Gold has broken its downtrend after breaking through the $1,750-$1,760/oz. level with follow-through this week. Silver also broke out of a short-term downtrend when it broke $26/oz. and is currently hovering right around that level. The miners have reacted favorably and have run up nicely but are still incredibly cheap and priced as if gold were priced $200-$250/oz. lower. While the downtrend has been broken, we don't think the uptrend has resumed and expect gold to be rangebound, this time at higher prices ($1,720-$1,850/oz.), potentially through the summer doldrums. Should headline inflation continue to rise earlier than we expect, this could propel gold higher during the summer. Further, yields have backed down and If this continues, this could also push gold prices higher, earlier than expected. The silver market remains tight and it could break higher at any time.
$AGI, $CXB, $DSV, $EQX, $FNV, $LAB, $MKO, $MUX, $NFG, $NEE, $ROXG, $SSRM
Alamos Gold: Announced that its Netherlands wholly-owned subsidiaries Alamos Gold Holdings Coöperatief U.A, and Alamos Gold Holdings B.V. will file an investment treaty claim against the Republic of Turkey for expropriation and unfair and inequitable treatment, among other things, with respect to their Turkish gold mining project. The claim is expected to exceed $1b, representing the value of the Company’s Turkish assets. Turkey is an odd place when it comes to mining. Mining companies headquartered in Turkey tend to have far fewer issues with the government and the like relative to foreign mining companies looking to invest in new mining projects.
Alamos has been in Turkey since 2010. Over that time frame, the company's Turkish operations have met all legal and regulatory requirements, complied with best practices relating to sustainable development, including meeting the highest environmental and social management standards, created hundreds of jobs, and developed trusting relationships with the local communities. Alamos and its subsidiaries have invested over $250 million in Turkey, unlocked significant value, and contributed over $20 million in royalties, taxes, and forestry fees to the Turkish government. Over the life of the project, government revenues of $550m are expected.
In October 2019, well into construction of the Kirazlı Gold Mine, the government failed to grant a routine renewal of the company’s mining licenses, despite the company having met all legal and regulatory requirements for their renewal. This past October, the Turkish government refused the renewal of the Company's Forestry Permit. The company had been granted approval of all permits required to construct Kirazlı, including the Environmental Impact Assessment approval, Forestry Permit, and GSM (Business Opening and Operation) permit, and certain key permits for the nearby Ağı Dağı and Çamyurt Gold Mines. The Turkish government granted these permits after the project earned the support of the local communities and passed an extensive multi-year environmental review and community consultation process.
Alamos is an excellent company with three cornerstone assets, Young-Davidson (Canada), Mulatos-La Yaqui (Mexico), and Island Gold (Canada), two of which are undergoing expansion projects which will fuel production growth at lower costs over the coming years. However, if the company could advance Kirazli to production, the added cash flow would allow the company to bring Lynn Lake to production more quickly while also advancing other projects. We believe Alamos would create material value if it acquired Argonaut Gold for its Magino project (near Island Gold) and the Ana Paula development project in Mexico. Argonaut's Magino project is a high-quality development project of scale, once optimized, and could propel Alamos into the ranks of a senior producer. Alamos could double output from Magino's open-pit operations and unlock the value from what looks like a high-grade underground component.
Calibre Mining: The company has started to advance its 100% owned Eastern Borosi Gold-Silver project, which we believe will be an important and sizeable “spoke” for the company over the coming years. Calibre initiated a diamond drilling program to convert resources in three high-grade gold deposits from inferred to indicated classification and drill new, high priority gold-silver targets that have been outlined based on geochemical, geophysical, and structural data. This work is being done to advance EBP to be the next high-grade 'Mining Spoke' as part of the company's "Hub-and-Spoke" operating strategy. The current resource stands at 700.5k oz. Au and 11.4m oz. Ag among six epithermal veins for a combined 4.4m tons @ 4.93 g/t Au and 80 g/t Ag. Mineral resources have been defined in six vein systems exposed along an eight-by-ten-kilometer structural corridor that remains open for resource expansion and discovery to the northeast and southwest.
The initial infill and geotechnical drilling program are focused on Guapinol, the adjacent Vancouver, and the Riscos de Oro deposits, which contain combined inferred resources of 1.97 million tons averaging 8.15 g/t Au and 69 g/t Ag containing 515,000 ounces of gold and 4,371,000 ounces of silver. The initial infill and geotechnical drilling program are focused on Guapinol, the adjacent Vancouver, and the Riscos de Oro deposits, which contain combined inferred resources of 1.97 million tons averaging 8.15 g/t Au and 69 g/t Ag containing 515,000 ounces of gold and 4,371,000 ounces of silver.
Discovery Silver: Announced results from 13 diamond drill holes targeting bulk-tonnage mineralization at its flagship Cordero silver project. The results from this program will be incorporated in a new resource estimate and revamped PEA in the second half of the year. Phase 1 drilling will be immediately followed by Phase 2 definition and expansion drilling. Select intercepts include:
- 26.1m @ 109 g/t Ag, 0.06 g/t Au, 2.0% Pb and 1.90% Zn.
- 27.4m @ 78 g/t Ag, 0.08 g/t Au, 1.3% Pb and 3.60% Zn.
Cordero is a low-grade operation, but given the size of the resource and a strip ratio of 0.98:1, it is economical at $21.50-$22/oz. silver (yields the typical minimum IRR of 20%). It will be interesting to see the revamped PEA. Discovery will likely be unable to build the project independently as it is capital intensive with an initial capital investment of $570m. This is the perfect project for leverage in the current silver price environment.
Equinox Gold: The company made a smart move by divesting its tiny, high-cost gold mine, Pilar, for a reasonable price. Assuming a 50% conversion of M&I resources to reserves and a $1,700/oz. gold price @ 6.50%, the net asset value (NAV) is approximately $37m, based on a simple DCF. Equinox sold Pilar to Pilar Gold in exchange for $38m cash, a 9.90% equity interest in Pilar Gold, and a 1% NSR royalty. Equinox will likely sell the royalty within the next 12-months for anywhere between $3.5-$5.5m. This is a natural step in Equinox's evolution as its focus is now on larger assets, including Aurizona, Fazenda-Santa Luz, Los Filos, Castle Mountain, and Hardrock. Equinox has two smaller assets, Mercedes and RDM, one of which will likely be divested.
Franco-Nevada: The largest royalty and streaming company by market cap announced it has added iron ore exposure by acquiring 14.70% of Vale’s outstanding participating debentures for $538m. The Royalty Debentures provide holders with life of mine net sales royalties on Vale's Northern and Southeastern Iron Ore Systems and certain copper and gold operations (together, the "Royalty"). This transaction provides royalty exposure to some of the world's largest and most profitable integrated iron ore mines with reserve-weighted mine lives of 30 years and potential for multiple additional decades through reserve growth. The royalty covers a total of 15.6 thousand square kilometers of mineral properties held by Vale in Brazil, also offering exposure to a number of development properties. The royalty currently generates an annualized pre-tax cash yield of 10% based on acquisition cost and the most recent semi-annual Royalty Debenture payment. The amount of production capacity subject to the royalty is expected to grow by approximately +60% by 2026, which would imply an 8% yield on investment at that time, assuming consensus long-term iron ore prices.
Franco provided revised 2021 guidance and a 5yr outlook following the acquisition of this royalty. Franco now expected attributable production in 2021 of 580-615 AuEq oz. (up from 550-585k oz.) and $115-$135m of revenue from its energy assets. For its 5yr outlook, Franco now expects to production 630-660 AuEq oz. by 2025, up from 600-630k AuEq oz. and $150-$170m of revenue from its energy assets. Franco's exposure to precious metals will remain above 80% in 2021 and 2025, with oil, gas, NGL's, iron ore, and other minerals accounting for the rest. Franco and Wheaton Precious, the two largest royalty and streaming companies, have been relatively active even through the CV-19 pandemic, with Franco acquiring the Vale debentures, the Haynesville royalty portfolio (energy), and the Condestable stream for $840m (total) while Wheaton has acquired the Marmato precious metals stream, the Cozamin silver stream and the Santa Domingo gold stream for $550m (total).
Labrador Gold: After tremendous success at New Found Gold, Labrador's land position is on the same trend at Kingsway, and the probability of similar high-grade mineralization on Labrador's land isn't low. Labrador closed a $9.8m flow-through financing backed by Eric Sprott and New Found Gold to accelerate exploration at Kingsway. While this seems small, Labrador's market cap is just C$72m. Should Labrador have any success resembling that achieved by New Found Gold, it will likely be acquired.
Mako Mining: Reported grade and tonnage results from mining the first four benches of the San Albino vein at its San Albino gold project in Nicaragua. The mined benches consisted of four six-meter benches between 610 and 592 meters above sea level and contained a total of 7.7k oz. Au and 12.27k oz. Ag within 13,787 tons of diluted vein material grading 17.45 g/t Au and 27.7 g/t Ag. Additionally, 51,169 tons of historical dump material, grading 2.54 g/t Au were also mined from these four benches and areas that did not include the San Albino vein, bringing the total stockpile to over 11,900 ounces of gold.
McEwen Mining: Reports consolidated production for Q1 2021 of 23.3k oz. Au and 493k oz. Ag, or 30.6k AuEq oz., compared to 35,100 GEOs in Q1 2020. All operations delivered production in line with budget. Production is expected to increase over the year's balance and be 20-40% greater than 2020. McEwen continued to be a prime example of value destruction in the mining industry. Luckily it has a quality copper development project. However, it could never afford to build the asset and is best off selling an 80-90% interest, using the proceeds to acquire a quality gold mine.
Northern Vertex: Announced production of 9,912 gold equivalent ounces for the quarter ended March 31, 2021, from the company's 100% owned Moss Gold Mine in Mohave County, NW Arizona. Highlights as of the end of Q1 2021 include gold and gold-equivalent production of 8.78k oz. oz. and 9.9k oz. and silver production of 84.38k oz. The company ended the quarter with $13.8m cash on hand and completed 15k meters of infill and near-mine exploration drilling. The West Pit is now fully developed to support large mining equipment, which allows for more efficiency and lower unit costs. While the modeled measured grades in the West Pit are lower than that of the Center Pit, an examination of the December 31, 2019, Mineral Resource has identified opportunities for improvement of the model through increased drilling. During the quarter, the construction of Leach Pad 3a was well progressed, with earthworks being 65% complete and overall project advancement being 40% complete at March 31. Pad 3a is expected to be ready to receive crushed ore in Q2 2021.
Roxgold: Announced the feasibility study results and Mineral Reserve estimate for the high-grade Séguéla Gold Project in Côte d'Ivoire. The feasibility study confirms robust economics for the development of an open-pit mining operation at Séguéla, targeting a series of open-pit mines at Antenna, Koula, Ancien, Agouti, and Boulder deposits that will feed a central gold processing facility. The base case economics @ $1,600/oz. Au yield a NPV5 (attributable) of $380m, increasing to $451m at $1,750/oz. While this is a marginal improvement over the PEA, there remains several opportunities to unlock shareholder value. Highlights of the FS include:
- Average annual gold production of 133k oz. Au over the first six years of production, peaking at 151k oz. in year four.
- LOM production of 1.03m oz. Au with average annual production of 120k oz.
- Throughput to be expanded 25% to 1.57Mtpa in year three, through a series of optimization and debottlenecking measured with minimal capital investment. Should reserves and resources be increased significantly, throughput rates could increase beyond this level.
- Cash costs and AISC of the first 6years of production are estimates at $528/oz. and $797/oz.
- Initial capital investment: $142m.
- Significant further optimization and future growth opportunities:
- Ongoing expansion and optimization of the project. Drilling at Koula and Ancien at depth has continued to intersect high-grade mineralization, suggesting the potential for an underground expansion opportunity.
- An optimization study has commenced exploring the opportunity to mine more of the current Mineral Resource base from underground, which would reduce the need for larger respective pits and, therefore, substantially lower accompanying strip ratios.
- Significant exploration perspectivity with the recent discovery of the Sunbird prospect and over 20 prospective targets yet to be tested.
To read company reports and valuations for Roxgold and larger peer, Endeavour Mining, click here and sign up for a free 30-day risk-free trial.
SSR Mining: Received acceptance to initiate an NCIB permitting the company to purchase for cancellation up to 10m common shares or 4.50% of the company's total issued and outstanding common shares. As of April 9th, SSR Mining has 220.19m shares outstanding. Its share count increased materially after it acquired Alacer Gold, in which it obtained its most valuable asset, Copler, which accounts for 60-65% of its Net Asset Value. SSR Mining has maintained a clean balance sheet for many years to advance capital projects at its three operations and pay a dividend and initiate a share buyback.