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Looking at gold miners to hedge against rampant inflation in 2021 - David Erfle

Kitco News

Kitco News has launched its 2021 Outlook, which offers the most comprehensive coverage of precious metals markets in the new year. Trillions of dollars were pumped into financial markets in 2020 and that won't come without consequences. Economists expect that investors will be Bracing For Inflation in 2021.

(Kitco News) - 2020 has been an unprecedented year for the precious metals market. In August, gold prices pushed to a record high above $2,000 an ounce.

Although the precious metal sector is attracting new investor attention, the mining sector continues to underperform. The mining sector's value is well below what it was during the last bull market in gold and silver.

However, some market analysts think that this will change and investors won't be able to ignore the value being generated in 2021.

With that in mind, we decided to reach out to some mining experts and ask them how they would invest $10,000 in the mining sector and what themes they see playing out in 2021.

Expert: David Erfle

Claim to Fame:  founder of

How would you invest $10,000 in the mining sector?

  • $2,000 into a small-cap junior gold Growth Oriented Producer (GOP);

  • $2,000 into a late-stage junior gold developer/explorer that is a near-term takeover candidate;

  • $4,000 into two PEA-stage junior developer/explorers that are longer term takeover candidates ($2,000 into a gold junior and $2,000 into a silver junior);

  • $2,000 into two early-stage junior explorers ($1,000 into a gold explorer and $1,000 into a silver explorer).

 What three companies do you like the most in 2021 and why?

  • Junior GOP – Americas Gold & Silver (USAS): The company anticipates full production to be reached at its recently completed Relief Canyon Gold Mine in Nevada by the end of April, setting USAS up for a strong 2021. The company also has big leverage to the silver price, once operations can re-commence at its Cosalá operations in Mexico, along with ramping up operations at its 60% owned Galena Complex in Idaho. If USAS can deliver on all three projects in 2021, the stock will see multiple market re-rates.

  • Developer/Explorer – Discovery Metals (DSV.V): This company has huge optionality leverage to the silver price, with its Cordero Silver Project in Mexico containing roughly 500M ounces of lower grade silver in the ground. Discovery is in the process of exploring a high-grade starter pit and is implementing a phased approach to building the mine, which should significantly reduce upfront capex. Moreover, the company is backed by the serially successful Oxygen Capital Group, along with being 27% controlled by silver uber-bull and mining billionaire Eric Sprott. Discovery is one of Sprott’s largest investments in the silver space. The company is fully funded into 2022 with C$80M in cash and no debt.

  • Early-stage explorer – Probe Metals (PRB.V): In 2016, the company began to explore its flagship Val d’Or East Project in Quebec. The proven management team at Probe has more than quadrupled the deposit to a measured and indicated resource of 866koz and an inferred resource of 2.3Moz. An updated resource estimate and Preliminary Economic Assessment (PEA) study are expected in H1 2021. Moreover, the company has recently begun work on its highly prospective Detour North Gold Project. The district scale sized land package stands at 1,434 claims representing 777 square kilometers, while located along 90 kilometers of the prolific trend. The area has been in play since earlier this year when Kirkland Lake Gold (KL) purchased the Detour Lake Gold Mine in January. Then three months later, Wallbridge Mining (WM.TO) bought out junior explorer Balmoral Resources. Probe is fully funded into 2022 with C$34M in cash and no debt.

What investments would you avoid next year?

With total global debt nearing $280 trillion, I would avoid government bonds and the financial sector.

What do you think are going to be the big themes next year: M&A activity, earnings, exploration, record gold prices?

With juniors now trading at huge discounts to their Net Asset Values (NAV), combined with gold in the process of creating a solid floor at $1800, I expect the acquisitions cycle to heat up next year, along with more “mergers of equals” deals taking place. Also, I expect precious metals stocks to be seen less of a hedge against the economy/markets, but rather more as a hedge against inflation.

What are your final comments on what you think 2021 is going to look like for investors.

With the Fed letting inflation overshoot its longstanding 2% target, while Washington seems likely to continue dishing out trillions in fiscal aid under the Biden administration, stagflation is inevitable in the U.S. Although it’s far too early to be concerned about runaway inflation due to global governments recent massive stimulus efforts, I expect stagflation to ramp up as the economy begins to reopen. Armed with low rates from the Fed once lockdowns subside, consumers and businesses may begin to spend aggressively after being quarantined. The last time we saw rampant stagflation in the U.S. was in the 1970’s, when gold zoomed from a low of $100 in 1976 to $850 by January of 1980.

Full disclosure: I have purchased shares of USAS, DSV.V, and PRB.V in the open market earlier this year and also recommend all three stocks to my subscribers. Please do your own due diligence before purchasing any mining stock.

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.