The biggest commodity story in the last two years must be the gold price.
It was just $1,200 per ounce in November 2018 and it broke $2,063 per ounce earlier this year. That's a 72% move in a fundamental commodity. As you can imagine, that drove the big gold producers up even higher.
Over that same two-year period, the NYSE Gold Bugs Index (HUI) rose from 138 to 363. That's a 163% gain:
As you can see in the chart above, the index sagged a bit since August 2020. That's due in part to lower gold prices and to investors taking profits.
I still think we'll get another shot at making money in the majors, when gold moves higher. But right now, I'm looking down the sector for the best opportunities.
That's because some great companies missed the run up. There are a handful of small cap miners that offer a big reward for a little more risk. There are two that stand out. They were going through transitions in 2020, so they missed the big move in mining stocks.
The first is Heliostar Metals Ltd. (HSTR:TSX.V; RGCTF:OTC). This company is the product of a merger between Redstar Gold Corp and Heliodor Metals Ltd. Its CEO is rising star Charles Funk.
Charles and I share a love for high-grade gold projects. He thinks Heliostar has a good one in the Unga Project in Alaska. This is a brownfields project at the old Apollo Mine. It closed in 1922. There are multiple occurrences of bonanza grade gold and silver in several locations across the project.
As of October 22, the company has three drill rigs on site. We can expect news soon.
The company also has a portfolio of projects in Mexico, called Cumaro, Oso Negro and La Lola. These are early stage, epithermal targets with high-grade potential.
The reason I like Heliostar, aside from management and projects, is that it is cheap right now. The timing of the merger meant that they missed the bulk of the run up in gold and gold stocks.
At just C$40.5 million this company has enormous potential. There are companies with far less going for them that trade at three or four times that.
I feel the same way about U.S. Gold Corp. (USAU:NASDAQ). This company also just completed the acquisition of Northern Panther Resource Corporation in August 2020. The corporate wrangling came at exactly the wrong time. As all the other junior gold miners soared, they were locked in negotiations. They didn't put out a press release from June 3 to August 12.
That low profile is our opportunity today.
The company owns the promising CK Gold project in Wyoming. It's a copper/gold deposit at surface that new President George Bee believes will make a great, profitable gold mine.
U.S. Gold has three other prospective projects—Challis Gold in Idaho, Maggie Creek on the Carlin Trend in Nevada and Keystone on the Cortez Trend in Nevada.
Both Challis and CK Gold have resource estimates. The company put out an updated preliminary economic estimate in March 2020. It showed that at $1,600 per ounce gold price and $2.80 per pound copper price, CK Gold had a net present value (NPV) of $321 million.
That's more than ten times U.S. Gold's current market cap.
I'd much rather buy that kind of opportunity than speculate on stocks that have already tripled or quadrupled in value. Most of those stocks are ripe for profit taking…
But shares of Heliostar and U.S. Gold haven't even started to move yet. These are some of the best risk-reward setups I've seen in junior mining.
--Matt Badiali
Matt Badiali is a geologist and independent financial analyst. He spent fifteen years researching and writing about great investments inside the natural resources sectors. He can be reached at www.mattbadiali.net.
[NLINSERT]Streetwise Reports Disclosure:
1) Matt Badiali: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: U.S. Gold Corp. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: I am a consultant to U.S. Gold Corp. My company 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.
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