Juniors with path to production will be hot commodity in 2020 - Revival Gold
(Kitco News) - 2019 was a major year for the gold market as prices broke out of a six-year trading channel. However, despite this move, junior explorers continue to struggle, according to one mining chief executive officer.
Hugh Agro, president and CEO of Revival Gold
The TSX Venture index ($JX), which is heavily weighted with junior gold explorers, has significantly underperformed the gold price for most of 2019, with the trend widening in the early part of 2020. According to Hugh Agro, president and CEO of Revival Gold (TSX.V: RVG), this underperformance continues to create a major financing hurdle within the junior space.
“Investors are looking for liquidity and market-cap relevance, and that can be difficult to find in the junior space,” he said.
However, despite the resilient gloomy sentiment in the marketplace, Agro said that sentiment is slowly starting to shift and there appears to be a silver lining on the horizon as investors take more of a long-term focus.
He noted that senior and mid-tier producers saw strong investor interest in 2019 as investors focused on improved margins in a higher gold-price environment. However, he added that there is one sector in the gold space that saw even better gains.
“Companies with the path to production within three years vastly outperformed, up 70% to 80%, relatively to the seniors, which were up 40% and relative to the gold price, which was up about 20%,” he said. “Investors are starting to realize that there is a dearth of quality projects in good jurisdictions to feed the dozens of producers for future production.”
In this environment, Agro said that junior explorers have to become more relevant in the marketplace, which means maintaining and developing strong drill programs, to further derisk projects.
The comments come as Revival Gold updated its mineral resource estimate earlier in the week. The company said that its Beartrack-Arnett gold project inferred resource has more than doubled while the indicated gold resource is up 11%.
According to the company, it now has an indicated mineral resource 1.35 million ounces of gold and an inferred mineral resource of 1.64 million ounces of gold.
But it’s not just junior explorers that have to address their relevance in the marketplace. Agro said that small and mid-tier producers need to show growth potential if they are going to compete for investment capital.
In this environment, Agro said that he expects to see a lot more merger-and-acquisition activity in the mining space. He added that last year the M&A activity was focused on production, but for 2020 he said the focus will be on growth.
“You have about three dozen mining companies that are producers that are over half-a-billion market cap. All those companies are looking to secure their futures. If they aren’t doing it now, then they will be in a couple of years” he said. “After that, you have another three dozen producers below half-a-billion market cap all looking to the future.”
Agro noted that mantra currently in the mining space is “go big or go home.”
With that mantra in place, Revival Gold is looking to enter the production space as quickly as possible. Agro said that for 2020, the company is focused on developing a preliminary economic assessment for a heap leach project at Beartrack-Arnett.
“It’s a relatively modest capital expense to start producing gold again,” he said.