I have previously laid out my thesis for gold and precious metal appreciation as a result of the United States' addiction to debt and the endless easy money policies of the central banks, and thus the recent selloff in gold and silver stocks presents a buying opportunity. The most popular gold and silver ETFs, the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV) are down 4.2% and 5.5% in the last three months, respectively. The ETFs that track the miners of these metals such as the Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ), are down even further in the last three months compared to the metals they produce, losing 14.3% and 15.7%, respectively, while the Global X Silver Miners ETF (SIL) is down slightly less, losing 10.7% in the last three months. Given this selloff and the long term-tailwinds that gold and silver prices have due to central bank stimulus, I have opined that a buying opportunity has arisen for the long-term investor in silver and silver companies, as well as the best of breed gold stocks.
In the present article I follow-up on a speculative gold exploration company that I first got behind back on August 8th, 2012, Almaden Minerals (AAU). When I first highlighted the stock, it traded at $1.94. The stock has had a major run to $3.04, appreciating 56.7% since my recommendation to buy. After reviewing its 2012 summary and presentation, I think the stock has more room to run.
Quick review of the company
AAU is a well-financed (approximately $31 million in cash/gold inventory as of January, 2013) mineral exploration company working in North America. The company has several interesting exploration projects, including the Tuligtic and El Cobre projects (see figure 1). These properties are largely at early stages of development but they represent significant opportunities for the discovery of large gold, silver and copper deposits. One such example it at Ixtaca, where discoveries were made in 2010. AAU's business plan is two-fold. First, to find and acquire mineral properties that may contain significant reserves, and second develop them by seeking option agreements with others who can acquire an interest in a project by making payments and exploration expenditures. This approach led to the discovery of the Ixtaca gold-silver zone on its 100% owned Tuligtic project, Mexico. (figure 2) This past year the bulk of the AAU's efforts have been focused on the on-going Tuligtic project drill program. Nevertheless new exploration has continued. Using this approach the company has been able to expose its shareholders to discovery and capital gain without the funding and consequent share dilution that would be required if the company were to have developed these projects without a partner. The company intends to expand this business model, described by some as prospect generation, by more aggressively exploring several of its projects including the Ixtaca Zone.
Figure 1. Overview of North America Showing Locations of Almaden's Projects.
Figure 2. Tuligitic Project Area Showing Location of Ixtaca Gold-Silver Zone.
In 2012 AAU drilled 52,695 meters of core in 152 separate holes on the Ixtaca Zone of Mexico. In November 2012 resource estimation work was initiated on the 225 holes (81,971 meters drilled) that had already been completed at the time. After this, AAU announced that the on-going drill program had encountered significant gold-silver intersections outside the main resource area including 134.20 meters of 3.76 grams per ton (g/t) gold equivalents and 18.1 g/t silver. Also in 2012, further preliminary metallurgical studies were initiated and are currently underway for 2013. AAU also started drilling other targets on the Tuligtic property with 5 drill holes on the Tano Zone, located about 2.4 km southwest of the Ixtaca Zone. One drilling endeavor in the Tano zone intersected 7 meters of 0.7 g/t gold. The area in-between the Tano and Ixtaca Zones is covered with barren alteration or volcanic ash deposits (see botton figure 2) which complicates the process of drilling. In general the Tuligtic project area is partially covered by post mineral volcanic ash deposits which can hide underlying potential vein zones and associated soil responses. In areas devoid of covering ash, soil sampling has defined several areas of elevated gold and silver values.
In 2013, AAU will continue drilling these soil anomalies on the Tuligtic project. Other target areas AAU wants to explore further include the Casa Azul and Sol Zones. The Casa Azul Zone is located 2.3 km north of the Ixtaca zone. Of 171 sample areas at Casa Azul, gold values ranged from below detection to 620 parts per billion gold and 30.6 g/t silver. A single grab of quartz-carbonate vein float found in the Casa Azul zone returned 2 g/t gold and 37.8 g/t silver. The Sol Zone is located 2.5 km northeast of the Ixtaca zone. Of the 36 sample areas at the Sol zone, gold values ranged from below detection to 130 parts per billion gold and 4.5 g/t silver. These represent significant potential reserves.
El Cobre Property
Toward the end of 2012, AAU secured and transported a drill to its 100% owned El Cobre copper and gold project. AAU began drilling to test Titan 24 (a deep earth imaging tool) high chargeability anomalies that resulted from a survey conducted in 2011 and early 2012. Drilling will recommence when crews return in late January. Past drilling at El Cobre is interpreted to have only tested shallow and largely peripheral portions of the high chargeability zones resulting from the Titan 24 survey. The drill program has been designed to test these anomalies and areas of alteration and mineralization throughout the property.
Other exploration work
AAU also continued its regional exploration programs in 2012, particularly in Eastern Mexico. Currently AAU is acquiring claims in areas where mineralization has been identified as part of this on-going program. Further AAU completed exploration surface mapping, sampling and geophysical work programs on the Yago, San Pedro, Mezquites and El Chato projects in Mexico. Results are being compiled from these programs and will be reported early this year.
AAU had major finds in 2012, primarily at the Tuligitic property. In 2013, progress and further development at the site will be made. 2013 work at the El Cobre project is setting AAU up nicely for a massive find at this 100% owned site. Regional development at other projects is also underway, and any good news from these areas will be a tailwind for the stock. Although AAU is an exploration stage company, it has had success finding areas with decent gold and silver grades at is properties. And investors have taken note, driving the price of the stock up 57% in just over four months. I believe the stock will continue to run in 2013, especially if AAU keeps reporting successful finds from its drilling endeavors.