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Inca One offers investors a golden opportunity to hedge against inflation

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The Kori One operation

The Kori One operation.

By Jason Smith

  • In an inflationary environment, gold's long history of wealth insurance makes it a safer bet than trendy, but volatile cryptocurrencies

  • Inca One Gold is producing gold at record rates and has just secured a US$9 million gold loan to fund further growth over the next 18 months

  • Robust gold prices should put a premium on gold producers like Inca One, who can convert those higher prices into cash flow

In 2021, consumers and investors don't need to go far to see inflation is rearing its head. Higher prices at the grocery store and gas pump provide weekly reminders that things cost more than they did pre-COVID.

Investors are watching inflation whittle away the purchasing power of nest eggs built up over many years and are looking for ways to stop the bleeding. With supply chain snarls and waves of government stimulus driving prices ever higher, many have turned to cryptocurrencies as an alternative to government-backed, fiat currencies.

But, as the crypto markets have made painfully clear this year, with this relatively new investment vehicle comes a great deal of volatility.

In contrast, gold's history as a safe-haven investment and a store of value goes back millennia. In times of economic uncertainty and inflation, gold offers reliable wealth insurance. That longer track record is likely a major reason why billionaire Ray Dalio recently told CNBC, when asked whether he preferred gold or crypto, "if you put a gun to my head, and you said, ‘I can only have one,' I would choose gold."

It's a stance in full accord with Canadian gold producer Inca One Gold Corp.'s (TSXV: INCA | OTCQB: INCAF | FSE: SU92) beliefs about gold as wealth insurance. Company President, CEO and Director, Edward Kelly, opines, "in times of inflation, you want peace of mind, which means you'll want to own gold."

"Getting the plants full, getting our fixed costs covered and delivering profitability — that's our number one priority." — Edward Kelly, President, CEO and Director, Inca One Gold Corp.

That's why this Peru-focused gold producer is offering .9999 fine 1 oz gold coins for purchase to any investor who owns 5,000 shares or more of Inca One.

To Kelly's way of thinking, owning physical gold amplifies the leverage that his company offers on rising prices for the yellow metal, providing a two-pronged investment that "gives you the peace of mind that you've looked after yourself and your loved ones financially."

A strategy tailor-made for Peru's small-scale mining sector

Inca One has built its gold production story around the gold wealth of Peru. Specifically, the country's desire to bring order to, and collect tax revenue from, its small-scale mining industry.

Peru is a global mining powerhouse. It is second in global copper production, seventh in gold production and second in both zinc and silver production. Some of the biggest mining companies in the world have operations in Peru, including Newmont, Glencore, BHP Billiton, Rio Tinto, Barrick and Freeport McMoRan.

Small-scale mining exists alongside those companies' large mines, with some estimates pegging small-scale ore production at 15,000 tpd. PlanetGold estimates that more than 1 million livelihoods in Peru depend on artisanal and small-scale gold mining.

Government mining laws passed in recent years have attempted to regulate and formalize this part of the industry and improve its safety, working conditions and environmental standards. This has created a great opportunity for Inca One, which owns two plants in Peru's Arequipa district that have a combined 450 tpd of ore-processing capacity.

The Kori One operation

The Kori One operation, which is in a highly concentrated, high-grade, small-scale mining district.

The company's Chala and Kori plants meet a demand for modern processing in the small-scale mining sector. Sid Rajeev, head of research at Fundamental Research, notes: "Inca One is the largest gold ore processing company by permitted capacity in Peru, and we believe they have significant growth potential."

In addition to streamlining small-scale miners' operations, these plants offer significant environmental benefits. According to PlanetGold, every 9,500 oz of gold processed prevents 1 tonne of mercury pollution. Rajeev comments, "third-party ore processing companies, such as Inca One, positively impact the environment surrounding small-scale mining communities."

US$9 million gold facility provides large, non-dilutive cash injection

That positive environmental impact buttresses an already compelling growth story for Inca One.

After suffering through COVID-related slowdowns in 2020 and into early 2021, the company's experienced Canadian executive team and its Peruvian operational team have put Inca One in great position to deliver production and cash flow growth heading into the country's mining busy season.

OCIM Precious Metals SA kickstarted that growth in March by providing Inca One with an initial US$2.45 million gold prepayment facility, which gave the company money to buy ore, which it then repaid to OCIM out of subsequent months' gold production. And it did so without diluting Inca One's existing shareholders.

That initial facility proved so successful, that OCIM and Inca One closed in early August on a new facility worth US$9 million. This latest, non-dilutive transaction increases Inca One's working capital by US$4.6 million and gives it a great opportunity to maintain and improve upon ore throughput at Chala and Kori (the current target is between 175 and 225 tpd).

The Kori One operation

A look at the Chala operation.

Fundamental Research is bullish about this latest facility. "We believe this financing is a major milestone for Inca. Production has been ramping up in recent months due to funds from the prepayment facility," notes Rajeev.

Kelly also sees it as a game-changer. "The biggest bottleneck to increasing production is the amount of working capital we have available — with more money, we can buy more ore and fill the mills up."

Building on recent production records

The consecutive production records Inca One has hit in May and June speak to the importance of this working capital injection from OCIM.

Based just on the initial, US$2.45 million facility, Chala and Kori processed 3,538 tonnes of ore in May and 5,183 tonnes of ore in June, a 46 per cent month-over-month increase marking Inca One's highest level of processing since December 2019.

That June record works out to 173 tpd, which is a big improvement over its "pre-facility" numbers but is still just a fraction of the company's 450 tpd total capacity. Kelly is optimistic about what Inca One can do with the new, larger facility noting, "it gives us a longer runway, at least 18 months, to grow production."

The equation is simple: more money gives Inca One the ability to buy more ore from small-scale miners, and that should translate into more gold produced and steady cash flow growth.

Unused capacity gives Inca One big, near-term upside

Better still, because 65 per cent of Inca One's capacity remains unused and its monthly processing costs are essentially fixed, more ore processed means better margins as Inca One fills those plants up.

Combined with an oversubscribed private placement that raised a little over $613,000, the most recent OCIM facility gives Inca One the financial wherewithal to push throughput toward that nameplate, 450 tpd capacity.

It's the perfect setup for Inca One to scale up production and take advantage of historically high gold prices. "Getting the plants full, getting our fixed costs covered and delivering profitability — that's our number one priority," says Kelly.

In these inflationary times, that strategy for growth makes Inca One Gold a smart-money way to protect and grow wealth.

For more information on Inca One, visit their website here.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.