Fiore Gold (F, TSX-V) Is “GARP” and GARP Is Good

Jan 24

“Cash is trash,” says Ray Dalio.  “You have to have a certain amount of Gold in your portfolio.”

That was the founder of Bridgewater Associates, the world’s largest hedge fund (not counting central banks), talking his book a little bit while stressing the importance of diversification all within the context of a crowded trade in “cash” at the World Economic Forum in Davos, Switzerland.

Follow the money.

With his thoughts in mind I want to steer your attention back to Fiore Gold (F, TSX-V).

The stock’s been trading comfortably above its 200-day SMA since early December, when F shot higher by approximately 50% in a matter of days, from 40 to 60 cents.  Since then its been consolidating, laying a strong foundation atop which future gains will be built.

To me, it looks like this consolidation phase has pretty much run its course.  I see a continuation of the uptrend and an advance past 60-cent resistance happening in the near future.

Any 1 of a number of factors will make that move happen, but I’m guessing it could be when Fiore publishes the PEA on Gold Rock.

CEO Tim Warman said the study was supposed to be completed before Christmas and published early in the New Year, so it should be released any day/week now.

Why will this PEA be a catalyst?

We know the publication of early stage economic studies, like PEAs, aren’t always positive catalysts, but it was for Skeena in November!  SKE jumped 27% after putting out a PEA that estimated strong economics for Eskay Creek, and it continued climbing in the months after with help from strong exploration results (post-PEA SKE is up 84%).

So that’s the trick – for a PEA to be a positive catalyst the economics must be a pleasant surprise for Mr. Market!  Strong exploration results post-PEA provides for a “double bonus”.

I’m expecting Gold Rock’s projected economics will be a pleasant surprise because Gold grades at Gold Rock are supposed to be 60% higher than what they are at Pan.  I struggle to understand how the economics wouldn’t be far better, all things being equal.  And all things, operationally speaking, Pan versus Gold Rock will be very similar.  In fact, it’s only 8 miles away and much of the existing infrastructure will be shared.

Capex for Fiore’s Pan mine are directly applicable to Gold Rock, so there shouldn’t be any surprises and we can develop good estimates for what profitability will be using various Gold prices.

“In general we expect Gold Rock to produce somewhere between 50,000 and 75,000 ounces of Gold per year.  That in combination with the 45,000 to 50,000 ounces coming out of Pan would create a mining complex in Nevada producing in excess of 100,000 ounces a year.  And we think we can bring Gold Rock into production fairly quickly and fairly efficiently because of its proximity to Pan,” said Warman, while presenting at the Swiss Mining Institute in November.

Pan isn’t a big mine but it’s a profitable mine.  On average, looking at Q4 2018 through Q3 2019 the Pan mine generated approximately $2.8 million per quarter (operating cash flow) when the Gold price was between $1,200 and $1,300 per ounce.  Gold prices have been hovering above $1,450 since August, so Fiore’s profitability could be magnified in 2020 (relative to last year).

Right along, since its founding, Fiore’s strategy has been to use Pan as a springboard for growth.  Take from Pan and give to Gold Rock, that’s been the plan. And once the PEA is published Fiore’s plan/strategy should begin to crystallize for more investors.

When you boil it all down Fiore is “GARP” and GARP is good.

Growth comes from Gold Rock and Fiore’s overall 49,400 acre land package located within a highly coveted part of Nevada.  Of course, a bullish trend in Gold prices will help fuel Fiore’s growth, too. With a market cap of just $53 million ($40 million U.S.), the stock’s very reasonably priced on most metrics – approximately $58 per ounce in-the-ground and $1,000 per ounce of production.  Based on Pan’s operating cash flow last year, using sub $1,320 Gold, the mine itself is valued less than 5 x cash flow.

By the way, you might not have known but there’s also an “optionality” side to this story!

We should stress, the 28 Mt at 1.89 g/t Au (or 1.7 million ounces) is a non-43101 historic resource estimate, but “historic” doesn’t mean the number of ounces is zero, either.  Given the proper investment and energy Fiore, or someone else (maybe Hecla?), could officially put another 1+ million ounces on the books for not much money, compared to finding and delineating a million ounces from scratch.

Oh!  And another important point from the slide I don’t want you to miss it that the 1.7 million ounces was calculated using $750 Gold!

Another point worth keeping in mind is grade.  Almost 1.9 g/t tonne!  That’s “high grade” for an open-pit mine.

This Golden Eagle Project is basically a side show right now and the curtains are drawn, nobody’s watching.  But that could change.  To my understanding Fiore’s discussions with Hecla regarding how they might work together on this or sell it outright are ongoing.  Whatever happens, Golden Eagle injects some serious optionality into this GARP equation we have with F.

Gold Rock PEA Update (from December 10)…

Drilling at the Federally permitted Gold Rock Gold Project is complete, and all of the reverse circulation drill hole assays have been released.  Six diamond core holes from the same program are still undergoing detailed logging and sampling, as well as full hyperspectral scanning to help characterize any variability in the orebody.  Assays from these holes are expected early in the new year but these are not critical for the current resource update.  Work on the Preliminary Economic Assessment (“PEA”) for Gold Rock is proceeding well and we expect to release a summary of the results by month-end, with the full Technical Report to follow shortly thereafter.  Based on our experience operating the nearby Pan Mine, the Company intends to proceed directly from the PEA to a Feasibility Study in order to shorten the development timeframe.

The Gold Rock development plan will look to leverage the infrastructure and workforce at the adjacent Pan Mine to the greatest extent possible, in particular the existing Pan power line and the access road from Highway 50.  We are also evaluating opportunities to reduce capital, operating expenses and environmental impacts by using the Pan ADR plant and assay lab.