It was in the last week of November 2015 that I witnessed a never-before-beheld event in the quantitative world of gold and silver analysis: Commercial traders were actually "long" gold futures for the first time since 2001, after being net short for nearly a decade and a half. With the price down from the August 2011 intraday peak of US$1,923.70/ounce, a new bull market in gold and silver was born and while it had been a fitful ride up until a few short months ago, we are now fully ensconced in the biggest bull market in the history of the modern markets, fueled largely by profligate fiscal and monetary policies the world over.
To recap the events of the last eight months, the gold market actually got its cue not from the sovereign and central bank responses to the pandemic, but rather the policy "pivot" seen in August 2019, when the U.S. Fed launched a series of massive REPO actions designed to add liquidity to treasury markets.
The big advance in September 2019 kicked off the move, which, while temporarily delayed by the COVID crash in March, has now blossomed into new highs in gold bullion. Yet, multiyear highs in silver, and the gold and silver miners have yet to materialize. Herein lies the base case I am making for ownership of the junior developers and the micro-cap explorers; the developers with defined resources ("ounces in the ground") have only recently begun to outperform their intermediate and senior brethren (GDX/GDXJ).
After forty-odd years of combing list after list of junior mining investment candidates, I have learned through multitudinous scar tissue that the first criterion upon which to rely is management. Whether it was Paul Penna (Agnico Eagle Mines Ltd. [AEM:TSX; AEM:NYSE]) in the 1980s, Robert Freidland (Voisey's Bay) in the 1990s, Ross Beatty (Pan American Silver Corp. [PAAS:TSX; PAAS:NASDAQ]) in the 2000s or Michael Williams (Aftermath Silver Ltd. [AAG:TSX.V]) in 2020, the driver of the junior mining "bus" remains the key determinant in one's odds of making good money.
It is the operator that drives value, and while there are two dominant female deities (Mother Nature and Lady Luck) that ultimately tilt the scales, they rarely even glance at questionable projects run by shady promoters. The best way of assessing any opportunity is to see who is promoting it, because the operator knows what will fly and what will be stuck on the ground. The most thorough due diligence conducted is usually that which was done by management long before you or I have heard about it. For this reason, the operator rules the roost.
Categories
There are two distinctly different categories of junior company to look at and each carries a wide dispersion of risk. By way of the term "junior," I am already taking on risk, but developmental risk is a far cry more manageable than exploration risk, so I have broken down this Special Situations report to separate developers and explorers. As you will read, developers can also be explorers, but the reverse is not true until the explorer has made its initial discovery.
The art form that is selecting which explorers to speculate upon is an entirely new enterprise but still rests on the geologist, or the team of same, directing the exploration efforts. As in the case of the operator, it is the track record of the geologist that provides the clue and since there have been few new large discoveries since we entered the new millennium, it is a daunting task in investment navigation.
"The List"
Developers
Getchell Gold Corp. (GTCH:CSE) (CA$0.475 / US$0.365/share)
The base case for Getchell lies in their 2019 acquisition of the Fondaway Canyon asset where prior work confirmed the presence of 1,069,000 ounces of gold, comprised of 409,000 indicated and 660,000 inferred. The compelling case for investment is valuation, as the value-per-ounce of Getchell's market capitalization is vastly understated. Assuming that all options and warrants were to be exercised (injecting approximately USD$4.5 million in new working capital into the treasury), the fully diluted issued capital lies at 92,782,619 shares outstanding. Using the Aug. 31 closing price of US$0.365/share, Getchell is valued at US$33,865,655. Dividing that figure by the indicated and inferred resource of 1,069,000 ounces, one arrives at US$31.67 per ounce.
In 2017, with gold prices at around $1,250 per ounce, Cipher Research Report of Vancouver determined that an ounce "in the ground" was worth US$40, but recent comments by industry analysts have now declared a new valuation paradigm based upon the higher gold price. That valuation has a range of US$80/ounce to as high as US$250/ounce, with the differential being variable, like ease of extraction, jurisdictional risk and infrastructure.
Taking the lower end of the range at US$80, Getchell should be valued at US$85,520,000 or US$0.9218 per share, a 252% upside thrust from its recent price. One might argue that an open pit operation ("ease of extraction") located in Nevada ("jurisdictional risk" zero), with roads, water, power and educated labor force ("infrastructure") everywhere around them justifies a value-per-ounce closer to the higher end of the valuation range. At $250 per ounce, Getchell would be approaching US$3 per share.
That covers the minimum valuation projection for Getchell with no provision for a revised resource estimate nor exploration potential. The company is launching a 5,000-meter drill program into the Tenneco Drift, Pack Rat, Colorado and Pediment zones this month, into areas known to contain gold-bearing mineralization but never included in any resource calculations in the past. By example, drilling by Tenneco encountered up to 16-gram Au material over a half dozen holes and over decent widths, and while it was spectacular in grade, subsequent work programs excluded that zone. In the Pack Rat zone, 68 meters of 2.69 g/t Au (US$170/t rock) was reported but never included in any of the resource calculations. Needless to say, there exists significant potential for an increase in ounces through exploration.
Also noteworthy is the cut-off grade (COG) used to identify ore in the arrival at 1,069,000 ounces Au: a COG of 3.43 g/t Au was used back in 2017 (gold at $1,250), which most certainly would have excluded a substantial body of mineralization where grades were above 1 g/t but below 3.43 g/t. Most resource calculations in 2020 use a COG as low as 0.5 g/t Au, largely because the value of the ore is so much greater today at $2,000 Au than it was even three years ago.
It is my conservative estimate that after the discovery of new gold-bearing zones through exploration and the inclusion of known gold-bearing zones through the revised resource estimate (and lowered COG), Fondaway Canyon will boast a 2- to 3-million-ounce, NI-43-101-compliant resource. The lift in the stock price will come from a) rising gold prices, b) a revised value/ounce level, c) a larger resource from reranking (lower COG), and d) exploration success. The only one of the four valuation drivers that is speculative is d) exploration; the rest are predictable and quantifiable.
2020 target = US$0.92 / 2021 target = US$3.00
Mexican Gold Mining Corp. (MEX:TSX.V) (CA$0.14 / US$0.1296/share)
This is yet another developer located in a favorable jurisdiction (Mexico) with a resource of 862,000 ounces of gold comprised of 645,000 ounces Indicated and 217,000 ounces Inferred, with intention of delivering a preliminary economic analysis (PEA) for both the El Dorado and Santa Cruz properties. They also have two advanced exploration targets in Cinco Senores and Changarro, with work scheduled for H2/2020.
The common thread here is valuation, as with 173,717,391 shares outstanding (fully diluted) and a market cap of US$18.56 million, Mexican Gold carries a value-per-ounce of US$28.09. At US$80/ounce, the resource would be valued at US$68,960,000 or US$0.398, giving investors a 307% lift to arrive at fair value.
CEO Philip O'Neill is the operator and comes with a solid track record of accomplishment as well as a decent institutional following.
2020 target = US$0.25 / 2021 target = US$0.40 (subject to revision)
Vendetta Mining Corp. (VTT:TSX.V) (CA$0.08 / US$0.066/share)
This is a base metal play that a few years back was the darling of the zinc-lead cheerleaders—until the price of zinc does what it always does: crash. I wrote about the dangers of any market controlled by the Chinese and that is exactly what happened in 2018 after zinc topped in the US$1.60/lb. range.
The Pegmont lead-zinc deposit went through a successful PEA process in 2018 and if base metal prices can recover to 2018 levels in early 2021, VTT should be a good proxy for this space.
However, I believe that chairman Michael Williams (Aftermath Silver) will be in the hunt for another silver asset to fortify the Vendetta story and that is the rationale for ownership. You cannot get a better steward than Williams and looking no further than Aftermath is the key.
2020 target = US $0.20 / 2021 target = US$0.50
Explorers
Norseman Silver Ltd. (NOC:TSX.V) (CAD $0.28; U.S. quote symbol expected shortly; no chart available)
The company recently moved from Tier 3 to Tier 2 on the TSX Venture Exchange, having announced the option agreements to acquire two highly prospective silver assets, Cariboo and Silver Switchback, located in northern British Columbia, Canada. Located in the Stikine terrain, the Silver Switchback carries an outcrop containing over 4% copper and 138 g/t silver, which will be investigated during upcoming work programs. Acquisitions of silver-bearing development and exploration projects are the corporate mission statement for the company, as well as fortifying the board of directors with strong team members.
There are several corporate developments on the horizon that could vault NOC into the forefront as a nascent silver producer and when achieved, above average appreciation is expected.
2020 target = CA$0.50 / 2021 target: To be determined
Megastar Development Corp. (MDV:TSX.V; MSTXF:OTC; M5QN:FSE) (CA$0.155 / US$0.1296; no chart available)
I recently finished a conversation with an individual close to the ground on this one, and learned that the main driver behind this company is major shareholder and CEO/geologist David Jones.
I subsequently had a conversation with David and after my many years investing in Mexican mining deals dating back to 1991, I can tell you that this famous mine finder is at the front end of most conversations regarding recent Mexican gold/silver discoveries. His discoveries include the Switchback Mine (Gold Resource Corp. [GORO:NYSE.American]), Los Filos (Teck Resources Ltd. [TCK:TSX; TCK:NYSE]; 1995), El Limon-Guajes (1998), and Cayden (sold to AGE for US$205 million).
The two primary projects are Yautepec and Magdalena, both collapsed calderas (volcanoes), which will both see work in the next sixty days. David is extremely "high" on the early geochemistry for both properties, located adjacent to one another and within the Oaxaca Au-Ag Polymetallic Belt, situated in the eponymous southern state. The presence of plentiful pathfinder minerals is the key attraction and consistent with his other successes in the region.
He and his fellow insiders control a large portion of the issued capital (well over 20%) in MDV.
2020 target = CA$0.35/US$0.2683 / 2021 target: To be determined (subject to revision)
Other Candidates for Consideration
• Goldcliff Resource Corp. (GCN:TSX.V; GCFFF:OTCBB) (CA$0.085 / US$0.069)
News pending on additional deals to fortify land package; excellent share structure; stand-up CEO and major shareholder (George Sanders)
• Western Uranium & Vanadium Corp. (WUC:CSE; WSTRF:OTCQX) (CA$0.78 / US$0.5912)
This company remains my sole proxy for the long-awaited turnaround in the U.S. domestic uranium industry.
• ArcWest Exploration Inc. (AWX:TSX.V) (CA$0.16 / US$0.1224)
A project generator with a big land package in B.C.'s Golden Triangle, the upcoming drill program on the Todd Creek Project could be a game-changer.
Conclusions
This is the "sneak peak" list available to everyone. The more detailed analysis of each of these names is for subscribers only. The GGM Advisory service will be following these and many other junior development and exploration stories in 2020 and beyond. While the service does not deal exclusively with juniors, the explosive nature of the precious metals markets looking out to 2021 will undoubtedly demand close attention to the micro-cap space because of the inherent leverage contained herein.
Please feel free to contact me at [email protected] for further information on the service and follow me on Twitter @MiningJunkie where I post from time to time.
Originally published Sept. 1, 2020.
Follow Michael Ballanger on Twitter @MiningJunkie.
Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.
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Disclosure:
1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Aftermath Silver, Getchell Gold, Megastar Development, Goldcliff Resource Corp., Western Uranium & Vanadium Corp. Norseman Silver Ltd. My company charges or has charged in the past consulting fees to the following companies referred to in this article: Aftermath Silver, Getchell Gold, Norseman Silver, Megastar Development, Goldcliff Resource Corp., Western Uranium & Vanadium Corp. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Goldcliff Resource Corp. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Megastar Development. Please click here for more information.
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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 three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Aftermath Silver, Megastar Development, Goldcliff Resource, Norseman, Western Uranium and Vanadium, companies mentioned in this article.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.
