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Momentum: The Marker That Matters

Last Saturday was the best day I’ve had in mining in a long time.

It was the Metals Investor Forum. Put on by Eric Coffin and myself (plus a great behind-the-scenes team) and co-hosted by fellow newsletter writers Brien Lundin and John Kaiser, the Forum brought together 12 Top Pick companies from our respective portfolios.

Everyone in attendance likely came already believing this sector offers significant upside, given that mining has been beaten down for years and reliably cycles back up.

But the energy in the room built as the day went on and, after a week thinking about it, I understand why.

It is one thing to believe it is generally time to invest in metals. It’s another to identify the specific stocks that will move first and farthest when the rally arrives.

To be in that position a company needs more than a good project. It needs momentum – the one thing that has been hardest to maintain during this long bear market.

Hard, but not impossible. The 12 companies that presented on Saturday all have momentum, achieved in different ways including adaptability, financial prudence, tenacity, and opportunism.

We heard from explorers who have consolidated land packages, mined historic data, and advanced discoveries despite challenging markets.

We heard from developers who found ways to advance against the tide or adapted plans to suit today’s market realities, both of which mean they now have assets positioned for the rally.

We heard from producers who guarded cash in the downturn, rendering them able today to explore organic upside and take advantage of acquisition opportunities.

And we heard from new groups custom-designed to take advantage of today’s market realities.

Investors attending the Forum were unguardedly excited to hear so many strong stories. Representatives from each company were glad to get updated on other good stories – the bear market means many have their heads down, focusing on their work and not looking around for encouragement. Finding encouragement in the form of other strong teams, good assets, and pragmatic approaches gave everyone a lift.

As for me, I already knew every company. Even so, there was something new and powerful in lining them up and hearing their plans.

I don’t know when the mining markets will really take off. I do know they are finished falling. Gold cannot fall farther given that all-in sustaining costs (AISC) now average about $1100 per oz. and supply constraints are ahead for several other metals including zinc, nickel, uranium, platinum, and arguably copper.

I also know a foundation of support is building. The GDX has been rising for six months. China is buying. The sector’s famed investors are making investments and putting assets into new vehicles in preparation for the rally.

It is not a question of If the mining markets will rise; it is a question of When. No one knows the answer. Thankfully there is no need to know. We are at the bottom. Buy now and be patient.

As for what to buy: the companies that participated in the Metals Investor Forum are a good place to start. When the market does move, companies with momentum – that most challenging of all attributes – will move first and farthest.

A brief look at how each MIF company has maintained its momentum.

Pilot Gold (TSXV: PLG)

Delineating high-grade gold in Nevada while outlining three new copper-gold porphyries in Turkey is enough to make the market pay attention even when explorers are out of favor. Add to that a revamped plan for its other Turkish asset that cut costs and improved returns and you have a company with too many good projects and people to ignore. Watch now for Pilot and joint-venture partner Teck Resources to ink a deal on Halilaga, which would put more money into an already comfortable bank account.

Kaminak Gold (TSXV: KAM)

Significant and consistent gold mineralization in coherent, near-surface deposits. Easy metallurgy. Gentle topography. Supportive jurisdiction. Good local relations. Significant expansion potential. The ability to raise cash. Top-notch technical and management teams. A plan to maximize value. Kaminak has everything majors are looking for in their search for new gold assets, packaged in a company focused on shareholders.

Excelsior Mining (TSXV: MIN)

The most inexpensive way to mine copper is to pump a gently acidic solution into the deposit that dissolves the copper and then pump the pregnant liquid back to surface. It only works with a particular kind of copper geology and requires just the right amount of fracturing so the leach solution can move around – and Excelsior’s Gunnison project offers all those characteristics. A prefeasibility study showcased how this scalable and capital efficient method would turn Gunnison into a robust copper operation. Next up: a feasibility study.

Nevsun Resources (TSX: NSU)

Bisha is one of the world’s most successful base metal mines, with lowest quartile copper costs and consistent profits. Now Nevsun is adding a zinc circuit to the operation that will start producing in 2016, just in time for an expected rise in zinc prices. As for expansion, a new exploration approach is returning spectacular intercepts from the nearby Harena resource; tonnes from there and deep at Bisha will likely extend Bisha’s mine life for many years. Nevsun has half a billion dollars in the bank and pays a good dividend. Financial strength, operational prowess, and upside either by making acquisitions or being acquired – Nevsun has a lot to offer.

Lion One Metals (TSXV: LIO)

Lion One’s Tuvatu project in Fiji offers very high grade gold in a deposit wide open for expansion, with multiple nearby prospects that are not yet drilled. But rather than continue costly drilling, Lion One is planning a small, low-cost mining operation. With an after-tax IRR of 52%, the small Tuvatu mine will generate the cash to expand the resource and eventually grow the mine. It’s a robust plan grounded in today’s market realities, and it’s being advanced by a management team that has built mines before.

GoldQuest Mining (TSXV: GQC)

Talk about momentum: Goldquest just released a very strong PEA for its Romero copper-gold project in the Dominican Republic. A revamped plan suited to today’s markets outlines a mine GQC can build for US$143 million that should generate a 34% after-tax IRR. And management’s experience building a successful mine in the DR lends a lot of credence to the plan.

Sabina Gold & Silver (TSX: SBB)

There are very few gold projects in the world that could be developed in the near term to produce more than 350,000 oz. gold a year, especially in a safe jurisdiction and with reasonable costs. Sabina’s Back River project can. It could also be made into something smaller, which is what SBB is investigating now. With $27 million in the bank, a strong project offering development optionality, and an experienced new CEO determined to put Back River back into the spotlight, Sabina is in a very good position.

InZinc Mining (TSXV: IZN)

Zinc is an essential metal and several massive mines will run out of ore over the next 18 months. The consistent supply from those mines kept prices low, which means there is a dearth of new supply. The result: zinc is poised for an upswing. InZinc is one of few companies positioned to benefit. Its West Desert deposit in mine-friendly Utah already boasts a robust PEA and a feasibility study is pending.

Pure Gold (TSXV: PGM)

They say The best place to look for gold is in the shadow of a headframe. Well, how about a headframe in one of the world’s premier high-grade gold camps? Red Lake has churned out 28 million oz. gold, much of it since a new geologic approach revealed a host of hidden ounces. Pure Gold’s Madsen project is one of the few land packages in the district where this new thinking had not yet been applied – until now. After mining the historic data Pure Gold drilled its first Madsen holes last winter and hit into high-grade gold. With a team steeped in Red Lake experience, a prospective property, and money in the bank, Pure Gold is an early stage explorer that is active and advancing.

Balmoral Resources (TSX: BAR)

If you are looking for momentum, look no farther than the best-performing Vancouver-based mining and exploration company of 2014. BAR has always focused on the Abitibi region of Quebec, a fantastic jurisdiction offering prospective geology surrounded by infrastructure and mining history. Balmoral has two near-adjacent projects: Grasset is a brand new nickel-copper-platinum discovery and Martiniere is a high-grade gold system. And Balmoral has the technical expertise and, importantly, the money to advance them both.

Fission 3.0 (TSXV: FUU)

Fission Uranium’s Patterson Lake South is the most significant uranium discovery in the world and the team that found it is on the hunt again. This group found PLS by combining unique technologies with geologic intelligence and experience. Now they are exploring another 17 early-stage projects with the same successful combination, plus several high quality joint venture partners.

First Mining Finance (TSXV: FF)

This is a company custom-built for today’s market, with one goal: to take advantage of the lowest valuations the mining space has seen in decades to acquire prospective assets today that will be in demand when the markets improve. That goal requires expertise and money. First Mining has both: $8 million in the bank and a proven and highly experienced management team.

This is not an exhaustive list. There are other really good companies out there, across the explorer-developer-producer spectrum. What distinguishes top picks from the crowd is momentum: despite all that the markets have thrown at them, they continue to add value to their assets, to advance them down a practical path towards a goal of increased shareholder value.

My main message these days is to buy because this is the time to establish a portfolio of mining assets at the lowest valuations we’ve seen in decades.

My corollary to that message is: Be demanding. There are still a lot of companies out there talking up projects. Only a few of those companies and projects have everything it takes to make it. The list of criteria is long. Demand that a project tick every box.

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Thanks Gwen. Always enjoy your views. Tough market to read short term. Long term metals / energy look very strong.

-NH (October 2022)

I think Peter Krauth's analysis articles are second to none. It would be impossible to conduct a fuller report than those which I have read.

-RP (September 2022)