Kitco News launched its 2021 Outlook, which offers the most comprehensive coverage of the precious metals markets in the new year. Trillions of dollars were injected into the financial markets in 2020 and this will not come without consequences. Economists expect investors to be preparing for inflation in 2021.
(Kitco News) – 2020 was an unprecedented year for the precious metals market. In August, gold prices reached a record high, above $ 2,000 an ounce.
Although the precious metals sector is attracting the attention of new investors, the mining sector continues to underperform. The value of the mining sector is well below what it was during the last rise in the gold and silver market.
However, some market analysts think that this will change and investors will not be able to ignore the value that is being generated in 2021.
With that in mind, we decided to contact some mining experts and ask them how they would invest $ 10,000 in the mining sector and what topics they see underway in 2021.
Specialist: Joe Mazumdar
Claim fame: Exploration Insights editor
What are the three companies you like the most in 2021 and why?
My main choices include the following:
Trilogy Metals (TMQ.T, TMQ.NYSE) has a joint venture with a large diversified mining company, South32 (S32.ASX), at the feasibility stage of the massive Arctic copper polymetallic vulcanogenic sulfide deposit and the Bornite carbonate replacement deposit at the resource stage in Alaska. He underperformed in 2020 as concerns about COVID-19 prompted his JV partner to postpone his work program to 2021 to avoid putting local villages at risk. The access road to the remote project was approved, which was a significant catalyst in 2020. The JV partners announced their budget and plans for 2021 (US $ 21 million), which include exploration drilling in the Ambler district to add more resources.
Liberty Gold (LGD.T, LGDTF.OTC) is advancing on the Black Pine gold project, which has the potential to become a significant open pit and leach target in a mining-friendly part of Idaho. The company continues to drill and discover new zones of penetrating oxide gold mineralization, expanding its coverage area (+4.6 km2) and extending the 2021 drilling program to well over 50,000 meters. The next catalysts include an inaugural resource (Q1 / 21), a scope study or PEA (Q2-Q3 / 21) and a pre-feasibility study (PFS) at the Goldstrike gold project in southwestern Utah, which is currently undervalued in the portfolio.
Bluestone resources (BSR.V) operates the feasibility phase of the Cerro Blanco high-grade underground gold project in Guatemala. Its poor performance in 2021 was related to delays in the catalysts due to the impacts of the COVID-19 pandemic. The company restarted its drilling program in October 2020 and is generating some significant high-grade filling results. The current measured and indicated resource contains ~ 1.4 million ounces at 10.3 grams per ton of gold.
Its current assessment suggests that BSR is trading at a multiple of 1.2x of the NPV value @ 5% of its January 2019 feasibility study, which was done at a gold price of $ 1,250 per ounce. The current price is well over $ 1,800. At $ 1,500 and $ 1,700 per ounce, the company would trade at a discount of 0.7-0.8x and 0.5-0.6x, respectively. The next significant catalyst is the project development financing package.
What investments would you avoid in the next year?
While the desire to add more ounces to maintain or increase production profiles, combined with the lack of development projects in the pipeline of many gold producers, suggests that mergers and acquisitions will be important, the emphasis may be on projects that work with lower gold prices ( Therefore, I will avoid marginal greenfield assets in countries out of the way.
The number of loans in the junior market added more companies and new management teams focused on promotion on the substance. I will avoid this.
I will also prevent companies from promoting assets in small niche commodity markets. However, if a company like Energy fuels (EFR.T, UUUU.NYSE), from which I have shares to leverage for a recovery in the uranium market, make a foray into the REE market, I don’t mind reaping the benefits.
As equity investors, we need the stock price to rise to make money. Therefore, the denominator (number of shares) matters as much as the numerator (asset value). I will avoid companies with a excessive amount of potential dilution of subscription bonuses and options, or with a significant number of shares that were acquired at low cost and held by weak hands.
In the end, I want to add or maintain exposure to mining companies led by quality management teams with the potential to discover or develop high-margin projects in jurisdictions that have a history of licensing and developing mining projects.
What do you think will be the big themes for the coming year: merger and acquisition activity, profits, exploration, record gold prices?
The main themes that will influence my mining stock portfolio include the following:
Precious metal producers will continue to generate free cash flow at these gold and silver prices, which will compensate for any small declines in production due to the COVID-19 pandemic. For example, Pan American Silver Corp. (PAAS.T, PAAS.NASDAQ) generated US $ 292 million in operating cash flow, an increase of 54% over the same period last year, despite the production declines (35% drop in silver), since only in the third quarter the realized price of gold and silver rose + 44% and + 30%, respectively.
Healthy balance sheets will allow companies to not only consider raising their dividend income – Pan American Silver increased its dividend yield twice in 2020 – but also to add to its project pipeline for maintain or even increase your production profiles.
Granted, growth is easier for middle-level precious metal producers than the few big producers like Barrick Gold (ABX.T, GOLD.NYSE) and Newmont Corp. (NEM.NYSE, NGT.T). The additions will come in the form of larger exploration budgets and / or more JVs with juniors, M&A for producers of unique assets and advanced development projects. For example, Equinox Gold (EQX.T, EQX.NYSE) recently bid on Premier Gold (PG.T, PIRGF.OTC) for its 50% stake in the multimillion-dollar Openrock Gold Hardrock project in northern Ontario.
In addition, the majority of M&A transactions by non-state entities since the merger of Barrick Gold (ABX.T, GOLD.NYSE) of the Equivalent acquisition (MOE) of Randgold has been carried out without goodwill, which shareholders find more attractive than the abundance of mergers and dilutive acquisitions completed during the last cycle.
The four-month retention for the significant amount of equity financing continue until February 2021, it may put some pressure on junior explorers. The funds have been used to support exploration and G&A activities, which includes investor relations such as promotion it seems to have eclipsed the flow of positive news from exploration activities as an important factor in positive stock price movements. This trend may continue in 2021.
Despite the positive trend in commodity prices, a company with an asset that becomes a lightning rod for NGOs, local residents and other stakeholders will not outperform the market. For example, Northern Dynasty Minerals (NAK.NYSE, NDM.T) rose ~ 450% to a July 2020 peak of $ 2.34 per share; however, a negative decision record on its Alaskan copper-gold project in Alaska reduced its rating by 85%. In the accumulated result for the year, it fell more than 20%. Under a Biden administration, allow in the U.S. it may take longer for federal land projects.
Several vaccines have been developed for the COVID-19 viruses, but many countries may not develop ‘herd immunity’ and return to ‘normal’ activities before the summer of 2021. Therefore, impacts on the trial’s slow response times (6-8 weeks vs. 3-4 weeks ), reduced operational efficiency, especially in underground mines in Latin America, and travel restrictions that will slow down due diligence for mergers and acquisitions, financing (debt) and joint ventures may continue into the summer.
The negative impact of the pandemic on many emerging, developing and advanced economies can accelerate the development of palatable development projects to generate jobs and export earnings. The Biden administration can continue to seek contracts supply networks leading to increased domestic production of critical minerals (REEs) and potentially to protect the uranium industry.
On the other side of the coin, miners that generate significant free cash flow from assets in emerging markets may be subject to creeping nationalism in an effort to obtain a larger share of rents.
What are your final comments on how you think 2021 will be for investors?
Biden’s presidency will change the outlook for mining companies operating in the United States, as licensing may take longer and those that emit significant greenhouse gases will be negatively impacted like coal companies. But I think this government will not be ashamed to spend its way out of the current economic slowdown and look at the protection of the local industry, which may be good for uranium.
China’s interaction with its main customers (USA) and sources of raw materials (Canada and Australia) is becoming problematic. Recently, Shandong Gold of China’s attempt to acquire TMAC Resources (TMR.T) was terminated under the Canadian Investment Law (Canada) and the parties are in discussions about closing the transaction. Relations between China and Australia continue to deteriorate, as 8.1 million tonnes of coal are being held on 74 vessels from Chinese ports.
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