Gold Resource Investor, February 2021
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Gold Resource Investor, February 2021
Gold’s Month in Review. Buying Physical Gold. Commodity Comeback. Gold
Technicals. Gold Resource Investor Buys: Altius Minerals, Alamos Gold. Full
Portfolio Table. Portfolio Updates: Sandstorm, Barrick, Kinross, Equinox, Troilus,
Cameco
February 15, 2021
It’s probably fair to say gold’s been widely ignored this past month but, interestingly, gold buying
at bullion dealers has been wild, as more and more general investors are cluing into, and piling
into precious metals as a safe haven. The silver squeeze lit a fire under silver, at least
temporarily, but silver continues strong. In fact, the price of physical metals has detached from
the spot and futures prices.
As a result of this surge in demand, most physical silver products also remain sold out. Trying
to get either metal from a bullion dealer at anything close to normal premiums is impossible right
now. It’s going to be interesting to see how this discrepancy is resolved. I think spot silver
prices will simply rise, premiums will fall, and the price will meet in the middle at much higher
levels than today’s.
This month in Buying Physical Gold I delve into what I think is the best physical gold to buy,
and why. I also list a few bullion dealers I know of. And since premiums are ridiculously high
right now, I suggest a way for you to own gold, at least temporarily, while you wait for premiums
to approach normal once again, giving you a chance to buy then.
While gold has drifted sideways and been ignored by the market (except physical), most
attention has gone to other metals, like silver, and platinum, not to mention base metals like
copper, zinc and nickel. Uranium has been in an odd position. While the metal’s price has
been flat or weak, the shares of producers have been on fire. That’s the market pricing in
renewed strength in longer term uranium pricing, and the anticipation of more to come.
My technical analysis of gold’s action suggests we could be in for a bit more consolidation or
weakness before gold finally renews its uptrend. As a result of ongoing strength in several base
metals, I explain in Commodity Comeback why I think we’re in the early days of a new
commodity supercycle. And I’m adding a new pick this month that will leverage this new secular
bull market, but with low risk and potentially strong upside. It’s a company I’ve followed for
years that has a stellar reputation. And while gold’s not getting the love it deserves, I’ve added
a cheap and superbly run mid-tier gold producer that pays a reasonable dividend.
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Gold’s Month in Review
While gold is now entering its 7th month of correction/consolidation, consider that it effectively
rose for 8 months in its last rally, from December 2019 to August 2020. This correction may
well last as long. We could be in for a little more sideways action or weakness before the gold
bull market resumes. That’s caused most of the gold holdings in the portfolio to become
oversold and, I believe, attractive to accumulate on days of weakness.
I’m somewhat concerned we could be heading into a period of strength for the USD. While that
in itself isn’t a problem - I don’t expect it to last more than a few months, maybe less - but it
could be a headwind for precious metals and resources, as they are all priced in the USD.
However, demand for these commodities can certainly outstrip the effects of a rising dollar, so
it’s not a certainty that will keep commodities from advancing.
What’s causing this? In a word, yields. U.S. longer term bond yields have been rising, and
that’s attracting capital. Money goes where it’s treated best. So people are plowing their cash
into those bonds as they producer higher yields. But foreigners are noticing too. So they
convert their currencies into US dollars to buy longer term bonds. As a result, that new demand
for the dollar pushes up its value against other major currencies, which weighs, or can weigh, on
gold priced in USD.
Still, gold’s outlook remains solid. None of the fundamental drivers of money printing, massive
stimulus, geopolitical risks, and even a longer term weakening US dollar have changed.
Besides, even in the near term, gold’s seasonal trends show strength in February, potential
weakness in March, followed by renewed strength into summer. We’re in the midst of Chinese
Lunar New Year celebrations, and gold jewelry sales are forecast to surpass last year’s levels.
What’s more, some epidemiologists are warning we could get a huge 3rd wave of Covid-19
cases around April, and that could lead to gold-buying for safe haven protection.
Bitcoin has surged to new all-time highs, near $48,000 USD, with a recent boost from Tesla’s
Elon Musk. Tesla’s latest 10-K filing in the US revealed they bought $1.5 billion worth of bitcoin,
as they’ve adjusted their investment policy:
“In January 2021, we updated our investment policy to provide us with more flexibility to further
diversify and maximize returns on our cash that is not required to maintain adequate operating
liquidity...we may invest a portion of such cash in certain alternative reserve assets
including digital assets, gold bullion, gold exchange-traded funds and other assets as
specified in the future.” (emphasis mine)
As you can see Musk is also allowing for the purchase of gold bullion and gold ETFs to diversify
and maximize returns. With the huge number of people who follow what Musk does, this is big
news. But it’s not just Musk who’s looking for better stores of value for cash. Last Thursday,
the Idaho State House approved a bill, with overwhelming support, that allows the State
Treasurer to preserve state reserve funds from inflation and financial risk by holding physical
gold and silver. Their concern is that reserves are in low-yielding debt like bonds, treasuries
and money market funds, which are at the mercy of inflation risks eroding principal. And in
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August, the Ohio Police & Fire Pension Fund approved a 5% allocation to gold in order to
diversify and hedge against inflation.
All of this clearly points to generalist investors cluing into the risks of inflation, and the need for
gold for protection. In my view, gold’s just in a period of digesting its strong gains from the first
half of last year. Its future remains bright.
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Buying Physical Gold
I’ve been receiving several inquiries lately about what physical gold makes sense to buy. As I
said in the first issue of Gold Resource Investor, bullion-backed ETFs are great, but they’re not
a replacement for physical gold. We have the Sprott Gold ETF (TSX:PHYS: NYSE:PHYS) in
the portfolio, but this is essentially a proxy for gold.
Sidenote: If you really want to buy physical gold, but it’s either not in stock or the
premiums are too high (like right now), then here’s a technique you can use. Decide on
the amount you are prepared to allocate to gold bullion, and buy that amount of a
physically backed gold ETF, like PHYS, then wait. When the items you want are back in
stock and the premiums have returned to normal, then you can sell your ETF holdings,
and use that cash to purchase physical bullion instead.
What’s more, PHYS sometimes trades above its net asset value (NAV), and sometimes below.
It’s like you’re buying gold either at a premium or a discount to its current price. You can track
the current premium or discount here: https://www.sprott.com/investment-strategies/physical-
bullion-trusts/gold-and-silver/net-asset-value-premium-discount/#. Obviously, the ideal is to buy
at a discount which, as I write, is about -4%, and to sell at a premium.
There’s a long list of reasons physical gold beats out other investments, and even other forms of
gold ownership.
Here are just a few…
1. Gold is indestructible. It won’t rust, corrode or decompose. Gold jewelry and coins
made thousands of years ago are found regularly by archaeologists and treasure
hunters. Some is even found by accident, like when farmers turn over their land. In
short, unless you lose or sell it, your gold is not going anywhere.
2. Gold has no counterparty risk. Unlike a bond, stock, or even cash, you don’t depend on
someone else to honor it. There’s no chance of a default.
3. Gold is a store of value. That’s because it has intrinsic worth. And since there’s plenty
of work required to find and extract gold from the earth, it will always have value.
4. Gold is privacy. A few ounces stored safely gives you direct control over a valuable
asset.
5. Gold is liquid. You can sell your gold almost anywhere, anytime. It has, countless
times, been a life saver for displaced people.
6. Gold can’t be hacked. It’s not just digits in a database somewhere for you to depend on.
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7. Gold retains its value. Of course over time that will fluctuate. But over years and
decades, and especially compared to fiat money, gold always wins out.
First a word on bullion versus collectible coins (numismatics). Collectibles are almost another
world onto itself. They are a whole other market often with sizeable premiums to the gold
content because of rarity/collectability. So buyers pay a lot more money beyond the value of the
gold. That’s not to say it isn’t worthwhile, only that it takes a lot of knowledge and experience to
do right. Investors need to be extremely well-versed in this market, and need to be wary of
collectible sellers. They may try to “push” a collectible coin over a bullion coin because it’s good
for them. Buyer beware. Just make sure you know exactly how much gold is in the coin you’re
buying, and compare that to the spot price of gold, to ensure you’re getting as much gold as you
can for the amount you’re spending.
What to Buy
Gold bars or wafers (smaller, thin bars) are great to get the closest value to the gold content
without overpaying. But there are two main disadvantages versus coins. Bars from some
refiners are very simple, and so may be easier targets for counterfeiting. Bars produced by
government mints are more difficult to counterfeit, but they are not as well recognized as
government mint coins. Either way, if you do buy bars, I suggest they be from the most
recognized gold refiners. A quick internet search will find those for you.
Therefore, hands down, you’ll want government-mint produced bullion coins as a first
choice.
That’s because they’re instantly recognizable, often almost anywhere in the world. They’re also
standard in size and gold purity. And in many cases, essentially the same coin has been
produced for decades on end.
Here are my three favorite gold coins.
1. The one-ounce Canadian Maple Leaf coin. In 1982, the Royal Canadian Mint was the
first refinery to produce 9999 fine gold bullion coins. That means they are 99.99% pure
gold with a maple leaf on one side and Queen Elizabeth II on the reverse. Over 25
million of these coins have been sold since 1979, making the Canadian Maple Leaf one-
ounce gold coin one of the most popular, especially in North America. (In 1999, for the
25th anniversary of the Gold Maple Leaf, the mint went a huge step further, producing
99999 fine gold bullion coins which are 99.999% pure gold).
42. The American Eagle one-ounce gold coin. It’s produced by the U.S. Mint and issued
in limited quantities every year. It has Lady Liberty on one side and bald eagles on the
obverse. Between 1986 and 1991 it had roman numerals, then in 1992 the Mint began
using Arabic numerals. It contains one troy ounce of pure gold, but is 22 karat, since it
also contains 3% silver and 5.33% copper for durability. Right now, premiums are about
8-14%, which is double to triple the normal level. One-ounce Gold Eagles are a favorite
of U.S. investors. That makes for a large market which offers great liquidity.
3. The South African Krugerrand one-ounce gold coin. Rounding out my top three is
the Krugerrand. Like the American Eagle, the Krugerrand is also 22 karat, alloyed with
8.33% copper for durability, giving the coin a rose-tinted hue. Available since 1967, the
Krugerrand is the oldest circulating bullion coin in modern history. At one time, it was
the only bullion coin available in the market. Produced by the South African Mint, one
side displays a springbok antelope, and the obverse has an image of Paul Kruger, the
President of the historical South African Republic.
There you have them, three of the most popular gold coins available today.
Depending on where you live, you may have a predisposition towards a particular one of these
coins and that’s just fine, because they’re all great. They each enjoy wide circulation and global
recognition.
5Where to buy
There are several well-known precious metals dealers in Canada and the U.S. Note: the
following names are not recommendations or endorsements. They are simply bullion
dealers I know have been around for a long time, and about whom I’ve typically heard
positive comments. I strongly suggest doing your own due diligence to get feedback on
customer satisfaction, reliability, etc. Also, be sure to compare prices! Premiums often vary
considerably from dealer to dealer.
In Canada
Kitco: https://www.kitco.com/
Sprott Money: https://www.sprottmoney.com/
Border Gold: https://www.bordergold.com/
SilverGold Bull: https://silvergoldbull.ca/
In the United States
Kitco: https://www.kitco.com/
GoldSilver.com: https://goldsilver.com/
Investment Rarities: https://www.investmentrarities.com/
Apmex: https://www.apmex.com/
Miles Franklin: https://www.milesfranklin.com/
I know many of you are located in Europe or beyond. While I’m not familiar with bullion dealers
elsewhere, you should have no difficulty finding reputable ones closer to where you live. Keep
in mind that most will ship your gold, with insurance protection, over long distances. As always,
do your own detailed research before buying.
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Commodity Comeback
Odds are very good that we are at the dawn of a new commodities supercycle. As you know,
commodities are the raw “stuff” we use to make things. That includes everything from precious
like gold and silver, to base metals like copper, nickel, zinc and lead. It also includes energy
staples, like oil, gas and uranium. And beyond that, “soft commodities” are things like corn,
wheat, coffee and soya, to name just a few.
One of the best ways to know where a sector stands in the bigger picture is to compare it to
other assets. And looking back over longer periods of time often provides great perspective.
That’s why I absolutely love this chart.
6It’s the ratio between the Goldman Sachs Commodity Index and the S&P 500. Looking back all
the way to 1972, commodities have never been cheaper relative to the broad stock market.
Never. The average of this ratio is 3.9 over 50 years. Today, it sits near 0.5.
So for commodities just to make it back to their average levels versus stocks, they will need to
rise almost 700%. And remember, that’s the overall index, and it’s the underlying commodities.
Needless to say, some commodities will outperform others. But the companies involved in
producing those commodities will do even better as their profits leverage rising revenues
against relatively stable costs.
The following table lays out the annual performances of a number of commodities.
7As you can see, in 2020 nickel was up 19%, corn gained 25%, while palladium and copper both
gained 26%. In a recent 2021 Commodities Outlook: REVing up a structural bull market (Nov.
18, 2020), Goldman Sachs said, “Looking at the 2020s, we believe that similar structural forces
to those which drove commodities in the 2000s could be at play.”
A commodities supercycle is considered to be a multi-decade trend, where a wide range of
basic resources enjoy rising prices thanks to a structural shift in in demand versus supply.
Typically, what happens, is that supply stagnates or drops for several years as economic
demand is itself weak or constant. However, at one point a new business cycle starts, and
demand picks up, while supply is unable to immediately react. Producing most commodities is
a highly capital intensive endeavour. That means a lot of money to build and ramp up
production, not to mention the delays in finding, permitting, and building any new projects.
Typical delays can be in order of 10 years or more.
With supply unable to meet growing demand, prices rise. It’s Economics 101. So producers of
those commodities enjoy higher revenues, and higher profits as their costs remain fixed or rise
more slowly than the underlying commodity. And as profits expand, so do their share prices.
You have a solid trend for years or decades as supply struggles to catch up to demand. It’s a
secular bull market.
What’s sowing the seeds for a new commodities supercycle? The drivers are numerous, which
reinforces the probabilities. First we have a shift. In the above table, 12 of the 14 commodities
ranked showed gains last year. In 2019, it was just 9. In 2018, just the top 3 commodities eked
out a gain. Then we have all the usual suspects you’ve heard about: near zero interest rates
and bond-buying from central banks, massive government spending and deficits, ongoing
8printing to increase the money supply exponentially, stimulus cheques being given to the
majority of the population, huge infrastructure, green energy, and Covid-19 fighting and relief
spending. Oh, and possibly a new long term bear market in the U.S. dollar, in which
commodities are priced. Plus all the pent up demand from people unable to go out and spend
due to pandemic restrictions. I believe the large gains in base metals and energy over the past
year are the markets sensing that a flood of consumption is coming our way.
And Goldman Sachs is not alone. Bank of America has also forecast a surge in commodity
prices as a result of post-pandemic global economic recovery. JPMorgan said in a recent note
that metal, energy and agricultural prices are reaching multi-year highs, signaling a commodity
supercycle that may last for several years. I agree. That’s why we have two uranium plays in
the portfolio, as well as Sandstorm which has royalties on base metals uranium, nickel and
copper. And it’ why one of my new picks this month has exposure to base metals and energy.
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Gold Technicals
In my mid-month update, I explained that gold has been consolidating ever since it peaked at an
all-time high in August.
9The chart above appears to be forming a descending triangle pattern. These are considered
bearish, meaning one would expect gold to possibly break below support around $1,800.
What’s more, gold is trading below its 50-day and 200-day moving averages, which is also
bearish. However, the action which started the triangle back in August was a bullish trend.
Also, the RSI and MACD momentum indicators are both showing positive divergence, meaning
they are in a bullish (upward) trend, while gold has trended downwards. And so I’m waiting to
see, and hopeful that gold will hold more or less near $1,800. That price will be crucial to watch
for new action. It may even test $1,750 to wash out the weak holders before resuming a
renewed trend higher.
Meanwhile, the main headwind appears to be the US dollar.
In fact, I said this in the mid-month update, and I think it can still be a near-term threat. It’s been
rising since the start of 2021, both the RSI and MACD momentum indicators are confirming this
trend, and it’s certainly not overbought. So it could have legs for awhile still. But keep in mind
that gold can, and has in the past, done well even with the dollar rising. It’s just more difficult.
Gold stocks have behaved in a similar way.
10GDX (a large gold miner ETF) is below its 50-day and 200-day moving average, while the
momentum indicators are both showing positive divergence. GDX has strong support near $34,
but could drop to $30 before resuming a new uptrend.
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Gold Resource Investor Buys
Altius Minerals Corp.
Altius Minerals Corp. (TSX:ALS; OTC:ATUSF) is a $650M market cap company that has
essentially two lines of business: generating and acquiring royalties on long life projects. In fact,
they typically focus on base metals, energy and potash, all of which I expect will do particularly
well over the next several years as I explained above in Commodity Comeback.
Here’s a little background on how Altius, which has been around for nearly 25 years, came into
existence. Company co-founder Brian Dalton, President and CEO, was a geology university
student when the Voisey’s Bay nickel deposit was discovered. It turned out o be one of the
most substantial mineral discoveries in Canada in the last 4 decades. And that struck a chord
with Dalton and his classmates, who realized the potential of value creation from prospecting
11and exploration. Eventually Altius was formed, and Dalton helped grow the company to an
asset base in excess of $500 million. He’s been diligently executing the company’s business
model of generating prospective projects and joint venturing them to others while retaining
royalties, as well as acquiring accretive royalties.
I spoke to Chad Wells, who’s part of the company’s executive team since 2001, and he
described the company’s roots to me. As he explained, Dalton wanted to create a company that
would be self-funded, rather that continuously go back to the market to sell shares and raise
money. And so Altius bought a portion of the Voisey’s Bay royalty for $10 million, which paid $1
million annually. That allowed them to operate and generate prospects they could joint venture
out. One of their earliest was a large uranium project which eventually became a massive $200
million windfall for Altius.
So in 2010-2011, they set out to build a list of their 20 favorite royalties globally, with a
preference for non-gold royalties as that space was already well-served. But that was the peak
of the last commodities cycle, and everything was pricey. So they were patient. It didn’t take
too long, because by 2013 the sector had sold off considerably. They called Sherritt
International, which owned their 3rd most desirable royalty. It was for sale, and they inked a deal
for 6 potash and 5 coal royalties which they split with Liberty Mutual of Boston. Eventually,
Liberty sold their half to Altius.
Then in 2015 they acquired a royalty on the polymetallic (copper, zinc, gold-silver) 777deposit in
Manitoba, operated by Hudbay Minerals. In 2016 they acquired a royalty on Lundin Mining’s
Chapada copper deposit in Brazil, which could become one of the most profitable copper mines
on the planet.
Today, Altius’s goal is to create growth through its diversified portfolio of royalties on projects
that are long life, high margin operations. They are also focused on sustainability-related
growth, by emphasizing renewable electricity generation, transportation electrification, reduced
emissions from steelmaking and increasing agricultural yield requirements. As a result, that’s
highly likely to bode well for shareholders, as Altius’s commodity exposures include copper,
renewable based electricity, several key battery metals (lithium, nickel and cobalt), clean iron
ore, and potash.
In fact, here’s a list of the company’s 14 royalties on producing assets throughout the Americas.
12Canadian royalties include a 4% NSR royalty on Hudbay's 777 copper-zinc mine in Manitoba, 6
potash mines and 5 coal mines located in western Canada, and a royalty on the Voisey's Bay
nickel-copper-cobalt mine in Labrador. In Brazil, they hold a 3.7% "stream" interest on Lundin
Mining's Chapada Mine. There is also a royalty on the Gunnison copper ISL mine in the USA.
The Company also receives regular dividend income from is equity ownership in Labrador Iron
Ore Royalty Company, which is treated as iron ore royalty revenue, being a pass-through
vehicle.
13Source: company presentation
In addition to this, over the years the company has built a sizeable portfolio interest in junior
resource companies, by receiving (in part) share payments for earn-ins on joint ventured
projects, as well as investing in top tier juniors. The benefit of this model has meant exposure to
several opportunities, while requiring little spending and generating new royalties at zero or
even negative costs. This year alone, Altius is exposed to the potential upside from an amazing
+178,000 meters of drilling, all done and funded by partners’ $150 million of capital raised.
The company aims to move away from coal, as legislation is increasingly forcing utilities to
generate power from cleaner sources. In fact, Altius is suing the provincial government of
Alberta, and the federal government, for a 2015 mandated coal fired shutdown by 2030. Their
argument is the government action is tantamount to expropriation, and cannot be done without
proper and fair compensation, as power generation and revenues to Altius were to extend all
the way to 2055.
It’s reinvesting the income from those projects into the renewable energy sector through a new
vehicle call Altius Renewable Royalties. This has allowed management to quickly scale its
investments. Today Altius has royalty interests in the project portfolios of two leading U.S. wind
and solar development companies, Tri Global Energy and APEX Clean Energy. The Tri Global
deal has seen Altius invest $55M, so that when Tri Global sells a project, Altius get a 3% gross-
revenue royalty on wind and 1.5% on solar. With APEX, Altius has a similar investment but for
$35M.
The company has decided that it can get the market to recognize the true value of its
renewables portfolio. Therefore, it recently announced it would “spin out” its Altius Renewable
Royalties Corp. (ARR) in an IPO. Management estimates the value of this business is about
$300M, whereas the market is only giving it about $80-$100M inside of Altius. Once spun out,
Altius will retain 2/3 of the new business, and expects it will have a market value of about
14$300M. I believe this could be a great catalyst for the share price, which could readily gain $2-
$3 once completed. The company has strong cash flow, which should be about $67.5M for
2020, which means the company is only being valued at 10x cash flow. They plan to pay down
a portion of debt, which is currently $141 million, while cash and public equity holdings are
valued at $136 million. Last year they bought back $6m in shares, and paid out $8M in
dividends, which produces a respectable dividend yield around 1.2% at the current price. This
is a compelling investment on several fronts. Altius is an exceedingly well-managed,
conservative company with considerable upside potential. Amazingly, the company has only 16
employees, 41.5 million shares outstanding, and boasts a market cap of $650M. I think Altius
could well generate a 40%-50% return over the next year as commodity prices rise, projects
continue to grow cash flows, and its portfolio of junior shares gains market value.
Strengths
• Highly experienced team with long track record of value creation
• Low risk royalty model with exposure to base metals, agriculture, renewable energy
• Pays growing dividend currently at 1.2%
• Big potential upside with junior shares portfolio through joint ventures, royalties
• Catalysts: Altius Renewable Royalties spin out, commodity price increases
Weaknesses
• Potential loss of income from early end to coal royalties
• Risk of US dollar strength could stall commodity prices near term
• Low daily trading volume
Alamos Gold Inc.
Alamos Gold Inc. (TSX:AGI; NYSE:AGI) is a $4 billion, mid-tier gold producer. Its production is
low cost, and likely to grow substantially over the next few years. The company should produce
about 500,000 ounces this year from two mines in Canada and one in Mexico. I like both
management and the company’s growth profile. Alamos has a significant portfolio of
development projects in Canada, Turkey, Mexico, and the U.S.
Alamos is aptly led by its President and CEO, John McCluskey. He co-founded Alamos back in
2003, built a successful gold miner, and is also a Director of the World Gold Council. Back in
2015, Alamos combined with AuRico Gold in what was a $1.5B deal, and that launched the
basis for the company we have today. In 2017 Alamos acquired Richmont Mines, which owned
the Island Gold Mine. That was a savvy move, as Island has turned to be a serious profit
machine. About 70% of production is Canadian and 30% Mexican. 2020 estimated output is
405,000-435,000 ounces at an all-in sustaining cost (AISC) of about $1,050. This year’s
production is forecast to grow by 17% to 470,000-510,000 ounces, while AISC is expected to
remain stable. The company will spend about $218M on high-return internal growth projects.
Let’s look at the producing mines.
Young-Davidson (Ontario) is one of Canada’s largest underground mines. It’s also the
company’s flagship. The mine transitioned to new larger infrastructure as it moves toward a
lower mine expansion, which is driving healthy free cash flow. Production should be up about
15200,000 ozs. this year at much lower costs. The mine has 11,000 acres of contiguous leases
and claims in Northern Ontario. It has a 13 year mine life based on 2019 reserves of 3.15M
ozs. There’s another 1.3M ozs. in resources, plus great exploration potential to extend the mine
life.
Island Gold (Ontario) is an underground gold-silver mine, which is the world’s sixth highest
grade gold mine, with reserves averaging 10.4 g/t gold. It should produce 130,000-145,000
ounces at an AISC of just $750-800/oz. A Phase III shaft expansion to 2000 tonnes per day
should be completed in 2025. Reserves are 1.2M ozs., and resources are another almost 2.5M
ozs. Alamos completed its acquisition of Trillium Mining in December for $25M, bringing a large
land package of 5,418 hectares adjacent to the Island Gold deposit. This means a 57%
increased land package with great exploration potential. Recent drilling demonstrated a high
probability the structure hosting the Island Gold Deposit extends onto the Trillium mineral
tenure.
Mulatos (Mexico) is located in the state of Sonora, and is an open-pit mine which started
producing back in 2005 and was the company’s founding operation. Despite producing well
over 2M ozs. since then, the mine still boasts reserves of 1.56M ozs., supplemented by another
2.9M ozs. in resources. Initial production at La Yaqui Grande project should start in Q3 2022,
and higher grades should help drive Mulatos costs significantly lower. Mulatos still boasts a
large underexplored land package comprised of 28,773 hectares of mineral concessions with
significant exploration potential. The operation has an eight year mine life based on current
Mineral Reserves, similar to the start of production in 2005, demonstrating a strong track record
of exploration success.
Source: company presentation
Beyond these three producing mines, all of which have good upside along with healthy mine
lives, Alamos has been pushing the boundaries with several other attractive development
16options. There are three in Turkey, Lynn Lake in Manitoba (Canada), Esperanza in Mexico, and
Quartz Mountain in the U.S.
Kirazli (Turkey) is one of the lowest cost undeveloped gold projects in the world. It’s projected
to produce 104K ozs. annually at an AISC of just $373, leaving huge margin for profit. Fully
permitted, Alamos began construction in 2019, but stopped activities pending renewal of mining
concessions which expired in October 2019. Concerns over the project’s risks to the
environment circulated on social media at the time, but the company has demonstrated its
environmental stewardship and operation within permit allowances. While all conditions have
been met for renewal of the concessions, the federal government and local communities remain
supportive. Agi-Dagi and Camyurt (Turkey) should both be profitable operations, but will only
be funded once Kirazli starts up and flows cash.
Lynn Lake is one of the highest-grade open-pit deposits in Canada. With great infrastructure
already in place, and permitting being advanced, a construction decision is expected in 2022.
Once built it will produce 170K ozs. annually at $745 AISC. Esperanza is undergoing
permitting, and with good infrastructure and low technical risk, it should produce over 100K ozs.
per year at low cost. Quartz Mountain was bought for $3.5M, and is at the advanced
exploration stage.
Alamos is a great addition to the portfolio, with low cost, safe production at low overall AISC of
about $1,050/oz. Management is conservative and disciplined, having resisted buying
overpriced projects at the peak of the last market cycle. As a result, they now enjoy being debt-
free, cash rich, and fully funded for organic growth. The company boasts a 300% increase in its
dividend since 2018. Its capital structure is healthy with 400m shares outstanding. While the
current P/E is high at 39.8, its forward P/E is just 15.94, and it’s undervalued relative to its
peers. I think Alamos could well deliver a double in its share price in the next year, especially if
gold makes a run for $2,300 in 2021 as I expect.
Strengths
• Catalysts are growth on the horizon at all 3 producing mines
• Big potential upside 50% growth by 2025 from existing & near-term producing projects
• Operations in safe jurisdictions
• Debt free & $174M cash
• Pays dividend
Weaknesses
• Turkey could offer geopolitical risk, bringing higher uncertainty to Kirazli, Agi-Dagi and
Camyurt projects, though mostly priced in already
• Almost exclusively gold production; no significant revenues from other metals
______________________________________
Gold Resource Portfolio
17• Most gold holdings are looking oversold right now, which makes them attractive to
accumulate on weak days.
• Silver holdings look more fully valued, but also attractive to accumulate on weak days
• Uranium holdings may be overbought in the near term
Company Stock Symbol Bought Price Current Change
Managed Investments ETFs holding gold miners, provides instant diversification
TSX:PHYS
NYSE:PHYS 11-Jan-21 $18.57 $18.35 -1%
Sprott Gold ETF
Simple way to gain exposure to gold prices, but not a replacement for owning
physical gold.
NYSE:SGDM 8-Sep-18 $15.23 $28.76 89%
Sprott Gold Miners ETF
Great option for investors seeking exposure to large gold miners without having
to select stocks
NYSE:SGDJ 8-Sep-18 $23.53 $46.50 98%
Sprott Jr. Gold Miners ETF
Great option for investors seeking exposure to mid-tier silver miners without
having to select stocks
Royalty & Streaming Lower risk: finance projects and collect royalties/streams
TSX:SSL
22-Jan-19 $6.04 $8.27 37%
NYSE:SAND
Sandstorm Gold
Focus on near-term production means portfolio is ramping up significantly over
next few years. Great leverage to gold
TSX:MMX
31-Dec-19 $6.61 $6.72 2%
NYSE: MMX
Maverix Metals Premier emerging gold royalty company, with small dividend. Aggressive
growth
focus gives potential for scale-related re-rating during this bull market.
TSX:ALS
12-Feb-21 $15.79 $15.79 0%
OTC:ATUSF
Altius Minerals
Exposure to several non-gold commodities. Well-managed, shareholder-
friendly, attractive yield, low-risk royalties, expanding into renewable energy
Low risk: Multiple producing projects across several
Large Leverage Producers
jurisdictions
TSX:ABX
1-Jun-20 $33.11 $28.12 -15%
NYSE:GOLD
Barrick Gold
Largest gold miner in the world --> go-to Buy for generalist dollars wanting
gold exposure. Will perform thru gold market. Dividend.
TSX:K
14-Jul-18 $4.94 $9.35 89%
NYSE:KGC
Kinross Gold
Strong balance sheet, controlled costs, respected name that will attract
generalist investors. And undervalued!!
Growing Producers Medium risk: Producing or Near-Production assets
18TSX:EQX
13-Oct-18 $5.00 $12.23 145%
NYSE:EQX
Equinox Gold
One of the strongest growth profiles in the gold sector. Likely to keep dealing
for additional assets.
TSX:SSRM
18-Nov-18 $14.72 $21.00 43%
Nasdaq:SSRM
SSR Mining
Reliable producer: lots of cash, options for organic growth, controlled costs,
and good dividend.
TSX:CXB
3-Nov-20 $2.10 $1.81 -14%
OTCQX:CXBMF
Calibre Mining Still-new producer with top tier management giving new life to mines & projects
in Nicaragua. Major geologic potential, production ramping up by 50% in 2021,
company still undervalued on most metrics
TSX:KNT
3-Nov-20 $7.25 $7.46 3%
OTCQX:KNTNF
K92 Mining Production ramping up with Stage 2 expansion complete at uber high grade
mine. Drills turning on multiple targets, from high-grade veins beside the mine
to strong porphyry targets.
TSX:AGI
12-Feb-21 $10.36 $10.36 0%
NYSE:AGI
Alamos Gold
Strong growth profile in the gold sector. Controlled costs and healthy balance
sheet.
Developers Advancing project(s) towards production
TSX:TLG
13-Jan-21 $1.18 $1.07 -9%
OTC:CHXMF
Troilus Gold
Medium to higher risk. Experienced team advancing large, quality project
towards production
Optionality Plays Medium to high risk: Advancing & de-risking projects for sale or JV
TSX:SEA
13-Jan-21 $25.84 $23.54 -9%
NYSE:SA
Seabridge Gold
Medium to higher risk. Experienced team de-risking multiple very large, trophy
projects towards joint venture or sale
Low risk: Multiple producing projects across several
Silver
jurisdictions
TSX:PAAS
30-Sep-19 $20.75 $33.33 61%
NYSE:PAAS
Pan American Silver
Largest public silver miner, with largest silver reserves globally. Low cost
producer, with significant silver revenues
TSX:MAG
21-Jun-17 $16.83 $24.26 44%
NYSE:MAG
MAG Silver
Owns 44% of large high-grade silver deposit. Transitioning to producer, very
robust, long-life project with big upside potential to expand resource
Base Metals
19TSX:CCO
NYSE:CCJ 26-Mar-19 $15.97 $20.02 25%
Cameco
Cameco is largest public uranium company. Ideal stock to own for U exposure
TSX:NXE
NYSE:NXE 2-Dec-15 $0.64 $5.07 692%
NexGen Energy
Pushing the best uranium discovery in decades towards production just as the
Uranium bull market gets started.
• Note: I’m a long-term shareholder in Alamos Gold.
• The price for Seabridge Gold was inadvertently indicated in US dollars in the January
Issue. It will be shown in Canadian dollars going forward
______________________________________
Gold Resource Updates
Sandstorm Gold (TSX:SSL; NYSE:SAND)
Sandstorm just announced Q4 and full year results. Q4 brought record cash flows of $22.5M
and net income at $10.5M. For the full year 2020, it had another record year of revenues and
cash flow, and this despite Covid-19 shutdowns. Attributable gold equivalent ounces sold were
52,176, record revenues at $93M (vs. $89.4M in 2019), record operating margins of $1,514/oz.
(vs. $1,115/oz. in 2019), record cash flows of $68.3M (vs. $60.7M in 2019), and net income of
$13.8M (vs. $16.4M in 2019). Management is forecasting between 52,000 and 62,000 gold
ounces this year, and 125,000 gold equivalent production by 2024. Solid results for a company,
still not being valued by the market. Sandstorm looks cheap.
Barrick Gold (TSX:ABX; NYSE:GOLD)
Barrick’s Tongon gold mine in Cote d’Ivoire produced 284,863 ounces of gold in 2020, at the top
end of its guidance for the year. Strong throughput with cost-reduction initiatives should mean
lower costs than in 2019. The Loulo-Gounkoto mine complex produced an impressive 680,215
ounces of gold in 2020, exceeding its full year guidance despite Covid-19 and other challenges,
all while improving its safety performance. Barrick is well off its 2020 highs, and with a P/E of
just 16.5 is looking oversold.
Kinross Gold (TSX:K; NYSE:KGC)
Kinross reported a reserves increase of 5.7M ozs, up 23% over 2019 to 30M ozs. This helped
the Kupol and Paracatu mines extend their mine lives by 1 year and the Chirano by 3 years. In
2021, Kinross expects to ramp up its global exploration program with a focus in Russia and
Chirano, and will continue to prioritize opportunities within the footprint of existing mines in its
global portfolio for mineral resource and reserve additions. The company met guidance for a
ninth year in a row and delivered record free cash flow of more than $1 billion. Its production is
expected to grow by 20% in 2023. Production for 2020 was 2,366,648M ozs, at an all-in
20sustaining cost of just $1,013. Cash position is $1.2B. It’s exceedingly cheap right now,
offering a dividend of 1.63% and a P/E of just 8.82.
Equinox Gold (TSX:EQX; NYSE:EQX)
Equinox provided guidance that it would produce 600,000 – 665,000 gold ounces, up 33% over
2020’s output of 477,200 ounces. All-in sustaining costs should be $1,190 - $1,275. The
company will prioritize investments this year that should help establish lower-cost production,
longer min-life mines and strong near-term production growth to about 900,000 and significantly
lower costs in 2022 and about 1M ozs. of gold in 2023. They aim to complete the acquisition of
Premier Gold Mines in Q1, and integrate the producing Mercedes Mine and and construction-
ready, multi-million-ounce Hardrock project into their portfolio and plans. EQX’s share of
production from Hardrock would further reduce costs per ounce produced and boost production
by more than 200,000 ounces annually starting in 2024. Equinox is pricier than some peers on
a price/production ounce basis, but the market is looking forward at its superb growth profile.
EQX has become oversold as gold’s sold off.
Troilus Gold (TSX:TLG; OTC:CHXMF)
Troilus recently reported new drilling assay from its Troilus Gold Project (Quebec,Canada).
Highlights include new higher grade zones that extend know mineralization at least 100m below
the PEA (Preliminary Economic Assessment) pit with 1.2g/t gold equivalent over 16m, 6.66 g/t
gold eq. over 3m. And a new high-grade zone outlined within 50 metres of surface within the
PEA pit in a step-out hole intersected 1.44 g/t gold eq. over 6 m, and several high-grade
intersections within broader intervals, located over 100 metres below the pit wall proposed in the
PEA, with a hole intersecting 20.42 g/t gold eq. over 1m. These are all in the Southwest Zone,
located 2.5 km from the main mineral resource, which already has a resource of about 580,000
ozs. gold eq. Troilus has sold off with the sector and is also looking oversold.
Cameco Corp. (CCO:EQX; NYSE:CCJ)
Cameco reported its Q4 and full year 2020 results. Q4 net earnings were $80M, and they had
an annual net loss of $53M. Covid limited production to 5M lbs. uranium, so they purchased
11.5M lbs. more than forecast at an average $40.41/lb. to manage risk, and incurred $55M
more in care and maintenance costs than planned. Cigar Lake production remains suspended,
while restart remains dependent on the ability to maintain safe operations, so 2021 production is
uncertain. $8M to $10M monthly care and maintenance will be ongoing at Cigar Lake. Long
term contract portfolio continued to grow, as more utilities migrate to that end. $400M of 3.75%
debt due in 2022 was replace with 2.95% debt due in 2027. At year end the company had
$943M in cash and short term investments, and $1B in long term debt, and $1B in undrawn
credit facility. CCO shares have recently broken out to 2-year highs as the market absorbs the
reality of uranium being part of a greener future. I think it’s still relatively cheap at current levels.
______________________________________
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