Five Themes And Things

That Should Be Taken Seriously Next Year

1) Jurisdiction Matters

Jurisdiction has always mattered, but it goes through phases like anything else.  Sometimes jurisdiction matters more than usual.  And at this moment in time jurisdiction really matters.  The market’s telling us that.  Explorers and miners want to be working and investing in places like Ontario, Quebec, British Columbia (parts of it) and Nevada (maybe even Alaska).  These are places where they feel an added level of comfort, confidence and certainty when thinking in terms of 5 years or more.

So money continues to flow in these directions, probably at an increasing rate.  Vast swaths of the Abitibi are probably in play.

Canada’s Abitibi greenstone belt is 180+ million ounces Gold, and counting.

Within that 450 km x 150 km region we want properties in and around the prolific camps and major structural breaks.  We’re working under the assumption that LOTS more Gold and other metals are waiting to be found at depth thru harnessing new technologies and drilling techniques.

Recent M&A activity such as Kirkland Lake (KL, TSX) buying Detour Gold (DGC, TSX) for $4.5 billion (i.e., Sunday Lake Deformation Zone) and Australia’s Evolution Mining (EVM, ASX) snapping up the Red Lake mine for $375 million from Newmont, would be our “north stars” to know these are high-quality regions to be in.

We know from our own experience as BMR has covered this district in more detail than anyone, the Northern Ontario Silver-Cobalt region has immense untapped geological potential – this is a theme that applies to huge swaths of ground throughout the Abitibi.

Nevada’s Nevada and Alaska’s Alaska, I guess, but these states are sitting pretty as mining jurisdictions under Trump’s 2nd Presidency (2020 – 2024).  Parts of Idaho and Arizona could also be worth a look.

If I had to pick 1 dark horse destination, a place that could really get HOT, that would be Ecuador.

2) Readiness 

Motion creates emotion.

If you want to be a front runner you must create momentum.

Action and activity is normally what gets a stock’s price moving.  So if the company doesn’t have money, people, and permits to work in place – good luck – you might be looking at a story that’s better suited for 2021.  It’s still really important to appreciate the “market within a market” phenomena.  A rising tide hasn’t been lifting all boats, which is why you must be extremely selective and meticulous when picking junior resource stocks (most of them belong in the garbage bin).

Top performers have had some common characteristics and patterns.  Go back a few years and start reading press releases from companies like Westhaven (WHN, TSX-V), Wallbridge (WM, TSX), Great Bear (GBR, TSX-V), Garibaldi Resources (GGI, TSX-V) and Canada Cobalt (CCW, TSX-V).  What were they saying?  What were they doing?  What were the charts looking like?

Reverse engineering those situations will tell you an awful lot, that’s for sure.  And I have a feeling the information and insights gained from that process could then be used to better separate winners from losers, ahead of time.

3) Quality

As a rule of thumb we only want to own high-grade high-quality assets, but it’s all relative.  “High-grade” for an open-pit mine would be 2 g/t Au or more, while that same material would be considered low grade for an underground mine.

Right?

Of course, we know that.

The key question is does it make money at today’s prices?

That’s what matters most.  Either the deposit is economic at today’s prices or it isn’t.  And for my money I want to lean more toward owning deposits that work with prices that are lower than today’s prices.

Quality ultimately boils down to profitability.  If it’s not an economic asset the industry needs, if it’s not already on the shopping list for mining companies as an M&A target, it might be further out on the risk spectrum than you want to be.  Deposits with a high NPV and low capex are the sweet spot (but again, it’s all relative).  I don’t think this is a time to be loaded up on “mega projects” that are going to cost billions of dollars.

High NPV relative to a low capex, that’s the sweet spot!  That’s the product the industry is most hungry for right now.

For instance, the market absolutely adores SilverCrest Metals (SIL, TSX), one of our favorite Silver plays.

From literally pennies per share, SIL has become a $9 stock with a market cap of nearly $1 billion.  That’s arguably a generous valuation for what’s essentially a single asset company, so there must be something very special about Las Chispas.  A 4:1 ratio between after-tax NPV $407 million and initial capex of $100 million is probably a good place to start, in terms of what’s special about Las Chispas.  SilverCrest’s PEA estimates 13.7 million ounces per year production at $4.89 per ounce, for the first 4 years, so that’s pretty special too (and very profitable for whoever owns it).

Some quick reverse engineering of SilverCrest will show you a stock that began its life as a spin-out.  The company was active on the exploration front, drilled into high-grade, gained momentum in the market and never gave it back.  An experienced management team de-risked the project along the way and kept its promises, or over delivered on its promises.  Therefore investors never had any great reasons to lose confidence in SIL.

4) Know Yourself, Know Your Temperament!

Are you waiting patiently for the market to come to you, or are you taking your surfboard to the next wave and hopping on for a ride?

I don’t think there’s a reason to only be the patient trader who always feels like they’re waiting around for price to move.  Likewise, I don’t think there’s a reason to only be the trader who’s perennially searching for the next wave.  Both strategies can work exceedingly well!  So I wouldn’t limit myself to just one.  I’d recommend doing a bit of both, as long as you recognize the difference.

While my tendency is to be “early to the party”, in many cases the market has been affording us the luxury of being patient.  Rather than assuming and hoping the next news release will be good, lately you can just wait until the news is out!  Read it, interpret the information, then make your buy or sell decision.  Good news doesn’t always spread that fast in the world of micro cap stocks so you can sometimes exploit the inefficiencies in the distribution of information, quite easily actually.

By first reading, then reacting, in many cases I think we can improve the timing of the trade (and timing is everything!).

5) Be Price Conscious

I’m going to use 1911 Gold (AUMB, TSX-V) as an example to tie these 5 themes and things to take seriously altogether.

Obviously, the stock is cheap.  There’s no ifs, ands, or buts about it!  A price conscious shopper, like myself, is almost overjoyed with the opportunity to “steal” this asset via open market purchases of AUMB.  Using its most recent price of 27 cents per share AUMB trades very near cash.  Meaning, its cash position of $8 million practically covers its $10 million market cap.

Knowing pure drill speculations (explorers with a hope, prayer, and some money) can command market caps of $20 million and even $30 million or more,  I feel I’m getting a lot of bang for the buck with AUMB (relative to a pure drill speculation).  It’s the best of both worlds, downside protection plus serious upside potential at no cost.

The True North asset is located in the right jurisdiction and everything about it is ready-to-go!  People, permits, money, and drill rigs – check, check, check, check.

$120 million worth of existing infrastructure, the mill’s recently been operating at 1,200+ tpd, paves the way for one of those sweet spot scenarios where NPV could be really high and Capex could be relatively low.

It’s hard to understand why AUMB would be valued below many pure drill speculations for any lengthy period of time because it offers everything a discovery play offers, but much more.  That said, the stock’s in a downtrend and the company has to get much more aggressive in telling its story, so it could keep drifting for a little longer.  Rather than buying now, and hoping the relative undervaluation is corrected in the market, I can appreciate a strategy of not making a decision on AUMB until drill results start coming out.  Lately the market has been so generous to allow investors days, even weeks, before pricing in good news.