The latest manufacturers index numbers are flashing a big red light that the economy in the US is slowing. It is a clear sign that the Fed will be lowering rates, I’m predicting a half percent at the next meeting and it wouldn’t surprise me if it is a full percent. It won’t be long now and the US will be joining the rest of the world in the negative yield party. As I wrote in my last report, in a yield starved world, gold will be king.
In the last great gold bull market from 2001-2011, it took awhile for the broad investing community to get it. Eventually they did, and we are seeing the chips fall into place for another multiple year gold bull market. This time around, it looks like it could last even longer.
The fundamentals of supply and demand are shaping up nicely after decades of under spending on exploration, and new mine development. The current mines are being high-graded to early demises. This has made the supply chain weak, meanwhile, the people of China and India are big gold buyers so demand is strong. Secondly, the fundamentals of the entire global economic system is broken and it will need a blast from the past.
We are already seeing it in the race to the bottom with countries trying to devalue their currencies, while negative interest rates are needed for economic growth, and debt is at extreme levels. You let politicians and central bankers run things without any disciple for long enough and this is what you get.
Their foolish actions have painted themselves into a corner that they will have a hard time getting out of. This is forcing them into somewhat of a gold standard, you can see central bankers all over the world buying gold.
Their paper currency and debt system is not working out so well and they need hard assets, with real value. So they are buying gold, if I were them, I wouldn’t stop there, silver, copper, battery metals and other commodities are a much better place to park money than in devaluing currencies and abundant debt.
Economics have a way of fixing excesses, and we are seeing it in real time. Central bankers and politicians have cheated, borrowed and stole their way here. Investors need to get better prepared for the future. In the coming decades, it will become crucial for investors to hold assets like commodities that everybody worldwide uses. Not debased cash and debt that yields less than inflation.
I’ve been in the mining sector for a long time, I prefer owning gold, silver and other metals that are still in the ground. The stocks of companies with those assets tend to trade at even a steeper discount than what has been produced. I’m a treasure hunter at heart, and I like to look for where I can get the best bang for my buck. That is in the stocks of mining companies that are being mispriced.
Let’s Talk About Stocks
There are two things that investors in the treasure hunter stocks that investors need to be mindful of. Avoiding those that are trading on a lot of hype, and moving into those that are trading at bargain prices. So in this report, I will write about some mining stocks with insane valuations, a couple new picks and an update on my top picks from recent reports.
Great Bear Resources (GBR.V) has been in the report a few years ago when they were very cheap, then again back in May when they were a couple bucks a share, and now I think they have received an insane valuation. They have had success finding a classic Red Lake target at their Hinge Zone discovery, then in the past few months what got the market all worked up is they moved their drill rigs over to a new target, in a big structure, called the LP fault. It has been promoted as randomly generated drill targeting along a fault, but the reality is that there was past drilling there that they used to target. These two discovery areas propelled them into a market darling status that everybody is talking about.That is not always a good thing, as euphoria can tend to be costly. At the LP fault they hit some high-grade gold, smeared the grades to make it look bigger, and combined with the attention from their Hinge Zone discovery the arm waving went into overdrive. All of a sudden, the LP fault was being compared to Hemlo, Malarctic and other huge Canadian gold mines. They even started overlaying the footprint of those huge mines onto the LP fault and breathlessly promoting the size potential. It is always wise to look a little deeper into a company’s actions when this happens. While they got a lot of promotional value out of LP fault drilling, they completely stopped drilling their Hinge Zone. They are in Red Lake, and the Hinge Zone is a classic Red Lake discovery. The kind with the potential of what made Goldcorp into the big success it was at one time. It was a big red flag for me, when they took all the drill rigs off the Hinge Zone. Another red flag was recently, just before the stock peaked, they ran a big full page advertorial in one of the Canadian national newspapers. When a company does that, it is never a good sign, they are involved in writing or editing those things, and it is much better when independent people are doing that than in a paid for advertisement made to fool people into thinking it is independent research. Then they put out results that didn’t meet the markets euphoria, the stock peaked and rolled over. The LP fault area is going to struggle to keep up with the hype, so far the high-grade looks patchy and they are smearing it to make it look like it could be a bulk mineable open pit target. While the Hinge Zone is collecting dust with no drilling. I can see the valuation of this one getting a lot cheaper as more people see through the hype.
Another one trading on a lot of hype is Cantex Mine Development Corp. (CD.V), which is a company run by Chuck Fipke. He is the guy that found Canada’s first diamond mine, and made himself and investors a ton of money off of it. Since then, he has hyped up Metalex, got a bunch of money in financings, then it tanked. This is the second time around for Cantex that in the past was hyped to an insane valuation and then tanked. He is very good at hyping up an exploration story, and can build up a big audience due to his success finding the Ekati diamond mine. The current story on Cantex is a base metal story in the Yukon. I’ve been skeptical on this one since before it peaked recently when I started hearing comparisons to the Broken Hill mine in Australia that made BHP. I even saw some stuff online of people saying this could be the next super major. When you look closer at the results, sure there is high-grade, but it looks like it could be tonnage challenged. Then you look at where it is and it is in a place that is expensive to explore, build and operate a mine. So in addition to looking like it could be tonnage challenged, it has the added bonus of looking to be challenged on the economics. Recently, it has been cut in half on the valuation, and it still looks grossly overvalued.
The final insanely valued company for this report is Novo Resources (NVO.V), run by Quinton Hennigh. What got this one worked up in the past couple years was the potential for the discovery of another Witswatersrand type discovery, a Wits 2.0. What really launched it was when they found a very high-grade sample of gold at their Prudy’s Reward project. The market went nuts over it because it looked like it could be another Wits, but with a high-grade twist. Since then, their additional samples have failed to meet the hype. They even went as far as sitting on results because they deemed them unrepresentative. While they sat on some results, they have hopped around from area to area on their claims to look for something that could keep the promotion going. What I keep seeing in their results is patchy gold distribution that will be very hard to mine. I certainly would advise investors to steer clear of this company with an insane valuation considering what they have found.
Valuing exploration and mining companies requires being able to understand the difference between when something is hyped up insanely and when they are cheap. The ones above are examples of overly pumped stocks, next I have some with cheap valuations.
A Couple New Picks
I always like to find new picks, when I think the market is mispricing what they have found. One of those is Sun Metals Corp. (SUNM.V), they have an impressive gold and copper discovery in British Columbia. The area it is located in has good access and they can drill year round. They have very talented people involved, including the guy that found MAG Silver’s mine in Mexico. In the past year, they caught a lot of
attention by hitting thick intersections of high-grade. But, recently the market has been punishing them, I think in an unwarranted fashion. Which is why I’m making them a pick now. It looks dramatically oversold based on the drilling results, and on the technicals in the stock chart. What I see in the drilling results is a big, long lived mineralized system, that is entirely intact, with high-grade mineralization. The good thing is that it is very big, but the reality is, sometimes these big high-grade systems take time to figure out. Lately, the stock has gotten hammered and I think it is seriously mispricing the realistic potential and it is worth looking at taking a starter position while it is on sale.
Another stock that has caught my attention of late is McEwen Mining (MUX.T), which has Rob McEwen of Goldcorp fame as the biggest shareholder and it's his namesake company. What caught my attention was his presentation at the recent Denver Gold Show. He explained some of the challenges that the company has gone through that has caused the stock to trade at multiple year lows. He was very forthcoming about the problems, and made a compelling argument that they are on top of the problems and ready to turn the corner. The stock recently has gone through a golden cross which is a key technical indicator that I like to see. With the price of gold gaining strength, and the combination of them ironing out the kinks in their operations, I can see this one playing catch up quickly. I don’t pick a lot of miners because often their best days for growth are behind them, in this case, I think they have some nice blue sky in front of them.
Updates on Top Gold Stock Picks
Pretium Resources (PVG.T) has been a long term pick in the reports, what originally caught my attention was their high-grade gold discovery. I continued to follow them as a pick as they went through the development discount window. Through to them becoming a high-grade gold mining company, with some challenges at the beginning of their life as a miner. They have got on top of the challenges at their mine and now they are generating a lot of profit as it also is a low cost producer. I see them as a core holding for investors that want exposure to a gold miner as they have a lot of growth ahead of them. In the last gold bull market, many middle tier gold miners were taken over by the giant majors. This has left a hole in the food chain of the gold mining sector between giant majors and explorers and smaller developers. I can see them taking advantage of that situation with all the profits they are generating and use that to grow into a much larger gold miner.
Equinox Gold (EQX.V) is a pick in the report that I added in later months of 2018, they are a Ross Beatty company who has a knack for building big winners. Recently they listed their stock on the NYSE which makes it easier for American investors to buy the stock. There aren’t a lot of gold miners listed in US for American investors to buy. They have been building the company with the checkbook, buying mines that they feel were cheap and they could add value. I like their portfolio of mines and their business plan. It is very early days for them, and as gold gains strength, I think they will outperform gold and their peers.
Premier Gold (PG.T) is another long term pick that I’ve had in the reports since they first went public as an explorer through to them now being a miner. I’m a big fan of their business model, they buy into solid projects at good prices and then enhance them with the drill rig. They have recently had good news on one of their key projects, that is a good example of their skills in exploration to enhance a mine. Their leader is Ewan Downie, who is an excellent explorationist, and he has surrounded himself with talented mining people. They are another smaller miner that I can see growing into a much larger miner that will outperform gold and their peers.
My website sponsor Sirios Resources (SOI.V) has a couple pieces of pending news. One is the resource on their large zone of near surface gold and the other is additional drilling results from the high-grade discovery in close proximity. There aren’t a lot of juniors with well defined open pit targets, they have one that looks to have a solid grade and recently they reported excellent recoveries. Not far from that target, they also found a high-grade zone that is showing a lot of promise. Together they are a nice combination and they are in Quebec, which is one of the best jurisdictions in the world for exploration, mine development and mining. This is a junior with a bright future that you definitely want on your shopping list.
Amex Exploration (AMX.V) is another one with a high-grade gold discovery, in Quebec, that recently reported very good drill holes that helped the stock breakout. This stock has a very nice share structure to go with an exceptional new discovery. The team is very focused, which is what they need to be when looking at high-grade gold discoveries. The system they are looking at has good size as well, and is open for more of the high-grade vein discoveries in a big package of under explored rock. High-grade takes focus, you need to dig in and keep pounding away with the drill rig to figure them out. They are well funded and in an area that they can drill year round. With the drilling results they have had to date, and their growing understanding of a big gold system, these guys can deliver exceptional results at any time. Keep a close eye on this one.
I’m more than a little biased when it comes to Advance Gold (AAX.V) because in addition to being the CEO, I’m also a large shareholder. With Advance Gold, I’m taking my experience in the business as an explorationist and as a reporter, and building it to avoid the pitfalls that other juniors have fallen into. We are in Zacatecas, Mexico, which is very prolific region as 10% of the silver ever produced worldwide has come from the state of Zacatecas. We have a tight share structure, with large insider ownership. We are small but have a strong team involved with tons of experience. Most importantly, on the Tabasquena project, we have found a network of epithermal veins close to surface, with widespread gold and silver mineralization. Right below the network of veins, we have recently completed a geophysical program that identified a large and continuous chargeability anomaly. In the next week or so, we will be starting a second phase of geophysics to expand to the south where the anomaly comes closest to surface. Shortly after that geophysics, we will start drilling to test the big geophysical anomaly. Our valuation is tiny relative to what we have accomplished so far, with the work coming up shortly, things are shaping up for us to gain a lot more attention.
Gold is in the early innings of a new bull market that I see can have legs for many years. In this report, I’ve given you some examples of what to avoid and a group that should be on your shopping list.
All the best,
Allan Barry Laboucan
Allan Barry Reports
Advance Gold (AAX.V)
P.S. my reports are for information purposes only, before making any investment decisions it is important to do your homework and speak with your financial advisers.