Streetwise Reports: It's been a busy month or two for the precious metals, especially gold. Would you talk about a couple of the trends you see in the market right now?
Brien Lundin: The big trend, of course, is the Federal Reserve and its remarkable transformation over a span of just a few months from being hawkish on rates and actually striving to continue raising rates to being dovish, to the point where it's expected to actually begin cutting rates at its upcoming meeting. That's a remarkable transformation that I think just over the past month and a half or so has gotten the gold market, and investors in general, to take that to heart and realize the impact on gold and other precious metals, and even commodities in general. What it portends is an era of ultralow to negative real rates, and that's extremely bullish for metals.
SR: Silver has stayed fairly low vis-à-vis gold for the last few months but now seems to be waking up. What do you think is going on there?
BL: Yes, silver has been the one missing ingredient in this gold rally that began in late May. Gold has gone a tremendous way. It has cleared a number of technical resistance levels around the mid-$1,300s, around $1,370 or so, and then most recently, the very key level of $1,400. The mining stocks have generally offered leverage to this move and outperformed gold. So we had an almost perfect confirmation of the story from a technical standpoint for gold. However, silver lagged behind and for some reason hadn't really jumped on board with gold's rally.
But in recent sessions, that has completely shifted, and silver has begun to rise on its own. Impressively, even on days when gold has fallen, we've seen silver rise. This was the last important technical confirmation we needed of a major new upward trend in gold. It ironically has brought more buying into gold because of this confirmation by silver. The end result is that silver seems to actually be pulling gold ahead right now instead of lagging behind, and this bodes very well for the continuation of gold's rally to significantly higher levels.
SR: With that as a backdrop, let's shift to mining companies. What companies do you think are poised to take advantage of this rise in precious metals prices?
BL: We follow a lot of well-positioned companies in Gold Newsletter, but two companies that I think are extremely leveraged to this move in gold, because they have significant resources already in place, are Pure Gold Mining Inc. (PGM:TSX.V) and Revival Gold Inc. (RVG:TSX.V).
Pure Gold has the very high-grade Madsen mine project in the fabled Red Lake District of Ontario, and it is rapidly advancing that toward production. It doesn't have a large capital expense—only about CA$90 million—needed to get into production. And as I said, it has very high grades that, in combination with the low capex, contributes to good economics on the project. I like the company because it's immediately leveraged to higher gold prices.
Pure Gold is in the process of securing financing to build the project, and just closed on a financing that will cover about half the cost. Considering its advanced position, and the fact that it's also engaged in an aggressive drilling program to expand its resources, I think Pure Gold is particularly undervalued right now.
SR: Do you expect Pure Gold to build the project itself?
BL: Yes, I do. It is, of course, a takeover candidate, as just about every junior company is. But it is fully capable of bringing the project into production because much of the infrastructure, especially underground development, that already exists. And as I say, there is a relatively small capex requirement to get into production.
Another company that's a combination exploration play and one with resources is Revival Gold. Its Beartrack project in Idaho boasts a couple million ounces in broadly categorized gold resource at economic grades, and it looks very likely to increase that through drilling, as we speak, toward a target of around 3 million ounces (3 Moz) or so.
SR: Where does it stand in its exploration cycle?
BL: Revival Gold does have a resource of 1.2 Moz Indicated and 0.8 Inferred at good grades, but it doesn't have a preliminary economic assessment (PEA) yet. And again, it is targeting 3 Moz in resource, so drilling news will also help advance the stock.
SR: What's the mining situation in Idaho for precious metals?
BL: Idaho has a long history of mining. Unfortunately, much of it came before the modern era of environmental remediation and reclamation. So what's happened is that Idaho, although it's not known as a mining-friendly region like Nevada, is actually very pro mining because the most effective avenue toward cleaning up some of these historical mining sites is through new development of old projects. Projects controlled by companies like Revival, Midas Gold Corp. (MAX:TSX) and others are, therefore, often hybrids of greenfields and brownfields.
So the political environment in Idaho is, contrary to popular belief, very supportive of mining. However, companies operating in Idaho tend to trade at a bit of a discount, a risk discount, because the market doesn't quite yet believe that it will be as easy to permit operations in Idaho as in, say, Nevada or other areas. So that creates bargains and inefficiencies that I think investors can take advantage of.
SR: Are there other companies that you want to talk about?
BL: Yes, there are a couple of exploration plays we're following right now that are building large resources and have very exciting discoveries. They aren't as leveraged to or as dependent upon the metals prices but are, rather, much more driven by their success via the drill.
One of these is Great Bear Resources Ltd. (GBR:TSX.V; GTBDF:OTC). Gold Newsletter was one of the very early letters to recommend Great Bear at far lower prices. Thus, after the run that it has had, multiplying about 15 times over since our original recommendation, we have it in our portfolio as a Strong Hold. But its Dixie project in Red Lake has the potential to be a generational-level discovery. And resource investors who don't yet have exposure to this play may, therefore, want to consider it at this point.
SR: It has been quite active with putting out drill results over the past few months, hasn't it?
BL: Yes. It was recently conducting a financing, so it had to go into a news drought of about four to six weeks while it was completing that. But that dam was busted recently with some more new results. Ironically, or interestingly, its latest news release was of assays of a drill hole that it didn't even drill. It was relogging and resampling a historical drill hole by another operator years ago, and that company failed to recognize the geology that hole had entered and didn't even assay the bottom of the hole. However, Great Bear suspected that it was continuation of the geology at a discovery hole that it had 1.4 kilometers (1.4 km) away.
It assayed that historical hole and it came back with a narrow intersection of very high-grade gold that confirmed this new discovery and opened up the possibility that this Bear-Rimini discovery could have a strike length of 1.4 km or more. Of course it can't confirm that yet, but it does open up that potential that the fault structure this new discovery lies on could contain gold discoveries all along it—and that it, therefore, has the potential of rivaling even the most legendary of the Red Lake discoveries in terms of ultimate size potential.
SR: Is Great Bear continuing with an aggressive drilling campaign through the summer?
BL: Yes. In fact, it may be the most aggressive drilling campaign by any junior around today. The company has $20 million in the bank and three drills running right now. It has 60,000 meters (60,000m) left of a planned 90,000m drill program. But for all intents and purposes, it could probably drill for the next two years at this rate without having to finance again. So it is really in an enviable position for a junior exploration company. It should be able to release news on a regular basis and, hopefully, significantly expand the scope and potential of the Dixie project.
SR: Any other companies you'd like to talk about?
BL: Yes. Another company that has a very large-scale discovery on its hands is New Pacific Metals Corp. (NUAG:TSX.V; NUPMF:OTCQX), which is drilling the Silver Sand project in Bolivia. I think this is a very underappreciated discovery that is very likely to prove up a resource measuring in the hundreds of millions of ounces of relatively high-grade silver.
SR: What's the jurisdictional risk in Bolivia at this point? Is the government supportive?
BL: It is, but it is fair to say that Bolivia is the risk factor that the market is placing on New Pacific's discovery. But what's interesting to me is that one of the very early investors in New Pacific to help it develop the Silver Sand project was Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ). In fact, before anything was done other than test drilling before the acquisition of the project, Pan American came in and wrote a $22.7 million check to obtain a significant interest in New Pacific.
Pan American has been successfully operating in Bolivia for many years and obviously was very comfortable with the political situation there. So I don't think you could have a better validation of the political situation in Bolivia than the size of Pan American's check to invest in New Pacific.
SR: Where is New Pacific in the exploration cycle at this point?
BL: It is drilling to hopefully have a maiden resource estimate by the end of the year. It drilled over 50,000m over the preceding 12 months before it even released any drill results. The reason was to keep things quiet, so that it could work with the government to dramatically expand its property position. It was successful in doing that and then released 55,000m of drill results in two quick tranches of news, which quickly showed the market the considerable scope of the project.
Beyond its original land position, there is evidence through artisanal pits and other mining that the mineralization could extend much farther, to where it could be 5 or 6 km in strike length. The company now controls that surrounding property position and is in the process of drilling not only its original property position and target but, also, exploring outside on its new ground to get an idea of how far the mineralization might extend. But even at the current delineation, there's no doubt that Silver Sand is a world-class project that, as I said, should eventually comprise hundreds of millions of ounces of silver resource.
SR: Any final thoughts for our readers?
BL: We're at an interesting and exciting point for resource investors right now, in that the rally in gold has been confirmed both on technical and fundamental bases. And yet, many of the midtier to junior mining stocks have yet to significantly respond to that rally. So there is still time now for investors to get positioned, and they should do so.
SR: Brien, thanks for your insights.
With a career spanning four decades in the investment markets, Brien Lundin serves as president and CEO of Jefferson Financial, a highly regarded publisher of market analyses and producer of investment-oriented events. Under the Jefferson Financial umbrella, Lundin publishes and edits Gold Newsletter, a cornerstone of precious metals advisories since 1971. He also hosts the New Orleans Investment Conference, which is being held Nov. 1–4 in 2019.
[NLINSERT]Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: Great Bear Resources. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Brien Lundin: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Great Bear Resources and New Pacific Metals. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this interview: None. I determined which companies would be included in this article based on my research and understanding of the sector. 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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