Junior miners’ share prices will continue to languish for the next year or two, which means investors will have to be extremely selective in their buys.
That was the consensus of an expert panel on exploration on day one of the Vancouver Resource Investment Conference yesterday.
“The next year or two is going to be a really, really ideal time to buy quality assets at a discount,” said Brent Cook of the newsletter Exploration Insights. “But it’s not going to be a time when all the boats float or you can just scattershoot into the junior sector and expect to make money.”
It also means mid-tiers and majors, many of which need new projects to replace their reserves and resources, will be in a buying mood.
But these companies, whose margins on gold production have not kept pace with the rise in the gold price over the last 12 years, will be looking for low-cost projects, which means the right combination of grade and infrastructure.
In particular, Cook is looking for early stage, potentially high-margin projects.
“That’s where I think you’ve really gotta be, is looking for the very, very few deposits that offer a mid-tier to major mining company the possibility of reducing their overall cost of production.”
So which companies fit the bill?
Eric Coffin of HRA Advisory is looking at companies with right type of rocks in Mexico’s Sonora, Oaxaca, Guerero states that have the right type of rocks, good infrastructure and low cash costs and capex.
Although they are smaller projects that majors would have ignored 10 years ago, Coffin says less-than-full pipelines will force them to consider smaller acquisitions.
“Most of them haven’t wanted to go that far down the food chain – they all want 1 million ounces, half a million ounces production per year,” Coffin said. “But I think as it gets harder and harder for them to hit their growth targets, I gotta think a lot of these smaller operations with very low cash costs – it’s going to be tempting.”
Cook offered two picks: Midas Gold (MAX-T), which has a high-margin deposit in Idaho and Alderon Iron Ore (ADV-T).
Eric Coffin believes that SilverCrest Mines (SVL-V) may become a target if its upcoming prefeasibility study on the expansion of its Santa Elena mine, in Sonora state, Mexico, shows a reasonable capex and timeline.
If the economy improves and new infrastructure gets installed in the Labrado Trough, Coffin also likes Cap-Ex Ventures (CEV-V), Champion Iron Mines (CHM-T) and Alderon Iron Ore.
Lawrence Roulston of Resource Opportunities likes Belo Sun Mining (BSX-T), which has a large gold deposit in Brazil. He also likes Newstrike Capital (NES-V) and Cayden Resources (CYD-V), two companies exploring Mexico’s Morelos belt, which Roulston says is attracting the interest of majors.
Roulston also suggested an alternative strategy of looking at companies that could be the acquirers in future M&A deals, such as Fortuna Silver (FVI-T, FSM-N) and Santacruz Silver (SCZ-V) in Mexico.
Thom Calandra of the Calandra report chose Gran Colombia Gold (GCM-T) for its Marmato project in Colombia; Carlisle Goldfields (CGJ-T), which holds the Lynn Lake project in Manitoba; and Sandspring Resources (SPP-T) for its Toroparu project in Guyana.
2014 Mining Markets. All Rights Reserved.