Archive for Metals

Alamos Gold Posts Record Cash Flow in Q3, Confirms FY Guidance and Raises Dividend 33%

Source: Streetwise Reports   10/29/2020

Shares of Alamos Gold traded 12% higher after the company reported record free cash flow in Q3/20 and a 49% sequential increase in gold production versus the previous quarter.

Intermediate gold producer Alamos Gold Inc. (AGI:TSX; AGI:NYSE) yesterday announced financial results for its third quarter of 2020 ended September 30, 2020.

The company’s President and CEO John A. McCluskey commented, “We had an excellent third quarter financially and operationally with strong performances at all three operations driving costs significantly lower. This included another record quarter at Island Gold and Young-Davidson starting to demonstrate its full potential following the completion of the lower mine expansion. We previously outlined our expectation to transition to strong free cash flow generation in the second half of 2020 and we delivered with record free cash flow of $76 million in the quarter.”

“Given our strong free cash flow outlook, we are pleased to announce a 33% increase in our dividend, which has now grown by 300% since 2018. We expect to continue to generate strong free cash flow while reinvesting in high-return projects like La Yaqui Grande and the Phase III Expansion at Island Gold which will support further growth and returns to shareholders,” McCluskey added.

The company reported on several operating and financial highlights and stated that it achieved record quarterly free cash flow of $76.0 million in Q3/20 driven by higher margins at all of its operations.

The firm indicated that it produced 117 Koz Au in Q3/20, which was a 49% increase compared to Q2/20. Alamos Gold commented that the increase was due to production returning to budgeted levels following the temporary suspension of operations due to COVID-19 at the Island Gold and Mulatos mines in Q2/20.

The company pointed out that through the first nine months of the 2020 fiscal year it has produced 306.4 Koz gold and remains very well positioned to meet its FY/20 guidance of 405-435 Koz gold.

Alamos stated that in Q3/20 it sold 116.035 Koz Au at an average price of $1,882/oz, resulting in revenues of $218.4 million.

The firm additionally announced that it was increasing its common shareholder’s dividend by 33% to US$0.08 per share starting with the dividend payable in December 2020. The company stated that the increase is justified and supported by the record free cash flow in Q3/20 and strong forward outlook.

The company noted that in Q3/20 consolidated total cash costs were $681 per ounce and all-in sustaining costs were of $949 per ounce and that both of these decreased significantly from H1/20.

Alamos reported that it reported record adjusted net earnings of $56.9 million, or $0.15 per share in Q3/20, which increased by 143% compared to Q3/19. The firm additionally reported that in the quarter it realized record net earnings of $67.9 million, or $0.17 per share.

The company indicated that the record financial performance it achieved in Q3/20 was due to a combination of very strong operational performance and higher gold prices. The firm advised that gold production increased to 117.1 Koz in the quarter, which represented a 49% increase over Q2/20. The company added that these volumes were registered along with much lower total cash costs of $681 per ounce.

Alamos Gold advised that it expects that production in Q4/20 will be at similar levels, which will position the company to meet its revised FY/20 production and cost guidance that the firm issued earlier this year in July.

Alamos Gold is an intermediate gold producer headquartered in Toronto. The company employs more than 1,700 people and operates three mines in North America, which include the Island Gold and Young-Davidson mines in northern Ontario and the Mulatos mine located in the state of Sonora in Mexico. The firm noted that it also has a large number of other development stage projects in the U.S. Turkey, Canada and Mexico.

Alamos Gold started the day with a market capitalization of about $3.2 billion with approximately 391.4 million shares outstanding. AGI shares opened 3% higher today at US$8.36 (+$0.24, +2.96%) over yesterday’s US$8.12 closing price. The stock has traded today between US$8.32 and US$9.19 per share and is presently trading at US$9.11 (+US$0.98, +12.05%).

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Metals Turn Lower As USD Recovers

By Orbex

Gold

The yellow metal has been firmly lower this week, in response to the rally which has taken place in the US dollar.

It seems that amidst the building fears around a second wave of COVID-19, safe haven flows have gravitated back towards the dollar.

Fresh lockdowns have been announced in France and Germany this week. And there are expectations that other countries, including the UK, will soon follow.

It seems the market is shifting back towards the dynamic seen during the height of wave one of the pandemic. Then, too, equities and gold fell in tandem as the dollar traded higher. Interestingly, the dollar looks to also be deriving some support from better recent polling results for Donald Trump.

The US president has seen a small increase in his national rankings over recent days. He has also made gains in battleground states, with Florida now switching in favor of Trump.

At the very least, the dollar looks to be gaining on the reduced likelihood of the Democrats gaining control of both the Senate and the White House.

As we head through to the elections next week, the market will become highly sensitive to polling results. And we can expect plenty of volatility in reaction to the elections, regardless of who wins.

 

Gold Reverses From Key Resistance

Gold prices have once again turned lower from the 1919.92 level which continues to act as a firm resistance. While below here, we can expect a test of the 1826.71 level.

Bulls will need to defend this level to keep the medium-term view bullish. A break below there would affect a shift in view towards gold.

Silver

Silver prices have been knocked lower this week also. The metal has been weighed upon not only by the downside moves in gold and upward action in the US dollar but also by the sell-off in equities markets.

Last week’s manufacturing readings showed that the factory sector has seen a heavy loss of momentum in the UK and the US. This raises concerns over the demand outlook for silver in the near term.

With European countries now starting to move back into lockdown, the outlook for silver doesn’t look too encouraging here.

Silver Turning Lower Again

Silver prices have once again failed to break above the 25.1018 level resistance. And, while below there, the market remains vulnerable to a further move lower towards the 20.4050 level next.

To the topside, any break back above the 25.1018 level, will turn attention back to the 27.4502 level next.

By Orbex

Millennial Lithium Commissioning Its 3 Tonne/month Lithium Carbonate Pilot Plant

Source: Peter Epstein for Streetwise Reports   10/28/2020

Peter Epstein of Epstein Research explains why he believes this stock could outperform many battery metal peers.

Pastos Grandes

Despite an ongoing global pandemic, longer-term trends in the electric vehicle (EV) market remain as strong as ever. Don’t believe me? Look no further than Tesla’s market cap of roughly $516 billion! Volkswagen, Daimler, GM, BMW, BYD and others are forced to up the ante, or fold their hands, trying to catch up.

If one’s bullish on the global electrification of virtually all transportation (passenger, freight, commercial, etc.) then lithium is one of the best ways to play this thematic. Why is the outlook for lithium so bright? Three reasons.

First, COVID-19 has spurred several countries, most notably China, but also some in Europe, to stimulate weak economies with EV subsidies, rebates, tax incentives, etc. According to S&P Global Platts,

“China is determined to boost EV sales, targeting a 20% share of the new car sales by 2025, vs. 5% in 2019Ö. The country’s decision to cut subsidies in a phased manner through 2022, rather than eliminating them in 2020, is expected to provide an essential boost to the domestic market, as well as the overall global EV market.”

Second, massive global infrastructure spending will include grid-scale Li-ion based energy storage systems (ESS) to back-up tremendous growth in renewable energy (mostly solar and wind farms).

Third, even more renewable energy projects are coming, faster than expected, due to recent undeniable evidence of global warming. Forest fires, melting glaciers, severe hurricanes and floodingÖ. Coal, natural gas and internal combustion engines are being replaced by renewables and nuclear energy.

It now seems likely that lithium demand will quadruple by 2030, growing at 15%+ per year. Yet, the supply side of the equation has become less and less certain. Brine, hard rock and sedimentary projects have experienced substantial delays due to challenges raising capital, COVID-19 restrictions and a major fall in lithium prices.

In three years the lithium carbonate price has declined from >US$24k/tonne to about US$10k/tonne (for the best quality, contracted product in Japanese and Korean markets). This (and COVID-19) has led to negative sentiment in the sector, creating difficulties in advancing even later-stage projects.

There are just a handful of (active) lithium brine projects, all in Argentina, at DFS-stage or beyond. The best known are Lithium Americas’ Cauchari-Olaroz project (a 49/51% JV with Ganfeng), Galaxy Resources’ Sal de Vida, Neo Lithium’s Tres Quebradas (DFS expected in mid-2021) and Millennial Lithium’s 100%-owned Pastos Grandes.

Millennial Lithium Corp. (TSX-V: ML) / (OTCQB: MLNLF) continues to move the ball forward after delivering a robust DFS. Today, management announced that commissioning of its lithium carbonate Pilot Plant (PP) is underway.

The PP is designed to produce up to three tonnes per month of battery-quality lithium carbonate. Multiple prospective customers/off-take partners have already requested samples. Commissioning will take several months, but if successful will meaningfully de-risk the company.

Since late 2018, brine from the central part of Millennial’s Pastos Grandes project has been concentrating in pilot-scale solar evaporation ponds. Concentration of lithium-rich brine has now reached levels suitable for use in the PP.

The PP is being fed with concentrated lithium-rich brine from feeder ponds having reached a grade of 2.7% lithium (Li), and expected to reach the targeted 3.0% Li, (with naturally reduced impurities), by the time the operational flow sheet is fully commissioned.

Farhad Abasov, president and CEO commented,

“Millennial is pleased to announce the commissioning of its pilot plant designed to produce up to three tonnes of battery-quality lithium carbonate/month. Despite COVID-19 restrictions and minor delays, the Millennial team has advanced the lithium concentration ponds and the Pilot Plant to production stage. In the first stage, the Solvent Extraction unit that removes boron, has been installed and tested.

Initial output of battery-quality lithium carbonate is expected by year-end, marking another significant milestone. Millennial remains well-funded and continues in its financing efforts to advance Pastos Grandes. Despite COVID-19, the Company has continued its work with a number of off-take & strategic investors. We’re well on track with all our corporate programs.”

According to the press release, brine chemistry concentrations are in line with process and plant parameters. PP optimization and trial runs indicate that all components are functioning as designed. Minor pre-operational adjustments have been successfully completed.

Millennial has retained experienced process engineers, supervisors and operators, as well as health and safety experts to train and educate operators and facilitate plant operations. Initial PP production will be in batches to better test and optimize individual stage processes prior to transitioning to continuous flow production.

Readers should not take for granted the fact that Millennial owns 100% of its primary project. By contrast, Argosy Minerals owns 77.5%, Lithium Americas, 49%, and Orocobre Ltd., 66.5% of their respective flagship projects. Owning 100% of the Pastos Grandes project gives Millennial’s management team added flexibility with regard to starting to fund construction as soon as next year.

By farming-out a minority interest in Pastos Grandes, the company could probably get free-carried through commercial production. I’m not saying that’s management’s game plan, but it’s a scenario that could possibly negate the need for a lot more equity dilution.

The number of strategic investors that could be interested in partnering on Pastos Grandes is growing by the day! There are dozens of mid-tier and major battery and EV makers who might care, not to mention other lithium producers/specialty chemical companies.

The problem is, there simply aren’t that many new brine projects, and no clay-hosted lithium projects, coming online anytime soon (except maybe Bacanora in Mexico). Not a lot of new production is expected from hard rock projects in Western Australia. Yet, the world needs 30+ new 25k tonne/year projects in the next decade.

Industry analysts and pundits believe brine production in Chile’s Atacama salar, from Albemarle and SQM will make up for shortfalls around the world. That’s far from certain. Look at the lithium headlines out of Chile lately.

For environmental and social license reasons, Albemarle and SQM are under enormous pressure to pump less brine, and they’re listening. Growth rates in 2020ñ2021 in the Atacama will be well below the analyst and company expectations of 2018ñ19.

Adding insult to injury, Chile announced yesterday that it is re-writing its ConstitutionÖ what could possibly go wrong?

The hopes and dreams of battery and EV makers the world over are largely tied to Argentina. Yet, only five or six brine projects have any chance of reaching commercial production by 2024.

Conclusion

Any player, brine, hard rock or clay, anywhere in the world, that can produce a tonne of carbonate or hydroxide will have eager buyers. Millennial Lithium Corp. (TSX-V: ML) /(OTCQB: MLNLF), at DFS-stage, expects to cross the finish line in 2023.

If management continues to prudently move ahead on its 100%-owned Pastos Grandes project, secures a strategic partner, perhaps signs one or two off-take agreements and raises debt + equity capitalóthis is a stock that could outperform many battery metal peers. Especially if/when lithium prices rebound.

A final thought, compare Millennial’s valuation of $106 million to the market’s nearly $2 billion implied valuation for 100% of Lithium Americas’ JV project, (Lithium Americas owns 49%). Note: I ascribe two-thirds of LAC’s enterprise value [market cap + debt ñ cash] to Cauchari-Olaroz and one-third to the company’s Nevada clay-hosted lithium project.

Make no mistake, Cauchari-Olaroz is 12ñ18 months ahead of Pastos Grandes, is fully funded and under construction, but there’s ample room for Millennial’s share price to increase to reflect more reasonable relative value over time.

Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University’s Stern School of Business.

Disclosures: The content of this interview is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Millennial Lithium, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Millennial Lithium are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

In 2019, AX1 Capital Corp. retained Epstein Research for a six-month advertising campaign. AX1 Capital is closely affiliated with Millennial Lithium. It is 100%-owned by a single individual who has a contract for services with Millennial Lithium. Therefore, readers should consider Epstein Research [ER] to be biased in favor of Millennial Lithium. Peter Epstein of [ER] does not own any shares, warrants, options or restricted share units of Millennial Lithium.

Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.

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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 decision to publish an article until three business days after the publication of the 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 Millennial Lithium, a company mentioned in this article.

Frank Holmes: Gold Is the Winner of the U.S. Presidential Election

Source: Streetwise Reports   10/27/2020

Frank Holmes, CEO and chief investment officer of U.S. Global Investors, says it doesn’t matter if the U.S. sees a Red victory or a Blue victory in the presidential election; gold will be the real winner. In this far-ranging interview with Streetwise Reports, he discusses gold’s prospects post-election, inflation, stock market performance, criteria to evaluate mining companies, and companies in U.S. Global funds.

Streetwise Reports: Frank, let’s begin with gold. After a substantial rise in the price of the metal earlier this year, which went as high as $2,036 an ounce in early August, it has since been trading sideways, consolidating roughly around the $1,900 mark. What effect do you think the U.S. presidential election will have on the price of gold? Do you see different scenarios based on which candidate wins?

Frank Holmes: Well, you can hit the red button or the blue button, but I’m hitting the gold button, no matter which one it is. You have to sit back and look at macro forces and macro themes to understand gold and the drivers of gold.

When we go back 30 years ago, as Pierre Lassonde pointed out at the Denver Gold Show a year ago, China and India represented only 10% of gold demandó6% India, 4% China. Today, however, these two countries comprise 53% of all gold demand. Why is that? Because a rising gross domestic product per capita and purchasing power parity are highly correlated with what I call the love trade, that is gold jewelry demand and gifts in gold. So that’s the underlying factor that keeps driving gold demand. The supply side has peaked and outside of recycling, there are no major new discoveries being made and no major deposits coming onstream. So I think this bodes very well for 60% of all gold consumption.

Now we get into the fear trade, and that’s what really accelerates thingsónegative real interest rates and unprecedented money printing. The G20 finance ministers and central bankers started their own cartel 20 or so years ago. At the beginning of the century, they were consumed with global trade, the World Trade Organization, China, and, all of a sudden, there’s a huge global boom. Gold stocks took off. Bullion went from $250 to $800/ounce. We had this incredible cycle. Along comes 2008ñ2009 and we go to synchronized taxation and regulation. Today, we have synchronized money printing to fight COVID-19. There is not one country printing money faster than another. They’re all taking turns at it.

If we take a look at the Federal Reserve’s balance sheet and how it’s exploded under this cycle compared to 2008ñ2009, simple math would suggest in the next three years gold could be $4,000/ounce. The other big part is the inflationary number, because it’s changed several times. If you use the inflationary algorithm, when gold hit $850 and silver $50, inflation was over 18%, today we have inflation running 8% so gold would be valued about $7,000. So I comfortably feel that in the next three years, in this next cycle, we could see gold double from here based on just the U.S. money printing.

SWR: You’ve looked at broad stock market performance in presidential election years. What have you found?

FH: Well, historically, the first two years of a presidential election cycle are very sloppy, some are modestly up. But it’s in the last two years that the market usually is on a tear. If it’s not, then it usually derails the political party in power, such as we saw with President Obama’s election in 2008. During President George W. Bush’s last term, his last quarter, we had Lehman Bros. go bankrupt, and then there was just incredible turmoil in stocks and the economy.

S&P 500

This is a very different world. Even though we have COVID, the U.S. Purchasing Managers’ Index (PMI) is the highest in the world, and that means six months from now, we’re going to see higher energy, copper and iron prices. This has been trending up all through the summer. So that remains very bullish.

We also track the airline industry very carefully. We have the only airlines exchange-traded fund (ETF) available to investors: the U.S. Global Jets ETF (JETS:NYSE). The Transportation Security Administration used to clear 2.7 million people a day; in April it fell to fewer than 90,000 people a day. Just last week, we went through 1 million, so we’re climbing. This is very positive for the travel industry and for JETS, and it’s a reflection of the PMI and the stock market being stronger.

When you have negative real interest rates, what we’re seeing is that it’s not just Americans buying stocks because of low yieldsóand dividend yields are more attractive than what you’re going to get from a money fund or a bankóbut also you’re seeing central banks like Switzerland print negative money. No one’s going to buy it, so it buys it itself, and then goes and buys real assets like Apple Inc. When you take a look at what we see now in Japanóthis is where capital formation morphed dramaticallyó15% of the stock market is owned by the government, the central bank. So this is a very different world.

What we saw in this cycle, in the past six months, is the Federal Reserve starting to buy bond funds. It dropped the interest rates to zero, but the real cost of capital was running at 14%. So what did it do? It came in and started buying muni bonds. That helped get the pressure off a trillion dollar muni market when bonds are being rolled over. Then it came in and bought corporate bonds to get corporate yields down so it didn’t put a burden on corporations. Now, one of the largest bond holders of ETFs is the Federal Reserve. So we’re seeing things change in that formation of capital.

SWR: Going back to gold, it is often touted as a hedge against inflation. What’s the situation with inflation in the United States currently and looking ahead?

FH: If we look at what the inflationary number is today, and if we look at 10-year, 5-year and 2-year bonds, they all have negative real interest rates. That says that gold is a very attractive class. For me, gold stocks with rising dividends and free cash flow are even more attractive. I think that’s one reason why Warren Buffett all of a sudden bought Barrick Gold Corp. (ABX:TSX; GOLD:NYSE). It has strong leadership. Newmont Corp. (NEM:NYSE) also looks attractive for many fundamental factors. Both have free cash flow. I think the free cash flow allows for rising dividends, so it’s much higher than what you’re going to earn with the negative real interest rates.

I can’t see interest rates rising dramatically. John Williams has a newsletter called Shadowstats. He looks at the old algorithms used to determine the Purchasing Power Index, Consumer Price Index, etc. And if you use his factors, inflation really is 8% today. So that says back up the truck and buy as many physical assets as you can. That’s why real estate is up 10% in this bearish crisis. It’s amazing.

SWR: One thing that’s happened this year is that investors have flocked to physical gold ETFs. Is this a good way to invest in gold bullion?

FH: I’ve always advocated having a 10% weighting in goldó5% in either the SPDR Gold Shares ETF (GLD:NYSE) or 24-karat gold jewelry and another 5% in quality gold stocks. In particular, I’ve always loved the royalty companies.

I think there’s a big push for GLD because if you look at data for the past 20 years, bullion has outperformed the S&P 500 by almost 3:1. Bullion has been up 80% of the time. The largest hedge fund in the world, Ray Dalio’s Bridgewater Associates, has always had exposure to gold, from 7ñ15%. I think this has led to other institutions looking at gold as an asset class.

Gold-Backed ETFs

But I think the real charm here is because great investors like Warren Buffett all of a sudden buying a gold stock is going to change the paradigm during this quarter. Our data suggest that when we look back on the past 20 years at pre-cash flow yields, and we track 88 global gold producers and 200 explorers, under those 88 global producersóI’m talking about ones with market caps more than $50 million ($50M)ówhat I find interesting is that this will be the third quarter in over 15 years that they have a free cash flow yield. Even a year ago, they did not have an overall average free cash flow yield, and the S&P 500 had a free cash flow yield of 2.5%. In March, because of the crisis, the S&P 500 went negative on free cash flow yield as a whole, but gold just exploded.

I think we’re going to see record free cash flow yields from North American gold producers, and that will be a pivot point for many institutions to start buying gold as an asset class. This summer, in Investors Business Daily’s Top 50 stocks to buy, all of a sudden, like back in 2005, gold producers were added to this list of growth stocks. We’re now seeing Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) on there, we’re seeing Kirkland Lake Gold Inc. (KL:TSX; KL:NYSE) on there. So I think gold will slowly climb. It’s been in a bull cycle since January 2019 when the 50-day moving average went above the 200-day moving average. It has accelerated this summer and then corrected perfectly. In the next big wave, I think we’re going to see gold stocks really outperform.

SWR: U.S. Global Funds manages a number of mining funds. Could you talk a little about what you look for in a company when making the decision to invest? Is there any one type of company investors should focus on right now for the greatest upside potentialósenior, midtier, junior, royalty companies?

FH: We look at what is called “The Five Ms of Mining”ómine lifecycle, market cap, management, money and minerals. Basically when we go down the food chain, for explorers, management is key, as is where they are in the lifecycle of a mine. The early explorers can give you tenbaggers, twentybaggersó20 times your moneyóbut, in time, they can fizzle out early and quickly, so you can lose your money. In that lifecycle, you want to have proven management track records in a well-known area and companies that are well funded and have good daily trading liquidity.

When we go up the food chain, we want to look at the producers that have expanding production or have a free cash flow yield, which means with rising gold they’re going to be able to pay higher dividends. We think that those stocks outperform.

The most superior model is the royalty companies. They’re like a technology stock, a software-as-a-service (SaaS) stock. They have recurring revenue and cash flow every month. They have high gross margins. If you look at financial accounting from streaming, etc., royalty companies push 45% gross margins, where the average gold mining company is at 15%. Royalty companies are in a very advantageous position, and we’re seeing more new junior royalty companies trying to capitalize on that model.

In fact, we’re going to be doing a broadcast program with Streetwise on Thursday, November 12, at 1pm EST on 10 junior stocks that we like and we’ve invested in. You can register here. These companies will be telling their story “PechaKucha” style, which is 20 slides, at 20 seconds per slide, comprehensive but concise, in 6.4 minutes total. The presenting companies are Magna Gold Corp. (MGR:TSX.V; MGLQF:OTCQB), TriStar Gold Inc. (TSG:TSX.V), Barksdale Resources Corp. (BRO:TSX.V; BRKCF:OTCQB), Allegiant Gold Ltd. (AUAU:TSX.V; AUXXF:OTCQX), Revival Gold Inc. (RVG:TSX.V; RVLGF:OTCQB), Silver Viper Minerals Corp. (VIPR:TSX.V; VIPRF:OTCQB), Orex Minerals Inc. (REX:TSX.V), Barsele Minerals Corp. (BME:TSX.V), Brixton Metals Corp. (BBB:TSX.V) and Gran Colombia Gold Corp. (GCM:TSX).

For producers, Gran Colombia Gold Corp. is the least expensive of the whole universe of gold producers we follow. It also has an interesting gold note, which we own. Caldas Gold Corp. (CGC:TSX.V; ALLXF:OTCQX) is a spinout, which has been funded by Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) and the capital markets. But it will go from producing 24,000 ounces a year to 180,000 over the next three years, so I think it has probably the biggest ramp-up of a higher grade deposit that we see. There are very few gold mining companies that can increase their production sixfold over the next three years.

They are the companies that we like, and we remain bullish in this sector.

Now, I think what everyone wants to hear about is a takeover. With Ivanhoe Mines Ltd. (IVN:TSX; IVPAF:OTCQX), its richest deposit is copper, and it is funded by the Chinese. I think you’re slowly going to see a change in management where the Chinese have more control. They own a big part of the deposit. I think they take this company out, and probably at double the price of what it is now. It’s interesting to watch how this is going to unfold, but the deposit is coming into production earlier than expected.

So those type of catalysts and interesting stories are what we find investors like to hear about, and we own that.

SWR: Are there other companies that you want to talk about that you think offer investors good upside potential?

FH: I’m very biased when it comes to our U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) trading on the New York Stock Exchange. GOAU is 30% royalty companies, 70% gold producers. It’s a quant approach to picking gold stocks, from big cap down to small cap. Once they do anything to destroy their revenue per share growth, their cash flow per share growth or their reserves per share, with a merger or a silly financing, etc., they get kicked out of the model. Each quarter we recalibrate that and only look for the superstar companies that offer the biggest bang for the buck on those metrics. In that universe, the royalty companies are Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX), Wheaton Precious and Franco-Nevada Corp. (FNV:TSX; FNV:NYSE). After that, it’s other very attractive gold stocks.

SWR: Do you have explorers in the ETF too, or is it only producers?

FH: No, only producers, and they have to have a $200 million market cap for liquidity. When you rebalance something and you have to move around $2 million at a minimum, you can have a big impact on the stock price up or down, so we want to have at least a $200 million market cap.

SWR: Is there anything else you’d like our readers to know?

FH: Yes. Go to USFunds.com, and you can learn more about the ETFs and our research. We publish a lot. We’re on YouTube as well, with many educational videos. We, also, every Friday write the Investor Alert, which goes out to 60,000 people in 180 countries. We really try to help people be educated on various sectors of the market in this publication. We have won 90 awards now for educational information in the investment management world.

SWR: Thanks, Frank, for your insights.

Frank Holmes is CEO and chief investment officer at U.S. Global Investors, which manages a diversified family of funds specializing in natural resources, emerging markets and gold and precious metals. In 2016, Holmes and portfolio manager Ralph Aldis received the award for Best Americas Based Fund Manager from the Mining Journal. In 2011 Holmes was named a U.S. Metals and Mining “TopGun” by Brendan Wood International, and in 2006, he was selected mining fund manager of the year by the Mining Journal. He is also the co-author of The Goldwatcher: Demystifying Gold Investing. More than 30,000 subscribers follow his weekly commentary in the award-winning Investor Alert newsletter, which is read in over 180 countries. Holmes is a much sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg, BNN and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Times and other publications.

 

Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: Revival Gold and Silver Viper. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Frank Holmes: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: N/A. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: N/A My company has a financial relationship with the following companies mentioned in this interview: N/A. Funds controlled by U.S. Global Investors hold securities of the following companies mentioned in this article: Barrick Gold, Newmont, Wheaton Precious Metals, Ivanhoe Mines, Royal Gold, Franco-Nevada Corp., Allegiant Gold, Barksdale Resources, Barsele Minerals, Brixton Metals, Gran Colombia, Magna Gold, Orex, Revival Gold, Silver Viper and Tristar Gold. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
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 decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this interview, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Franco-Nevada, Royal Gold and Revival Gold, companies mentioned in this article.

What Determines Success for This Junior? ‘It’s at the End of the Drill Bit’

Source: Maurice Jackson for Streetwise Reports   10/27/2020

In this interview with Maurice Jackson of Proven and Probable, the CEO of Hot Chile provides a detailed look into current operations on its copper-gold prospects in Chile.

Drill bit

Maurice: Joining us for our conversation is Christian Easterday, the CEO of Hot Chili Ltd. (HCH:ASX).

Glad to finally have an opportunity to speak with you and to share the value proposition before us in Hot Chili, which has just announced a maiden resource on a world-class copper-gold discovery. Before we delve into the exciting news you have for current and prospective shareholders, Mr. Easterday, please introduce us to Hot Chili Ltd. and the opportunity the company presents to the market.

Christian Easterday: Hot Chili has been toiling away for several years over in Chile on the coastline, some 600 kilometers north of Santiago. And we’ve consolidated a major copper super hub combining quite a number of our key assets.

Our original and first exciting discovery, [which] we made it along the coastline was Productora [view here], some quarter of a billion tons of copper and gold sitting very shallow, an open-pit resource that we completed a large amount of work on back in the last cycle where copper was doing well.

And I guess, over the last few years, we’ve transformed ourselves. And that was off the back of being able to secure an agreement to acquire 100% interest in a very, very exciting discovery that was made only 14 kilometers from our key asset. And that was the Cortadera porphyry discovery.

The Cortadera was a private discovery that was relatively unknown to the rest of the world. And it was hiding some world-class drilling intercepts that they’d been walked away and there was no close-out drilling. So we put a deal together that allowed us to secure that asset at the beginning of last year. We commenced drilling that project in April of last year. And we started producing our first world-class intercepts, 1,000-meter intercepts from surface at 0.5% copper and 0.2 grams per ton gold. And since that period, we’ve recorded some six of the world’s top 25 drilling results from Cortadera, which has shot it to quite an enviable position within the global copper space.

So last Monday was a very big milestone for the company. We were able to jump our resource base from a quarter of a billion tons to some three-quarters of a billion tons. And now we’re sitting here in a very, very strong position on the ASX really, with no other ASX copper peers alongside us.

And we have a resource base, now, of 2.9 million tons of copper, 2.7 million ounces of gold, and some molybdenum and silver credits thrown in thereóso a very, very strong position, sitting with an asset that looks like the next step is going to push the company toward one of the very, very few known major companies holding a tier-one copper asset. It’s very, very exciting for the team, the company, and for all of our shareholders to have been able to achieve this.

Maurice: Well, I’m smiling ear-to-ear just like you are right now. Hot Chili has a multitude of catalysts and successes here. And I know you’re delighted and so are the shareholders. To set the stage for today’s interview, you and I had a discussion last week regarding one of Rick Rule’s mini famous quotes regarding the differences between investing in gold and copper. Would you mind sharing that with us? I thought it was quite intriguing.

Christian Easterday: And I’m not sure I’ve got the facts exactly correct, but he told me, “Christian, you invest in gold as a shareholder to buy your family its next holiday. But you invest in copper for the long-term to buy your family a holiday house.”

So very, very different investment space, very different time frames, and almost an order of magnitude and difference in terms of value and capital required to get a copper project off the ground in relation to a gold project, in general. We set ourselves on a strategy to be a junior that could break into that very elite class of projects at tier-one status; some $US35 billion in-ground value generally is the marker in the sand on those assets, and five million tons of contained copper and above, which very, very few companies hold that have not been taken out by a major or have a major that has a controlling interest in.

Rick very much knows this space. And I believe that he was one of the early supporters of Ross Beatty, and the fantastic wealth generation period that Ross went through where he picked up assets in a down cycle over in Chile, and put these large assets together, and simply enjoyed an extremely profitable period as those assets turned into multi-billion dollar assets from acquisitions that were in the sub-$100 million space. So it is a space [where] you look at big, big value numbers and big capital numbers. And there’s no better place to be than to be developing a large scale asset in Chile, which is the home of big copper, and where 30% of the world’s copper comes from, from these top deposits.

Maurice: Well, it appears that there’s a new lineage of wealth generation may be right here before us. To truly appreciate the opportunity before us in Hot Chili, we should first consider the macro-picture on the supply-and-demand fundamentals for copper, as this is a huge component of the value proposition that Hot Chili presents to prospective shareholders. Mr. Easterday, share with us the projected outlook for copper in the next 25 years.

Christian Easterday: Wow. Well, the next 25 years is quite a time frame, Maurice. We generally, in this market, are quite short-sighted in terms of what does the next six months or year look like? So I’ll address short, medium and long-term.

The short term, I’ll be very honest, is anyone’s guess. In such a volatile global market with a global pandemic, a once-in-a-hundred-years pandemic, upon us, there are quite many things to be concerned about and there’s also quite a list of things to look forward to. I’ve certainly been watching some of the fundamentals behind the medium- and long-term view mapped to 25. And it looks very strong.

We’re in a changing world that is pushing toward renewables, and electrification of the world is key to that. So not just the renewable energy space, but the EV (electric vehicle) space, in terms of automobiles, is going to transform copper consumption going into the long term. I think that most people know that macro story and it paints a very good picture for players that are in the long-term copper business with large assets, as opposed to the high-grade, short life more associated with a gold investment profile.

We certainly have that to look forward to. Your key people in the industryóthe Robert Friedlands that are masterful at talking their bookóare very much not that thematic and know that they’re holding the assets that are undoubtedly going to receive extreme value transformations over the long period.

But if we move to the medium term, which is where I think most of the copper players are positioning and most of the copper majors are trying to gobble up most of the large assets in the world, I think that you look out in the one- to two-year space and it looks very strong, particularly for a global recovery upon a vaccine being introduced to get the market moving.

But if we can look in the short term and qualifying it with what I said earlier, the space is fraught with uncertainty.

But interestingly enough, this has happened three times in the last hundred years. Bull markets, not just across gold, seem to follow a precursor event, and the precursor event is often a bit of a stall in the global market, associated with the Great Depression, associated with the Asian crisis.

And this has happened beforeówhen everyone thinks that the world is about to shatter to a halt and Dr. Copper is one of those commodities that is a barometer for global growth. It’s interesting that we see some of the largest bull runs in the commodity space that the world has seen. And we’re seeing that now. We’re seeing a real shift in the purchasing of copper from the Chinese, and a real scramble to get ahead to get people’s hands on stockpiles. So we’ve seen a real rise in the amount of consumption going on, at the same time as a pandemic is sort of choking off the ability of the copper industry to respond.

And against all of that, a real fundamental problem with the copper industry is global discovery. The global discovery has four major copper finds around the world that have fallen off a cliff since 2014. So to be sitting here with one of just two major copper discoveries globally, really since 2014óand we have Marimaca, which was discovered and recorded by S&P Global in 2016; a smaller oxide-copper discovery and very good oxide-copper discovery in Chile also.

But really, Rio Tinto and Hot Chili are the beneficiaries of the two most recent copper discoveries we knowófor Rio Tinto, over here in western Australia, and of course, Cortadera, which was just announced to the world last year, and now is culminated in a first resource of some 450 million tons from surface.

For Hot Chili to be sitting in that space, and with these problems, that supply of copper is being choked off by a real decline in global high grades, and a decline more importantly in new copper supplyónew copper supply that can make that growing demand in the world.

Maurice: And speaking of copper, the company just released your maiden resource [view here] on the Cortadera Copper-Gold Project, which has placed Hot Chili in an elite category among your peers. Sir, walk us through the maiden resource, because this is truly an eye-opener!

Christian Easterday: It’s not every day you drill 17,000 meters of drilling, and in less than one year, on top of 23,000 meters of private drilling that was undertaken. We’re talking about 40,000 meters of drilling. And that’s produced nearly half-a-billion-ton initial resource on Cortadera. It speaks to the sheer potential of this deposit. We haven’t closed out the discovery zone. The discovery zone is some 2.3 kilometers long, comprising three porphyries from surface and extending to almost 1.2 kilometers vertical depth. So these are vertical columns that the company has just started getting its teeth into.

And if it wasn’t for the pandemic that hit the world this year, we probably would keep continuing to drill and pushing that discovery toward what we believe is the ultimate potential of copper equivalent (Cu eq), one billion tons.

So we’ve gone early with the resource, and because of the quarter-billion tons that we had in resource base at our Productora asset some 14 kilometers away, what we’ve been able to do is bring together the Costa Fuego project that we now refer toówhich is a low-altitude play, 800 meters altitude. The Pan-American Highway goes right through the middle of us, and a cluster of deposits that accounts for some three-quarters of a billion tons at about half a percent copper equivalent on all deposits from surface.

The Cortadera is certainly the centerpiece. Most people know that we have a high-grade core that we discovered only a year ago. It is supported really by about nine drill holes, and is already over 100 million tons at a very strong grade, which certainly competes with some of the biggest underground copper mines in the world.

So, a lot to be excited about in the next phase of growth with Hot Chili. But certainly you go early with the preliminary resource and you come out with Cu eq half a billion tons within a year with very little drilling, I think people can see the ultimate potential of this deposit and where it goes next.

Maurice: I admire the intangibles just as much as the tangibles, because the intangibles, they’re not discussed in the resource. And I’m referring to the commercial success and the business acumen that define the success of management and the technical teams respectively. You have to tell us, how were you able to acquire this project? Because it just seemed to come out of nowhere.

Christian Easterday: Look, I’d love to tell you we’ve been a company that just turned up yesterday and have had this amazing success, and we sit with the largest copper resource base on the ASX now and one of the largest gold resourcesónot forgetting we have 2.7 million ounces in gold as a credit.

But look, when we step back to when we founded this company in 2008, we were privately backed by our chairman, Murray Black, to go over to Chile and try to break into the copper sector there as a junior, which is a very, very difficult thing to do. Chile is owned and dominated by the major mining companies in the world. So doing deals in Chile has always been viewed as expensive. They have a use-it-or-lose-it policy, which makes it hard to be able to break in and get a good land position.

The story of Hot Chili is one of grinding it out and persisting and developing very strong partnerships in-country. It took many, many years of me living over there and refusing to leave some of the companies alone until they would do deals with me, probably just to get rid of me. I suppose persistence is part of the Hot Chili DNA and deal-making is one of our biggest strengthsóbeing able to partner with some of the major mining companies and also some of the very large high-net-worth families that control all of the leases outside of the major company.

So we go back to a period where Hot Chili had a very great success out of its ASX listing in 2010. Three months later, we hit a great discovery in Productora. And that drove a lot of value in the company. And we pushed that through, and we were one of the stars in the market in the copper space back in 2013ñ’14.

And then, as most people know, the commodity market hit a bit of a brick wall. The copper price fell off a cliff, and that dried up the amount of capital available to invest in big copper. So again, speaking to our persistence, it was sort of four or five years of being on life support from our major shareholders, including the likes of Rick Rule, supporting management, and supporting a vision to build a major copper play on the coastline of Chile at low altitude.

So that was what kept us going and why we never ran away. We had the backing of some very reputable people. And so we sit here today. We used to be among 40 peers on the ASX in the copper development and exploration space, and I couldn’t put names on my fingers at the moment. Probably less than five peers, and now we’re the largest through that persistence.

But to get to the crux of where we’re going with the question, Maurice, it was a few years ago that a report fell off the back of the truck so to speak. And we found out about this private discovery, that it occurred, and when the results of that short report hit my desk and I looked at this thing, my eyes nearly jumped out of my head.

And I was looking at SolGold Plc (SOLG:AIM) drilling intercepts, near one-kilometer intercepts from surface. And when we got our hands on the data, without the knowledge of the owners of this project, it had been handed back to the Corella family in Chileóa very, very wealthy family in Chile that operates mines and owns department stores and a portfolio of 400 retail properties and business chains across Chile and Spain. That group had been given the project back and we were looking at the data. The key thing that I realized was this deposit had been walked away. This discovery did not have that closeout drilling. And we were looking at something that was a blank canvas.

So they had put an estimate on this thing. And I, not for once, believed that estimate was representative of what was sitting there. So we went about two years of trying to [convince] the Corella family that this naturally should sit with Hot Chili to be able to bring this project forward, to be able to apply heavy investment into this, and for the township of Vallenar and that local community to be able to unlock a major copper development on the coastline and employ a lot of people. [That is] something that most Chileans hold true to their heart, that it was two years of negotiating with the Corella family. And really, it was probably a case of them telling me and my key legal adviser, Jose Ignacio, just to go away: “We don’t sell assets. We don’t sell assets to BHP or Lundin. Why would we sell an asset to you?”

It was really about a relationship build and most of the deals that I’ve done in Chile are years in the making. And so two years, while we’re watching our share price get ground down. Our master plan is to bring Cortadera together with Productora. So we were able to pull off a US$30 million deal over 30 months, in scheduled payments, for 100% acquisition. And I remember doing this deal back in February of last year.

And at that point, our $250 million company was sitting at $10 million value; we were at $0.01 a share. And I think most people were stunned by what they were seeing with the results we showed off this private discovery. But at the same time, we were aghast with, how in the hell is Christian and Hot Chili going to be able to afford this project?

And it’s funny how life works. You take on an opportunity and you spend all of that time trying to get that opportunity. And most of the people in Hot Chili were sort of holding their breath for what happened next, once we started drilling it. And to have drilled our first pass RC (reverse circulation) drilling program to confirm that the drill results on the diamond holes that were at surface. The results were real and the assay data could stand up to scrutiny. And then to turn on a diamond drill rig in probably about May and drill one hole that looks good; we went for an extensional hole first.

And then again, as we were compiling the data on this private discovery, we came across the reports from a very well esteemed porphyry expert that had been guiding this team on the Cortadera discovery. And his final report to his boss was probably trying to convince his boss to keep the asset.

We should keep drilling was what we think; we can see that the main porphyry is now, gee, nearly 800, 900 meters long and 600 meters wide, and vertical over 1.2 kilometers. But back then, it was the early beginnings of Cuerpo Three, which means body, body three out of the three major porphyries at Cortadera in the discovery.

And it was, “This thing is getting a higher grade. Give me some more holes. We’ll test this concept.” So, unfortunately, that guy and that team did not get to test that concept. And as soon as I saw that, I asked the team to turn the mast vertical and I want to drill down this thing and see whether this thing is getting a higher grade at depth, and the rest is history, as they say.

The 750-meter intercept is one of the best intercepts going around in the last two years. But we hit a near-200-meter zone running at nearly a 1% copper and 0.5 gram gold. And, wow, did our eyes open at that point!

So that’s when we were speaking to guys like Steve Garwin about this, and we’re very, very lucky to have Steve Garwin, who’s now one of the key architects of the Cascabel discovery and the growth of that asset with the whole SolGold team, which has done an amazing job building a 10-million-ton copper play with some 23 million ounces of gold up in Ecuador, and is one of the leading discoveries globally.

So to have Steve Garwin come over and say, “I’ll help out and I’ll lead your team,” to guide us through how we’re going to model this and target thisóI guess the proof is in the pudding, six world-class intercepts now and a maiden resource of nearly half a billion tons within a year, it speaks volumes.

Maurice: This is exactly why I always reference the virtues of having proven management. What I heard in this narrative right here, I heard resiliency. I heard determination and vision. And that now produces success not just for the company but the shareholders. And that’s what it’s all about. You have to have champions with a proven pedigree of success, and that’s exactly what we have right here before us in Hot Chili. And then you blend that in, of course, with the maiden resource. You alluded to this before the commentary, there were the gold credits. Germane to this discussion should be the gold credits. How do they fit into the organic growth of the company?

Christian Easterday: Look, gold is a very, very key commodity for us. Obviously, copper is the dominant value that we hold within our portfolio of deposits in Chile. I see a lot of commentary in the gold sector about the gold majors starting to look into the large, porphyry, copper-gold space and it’s very real.

I was a gold geologist for many, many years with some of the Australian notable companies, but also the Placer Domes of the world, and cut my teeth in gold. So back then, I remember I used to go to a biannual conference that talked about the biggest gold discoveries in the world, and gee, over my 20-odd years in this industry, I’ve seen, at the start of my career, where we used to find plus million-ounce gold deposits.

I remember you couldn’t get into this conference unless you had at a minimum a discovery. I think it started at probably about 3 million ounces of gold. Gee, and that New Generations Gold Conference held over here in Western Australia, there are not many gold deposits that sort of sitting in the plus-million-ounce gold space now.

The gold industry is also having a tough time finding large accumulations of gold in one deposit. It’s probably pretty natural that they start looking over into the copper-gold space, where the Newcrest Mining Ltd. (NCM:ASX) companies of the world have fantastic deposits like Cadiam and we spoke about SolGold. Twenty-three million ounces of gold sitting in Alpala at the moment and obviously some very exciting exploration upside that some playing out at the moment. But to have a 23-million-ounce gold deposit just on its own, gee, I think that probably marries with one of the biggest deposits that the gold space has been trying for many years to get up and developed, which is Pascua Lama. It’s sitting at 4,200, 4,600 meters altitude, with the border of Argentina and Chile going through the middle of the pit they’ve tried to develop. That thing is what?ó$6 to $7 billion, now stated development value for 23 million ounces of gold.

So you get that as a credit now in a porphyry copper-gold deposit. And importantly, you’ve got the primary value attribute, which is the copper, which if you want to look at it from a gold perspective, wow, you’re getting all your gold for probably, I don’t know, the lowest quartile of production costs in the industry. So these deposits are immense stores of metal, and gold is one of those things that now has the gold space looking into large, porphyry copper-gold just to be able to get their hands on big gold deposits, and something that the gold industry is finding hard to find is tier-one gold deposits. The five-million and the 10-million-ounce-plus deposits are very rare.

Maurice: Is Hot Chili fully permitted, licensed on the Cortadera?

Christian Easterday: Yeah. I guess we’re not an overnight success as we just discussed, with the persistence of Hot Chili. It takes a bit to knock the Hot Chili team down. So we’ve been at this for a while and that means, outside of your question on permittingówhich is a yes, we’re fully permittedóall of the leases that contain all of our deposits or resources, mineral resources now, and all of the deposits that will be mineral resources shortly, and added to Costa Fuego’s growing inventory, they’re all on granted mining leases that we make sure that we had to secure all of the titles.

But in terms of permitting, gee, having had spent US$100 million on our Productora asset, which is now just a very large satellite for Cortadera, 14 kilometers to the west, we’ve spent a lot of money on a pre-feasibility. I spent many years securing infrastructure access agreements with our major partner at Productora, which is the Chile CMP CAP group, one of the big three. They’re the largest iron ore miner and steel fabricator and infrastructure business in Chile. So we brought them in for a 20% interest in Productora, into work on that joint venture, and they handed us the keys to the coastline of Chile. Surface rights, easement corridors for water pipelines, for access to water from the coast for electrical easements.

Hot Chili has spent a lot of time setting up the infrastructure. And some of those access agreementsóthose things take eight, 10 years, generally, to be able to secure in Chile. And, in the background, we’ve been trying to secure our maritime concession on the coastline to be able to extract sea water. That’s been seven years in the making and hopefully, we’re not far offóhave been one of the very few juniors in Chile to have a maritime water extraction license.

So, Maurice, it’s a very good question, because a lot of people don’t see all of the work that goes into building a mine. Building a mine is a very, very hard thing to do and it’s getting harder. And so your social license to operate and have all of those things in place mean a great deal to any large developer hoping to transition into production, particularly into the major space.

Maurice: Before we leave the Cortadera, there is a multilayered question I have here for you. What is the next unanswered question? When can we expect the response? And what would determine success?

Christian Easterday: I think that’s a big question for everybody having. The dust will settle a little on the resource that’s occurred, but the market is very forward-looking. So I imagine the next question for everybody is, “Where’s the next big drilling intercept going to come from?” And most people know that we’re drilling some very big potential at the moment. We’re not just sitting and incrementally growing the resource that’s still not closed out. We’re answering big questions, such as we just focused on drilling Cuerpo Three. And we’ve discovered this big high-grade core that gives us not just a grade open pit situation, but a potentially very large high-grade underground development opportunity.

So what happens when you drill Cuerpo Two at depth? We haven’t done that yet, and we’ve got a hole going down and meet that at the moment. And let alone what happens when we get over to Cuerpo One and drill that small little porphyry that doesn’t have any drill holes underneath it either.

So I think the next question for the market is, “Where’s the next real big leg of growth going to come from in this project?” And we even have a drill rig up at a very, very exciting lookalike target to Cortadera, which unbelievably sits two kilometers awayóan entire two-kilometer zone that shows a similar footprint to the footprint of the Cortadera discovery that unbelievably hasn’t been drill-tested yet. So we just started our second drill hole on that.

So I think the next question for the market is, “How does this sort of near half-a-billion-ton play? How does it become a billion tons quickly?” So we’re answering that question now. And I imagine over the next few months, we’ll be skirting around and drilling all of these big growth targets. And we hope to answer that very quickly.

What determines success for Hot Chili? It’s at the end of the drill bit. I think that the market wonders where everything goes from here with Hot Chili. We’re sitting in a space where we’ve just defined something, where we’re up amongst the North American players that dominate the copper sector on the development pipeline and holding all of the big assets in the world. We’re this curious thing, probably, for the North American market. We’re a big copper play that’s just arrived on the back of a kangaroo.

Success for us is being able to play up in the big space amongst the copper developers and aspiring next copper majors that are generally in the $100 million to $500 million space and to be sitting in the ASX where we don’t have a lot of peers. It’s about translating that value proposition to our market because at the moment, we’ve just defined probably one of the next very few tier-one discoveries being put to the global copper industry.

So, success for me is our next step. It’s at the end of the drill bit, and it’s about pushing in three million tons of copper inventory to five million tons and doing that rapidly.

So to do that, we’ve got to go and answer those big questions. What happens at depth on these other porphyries? Are there other high-grade cores? Do these porphyries come together at depth like what has happened for SolGold at Cascabel when they started drilling deeper? And more importantly, do we have another one two kilometers away? So it’s going to be a very, very exciting probably three months, six months. Certainly, a very exciting year as we answer those questions initially, and we focus on building this resource as rapidly as we can.

Maurice: All right, switching gears, let’s get into some numbers. Please share the capital structure for Hot Chili, sir.

Christian Easterday: You don’t go through 10 years in the market and surviving five years of downturn without having a big capital structure. We have 2.4 billion shares on issue and fully diluted, sitting around 3 billion shares. So not dissimilar to where the SolGold guys find their capital structure.

But a very wise person said to me, “Is it easier to go from 40 cents to $4, or easier to go from four cents to 40 cents?” The equation is the same. We look at this as, what’s the value of the company, the market capitalization of the company? And we are putting a value proposition to take our company, which at the beginning of last year had gone down to $10 million. And we’re putting a value proposition to the market to build our company toward a $1 billion market capitalization. That is the aim and that’s what sits underneath that capital structure of 2.4 billion shares on issue. And I imagine that most people can do the math on what that multiple looks like at the end of this journey.

So our capital structure is around 2.4 billion shares. We’re trading, I think, at around $0.048 today or $0.049 today. And since this resource announcement, we’ve been seeing a huge amount of liquidity in the stock. Yesterday, we had nearly $4 million traded. So certainly, we’re getting the attention. And yeah, I think we have a very exciting period ahead for our shareholders, and we’re very fortunate to still have quite a decent treasury sitting around $4 million in the bank.

And we’re advancing well, with option money coming in. And part of the aspect of the Hot Chili story, which is also very important, is we’re about to see the first commercial cash flow into our business from a lease mining and processing agreement that we have with the government of Chile. At our Productora asset, we have, a couple of months ago, just commenced mining some of our high-grade material and being able to fill up their local processing facility some 15 kilometers away in the township of Vallenar. And that’s been not really about cash flow, although that helps the company out in terms of its expenditure and its working capital position.

But more importantly, that’s about our relationship with the government and with the local community and safeguarding jobs. And we have an aspiration to build a very large copper production hub. And if we can help out local jobs and help the government out in that community, then it’s a win-win for everybody.

Maurice: You referenced the treasury. Is that the cash and cash equivalents there, the number you provided?

Christian Easterday: Just cash at the moment. So we have a weird situation where our last capital rising put out 0.025 options. And so we have quite an inflow of conversion on those options into shares, which is providing an inflow of cash into our treasury at the same time as we’re spending. And hopefully, by the end of next month, we’ll see that supplemented with further cash flow injections coming in from that lease money and processing agreement, which we’re also in the process of discussing with the government, expanding that agreement. And hopefully, we’ll have some news flow coming out on that shortly.

Maurice: Well, that’s not a bad problem to have some cash flow.

Christian Easterday: Whenever we’re going to develop a tier-one asset with that kind of treasury and even with those modest amounts of inflow, it’s very helpful. And no doubt, we’re a junior like every junior. If you get success, and the results speak for themselves, and things are going the right way, the market well supports you as your share price lifts. And it’s funny how each capital raising becomes less and less diluted.

And more importantly, we go back to where I started this interview with you, Maurice, where I said that the reaction for the Cortadera acquisition was one of amazement, with the drilling intercepts I was saying, and one of sheer terror, and how many shares we would have to put into the market to be able to fund this thing.

It’s funny that cause of concern has dampened down on volume as we’ve gone on with this. It’s an exercise of seeing an escalating share price being counterbalanced with the number of shares that the company may have to put out to fund this. But we look at multiple funding scenarios and funding options, and we have a very good dialogue with parties that have much broader funding shoulders than Hot Chili. But at the moment in this market, the market has been supporting me very well. And we have the support of several large institutions over here in Australia, not least of all, some of the large shareholders that have carried us through the bad times.

Maurice: How much debt do you have, and what is your burn rate?

Christian Easterday: We have no debt. We do have a historic debt facility that we took out with our major shareholders with a convertible note. That convertible note has the equivalent of some 200 million pieces of paper against it. But that was an automatic conversion. It converts automatically. I think we have about two years or 18 months left and all of those convertible notes become paper. So a capital structure, you instantly add about 200 million shares to that.

But those noteholders, while they hold the convertible notes, they enjoy a quarterly interest payment of 8% that the company can pay out in cash or shares that are eligible that is based on a floating share price at the end of that quarter. So as the share price increases we have to service that note for the next 18 months or so, with an ever decreasing amount of shares to those convertible noteholders.

But look, we assume that convertible note is paper, and so you can instantly turn 2.4 billion shares into 2.6 billion shares. And so we don’t have a debt instrument with the company, and we have an equity instrument that’s sitting on our balance sheet. That is why I always talk about our fully diluted capital structure.

Maurice: You’ve referenced major shareholders. Who are they?

Christian Easterday: Our largest shareholder and our spiritual leader of Hot Chili is Murray Black, our chairman. He’s the guy that backed me when I was a young geologist that had a bigger ambition in the world to eventually run my own company. Murray’s been my closest friend, my biggest ally, and one of the company’s biggest supporters. The Kalgoorlie Group, we sit at 10.1%. We used to hold a 19.9% position, but that has been diluted somewhat. So he’s still the largest shareholder, and Murray and the Kalgoorlie Group, which I’m associated with, have well over $20 million of hard cash into the company to support it in each of the raises that we’ve completed over the years.

After that, we have some very notable names, one of them being the Taurus Funds Management Group, a private equity group over in Sydney run by Gordon Galt, and represented on our board by Michael Anderson. They’ve been extremely supportive and share the long-term vision of the company and we couldn’t have done this without some shareholders like that.

And for the North American market, of course, the Rick Rules of the world and the Sprott Group, which again were instrumental in Hot Chili still being alive and still being here today, to be able to succeed in actually executing this long-term business plan.

We also have local large shareholders in our partners at Productora. The CAP CMP groupóthey not just have 20% of our assets at Productora in an operating joint venture, but they also have a large shareholding that they’ve maintained on a register.

And so some very, very notable names and just sitting underneath the 5% level, we have a growing stable of very high net worth over here in Australia, sprinkled in with a growing institutional presence. Look, so they’re not over the 5% line, so I am not at liberty to discuss those names. But I imagine, in due course, we’ll see some of the Australian institutional and fund space probably growing their positions in the company.

Maurice: Those are some exclusive and reputable names you just referenced there. What is the float?

Christian Easterday: We used to have quite a small retail component. It used to probably comprise about 20%. That retail component has grown to probably about 50% or around 45%. So we’ve seen a movement to retail, small mom and pop investors. And it’s represented by how many shareholders.

You go back to before the Cortadera deal was announced and we might have had a thousand shareholders. We have nearly 3,000 shareholders. So that tells you a lot. We’ve probably seen a movement of about 25% of our register towards retail now, but that’s not uncommon for an Australian stock or even a Canadian stock in the resource space.

Retail has been driving this resource boom or renaissance if you want to call it that. And in Australia, share prices are made and rewrites are instigated and sustained by retail investors and that’s been going on for quite a several years. The institutions and the fund space have been taking a backseat to that. They’ve been instrumental in how the companies have funded themselves going through their rewrites, and some very exciting stories are invigorating the market over here. But it’s the retail investors that are driving this. And so the messaging that we have is very much pivoted toward the retail sector and trying to try to give the retail guys what they’re looking for.

And so the retail space in Hot Chili, or the float in Hot Chili, is probably around 45% at the moment, which means that the major shareholders, which we used to have 56% of the company in the hands of five players, some of the names I just mentioned, now, those five players represent some 28% of the company. So probably tells you a lot as to what’s happened with the changing dynamic on our register.

Maurice: In closing, sir, what keeps you up at night that we don’t know about?

Christian Easterday: There are many things to keep a CEO up at night. I’m always extremely interested in my drilling report in the morning, from the two drill rigs on the ground, and hopefully, we’ll push that out and have a further drill rig or two on the ground in the coming months. But it’s all about what the next 30 or 60 meters of the diamond hole looks like on holes that are exciting, and they dictate the coming year for us. So that keeps me up at night from an excitement perspective.

And then from a worrying perspective, I guess it’s this ever-changing environment in the market. Watching the news is one of those things that has your head spinning sometimes, especially what’s going on in the U.S. with the election, and where that will push global markets.

But at the moment, having just gone through such an intense phase for our company trying to produce a very robust resource figure that can be scrutinized by many independents that no doubt will have a look at that in the coming months, I sleep pretty well after not sleeping probably for about 12 weeks and going through that resource so thoroughly that we ironed out every little thing that we couldn’t understand or it didn’t make sense. And why is the block out grade of the model here and why is the assay right here? These things don’t make sense. And spending 12 weeks of my life hunting down every little aspect of that resource that could make that bulletproof and representative of the world-class asset that is coming together.

So now, I’m sleeping pretty good, but you do wake up at two o’clock in the morning and go and have a glass of milk and try and make sure that you can get four or five hours of sleep and turn your brain off. So those are the things that keep me up at night.

Maurice: And if anyone’s questioning your veracity, I can vouch for it that you and I are 12 hours apart and we’ve been in discussions here in the last month and a half. And whenever I pick up the phone or send you an email, there’s a response immediately.

Christian Easterday: There’s one thing about having your head office over in Perth, where your family is, and having all of your people and your operations over exactly 12 hours out. So all of the people in Hot Chili are quite used to late-night emails and conference calls and very early morning conference calls and emails, etc. So yeah, we run a 24-hour business, and management has got to be switched on 24 hours a day. So you get used to it, Maurice.

Maurice: All right, sir. Last question, what did I forget to ask?

Christian Easterday: Gee, pretty thorough interview. Maybe we can think about that for next time. And hopefully, I’ll be able to give some of your viewers an update, and we can address some of the things. For now, we’ll maybe save some powder and keep it dry for our next interview.

Maurice: Looking forward to it, sir. Mr. Easterday, please share the contact details for Hot Chili.

Christian Easterday: Visit our website at www.hotchili.net.au and you can find us on the ASX:HCH.

Maurice: Mr. Easterday, it’s been an absolute delight to speak with you today. Wishing you and Hot Chili the absolute best, sir.

Before you make your next bullion purchase make sure you contact. I’m a licensed representative to buy and sell physical precious metals through Miles Franklin Precious Metals Investments where we a number of options to expand your precious metals portfolio from physical delivery, to offshore depositories and precious metal IRAs. Call me directly at (855) 505-1900 or email [email protected]. Finally, please subscribe to Proven and Probable, where we provide mining insights and bullion sales. Subscription is free.

Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.

 

Disclosure:
1) Maurice Jackson: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Hot Chili Ltd. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: Hot Chili Ltd. is a sponsor of Proven and Probable. Proven and Probable disclosures are listed below.
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3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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Titans Of Industry interview

By TheTechnicalTraders

Chris joins the Wealth Research Group to discuss hot sectors and those that are lagging. A case can be made for the price of Gold stalling if a huge stimulus package comes forth as a rally in the stock market usually results in money moving out of Gold and to Stocks. However, a large stimulus package may also put pressure on the Dollar from a longer-term perspective, making Gold a more attractive asset. This could result in a situation where both Gold and Equities climb, similar to what we saw with Bonds climbing with Equities in January and February.

CLICK ON THE IMAGE BELOW TO WATCH THE VIDEO

LEARN MORE ABOUT CHRIS’S LONG-TERM SIGNALS AND SWING TRADE STRATEGIES AT TheTechnicalTraders.com

Precious Metals Prepare For Another Price Advance

By TheTechnicalTraders 

– As we continue to near the November 3rd election day, Precious Metals have continued to trade within a narrow range suggesting price support is staying strong. It is my belief that potential downside risks for Gold and Silver will be relatively short-lived after the election.  We believe the broad market decline witnessed on October 26, 2020, where the Dow Jones fell over 700 points, coupled with the fact Gold and Silver barely budged throughout the selloff, suggests support for Precious Metals has reached a “battle line”.

My research team has highlighted the current support and resistance price levels for both Gold and Silver on the charts below.  We believe the initial support levels will hold up well throughout the pending election and that an upside breakout in both Gold and Silver are likely outcomes after the elections.  Global traders and investors have already likely hedged their portfolios accordingly to attempt to eliminate risks, yet the fear of what is not known is one of the main drivers of appreciation in Precious Metals.

When the global markets become unsettled and traders/investors are unable to see clearly and identify a forward perspective, then Precious Metals start to shine. We explored this relationship last month in our article entitled Gold & Silver Follow Up & Future Predictions For 2020 &2021 Part I and Part II.

GOLD SUPPORT NEAR $1885 MAY LAUNCH NEW WAVE OF APPRECIATION

The Daily Gold Futures chart below highlights the current Support and Resistance areas.  We believe the current Support level is rather solid and that Resistance will be tested and broken on or after the November 3rd election day. If this were to occur, we would expect this to prompt a rally back above $2050 or beyond.  Ultimately, the recent lows near $1850 will attempt to act as a hard price floor for Gold, yet we believe the current price activity suggests major support near $1885 is quite strong and may propel an upward price advance soon.

SILVER SUPPORT NEAR $22.50 MAY PROMPT STRONG RALLY

The following Daily Silver Futures chart also highlights the Support and Resistance levels we’ve identified for Silver.  They are very similar to the levels on the Gold chart, yet the Silver chart has also set up an upward sloping lower price channel that suggests price appreciation is already taking place in Silver.  It is important to understand how the relative price change between both Gold and Silver creates a “ratio” that is followed by many traders (see the last chart in this article).  We believe the Gold to Silver ratio will likely fall below 60 fairly quickly after the elections in November – prompting both Gold and Silver to rise substantially.

GOLD-TO-SILVER RATIO SHOWS UPSIDE POTENTIAL

This Weekly Gold-to-Silver Ratio chart highlights our expectations related to the advance of both Gold-to-Silver near and after the US elections.  Check out our previous research on the Gold-to-Silver ratio that explains this important indicator in more detail. Pay attention to how the peak in Gold-to-Silver in 2011 drove the ratio level to a bottom near 43.  We don’t believe that type of move is setting up quite yet, but we do believe a move below 60 in the ratio is likely after the November elections.  This suggests that a $650+ rally in gold and a $16+ rally in Silver are very strong potentials if our modeling is accurate.

My team and I have already identified the trigger confirmation setups that we need to see before initiating any new trades in Precious Metals.  We believe we already know how these future rallies will take place and the setups with the best entry points.  The opportunities for traders after the elections are forming now if you know where to look for them. Join the Technical Trader research service today to get the pre-market video report delivered to your inbox every day, which will walk you through the charts of gold, silver, and other assets as well as potential trade setups.

Stay safe and healthy,

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only and is not intended to be acted upon.  Please see your financial advisor before making any trading or investment decisions. Read our FULL DISCLAIMER here.

Seasonality in Gold looks to be favouring Gold bulls

By Admiral Markets

Economic Events October 28, 2020Source: Economic Events October 28, 2020 – Admiral Markets’ Forex Calendar

While Gold is still waiting for impulses and continues to trade around 1,900 USD, tensions are building and sooner than later traders can expect a sharp increase in volatility.

While a potential trigger event is certainly the upcoming US presidential election on the 03rd of November (next Tuesday), it is not guaranteed due to a sharp rise in regards to risk appetite, respectively risk aversion, among market participants.

While Democrats and Republicans have not yet agreed on a deal for an economic relief package, it seems traders should prepare to see Nancy Pelosi and Steven Mnuchin come up with an optimistic outlook on continued stimulus talks right after polls are closed on Election Day.

As we already pointed out, a final deal between Democrats and Republicans will potentially fall into a time which is historically known to be bullish for Gold from a seasonal perspective (December/January). This could drive the price of Gold significantly back above 2,000 USD – only with a small delay.

In fact, extending this seasonal view on the yellow metal shows that the current “weakness” in Gold has usually been a good buying opportunity, at least in the time period from October 1986 to now.

Still, we remain cautious in regard to long engagements below 1,975 USD on a daily time-frame, but keep this level in mind since it could be the initial bullish catalyst that drives Gold up to its current yearly and All-Time highs around 2,075 USD or even higher:

Gold Daily chartSource: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between June 12, 2019, to October 27, 2020). Accessed: October 27, 2020, at 10:00 PM GMT. Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of Gold fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, and in 2019, it increased by 18.9%, meaning that in five years, it was up by 28%.

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Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter “Analysis”) published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

  1. This is a marketing communication. The analysis is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
  3. Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter “Author”) based on the Author’s personal estimations.
  4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
  5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures that refer to any past performance is not a reliable indicator of future results.
  6. The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
  7. Any kind of previous or modelled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
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By Admiral Markets

13 Junior Mining Companies Followed By The Critical Investor

Source: The Critical Investor for Streetwise Reports   10/22/2020

The Critical Investor, an avid and critical mining stock investor and newsletter writer from Europe, looks for high-quality companies, strong short-term catalysts and deep value. In this interview with Streetwise Reports, he takes a deep dive into the drivers behind gold’s appreciation, discusses several criteria he uses to evaluate mining juniors and developers, and profiles, using his numbers-based approach, 13 junior mining companies, most of which are featured in his portfolio.

Streetwise Reports: Gold and silver have been trading more or less sideways for the last month or so. What do you see ahead for the precious metals?

The Critical Investor: The question is simple, but as precious metals and especially gold have no fundamentals but sentiment drivers, in my view, the answer isn’t as simple and straightforward. First and foremost I am no gold bug, nor any metal bug for that matter. The two drivers I consider most important for gold are negative real interest rates (interest rates below inflation levels) and the U.S. dollar itself, besides the general fear trade that gold usually is. For the foreseeable future I see a very dovish Federal Reserve on interest rates, possibly with the intention to leave rates this low for at least one year and potentially more, as inflation is running below their target. It’s uncertain if there will be another U.S. stimulus package before election day, but if there isn’t, it is my feeling that the second COVID-19 wave might invoke one anyway.

The first stimulus package, of unprecedented size, sent the dollar lower and gold higher, and this has reversed somewhat the last two months. Without another colossal stimulus package, the dollar is now considered by several experts as a potential safe haven against COVID and the elections, possibly keeping gold in the US$1850–1900/oz range, but as mentioned, I don’t see this as a real possibility as Europe and other parts of the world are already facing the consequences of the second COVID wave and are acting upon it, whereas I see the U.S. as problematic in this regard, which will almost certainly trigger a new package.

What will be the result of it? Usually there is a stronger first time effect on unprecedented events and measures, as people tend to get used to a new situation and are not as surprised in a good or bad way anymore when things happen for a second or third time. As the stock markets are already at or near all-time highs, with economic fundamentals lacking, meaning potential overvaluation, reinforced by, for example, share buybacks and the mutual funds of the Vanguards and Fidelities of this world, I don’t see these same markets gain much more beyond their all-time highs based on stimulus packages. But what it could invoke is the U.S. dollar going lower, creating another opportunity for gold, after the second COVID outbreak, which could scare people out of anything from gold to stocks, to go even higher than the US$2068/oz record set in August, especially with a solid framework of ongoing negative real rates.

As far as a second COVID correction goes, I do believe that at the time of the first outbreak everybody was panicking, with a vaccine nowhere in sight anytime soon, not knowing what to expect for support coming from the Fed and governments. We know now that these parties are very generous, work much more swiftly than during the 2008 financial crisis, and will do whatever it takes again. So my guess is that a second correction will by far not be as steep and deep as the first one; China manufacturing and consumption has recovered nicely, key indicators in this area keep coming in above expectations in the Western hemisphere, and as a vaccine seems near for Q1 2021, this could add confidence to the markets as well.

SWR: Precious metals and base metals don’t all move in lockstep with each other. What metals do you think will do better than others in the middle to longer term?

TCI: As discussed in my last answer, based on a few assumptions on sentiment drivers, I see gold doing well, followed by silver, which has less appeal to investors and is much more volatile. As silver seems to be decoupled from gold the last few years, has much less intrinsic value and is often a by-product of other metals, and is also much less used as a storage of value but used more in industrial manufacturing, investors tend to speculate much more in gold and gold stocks.

I don’t have an opinion on platinum group metals (PGMs), by the way. I remember four years ago, PGM mines were closing, car catalytic converter demand was increasing, so it was a no brainer to invest in platinum and platinum stocks, only to see everything go down after a quick short rise, and trading sideways for years. Palladium did well on the other hand, as supply/demand fundamentals were far more positive than for platinum, although it is used in much smaller volumes for more or less the same purpose. I don’t understand it, so I don’t have an opinion on this.

Base metals are also doing well these days, as China is recovering nicely from COVID, and production and consumption data are improving, and as a result imports of all sorts of base metals by China is increasing. Copper has made a remarkable recovery from its March lows of US$2.05/lb, hovering above US$3/lb now after a few volatile weeks. Also playing a part in this were supply issues in important copper producing jurisdictions like Chile and Peru, but as these are coming on-line again, the copper price sees some pressure lately. We were entering a deficit this summer, and it is expected by experts that this deficit will expand next year, so I expect the US$3/lb levels at least to hold if this comes true. Around US$3/lb, most copper projects are economic, this is an important base case threshold.

More or less the same (China demand improving, Chile/Peru mines halting temporarily) goes for zinc, as both countries are important producers of this grey metal as well. However, the zinc market is a more complex one, as zinc smelters basically control prices, and are known to operate not very transparently, causing giants like BHP exiting the zinc market altogether. Zinc projects in general need a higher zinc price than the current US$1.05/lb, more like US$1.10–1.20/lb.

Nickel has also seen a great recovery on improving China figures, but it is believed that its future is tied to the demand of electric vehicles (EV), and more specifically, its batteries. Because this is a market with lofty forecasts, but also heavily dependent on government subsidies and necessary technical progress, the timeline of supply/demand in nickel isn’t clear for the moment. But as current production needs to be expanded meaningfully, and future new mines are far and few between, it is anticipated that somewhere in the future nickel prices should go up. At the current nickel price of US$6.65/lb, not a lot of projects are economic, if any; usually a nickel price of US$7.50–8/lb is needed. Something else is playing a role apparently in the EV universe, and this is Elon Musk of Tesla, calling for mining projects that will produce battery materials like lithium and nickel. According to a hilarious article in Mining.com, it seems he has no clue what he is talking about, but the effect is impressive nonetheless, sending most lithium and nickel stocks much higher.

SWR: Do you see certain types of mining companies as better investments than others? For instance, seniors vs. juniors vs. mid-tiers? Explorers vs. developers vs. miners?

TCI: This all depends on your risk profile, as any licensed portfolio manager can confirm to you. Personally I don’t trade miners, as I see them simply as leverage on the gold price if well run with good assets in good jurisdictions. I like more autonomous growth/catalyst potential in my stocks, as you can find in explorers and developers. But again, the earlier stage the more risky. Most explorers tend to double or triple in a bull market just on the narrative before drilling, and more often than not the drill results disappoint and the stock loses 50% or more in a day. But if successful it could run up 2 or 3 times in a day as well, often directly after the open, so it is hard to get in then. I have seen my fair share of disappointing explorers, so I tend to be more careful now and predominantly play the narrative after getting in early. For every 3–4 losers you need a solid winner, so it is a difficult game if you elect to hold everything during first drill results.

In my view, it is never a bad thing to invest in quality projects and management. On the other hand, these companies often see overvaluation as they attract a large following based on exactly those criteria. So it is key to get in early, accept a certain amount of early-stage risk and size position accordingly. Usually I focus on new companies with strong management and a project that already has a resource, or a historical resource, has a growth story and has no problem raising lots of cash.

SWR: You have a background in construction/project management. How does that affect the way you look at mining companies? Do you feel that you offer a different perspective than other industry commentators?

TCI: My background gives me a result driven, more analytical point of view as I am not only interested in narrative, management, jurisdiction and geology, as most commentators are, but also interested in hard facts and figures, and also focused on the future. Where could this resource or project go from here and why, without too much arm waving? I always like to compare a project with peer projects, model my own discounted cash flow analysis, see how it can develop regarding economics. But I also like to estimate resources based on drill results, which in my case without a geological background and geo software doesn’t go beyond the back of an envelope, but I haven’t been that far off in most instances, although there is a lot of luck involved, of course.

SWR: What criteria do you count as important in evaluating an investment in a mining company?

TCI: As I mentioned earlier, strong management with a history of success in juniors is important. But there can only be so many strong management teams with track records, so the opportunities in this regard are limited. Below them are the talented newcomers, but without much of a track record, so harder to detect. In that case, following the money is often quite useful. I found that talented newcomers have no problem raising cash and attracting well-known directors/advisors, so when I see a junior with a team unknown to me raising C$12–20 million out of nowhere, I’m surely interested to know more. I also have a network of people who know most in the industry, providing me with their opinions if asked. In some cases this also works for projects, as most interesting projects have seen earlier exploration. This is something an investor can ask the management of other companies that are working in the same area; often their geologists know many other projects. Beware of bias and pitching of their own project, but usually something useful comes out of it, which can be presented to management of the researched company itself.

Geologically speaking, I would like to see as many available good drill results as possible, and before any recent drilling has been accomplished, a relatively high acquisition price of an exploration asset at least points towards an implied higher chance of success. An existing (historical) resource is a nice thing to have and something of a potential backstop to me, when all (sometimes “blue sky,” “district scale”) stepout exploration plans fail unfortunately. On the other hand, I have had some nasty “we have a great historical resource and all we have to do is just a bit of infill drilling to satisfy the regulators and get it to 43-101 compliant” experiences as well, so it is not that easy.

Regarding an existing 43-101 compliant resource, I tend to estimate ASAP if it is or could become economic, by estimating assumptions based on comparable economic studies. If I have my doubts, I contact management with my findings and let them counter these if possible, until I’m satisfied.

Other important subjects are jurisdictions, often further specified to the area the project is located, as, for example, a country can have completely different state/province mining regimes. Every country or jurisdiction has its own very specific fields of attention. For example in Nevada, generally considered as one of the best mining jurisdictions worldwide, the coveted water rights are something that can cause lots of trouble when not acquired and permitted well before construction. In Peru, mining companies have to deal with local populations and governments for permits, but often also with regions that are pro or against mining, so it is important to know beforehand which claims you are going to stake, and for that you have to know the area very well. Another issue with lots of countries is that you need a team on location that is assembled almost completely out of local people, in order to get things done. This involves a lot of training, local presence, support of local communities, etc.

In general, basic things like share structure, debt, loans, roll backs in the past, name changes, management changes, management compensations, G&A, etc. all need to be checked in the news releases, financial statements and the MD&A documents on SEDAR.

SWR: Would you like to discuss several companies that you think present investment opportunities?

TCI: Sure, there are a number of companies I am following, being sponsored by and/or a shareholder of; each represent different opportunities on their own. I’ll describe them in a nutshell in no particular order, so readers can decide where to go from there with due diligence:

Queen’s Road Capital Investment Ltd. (QRC:TSX.V) (market cap C$102M): This is an emerging financier in resources, led by Warren Gilman, a well-known large scale financier in the mining business. Plans to build a multibillion dollar market cap. Has billionaire friends backing him, raised about C$80 million with them in a heartbeat, is considering funds and banks now for additional cash. Planning to buy equity, with a focus on convertible debt securities, entering the mine financing hole left by big banks. First equity investments included NexGen Energy and IsoEnergy. Management and insiders hold 9%.

KORE Mining Ltd. (KORE:TSX.V; KOREF:OTCQB ) (market cap C$134M): The company fully owns three gold projects, two of which are development stage heap leach projects in California, and both have a recent preliminary economic assessment (PEA). The Imperial project, close to the Mesquite Mine (owned by Equinox Gold) has a post-tax NPV5 of US$343 million and IRR of 44% at US$1450/oz Au, and needs capex of US$142 million. Long Valley has a post-tax NPV5 of US$263 million and IRR of 40% at US$1600/oz Au, with a capex of US$158 million. At a gold price of US$1900/oz, both NPV5s account for a combined US$1056 million value, compared to a market cap of C$$128 million. The CEO is Scott Trebilcock, a funny character and former chief development officer of Nevsun Resources, leading the acquisition of Reservoir Minerals, the defense against a hostile Lundin bid and the eventual buyout by Zijin Mining for C$1.9B in 2018. Eric Sprott holds 26%, management holds 38%.

Adriatic Metals Plc (ADT:ASX; 3FN:FSE) (market cap A$409.64M): This company is developing one of the most impressive and profitable (polymetallic) projects worldwide, which is the fully owned Vares project in Bosnia-Herzegovina. The very recent Prefeasibility study delivered a strong post-tax NPV8 of US$1,040 million with a stunning IRR of 113% and a US$173 million capex, based on US$24/oz silver, US$1900/oz gold, US$1.14/lb zinc, US$2.95/lb copper and US$0.91/lb lead prices. Economics held up nicely compared to the scoping study results, with back of the envelope calculations using the considerably lower PM metal price assumptions from the scoping study the NPV and IRR would drop off only 10-15%. Capex appears to be a low number at first sight, but it is actually extremely high for a relatively small 800 tonnes per day operation. The reason for this can be found in the underground development costs that are included with capex, rendering sustaining capital extremely low as these costs usually are accounted for in this last category. Opex is also relatively high as four different concentrates have to be produced and transported to smelters. The company is busy permitting, which has gone a bit slow but steady so far. Sprott Global is a 5% shareholder, management holds 26.6%.

Cartier Resources Inc. (ECR:TSX.V) (market cap C$51.5M): The 100%-owned flagship Chimo Mine gold project in Quebec has an Indicated and Inferred resource of 1.2Moz @4.2g/t gold, with mineralization starting at surface and open at depth. The company is drilling the project, and forecasts a 1.7Moz resource in Q4 2020. A lot is expected from Benoist, its more early stage, second most important exploration project, for which money has been raised in August, and a major drill program is planned at the moment. The company has C$13.8 million in cash. Management owns 3%.

Treasury Metals Inc. (TML:TSX: TSRMF:OTCQB) (market cap C$146.6M): Treasury Metals acquired the Goldlund asset from First Mining this year for a lot of equity in return, located adjacent to its Goliath Gold project, in Ontario, giving it a 3Moz gold resource base with the potential to grow this much larger. Goliath already sports a 2017 PEA with a post-tax NPV5 of US$334 million and an IRR of 18%, based on a US$1250/oz gold price. My estimates on combined Goliath-Goldlund project economics generate a hypothetical post-tax NPV8 of US$609 million and IRR of 35.7% at US$1700/oz gold. A combined PEA and an individual Goliath PFS is expected in Q1 2021. The company raised C$11.5 million in July; management holds 3%. Sponsoring company.

Cassiar Gold Corp. (GLDC:TSX.V; MARFD:OTCQB) (market cap C$24.9M): With the second iteration of Margaux Resources, which didn’t find much success on early stage gold and zinc exploration projects, Steve Letwin, former longtime CEO of IAMGOLD, decided to buy the Cassiar project in BC, which sports a near surface, most likely very economic 1Moz @1.43g/t gold resource. According to technical advisor Doug Kirwin of Ivanhoe fame, the potential could be 3–5Moz. The company is raising C$6 million at the moment. Management, Board of Directors and advisors own 42.1%.

AbraPlata Resource Corp. (ABRA.TSX.V) (market cap C$148.6M): Abraplata is an exploration company with projects in Chile and Argentina. Its 100%-owned flagship open pittable oxide Diablillos silver-gold project in the mining-friendly Salta province in Argentina has an indicated resource of 80.9Moz silver and 0.73Moz gold, or 1.7Moz AuEq @2.1g/t AuEq, which is a very high grade for an open pit project. As a result, the 2018 PEA has excellent numbers, with a post-tax NPV7.5 of US$212 million and IRR of 30.2%, already achieved at US$1300/oz gold and US$20/oz silver. At current metal prices, the NPV more than doubles. This is not all however, as the deposit is open at depth and along strike, and is believed to be part of a large system with a potential porphyry nearby, all of which is explored at the moment. An updated resource and PEA is expected in H1 2021. The company has C$25 million in cash in the treasury. Eric Sprott, Altius Minerals and SSR Mining own 37%, management and board own 3%.

Fireweed Zinc Ltd. (FWZ:TSX.V) (market cap C$65.2M): Fully owns the 50Mt MacMillan Pass zinc project in the Yukon. The 2018 PEA has solid economics with a post-tax NPV8 of C$448 million, IRR of 24% and capex of C$404 million, at a zinc price of US$1.21/lb. Based on C$71 million government infrastructure funding that can be subtracted from capex, and a new discovery at the Boundary Zone (very impressive 100m @ 7.94% Zn intercept from surface), I expect economics to improve quite a bit as the resource likely will grow significantly and could easily double on Boundary alone, in my view, based on which the updated PEA will come out in 2022. It is a slow mover, but the resource has clear potential to be Tier I, and developing such a rare, large asset takes time. Management owns 12%.

The following companies are more of a speculative nature, their projects being more early stage:

Avrupa Minerals Ltd. (AVU:TSX.V; AVPMF:OTC; 8AM:FSE) (market cap C$3.3M): This is a nano cap prospect generator with its flagship copper/zinc project in Portugal. The company recently received its exploration permit, which in turn sealed the JV deal with MATSA, the mine construction and exploration vehicle of Trafigura and Mubadala, two commodity/investment giants. Drilling on the Alvalade project, which includes proving up lots of left behind resources from an old mine, is fully financed by MATSA and will start soon. A small raise (C$500k) is in the works, and a 4:1 roll-back is planned for December. Management owns or directly controls 16%. Sponsoring company.

Golden Arrow Resources Corp. (GRG:TSX.V; GARWF:OTCQB; G6A:FSE) (market cap C$21.5M): This company had its arm twisted by SSR Mining, when it was forced to sell its 25% JV interest in the ramping up Puna operation at rock bottom silver prices in Q3, 2019. This disappointed many investors and rightly so, as the Chinchillas discovery didn’t return anything for them in the end. I sincerely hope the company has learned its lessons when negotiating JVs in the future. For now, the company is backstopped by C$28 million in cash and SSR Mining shares which is more than the current market cap, and are drilling and preparing several prospective drill targets in Latin America. The company sure knows how to explore and has the cash to do extensive drill programs and studies, so with metal prices at current high levels any discovery will be a strong catalyst, in my view. Management owns 7%. Sponsoring company.

Kenorland Minerals/Northway Resources (NTW.V, in the process of an RTO with Kenorland [private], raising up to C$12 million, estimated resulting market cap about C$47M; I’m looking to get in after it’s listed): As a private company, Kenorland made an interesting gold discovery at its Quebec project, hitting 29m @8.47g/t gold from 72m depth. Zach Flood is CEO of both companies, an upcoming talent and a personal favorite of Rick Rule. As a consequence, Rule and Sprott have been supporting and investing in his companies whenever possible. Very impressive team of advisors with David Broughton and Peter Meredith, both from Ivanhoe fame. Management owns about 9%.

Forum Energy Metals Corp. (FMC:TSX.V) (market cap C$16.5M): Forum is a prospect generator, which has JVs for its flagship Janice Lake copper project (with Rio Tinto, C$30M) and its Fir Island Uranium project (Orano, formerly AREVA, C$6M). Rio Tinto has set up an 80-person exploration camp this summer, and recently completed an IP survey, sampling and first rotary air blast drill program on Janice Lake, for which the results are awaited by the end of October. These results, if successful, will be used to design a diamond drill program for next year. Forum is also exploring the 100%-owned Love Lake Copper/Nickel/PGM project. All three projects will be diamond drilled next year if early stage exploration is successful. Management owns 9%.

Riley Gold Corp. (RLYG:TSX.V) (market cap C$9.9M post closing): Riley Gold is an early stage exploration play with gold projects in Nevada, including one project where historical drilling returned numerous mineralized intercepts in the 1–2 g/t gold range, with highlights of 12m @ 2.54g/t from 59m including 10.7m @ 2.89g/t, 18.8m @ 1.25g/t from 80.8m, and 27.4m @ 0.72g/t from 233m.

The company just closed an oversubscribed C$3M round at C$0.20 on October 16th. The share price increased to C$0.39, probably when word reached brokers they were doing a financing, so I am waiting until the dust settles here. The company is led by CEO Todd Hilditch, who is very familiar with gold exploration projects in Nevada, and Executive Chairman William Lamb, the former CEO of Lucara Diamonds, bringing it to a C$1 billion valuation at its peak. Another director, Stuart Smith, is former technical director strategy and new projects for Teck. The company appears to have become much more active since the beginning of October 2020. Management owned 30% before the financing, after the closing they still hold 18%.

SWR: Any parting thoughts for our readers?

TCI: These are extraordinary times for everybody, and represent challenges, threats and opportunities for everybody. As COVID-19 is staging a vicious comeback, and the U.S. is following Europe with a small delay, as I expect, that could result in very interesting presidential election circumstances with lockdowns, facial masks and special voting procedures having the potential to create unexpected outcomes.

National debt is already at such lofty levels that raising interest rates to more normal levels (2-3%) has become almost impossible, and will probably guarantee low rates to be a reality for many years to come. As long as inflation remains higher than interest rates, this could create the ideal environment for things like gold and gold related investments. Things are chaotic nowadays with COVID-19, but when a vaccine is developed, which is anticipated in H1 2021, I see the real world economy gradually (or maybe even pretty quickly) returning to former activity levels. This in turn could fuel a real wave of enthusiasm on the markets, including the TSX and TSX.V, also lifting base metal sentiment and corresponding stocks.

SWR: Thanks for your insights. With the pandemic, stimulus packages and the U.S. presidential election creating so much financial uncertainly, precious metals will be closely watched in the months ahead.

Avrupa Lousal Mine
Alvalade Project, Closed Lousal Mine; Avrupa Minerals

The Critical Investor is a newsletter and comprehensive junior mining platform, providing analysis, blog and newsfeed and all sorts of information about junior mining. The editor is an avid and critical junior mining stock investor from The Netherlands, with an MSc background in construction/project management. Number cruncher at project economics, looking for high quality companies, mostly growth/turnaround/catalyst-driven to avoid too much dependence/influence of long-term commodity pricing/market sentiments, and often looking for long-term deep value. Getting burned in the past himself at junior mining investments by following overly positive sources that more often than not avoided to mention (hidden) risks or critical flaws, The Critical Investor learned his lesson well, and goes a few steps further ever since, providing a fresh, more in-depth, and critical vision on things, hence the name.

The Critical Investor hopes you will find this interview interesting and useful, and will have further interest in upcoming articles on mining. To never miss a thing, please subscribe to the free Critical Investor newsletter on the website a href=”https://www.criticalinvestor.eu” target=”_blank”>www.criticalinvestor.eu, in order to get an email notice of new articles soon after they are published.

Critical Investor Disclaimer:

The author is not a registered investment advisor, and currently has a long position in all stocks mentioned, except Kenorland Minerals and Riley Gold. Treasury Metals, Golden Arrow Resources and Avrupa Minerals are sponsoring companies. All facts are to be checked by the reader. For more information go to the website of the companies and read company profiles and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.

Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: Golden Arrow Resources. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) The Critical Investor’s disclosures are listed above. The Critical Investor determined which companies would be included in this article based on my research and understanding of the sector. The Critical Investor had the opportunity to review the interview for accuracy as of the date of the interview and is responsible for the content of the interview.
4) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
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 Avrupa Minerals and Cassiar Gold, companies mentioned in this article.

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