PDAC Takeaways From Bill Cara
A favorite time of the year for almost 30,000 people from more than 130 countries is their visit to Toronto for four days in early March to attend the world's greatest mining convention.
The 2019 Prospectors & Developers Association of Canada (PDAC) welcomed Prime Minister Justin Trudeau along with the usual crowd, the prospectors, investment analysts, media, students, indigenous peoples, investors and executives of about 500 mineral exploration and mining companies and another 500 industry-related services companies and government presentations from every part of the world.
In my case, I have attended almost every year since 1981. This March 3 to 6 was just another one. But it never gets old.
Most investors know that these mining companies have increasingly elaborate online corporate presentations that contain the latest publicly-disclosed information, so why do we spend the time and money to attend? Well, government people go sell the benefits of mining in their jurisdictions, and the suppliers go to sell their equipment and services to the mining companies. The mining companies go to raise capital or to acquire properties. Indigenous peoples are wanting partnerships to explore and hopefully mine the potential minerals in their lands. Stock exchanges seek listings. Students are seeking jobs. Over 400 from television and electronic and print media seek stories. Everybody is there to meet people.
Big deals were getting done too. This year, for example, Australia's Newcrest Mining (OTCPK:NCMGY), world's third largest market cap among Goldminers, spent US$806.5 million in cash to acquire the promising Red Chris property in British Columbia from Imperial Metals (OTCPK:IPMLF).
We investors are there to scout out the companies with under-recognized potential. Obvious to everybody is that none of these so-called experts and wannabees knows which small company is going to be the next Barrick (NYSE:GOLD), Goldcorp (NYSE:GG) or Teck (NYSE:TECK) or where the prices of metals will be a month from now. But if you are an investor and you want to talk to knowledgeable people about some of the not very well-known exploration companies that have great prospects, then this is the place to be. You listen to their stories and then you do the research later. I like to think of it as we are there to mine a few stocks.
This year, I did uncover a few names I had known very little about, like Marathon Gold (OTCQX:MGDPF), Prophecy Development (PCY) (OTCQX:PRPCF) (Vanadium), and Scandium International Mining (SCY) (OTC:SCYYF). To me, all of them seem good for the long haul. As usual, I dropped by the booths of a few old friends, like Rob McEwen of McEwen Mining (NYSE:MUX), Rui Feng of Silvercorp (NYSEMKT:SVM), John McCluskey of Alamos Gold (NYSE:AGI) and Doug MacQuarrie of Asante Gold (ASE) (OTC:ASGOF) among others. At other booths, I met some new people in Sherry Dunsworth of Marathon Gold, Carolina Ordonez and Gordon Neal of New Pacific Metals (NUAG), Andy Hay and Bill Morton of Lorraine Copper (LLC) (OTCQB:LRCPF), Daniel Oosterman of Prophecy and Michael Michaud of Wesdome Gold (OTCPK:WDOFF), among many others.
In fact, I met people from so many countries or who had been working in virtually every part of the world that I could not begin to list them all. I even sat in on the so-called fireside chat with PM Justin Trudeau although that was a waste of valuable time.
What did I learn from three solid days of walking and talking? Well, whatever I write here (i) is a fraction of what I learned, and (ii) is done without remuneration from any source. You should know that I hold investment or trading positions in three stocks I have mentioned today: Wesdome Gold, Alamos Gold, and McEwen Mining. At the appropriate time, I will be buying shares in some of the others. In every case, I recommend you spend your own time, as I will, to investigate further.
What did I find pleasing? I am happy that Alamos Gold received their required permits from Turkey, and the stock is reflecting that. Everything seems on track there, but guidance is down, unfortunately. I'm happy too that McEwen Mining made its first gold pour from its Gold Bar operation in Nevada, and I got to hold the bar (it's heavy) with a photo taken. That stock too has lifted despite the operational issues encountered at a few of their sites and where they postponed their dividend as a result. But production is down, and guidance has been lowered.
Prophecy Development has recently encountered some outstanding drill results at their Nevada Gibellini Vanadium Project but still needs a final feasibility before seeking the capital to put this property into production. The PEA reported an after-tax cumulative cash flow of $601.5 million, an internal rate of return (IRR) of 50.8%, a net present value of $338.3 million at a 7% discount rate and a 1.72 years payback on investment from start-up assuming an average vanadium pentoxide price (V2O5) of $12.73 per pound. As of March 12, 2019, the price of vanadium pentoxide is $17.10/lb. The price in 4Q2018, however, was mostly in the $29-33/lb range. Soon after the closing of PDAC, the company announced "the appointment of Michael Doolin as COO and interim CEO. Mr. Doolin will manage Prophecy's worldwide operations. Doolin with over 30 years of operational and management experience in Nevada was Chief Operating Officer at Klondex Mines from 2012 to 2018".
Lorraine Copper will hold a special shareholder meeting on April 5 where shareholders will likely vote to approve a merger with Sun Metals (OTCPK:SMTTF). Their polymetallic (Cu/Mo, Cu, Zn, Pb) Stardust Project containing extremely high-grade copper is in northcentral British Columbia. This spring and summer the property will be well drilled (an additional 100,000 metres), following on the 393 holes (80,000 meters) previously drilled. Management is hoping to build a copper resource of at least 10 million tons, which would facilitate a major copper mine. What twigged my interest in Lorraine was the Nov. 14, 2018, news release that reported that diamond drill hole DDH18-SD-421 was "completely assayed and has returned a total 100-metre intersection grading 2.51% copper, 3.03 grams per tonne (g/t) gold, and 52.5 g/t silver for a 4.99% copper equivalent (CuEq)". At current metal prices, that single hole represents a gross value greater than US$300 per metric tonne, which is simply outstanding.
Scandium International owns the richest deposit of scandium in the western world. This is the Nyngan Project in New South Wales, Australia. Along with Aluminum, Scandium is a metal that is used in an AL-SC alloy that is stronger than the aluminium presently used to manufacture aircraft and mountain bikes. Management is on track to be in mining production in 2020 with a capex of between US$80 and 100 million. Project net present value (NPV) is $338.3 million, and IRR is 33%. Insiders own 46% of the stock. At C$0.17, presently, the market cap is under US$40 million. I'm told that scandium may present some difficult metallurgy issues, however. All in all, this is a fairly solid bet.
If I were younger, I could envision my next boat being of AL-SC construction and powered by solar/lithium.
Asante Gold in Ghana represents a tiny cap that needs capital to go ahead, but my friend Doug MacQuarrie, who controls the majority of the stock, is selective as to how he will do any financing because he strongly believes that his Kubi Gold property will produce one of West Africa's major gold mines at some point. Presently, he seeks a joint venture or $20 million debt financing for the project. Doug is an expert who founded and managed the 5+ million oz Obotan Gold Project of PMI Gold in Ghana that in 2014 was bought by Asanko Gold (NYSEMKT:AKG).
Wesdome Gold produced 71,625 oz Gold in 2018 with free cash flow of $30 million at their Eagle River Operations and now company-wide has had five straight quarters of generating a positive free cash flow. Gold production guidance for 2019 is 72,000-80,000 oz. The story going forward will be based on the price of gold as their All-In Sustaining Cost (AISC) is a relatively high US$985. Better known and much bigger Goldminers with a significantly lower AISC would be all the following companies that presented at PDAC: Kirkland Lake (NYSE:KL), Centerra (OTCPK:CAGDF), Barrick, Yamana (NYSE:AUY), Newcrest, B2Gold (NYSEMKT:BTG), Agnico Eagle (NYSE:AEM), and Goldcorp (soon to merge with Newmont (NYSE:NEM) to become world's largest Goldminer). But Wesdome does have the Kiena Val d'Or property in Quebec that was decommissioned in 2013, but which has the fully permitted mine and mill infrastructure on standby. With higher gold prices and drilling in hopes of expanding resources, there is the hope for an early return to mining production at Kiena. Wesdome is probably the #1 takeover possibility among juniors. The stock is my largest Goldminer position.
Marathon Gold's 100%-owned Valentine Lake Project is one of the two big gold plays in Atlantic Canada today with 2.69 million oz (measure and indicated) gold and a further 1.53 mil oz inferred. The cost of putting a mine into operation there will be over $250 million, but this is doable because the Net Present Value (NPV) is calculated at US$493 million. Projected AISC is a very low US$666, and the project IRR is about 30%, which is high. Very telling that Marathon is in it for the long haul is the fact Franco-Nevada (NYSE:FNV) purchased a royalty interest in what may in 4 or 5 years become a mine.
While at PDAC I spent the most time talking to the New Pacific Metals (OTCQX:NUPMF) people who are developing a high-grade silver prospect in Bolivia that has incredible possibilities. Some of the true width drill intersections are as impressive anything in the world today. Over the years, I have written in the blog and invested in this company as well as in Silvercorp, their major shareholder.
As you may know, CEO and Chairman Rui Feng has been a friend for many years. I have written extensively about him and his Silvercorp, particularly a few years ago when hit by a professional short seller's report that almost doomed his company. He recovered from that ugly experience because the truth was on his side. His company is in fact now China's largest silver producer and has produced 61 million oz Silver plus 901 million lbs lead and zinc over the past 12 years. The AISC of silver is just $6.63/oz, which is the lowest of their peers, and their return on equity is the highest. To date, Silvercorp has bought back $56 million in shares and paid $99 million in dividends. They also invested $23 million for a 30% equity interest in New Pacific Metals, and together with the 7.5% holding of Rui Feng and more from his friends, Silvercorp has solid control and deep pockets to stay in control.
So, while I like Marathon Gold, Lorraine Copper, and Prophecy Development, I must say that New Pacific is the most intriguing story I discovered at PDAC. This is a billion-dollar mining company in the making.
Here are some highlights about the company and about mining investment in admittedly high-risk Bolivia:
Recent accomplishments of New Pacific:
Sept. 2017: Acquired 100% of Silver Sand Project (Minera Alcira SA) for US$40 million. Nov. 2017-Sept. 2018: Expended US$10.11 million as part of 55,000 metre drilling program at Silver Sand Project July 2018: Acquired 100% interest of two additional concessions north of the Silver Sand Project July 2018: Signed MOU with COMIBOL to negotiate and complete a Mining Production Contract ("MPC") to expand land package for the Silver Sand Project Sept. 2018: Established an exploration team of 40+ members Jan. 2019: Signed MPC with COMIBOL, the first of its kind for a foreign investor in Bolivia, to expand land package covering an area of approximately 57 sq. km Feb. 2019: Reported near-surface drill results that intercepted silver mineralization in 190 out of total 195 holes, including a huge 99.91 meters grading 244 g/t Ag.
For many mining companies and investors, the problem for New Pacific is Bolivia, which like Venezuela has in the past caused grief for many foreign owned mines and resource investment projects. Other than the results of their ongoing work to prove up the massive potential of Silver Sands, why is New Pacific excited to be investing in Bolivia? The points they made to me:
Stable government under Evo Morales, first Indigenous president of the country, who is now 12 years in office and likely to win the upcoming election, new mining laws in 2014 and 2016 aimed at increasing foreign investment, and an updated law (law #516) for foreign investment protection that is presently under revision under-explored but rich in mineral endowment with a long history of mining - Cerro Rico in continuous operation since 1550 Foreign mining investments in the country from Pan American Silver (NASDAQ:PAAS), Sumitomo, Argentum, Glencore (OTCPK:GLCNF), Orvana (OTCPK:ORVMF), and New Pacific Metals, the fastest growing economy in South America in 2018.
Remember: you can't take the rewards unless you accept the risk. In my opinion, these companies are all worthy of your time to study the risks before investing. As we say, "Let the rock do the talk."
If you do invest, try to be patient. We remain patient in our Natural Resources portfolios, which are holding a higher allocation to goldminers along with cash.
I look forward to seeing you at the PDAC 2020 Convention, March 1 to 4, 2020. Mark your calendar.
Not all miners are equal. While opportunities are developing in the broad mining sector as the economy churns towards recession, not all companies will outperform. Knowing the company's business will be essential. We see both small-cap miners which may become next Barrick or Newcrest, as well as small-cap miners which are prime candidates for takeover.
Graphs of each stock mentioned above
New Pacific Metals (NUAG)
Prophecy Development Corp. (PCY.TO and PRPCF)
Marathon Gold Corp. (MOZ.TO and MGDPF)
Lorraine Copper Corp (LLC.V)
Sun Metals Corp (SUNM.V)
Scandium International (SCY.TO)
Asante Gold Corp (ASE.CSE)
Wesdome Gold (WDO.TO and WDOFF)
Silver Metals Corp (SVM.TO and SVM)
Alamos Gold (AGI.TO and AGI)
McEwen Mining (MUX.TO and MUX)
Newcrest Mining (OTCPK:NCMGY)
Disclosure: I am/we are long WDOFF, MUX, AGI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.