away. It may go out of favor for a couple of years, which we're experiencing now, but it seems as though the market is slowly starting to creep back up and this is the time investors need to be positioning themselves in high-quality management teams and projects before the market gets away from them.
Although many things could change, macro signs are pointing to a turn in the gold market. Even though the U.S. dollar is still the strongest and most reliable currency in the world, more and more countries seem to be shifting away from the dollar, which would definitely strengthen demand for gold. Also, if the U.S. economy falls into another recession and the Federal Reserve decides to apply another one of its quantitative easing techniques, then this will be very bullish for gold.
"Source Exploration Corp.'s past success indicates the great potential for the upcoming drill program."
One last major factor that we should consider is the possible demand from foreign central banks. We need to keep in mind that the Swiss are voting on a gold referendum that would require the Swiss National Bank to hold 20% gold reserves. Even if this doesn't go through, I'm sure there would be more pressure on it to increase gold reserves over time. I'm bullish on silver, as well, over the long term because of its industrial and technological applications.
TGR: Let's tour the field. Starting with gold, which companies do you spot as viable?
EM: There are a couple of projects I really like. The first is Ascot Resources Ltd. (AOT:TSX.V). CEO John Toffan and his team are second to none in the industry. They have created so much value for their shareholders over the last 30 years with Stikine Resources, which went to $75/share, and Delaware Resources, which went to $26/share, that it's hard to bet against them.
Ascot has a very viable resource of around 4.5 million ounces (4.5 Moz) that can easily be expanded in British Columbia, as well as a project in Washington State that has yet to drive any value for the company. In addition to that, Ascot is sitting on a 66-million-tonne gravel pit that is getting no value in the market. Ascot used to sell one-off amounts of the gravel at around $4.50/tonne. If you multiply that by the overall resource, it's more than its entire market cap.
With more liquefied natural gas plants starting up in the area, they all need a supply of gravel; I'm sure one of them will be knocking on Ascot's door looking for a deal and that's the time when Ascot will be able to monetize it. At a $170 million ($170M) market cap, I think there is a ton of room to grow. This is the year to do it as Ascot will be focusing on acquiring 100% of its Premier project, which should get the market and any major excited.
"TerraX Minerals Inc.'s project is on the city limits of Yellowknife, providing excellent infrastructure."
Jayden Resources Inc. (JDN:TSX.V) is another company I like right now. The company's Silver Coin project is located in the Stewart Camp in British Columbia near Ascot's Premier project. Silver Coin shares many characteristics with the nearby Silbak-Premier mine, which produced 4.7 million tonnes (4.7 Mt). The project already has an NI-43-101 compliant resource of over 24 Mt grading 0.78 grams per tonne (0.78 g/t) gold with a ton of exploration potential, giving investors plenty of upside on that number. Silver Coin is a significant gold resource that will be followed up in its next drill program. With a number of outstanding plays in the area, I truly think it's just a matter of time until the market and/or someone a lot larger understands and realizes the value Jayden is creating in the ground, especially as the company sits at a $7M market cap. With infrastructure already in place, 869 holes drilled to date, a confirmed resource in the ground and solid financial partners, investors should definitely be keeping an eye out on Jayden.
Another project I really like is TerraX Minerals Inc. (TXR:TSX.V). TerraX is drilling the Yellowknife City gold project, having recently started a 5,000-meter winter drill program, so there should be a lot of news flow to come in the next three months. This property is immediately north of, and on strike with, the prolific Con and Giant gold mines, which together produced over 14 Moz gold at an average grade of 16.1 g/t gold during the approximately 60-year mine life. Many people think that this type of mine would be expensive and is limited by its northern remoteness. . .they couldn't be farther from the truth. The project is on the city limits of Yellowknife, providing excellent infrastructure that includes roads, an all-season airport, hydroelectric power and skilled labor. There is also strong community support within a safe political jurisdiction.
Led by TerraX's president, Joe Campbell, the management team is experienced in mine discovery, development and operation. To shed a little more color on Joe, he is the person who initially found, drilled and developed the Meliadine gold project in Nunavut, which was ultimately acquired by Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) and is one of Agnico's largest projects in terms of reserves (2.8 Moz) and Indicated resources (3.1 Moz), and, I quote, its "fastest growing deposit with multiple high-grade zones" with an additional 2.7 Moz Inferred resource already put on the books. And Joe sees a lot of similarities between this and the Yellowknife City gold project.
The winter drilling program only began on Jan. 22 and TerraX has already completed the first 19 holes, demonstrating management's determination to use the money raised effectively and efficiently. With around $2.4M in treasury and Osisko Gold Royalties Ltd. (OR:TSX) as a major shareholder, there is no doubt in my mind something could happen with that project, providing shareholders the potential for a substantial return on their investment.
TGR: Are there successful firms that are invested in a spectrum of mining ventures?
EM: Yes, Sulliden Mining Capital Inc. (SMC:TSX) is one of them. The company is a spinout from Sulliden Gold Corp., which was bought out by Rio Alto Mining Ltd. (RIO:TSX; RIOM:NYSE; RIO:BVL) last August. The same team that built Sulliden Gold is running Sulliden Mining Capital and there is no one I'd rather invest in the mining sector than these people. Both Peter Tagliamonte and Justin Reid are extremely capable, experienced and successful mining entrepreneurs who, most importantly, know how to drive shareholder value. I have no doubt they will be able to do it again with Sulliden Mining Capital. The company is looking to deploy substantial capital toward opportunities in the sector and there isn't a better time to go shopping than now because the deals you can cut are better than they've ever been.
TGR: What gold miners are staying the course in South America?
EM: Exeter Resource Corp. (XRA:NYSE.MKT; XRC:TSX; EXB:FSE) is another company I love; the company is looking at developing its Caspiche project in Chile. Exeter also has around $30M in cash and is led by a stellar management team that has done this before. Chairman Yale Simpson was most recently the co-chairman of Extorre Gold Mines Ltd. (XG:TSX; XG:NYSE.MKT; E1R:FSE), which was taken over by Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) for $414M in June 2012. The Caspiche deposit is not only one of the largest new discoveries in South America in the last decade, but also holds the potential to be a very high tonnage, long-life mining operation. With close to 38 Moz gold equivalent in the Measured and Indicated category, big potential for expansion, substantial cash and an incredible team, how can you not bet on this name?
"TomaGold Corp. just issued some spectacular results."
TriStar Gold Inc. (TSG:TSX.V) is another name to keep watching right now. Led by Mark Jones and Len Krol, both are synonymous with success. Mr. Jones was founder of Crown Resources, which was taken out by Kinross Gold Corp. (K:TSX; KGC:NYSE), and a director of Arequipa Resources, which sold to Barrick Gold for $1 billion. This isn't the first time Mark Jones and Len Krol have come together to make a huge success. They worked on Brazauro Resources together, which was taken out by Eldorado Gold Corp. (ELD:TSX; EGO:NYSE) in 2004 and they're looking to do it again with TriStar.
The company has a very interesting project in Brazil that should start to get a lot more attention in the next three to six months, once it starts its drill program. TriStar plans to do more infill and stepout drilling within the property to expand the resource, and ultimately hopes to sell it to a major that wants a low-cost producer with excellent infrastructure.
TGR: Moving on to other metals, which companies do you like for manganese?
EM: Cancana Resources Corp. (CNY:TSX.V) is a company I'm deeply looking into; it has a high-grade manganese project in Brazil. Manganese is essential in steel production, and also a key micronutrient that has significant agricultural yields. Brazil is the world's leading producer and exporter of soybeans, so a constant supply of high-quality manganese is a must. Ferrometals, a subsidiary of The Sentient Group, a $2.7 billion fund, is the company's largest shareholder, so I don't see Cancana having any troubles with financings anytime down the road. It has a clear path to being cash flow positive, which it hopes to achieve by 2017.
TGR: How about graphite?
EM: I like graphite. One of the companies that I think is just so hard to miss is Graphite One Resources Inc. (GPH:TSX.V). It is North America's biggest large-flake deposit with an Inferred resource of over 284.71 Mt grading at 4.5% graphite. With Tesla Motors Inc. (TSLA:NASDAQ) making new headway and its Gigafactory requiring around eight new graphite mines, how can someone miss Graphite One's Graphite Creek deposit? The company has been able to raise over $5M in this market to continue to grow its resource, and seems to be well on its way toward monetizing the asset in the near future.
TGR: What other miners should investors be following as the sector gears up for a commodity renaissance?
EM: TomaGold Corp. (LOT:TSX.V), for sure. TomaGold is a name I've been following for the last couple of years now and, together with IAMGOLD Corp. (IMG:TSX; IAG:NYSE), it continues to develop the Monster Lake project in Quebec. The high-grade results TomaGold has been able to issue have gotten many investors excited over the potential and economic viability of the deposit. If we were in a bull market for gold, there is no doubt in my mind the results that TomaGold has been able to release to the market would send the stock skyrocketing.
Because we are not in a bull market, it will take time but, unlike most junior explorers in the market today, TomaGold has IAMGOLD on its side; IAMGOLD continues to fund the project, so at least TomaGold is not pressed for time and funds. Make sure TomaGold is on your radar screen. TomaGold just issued some spectacular results and if it is able to continue its success with the drill bit, there is no doubt in my mind it will pique the interest of someone with a lot deeper pockets to take over the property.
I continue to follow Source Exploration Corp. (SOP:TSX.V) and Guerrero Ventures Inc. (GV:TSX.V); both have quality projects in Mexico. Source Exploration will soon be starting a six to eight week, 2,000m drill program at its Las Minas property. The company recently signed a diamond drilling contract and is 100% funded to complete the program. Rather than exploration drilling, the company is drilling for a resource as it believes it is sitting on a highly contiguous deposit. The program will focus on the Santa Cruz zone and includes stepout drilling at the Juan Bran target. Source has already had success in the area: the 2014 drill highlights include 10.6 g/t gold and 48.47 g/t silver at Santa Cruz and 3.10 g/t gold at Juan Bran. This past success indicates the great potential for the upcoming drill program. Additionally there is significant potential beyond the current drilling area that Source will be positioned to take advantage of when the markets improve.
Guerrero is drilling its Biricu project, which comprises more than 41,000 hectares of highly prospective ground that management believes lies along the direct on-strike extent of five skarn deposits in the Guerrero gold belt.
There should be a lot of news flow to come from both Source and Guerrero so make sure you keep both tickers on watch now.
TGR: Thanks for your insights.
Etienne Moshevich is the editor of AlphaStox.com, a junior market newsletter featuring companies with the very best in management teams, projects and capital structures. Moshevich is also the president of Transcend Resource Group, an investor relations company based in Vancouver, B.C., specializing in exposing undervalued companies to the marketplace. With a degree in economics, Moshevich has helped finance many successful mining, oil and gas, technology and biotech companies over the years, many of which have rewarded shareholders with substantial returns.
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DISCLOSURE:
1) Peter Byrne conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: TerraX Minerals Inc., TomaGold Corp. and Source Exploration Corp. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Etienne Moshevich: I own, or my family owns, shares of the following companies mentioned in this interview: Guerrero Ventures Inc., Source Exploration Corp., Ascot Resources Ltd. and TomaGold Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Ascot Resources Ltd., TerraX Minerals Inc. and TriStar Gold Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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