There are more than 3,000 junior mining companies worldwide. But the harsh reality is that most companies will never build a mine. So depending on your investing strategy, you need to be clear about what type of company you are looking at. We've spotted 5 that look really interesting... for different reasons.
You'll have done the math by now. Over 70% of explorers won't get into development or production, but that doesn't mean you can't make money on these highly leveraged investment opportunities for a short period of time. You just need to know the rules of the game and be clear about your strategy. Most investors will want to have a portion of their mining investments in these more leveraged plays as it offers the blue sky potential excitement of 'what could be' and 'multibagger returns'. And this is a discussion for another article on another day.
Today I want to focus on the lower risk, lower leveraged, investments in development and production companies. Usually these will be longer hold investments, but with steady growth and the occasional dividend! Solid, safe investing, which should also be part of your portfolio investment strategy. So what does a company like this look like?
Before you look at which company, do some research into the commodity you are interested in. What is the macro outlook for copper, silver, gold, lithium... look at the supply & demand numbers. Make sure you verify and validate the source (lots of promoter and brokers pumping a thematic for their own reasons). Use multiple sources as part of your research, including industry bodies and associations. And then do something that very few investors do, stop and think, really think, 'Does this make sense to me?'.
A good company – one with potential to get in to production, let alone be a billion-dollar company – needs to meet some basic criteria. The most important being a stellar management team, with a proven record of success. I look for teams who have built mines before and made money for their shareholders. Management teams backed by resource lenders like Ross Beaty or Rick Rule also come with a high vote of confidence. There aren't that many. As in life, success has many fathers, and failure has few. So it is important to ask Management what part they played in previous success. Sometimes they may have been merely a bystander, albeit in the right place.
However, the key component of a good mining company is the asset. At the end of the day, the company must have a scalable, multi-cycle, economic ore deposit. And with reference to the management team, a well worn phrase that is almost a truism; a good management team can make an average asset work, and a bad management team can make a great project fail. On the whole though, a great asset is a great asset, and even an average management team will struggle to get it completely wrong. So understanding the quality and potential of the asset should be very high on the list. We discuss this at length in our training courses in www.cruxinvestor.com/club
There are of course exceptions to the rule, as ever great assets in jurisdictions without a history of mining or having shown consistent dislike for mining can cause issues that make or break even the best deposit. So focus on companies located in countries with a long history of favorable mining activity. Look for rule of law, clear mining code, an engaged community and government and simple process for obtaining the various licences and permits.
When you’re deciding which companies to invest in, focus on these fundamentals:
Based on this, we’ve identified 5 companies that tick these boxes. They are at different stages, have different return profiles and have had to solve different problems, but are interesting: We will update these over the course of 2021.
This was just another $0.40 sub $100M market cap junior story when we set up our first call with Brad Languile. By the time we got finished the interview we were sold. Now sitting at over $2.65 and a $700M market cap, we think this could be one of the biggest silver producers in Mexico within 5 years. This team has been working and mining in mexico for over 25 years and has built and sold 3 mines already.
So in terms of the thematic of Silver, the management teams track record, ability for this to be a mine and with scale and of course the jurisdiction, Gogold resources ticks all the boxes. Easily a billion dollar company. The question now becomes how big do they become.
Canadian silver producer GoGold Resources is sitting on one of the best undeveloped mining districts in Mexico. Their Los Ricos property in Jalisco, Mexico, is poised to become the company’s best project in 20 years. The GoGold team has 25 years of experience mining in Mexico, having built 3 mines and refurbished another. Development at Los Ricos began in 2019, when they acquired the mining concessions and began exploratory drilling. In 2020, GoGold reported a record annual revenue of USD$39.5M from the sale of 2.2Moz AgEq. Their stock price saw a drastic increase from a low of CAD$0.40 in March 2020 to CAD$2.65 in January 2021, prompted by positive drill test results and progress updates.
The Los Ricos property is divided into 2 projects: Los Ricos North and Los Ricos South. Gold and silver are hosted in the epithermal quartz Cinco Minas vein. The area is thought to have been mined as early as the 1500s, during the Spanish colonial period. Modern mining activities lasted from 1824 until the 1930s. GoGold launched development of the Los Ricos North property in March 2020 and drilling began in June 2020. GoGold has identified over 100 targets in the area and are focusing on the La Trini, El Orito and El Favor targets. Initial drilling results show wide zones of high-grade gold and silver mineralization at La Trini, and 4 stacked zones of wide mineralization at El Favor. A 100,000m drilling program is underway in 2021 to further prove and delineate the resources at Los Ricos North.
The Los Ricos South project was launched in March 2019. Drilling at Los Ricos South is focused near historic mines and the Cerro Colorado, Las Lamas, and East Vein targets. GoGold announced NI 43-101 compliant reserves in July 2020 and a preliminary economic assessment (PEA) in January 2021. Total measured & indicated resources are 63,677koz AgEq, with 19,884koz AgEq inferred resources. The January 2021 PEA reports an 11 year life of mine producing 69.6Moz AgEq, comprising 42.9Moz Ag, 352,000oz gold and 4.5Mlbs copper. Initial capital costs are estimated to be US$125M, with US$16M in contingency costs and additional sustaining capital costs of US$16M over the life of the mine. Average operating costs are estimated to be US$8.65/oz AgEq and all-in sustaining costs are estimated to be US$11.35/oz AgEq. Two-thirds of the operation is open-pit and the remaining third is underground bulk.
GoGold’s current cash flow comes from production at the Parral tailings facility in Parral, Chihuahua. The Parral operation is an agglomerated heap leach facility that processes historic tailings left over from previous mining operations. Since September 2019, the Parral tailings facility has produced an average of 600,000oz AgEq each quarter. The operation is low OpEx, low CapEx, and profitable. GoGold estimates a further 8 years of resources from Parral.
Although Mexico is known to have jurisdictional problems, such as taxation and safety/security, GoGold has not experienced any difficulties operating there. They have a good working relationship with the current government, no issues with infrastructure at the Los Ricos projects, and friendly relationships with the community.
GoGold plans to continue making discoveries in 2021. They are focused on drilling the most promising targets in both Los Ricos North and South, looking for high-grade mineralization that can be bulk mined. With new drilling results, they will gain a better understanding of the geometry of the deposits and further delineate the resources. Financially, they are well-suited to do this. Their current free cash-flow of CAD$2M per month allows them to self-finance exploration activities, with CAD$20M dedicated to drilling the Los Ricos property. With $CAD50M in the bank and no debt, GoGold is a company to watch.
This was our turnaround story for 2020. Running out of cash, high cost base, small production, losing money and a market that wasn't clear if it was a nickel company or a gold company. No wonder it was being shorted.
The new CEO Paul Huet changed all of that.
Vancouver based Karora Resources (TSX:KRR) shifted their focus to gold in 2020 with great success. Originally a nickel developer, they rebranded and changed their name from RNC Minerals to Karora Resources in June 2020. Karora sold their 28% interest in the Quebec Dumont nickel project in July 2020, earning $10.7M from the sale, and potential for an additional $40.2M. They are now entirely focused on their multiple gold operations in Western Australia: the Beta Hunt, Higginsville, and Spargos Reward mines. They acquired the Spargos Reward gold mine from Corona Resources in May 2020. The Spargos mine is a bolt-on to the Higginsville mine and is expected to begin production in mid-2021.
The new operational team and board of directors at Karora are highly experienced in mining operations and finance. They have already proven that they can bring value to investors. In a period of just one year, their share price increased by about 80%. The Karora team also made 2 strategic moves to reduce royalty costs. They eliminated the Morgan Stanley net smelter royalty at the Higginsville property and worked with royalty company Maverix Metals to reduce royalty costs at Beta Hunt from 7.5% to 4.75%. This cost reduction will give Karora more funding for exploration activities and future leverage.
Karora stock caught the attention of well-known minerals investor Eric Sprott this summer following their acquisitions. Karora worked with Maverix Metals to issue 26 million shares to Sprott and a further 10.5 million shares to an institutional investor.
In December 2020, Karora announced proven & probable gold reserves of 1.33Moz and measured & indicated resources of 2.52Moz. These estimates are consolidated between the Beta Hunt and Higginsville properties. This is a significant increase from 2019 reserve and resource estimates–a 334% increase in proven & probable reserves, and a 167% increase in measured & indicated reserves. Reserve and resource estimates are based on results from the September 2020 drilling programs at Beta Hunt and Higginsville. Karora plan to continue drilling and exploration activities at all three mines in 2021. They hope to further refine discoveries made at Beta Hunt and further delineate the Spargos asset. November 2020 drilling results from Spargos indicate a high-grade deposit, with 29.8g/t gold over 19m and 27g/t gold over 15m. These promising results suggest that Karora’s gold resources are abundant, with more yet to be found.
Karora is currently producing gold from the Beta Hunt underground mine and 2 open pits at the Higginsville mine. In 2020, consolidated production from the 2 mines was 99,249oz, exceeding 2020 mid-year expectations by 7%. The 2021 consolidated production target is 105,000oz - 115,000oz gold. All-in-sustaining cost (AISC) was US$985-$1,085 per ounce, an 8% reduction compared to mid-point 2020 guidance. Significant cost reductions at Karora’s Australian operations and corporate offices made this AISC possible.
Growth is Karora’s strategy for 2021. They have dedicated $20M to exploration at the Higginsville, Beta Hunt, and Spargos mines, aiming to further prove their reserves. They also plan to mine better grades of gold, continue to reduce overall costs, and expand the Higginsville mill. With Spargos production expected to begin in mid-2021, Karora is set up to have a robust year.
Uranium has been in the doldrums for 9-10 years since the Fukushima nuclear incident. There have been many false dawns along the way, but this year, with the help of covid supply issues, look like being the time when demand outstrips supply. The CEOs of producers and those (near all) in care & maintenance, are reporting increased dialogue with fuel buyers. The macro story that has been feed to the market with a degree of hope rather than knowledge of this opaque market, seems to be getting clearer and more sure of itself. The levels of inventory and mobile inventory is being mopped up by suppliers and producers needing to fulfil agreement with buyers. So good news for 2020 it would appear.
Some companies have had no choice but to hunker down, reduce overhead and wait it out. Others have decided to take matters into their own hands. In case of energy Fuels they had one big advantage, being the White Mesa Mill. The mill is licenced and permitted to process and produce radioactive materials. It has focused on uranium and vanadium...that it until now.
at the start of 2020, it started to make enquiries and create relationships with some of the worlds best Rare Earths experts. Why? Because again the White Mesa Mill mill is capable of processing rare earths (and Uranium) from Monazite. It seems the would be a one of only a handful companies globally and potentially one of three in the US capable of processing and producing Rare Earths. In terms of the US Govt's ambitions, and specifically the Dept of Defence, to be self sufficient and not rely on any part of the Chinese Rare Earths monopoly, this would solve their problems.
So US based Energy Fuels adding rare earth elements (REEs) to their core business of uranium and vanadium is a big move. They are currently the number one producer of uranium and the number one producer of conventional vanadium in the US. At their White Mesa Mill in Utah, they are set up to process 15,000t of monazite and other ore for REE and vanadium extraction. The monazite will come from Chemours’ mining activities in Florida and Georgia. Energy Fuels have built up an inventory of 700,000lbs combined uranium and vanadium, worth about USD$30M. They’ve hung onto this inventory during recent slow market environments with the intention of selling when commodity prices increase. They hope to sell this inventory to the recently established US government uranium reserve and use the proceeds to build new operations and start new projects.
With several 100% owned uranium and vanadium mines in the western US, Energy Fuels are well-positioned to take advantage of the rising demand for uranium. Demand is expected to grow as the world, particularly the new administration in the US, becomes more favorable to nuclear energy as a power source. Many existing uranium operations, like the Ranger Project in Australia, are nearing depletion and shutdown. The 2020 COVID pandemic also caused the shutdown of some of the world’s largest uranium operations, including Cameco’s Cigar Lake in Canada and Kazatomprom’s operations in Kazakhstan.
Energy Fuels have the capability to bring more uranium/vanadium projects online if demand increases enough. Their standby properties, including the La Sal Complex, Whirlwind and Daneros, are fully operational and permitted and can be brought back online as needed. The Pinyon Plain mine is in development, with measured and indicated resources of 2.43Mlbs uranium and a further 0.13Mlbs inferred uranium resources. Energy Fuels have a collection of great assets, and are looking to sell some of them so they can dedicate more focus to their core properties. This will create more value for shareholders and allow Energy Fuels to maximize returns at their best properties.
The agreement with Chemours to produce uranium and REEs at the White Mesa Mill is an excellent opportunity for Energy Fuels. They have a three year agreement to process a minimum of 2,500tpa and hope to increase production. The White Mesa Mill is currently the only fully licensed and operating conventional uranium mill in the U.S. The mill has the capacity to produce more than 8 million pounds of uranium per year and is centrally located to Energy Fuels’ existing mining operations. It is producing high purity vanadium in addition to uranium, and Energy Fuels can easily adjust production in response to commodity price changes.
With their entrance into REEs and stronghold as a US uranium and vanadium producer, Energy Fuels is on the way to becoming a top critical minerals producer. In 2021, they will focus on growing their existing uranium business and fully integrating the White Mesa Mill. Full integration will cost around USD$150M-USD$200M. This will involve upgrading current mill infrastructure so they can do separation at the mill. The mill has the potential to process 720,000t of ore per year while generating very little waste. With the potential to scale REE, uranium and vanadium production, Energy Fuels may soon join the ranks of billion dollar companies.
At $200M, this is the smallest of the bunch and therefore the most leverage to be gained as an investor. This company didn't exist a year ago. They has accelerated out of the blocks and are up 8x. Nickel went through a renaissance in 2020 and looks to continue in 2021 as prices are up near all time highs and demand far outstrips the future supply. The EV thematic is driving market fervour and Canada Nickel Corp seems to have timed this nickel supercycle just perfectly.
Toronto-based Canada Nickel Company has a large scale potential opportunity at their 100% owned Crawford nickel-sulphide mine in Ontario, Canada. In 2020, they signed a memorandum of understanding (MOU) with mining major Glencore to use Glencore’s nearby concentrator and metallurgic facilities. This agreement will allow Canada Nickel to develop the Crawford project quicker and with lower initial capital costs.
The Crawford project is a new nickel-sulphide discovery in Ontario’s historic Timmins Mining Camp. The project was explored briefly in the 1970s and 80s, with modern exploration resuming in the last decade. This location works in Canada Nickel’s favor: there are no issues with infrastructure and community relations are good. They have an MOU in place with the local First Nations communities that is beneficial to both parties.
The Crawford deposit is one of the top 10 nickel-sulphide deposits globally, with overall measured and indicated resources are 653Mt of nickel and cobalt and overall inferred resources of 497Mt. The deposit comprises four zones: main, east, west, and north. Canada Nickel used geophysical surveys, drilling results and metallurgic testing to further delineate the resource and identify high grade zones. The results from this exploration work in the main and east zones have more than doubled the amount of known nickel resources. Initial mapping and metallurgic results are promising and suggest there’s more resource to be found.
Canada Nickel plan to complete the preliminary economic assessment by Q1/21 and the Feasibility Study by the end of 2021. Another exciting development for Canada Nickel is the memorandum of understanding (MOU) they recently signed with Glencore. Canada Nickel are exploring the possibility of using Glencore’s nearby Kidd Creek concentrator and metallurgic site. The site has excess capacity, with the ability to support 4,000t to 10,000t of ore per day. Using the existing infrastructure would greatly reduce capital startup costs for Canada Nickel and expedite the Crawford project. They are completing a detailed financial study to quantify the potential cost savings and revenue stream of working with Glencore. The study should be complete in March 2021, along with the PEA.
If past commodity markets are any indication, this is a good time to be developing a nickel mine. Nickel appears to be entering a supercycle–a period of record high prices. Demand for nickel is already strong and expected to grow. Geopolitical factors, demand for electric vehicles, and demand for stainless steel are some of the drivers behind the supercycle.
A quick analysis of the sorts of prices that nickel companies have paid for large assets of this nature suggest there is still significant upside for investors joining this story. See our weekly nickel show on cruxinvestor.com/club to find out more.
Canada and Peru based junior gold miner Rio2 have plenty of experience building mines in South America. The management team’s previous company, Rio Alto, built the La Arena mine and the Shahuindo gold project, which they sold to Tahoe Resources in 2015. When Rio Alto formed in 2009, they were worth C$12 million. By the time they sold to Tahoe resources, they were worth C$1.2 billion. After the sale, the management team, led by stalwart, Alex Black, reformed as Rio2 and have used the proceeds to develop the 5 Moz Fenix Gold Project in the Atacama region of Chile.
The Fenix Gold Project is located in Chile’s Maricunga Mineral Belt, a well-known mining district that contains over 70Moz of gold. Fenix is the largest undeveloped gold heap leach in the Americas, with 5Moz of measured and indicated gold resources and an additional 1.4Moz inferred. These results came from an extensive drilling program completed in 2019. The deposit is a clean, high-purity oxide deposit with no transitional or sulphide mineralization, which is rare in the Maricunga district. Production at the Fenix gold mine is scheduled to begin in 2022, with plans to produce 100,000oz of gold per year for the following 16 years.
Rio2 met several important milestones in 2020. They made significant progress towards mine construction, securing a water source and permitting with the Chilean government. They began working with Scotiabank to help secure funding from resource lenders and hope to have funding in place by April or May 2021. Once funding is in place, the plan is to open the mine within the next 18 months.
The transparency and proven record of success sets the Rio2 team apart. the updated Fenix preliminary feasibility study shows significantly less reserves than the project’s previous studies indicated. Rio2 has found a way to make this work in their favour: a smaller mine means lower CapEx and a shorter time to production. This allows Rio2 to expand their focus to exploration and M&A activity. With one of the largest undeveloped gold deposits in South America and a strong team to develop it, Rio2 is set up for success.
We like these companies for different reasons, but they all have something in common. They will get into production and the experienced management teams have been clear about exactly how that will happen.
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