Contributed Commentaries
Three small-cap junior miners with mid-tier potential
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
As expected in this column last week, December Gold is seeing some profit taking and quarter end book squaring by fund managers heading into Q4. You may wish to consider taking advantage of this weakness to begin scaling into a basket of small-cap growth-oriented producers (GOP’s) before Q3 earnings season begins in late October. In the current climate, where geo-political risk remains difficult to price and interest rates are falling across the board, the safe-haven metal should remain well bid into 2020 after a healthy correction has taken place.
With gold futures remaining above $1500 since early August, H2/2019 is poised for much stronger results for low-cost GOP’s than the first half of the year. Results will be driven by the huge run in bullion during early summer and the fact that production tends to be second-half weighted for most producers. With most earnings projections based upon $1300-$1400 gold price, at $1500 gold most gold producers will beat these estimates by wide margins.
Given the economic and geopolitical backdrop will remain gold friendly in the long-term, I expect small-cap GOP’s to have more upside than most major and mid-tier miners (over the next 18 months) at current gold prices. Many of these juniors remain undervalued, as most generalist investors have yet to delve into the junior space, preferring to invest in precious metals related ETF’s to park safe haven capital.
Here are three small-cap junior miners who are poised to outperform the sector, as this new precious metal bull matures over the next few years:
Teranga Gold Corp. (TGZ.TO): This West African gold producer has recently brought in its second producing mine well ahead of schedule and under-budget. Located in Burkina Faso, the Wahgnion Mine is expected to produce between 30,000-40,000 ounces of gold this year and 130,000 ounces next year, with an all-in sustaining costs (AISC) of US$761 per ounce. The company’s flagship Sabodala Mine is the largest producing gold mine in Senegal. The complex is expected to produce over 1M ounces of gold and generate free cash flow of US$230M between 2018 and 2022, providing strong cash flow to support Teranga's rapidly advancing organic growth pipeline. Teranga is also advancing its third mine towards the feasibility stage of development. The company will apply for the mining license on its Golden Hill Project in 2020 and is attempting to receive all of the permits associated with this project before the 2021 election in Burkina Faso. I spoke with CEO Richard Young at the recently concluded Beaver Creek Summit regarding the possible divestment Barrick Gold’s Massawa Exploration Project, which borders Teranga’s Sabodala Mine in Senegal. He confirmed that Teranga would look at the asset if it were to go for sale and that any transaction would have to be at the right price and make sense for Teranga shareholders.
Americas Gold and Silver Corp. (USAS): This North American focused silver and base metal producer recently re-branded to include “Gold” in its name, due to its recent acquisition of the Relief Canyon Project in Nevada. The fully financed mine is scheduled to be producing gold by December and will be free cash flowing by early 2020. Expected annual production at the mine is 90,000 ounces of gold at an AISC of $800 per ounce over a 6-year initial mine life. The company recently announced a joint venture with Eric Sprott on its Galena Mine in Idaho, committing up to US$20M in Year One for a 40% interest, while USAS commits US$5M in 2020. The recapitalization plan at the complex over next 18 months is targeting a 100% increase in silver production and reduction of AISC by 50% over the next two years. The company’s Cosalá Operations are located in the state of Sinaloa, Mexico, and consist of 67 mining concessions that cover approximately 19,385 hectares. The property also includes the San Rafael mine, El Cajón project, and several other smaller past-producing mines with expected average annual production of 2.5 million ounces of silver and 4.6 million lbs of copper. The company intends to keep the over 100M ounces of higher-grade silver reserves at Cosalá in the ground until the market has made a $25 floor in the silver price. At Beaver Creek, CEO Darren Blasutti also informed me the company remains open to discuss acquiring another cash stressed junior with 100% control of a high-margin project with blue sky potential. Americas Gold and Silver maintains a dual listing on the TSE and NYSE American exchanges for increased liquidity, strong endorsement from key institutional and retail investors, and will have greater access to U.S. funds if/when the stock rises above the US$4.00 level.
Calibre Mining Corp. (CXB.V): This former prospect generator has recently transformed into a mine development company and is rapidly progressing towards mid-tier producer status. The company is led by a team that has created significant value for shareholders in leadership and through the sale of seven mining companies for a total of US$5 billion over the past decade. Calibre is currently exploring for world class precious metals deposits in the highly prolific, “Mining Triangle” of northeastern Nicaragua, where historical production has been over seven million ounces of gold. On July 2nd, the micro-cap junior announced they will be joining forces with B2Gold in the acquisition of the producing El Limon and La Libertad Gold Mines, the Pavon Gold Project and additional mineral concessions in Nicaragua. Once the deal is finalized in mid-October, the global miner will become Calibre’s largest shareholder by controlling roughly 31% of outstanding shares. To fund the acquisition, the company recently announced the closing of an over-subscribed C$102.5M equity financing. Although both of these mines will have a combined AISC of over US$1600 per ounce during Q3, V.P. Corporate Development of Calibre Ryan King informed me at Beaver Creek that total costs will come down to roughly US$1,000 per ounce in Q4, due to considerable pre-stripping completed by B2Gold at El Limon pits. The company plans to produce between 130,000-140,000 total ounces of gold from the complex next year, with a combined AISC of US$1000-$1050 per ounce. Although the stock will remain halted on the Venture Exchange in Canada until the deal is finalized next month, it continues to trade in the U.S. on the OTC Pink Sheet exchange under the symbol CXBMF.
At some point in the near-future, we will see the juniors begin to outperform the GDX in a big way once speculative fever hits the entire precious metals complex. Over the past few years, I have positioned Junior Miner Junky subscribers in the best in breed precious metal juniors well ahead of this latest surge higher in both gold and silver. If you would like to receive my research, newsletter, portfolio, and trade alerts, please click here for instant access.
Full Disclosure: I have purchased shares of TGZ.TO, USAS, and CXB.V in the open market and have also recommended all three to my subscribers before the gold breakout in June. Please do your own due diligence before considering the purchase of any junior resource stock.
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