Gold Mining Bull: Top News For October 2021
It's a frustrating time to be a gold & silver mining investor as we enter the Q3 earnings season, and close out a challenging year: Gold prices (GLD) have declined by 7.8% and the VanEck gold miners index (GDX) is down 17.07% year-to-date, as of Friday, Oct. 29.
Metals prices are stuck in a tight range as gold faces a wall of resistance at its 200-day moving average ($1,793/oz) and August/September highs ($1,837/oz). Rising inflation, soaring deficits and Biden's new $1.75 trillion spending bill have not done much to move the needle just yet.
(Gold prices as of 10/29. Credit: StockCharts)
Regardless, gold miners remain attractively valued and are not getting any respect from investors, despite paying high dividends and carrying low debt. Miners are largely profitable with spot gold prices ($1,783/oz) well above average all-in sustaining cost levels ($900-$1,100/oz).
There's also downside protection to consider: The miners have a much larger margin of safety compared to the 2009-12 bull market (and following crash), when several senior gold miners went on large acquisition binges, driving up net debt levels.
For example, at one point in 2013 Barrick Gold had $12 billion net debt, which has been drastically reduced, and others have maintained lean balance sheets.
Debt reduction efforts are largely complete and should lead to higher dividends and increased M&A activity in the sector. The Kirkland Lake/Agnico merger could just be the start of a new wave.
Dividend yields are the highest I've seen in years and look sustainable even if gold fell by another $100-$200/oz:
|Newmont Mining (NEM)||3.73%||68.48%|
|Yamana Gold (AUY)||2.56%||40.80%|
|Agnico Eagle Mines (AEM)||2.53%||54.09%|
|Barrick Gold (GOLD)||1.90%||31.07%|
|Kirkland Lake Gold (KL)||1.71%||23.77%|
However, the potential for rising costs in the mining sector is one development to keep a close eye on.
Months and months of 5%+ annualized inflation - including rising labor and fuel costs - is bound to increase mining cash costs. It'll be important to see how much costs rise and how miners plan to manage these inflationary pressures.
Perhaps the industry should be investing more in solar energy, battery powered vehicles and autonomous mining fleets. This could help reduce costs, but also improve mine safety and sustainability, and tackle ESG goals.
I've put together the top news in the gold and silver mining sector for the month of October 2021, which includes major announcements such as quarterly production results or earnings reports, exploration updates, mergers and acquisitions, and other relevant news.
Please let me know if I missed any big news in the comments section below.
Honorable Mention News
Here are some notable news items that just missed making the top news list for October.
Endeavour Silver's Strong Production
The Mexico-focused silver producer reported 2.1 million silver equivalent ounces in Q3, ahead of plan, despite suspending operations at the El Compas mine.
In an interesting move, Endeavour recently acquired the Bruner gold project in Nevada for $10 million, a case of another Mexican silver miner diversifying into Nevada (First Majestic acquired the Jerritt Canyon mine earlier this year.)
First Majestic Silver Holds Back Silver Output
Speaking of First Majestic, it had a strong quarter of its own, producing 7.3 million silver equivalent ounces. The company decided to suspend silver sales in an effort to realize higher silver prices in the future.
Due to the relative weakness in the silver price throughout the quarter, we decided to suspend silver sales for the third time in the Company's history in an attempt to realize higher prices. - Keith Neumeyer, President and CEO.
Volcanic Gold Mines' Bonanza Drill Hole
The outstanding drill hole of 4.58 meters of 79.84 g/t gold also intersected 5,053 g/t silver, on the south extension of the La Peña vein at the Holly property in Guatemala.
On a gold equivalent basis, it's equal to 147 g/t over 4.58 meters; on a silver equivalent basis, it's equal to 10,998 g/t over 4.58 meters. This is one of the most impressive assays in the sector this year.
Northern Dynasty's PEA Study at Pebble
The challenged gold developer has released a preliminary economic assessment on the Pebble project, what it has called a "robust" project.
The numbers may look impressive at first glance: a $4.7 billion net present value (at $1,800/oz gold, $4.25/lb copper) and gold equivalent cash costs of $753/oz. It's a massive project. But its news release contains a glaring omission (perhaps on purpose), as there's no mention of upfront capex estimates.
Look at the technical report in SEDAR, and you'll find a $6.05 billion price tag, an extreme sum for any company, let alone a gold junior with a $226 million market cap. I think its financing and permitting challenges with this project are far too much to overcome.
Osisko Mining Drills 3,979 g/t over 2.3 Meters
Osisko continues to produce some of the most impressive drill holes in the industry, including the highlight assay, which is the second-highest sample ever recorded at Windfall and it represents a gram x meter of 9,151.
The intercept comes from expansion drilling rather than infill drilling, which means it will likely increase the resource rather than "prove-up" resources to reserves.
Surprisingly, Osisko Mining's stock price has not reacted positively to the latest exploration results. But its current 4.2 million ounce resource base is bound to rise from here with results like that (the company targeting 7+ million ounces, according to page 32 of its corporate presentation.)
Perhaps the upcoming resource estimate update, or an updated technical report, will change the story?
Agnico Eagle's Record Quarterly Gold Production
Agnico had a strong quarter as it prepares to merge with Kirkland Lake Gold (KL) by late-2021. The senior gold miner reported quarterly net income of $114.5 million, or net income of $0.47 per share. It produced 523,707ozAu (a record) at $1,011 all-in sustaining costs.
The strong performance at the LaRonde Complex, Goldex and Canadian Malartic mines is good news for Kirkland Lake Gold. The Abitibi assets are a key component of its merger and the basis for the ~$2 billion in synergies (over 10 years) estimated by its management.
Top 5 News for October 2021
5. IAMGOLD Grows Côté Gold District by 3+ Million Ounces
The mid-tier gold miner updated its technical report for its 70%-owned Côté gold project in Canada. Côté profiles as a top-tier asset capable of producing 316,600ozAu annually at $802/oz all-in sustaining costs over an 18-year mine life.
Also notable is the initial resource estimate of 3.35 million oz (indicated) at Gosselin, which is not included in the mine plan currently and could increase annual output and extend the mine life.
The project is now 36% completed and remains on track for H2 2023 commercial production. This is also good news for Metalla Royalty (MTA) and Royal Gold (RGLD), which both own NSR royalties on the mine.
IAMGOLD is likely thrilled to be building a gold mine in the mining-friendly jurisdiction of Ontario, especially after the recent news of an attack on its staff and contractors at the Essakane gold mine in Burkina Faso.
4. New Found Gold Lands $48 Million from Sprott, Doubles Drill Program
Top-tier gold explorer New Found Gold (NFGC) is doubling its drill program at the Queensway project in Newfoundland to 400,000 meters. It has gained more support from its second-largest shareholder, Eric Sprott, who will invest $48 million via a private placement.
The aggressive move is warranted: New Found Gold has consistently hit bonanza grades at Queensway, most recently reporting 61.50 g/t gold over 5.20 meters and 88.53 g/t gold over 3.35 meters at Keats, which is expanding in all directions, including at depth.
(The intercept of 88.53 g/t gold over 3.35 meters comes from one of the deepest holes drilled to date. Credit: New Found Gold)
Other results at Golden Joint and Lotto need to be followed up with more drilling. For example, drilling at Golden Joint returned 430.17 g/t over 5.25 meters, one of the best assays of the year.
There's potentially more high-value targets on its property along the highly-prospective Appleton Fault Zone:
To date our Queensway program has delivered three high-grade gold discoveries (Keats, Lotto, and Golden Joint) over 2.6km of strike along the Appleton Fault Zone.
At the same time, we continue to generate and advance multiple other high-grade gold targets at the Appleton and JBP Faults along +20km of strike on Queensway North. - Greg Matheson, COO.
Keats has provided outstanding assays, but I believe the explorer has barely scratched the surface with several other high-priority targets largely under-explored. The funding by Sprott and subsequent increase in its drill program are positive developments, and watch out for future drill results.
3. B2Gold Crushes Production Estimates
In 2021, B2Gold previously forecasted annual gold production to be 970,000 – 1,030,000 ounces. It looks like this guidance will be easily met as the miner announced strong Q3 2021 gold production of 310,261 ounces, representing an 18% increase year-over-year and 7% above its budget.
Given the strong quarter, B2Gold has lifted its annual guidance to fall between 1.015 to 1.055 million ounces, with all-in costs to fall between $870 - $910/oz.
What's more: Based on its current estimates and an average gold price of $1,800 per ounce, B2Gold expects to generate operating cash flow of $630 million for the full-year 2021, of which $500 million would be generated in H2 2021.
2. Newmont Mining Misses Earnings Due to Rising Costs
Higher diesel fuel costs were partly to blame, along with higher sustaining capital spend, an unfavorable Australian dollar foreign currency exchange rate, and COVID-related labor issues in Canada.
Check out the rise in diesel fuel prices in the U.S. over the past year (diesel fuel is used in machinery to haul gold ore and overburden.)
Displacing diesel from a mining fleet can remove up to 40% of a mine site’s emissions, according to Global Mining Review. Diesel usage is also counterintuitive to the mining industry’s goal to be reach net zero carbon emissions by 2050, the article argues.
Agnico Eagle Mines also reported cost inflation in its most recent quarterly earnings:
Given rising prices for many commodities and disruptions to global supply-chains, the resulting cost pressures were gradually being pushed downstream and were starting to be reflected in the prices for a number of goods and services used by the Company.
Since then, these inflationary pressures have accelerated (e.g., diesel prices have increased by approximately 20% since August 1, 2021), and while the company continues to implement numerous initiatives to offset this, we anticipate upward cost pressure throughout the industry, including at the Company's operations.
Keep a close eye on cost pressures, as we finish 2021 and as miners start to report 2022 guidance.
1. Equinox Breaks Ground at Greenstone Gold Mines
Big news this month as Equinox Gold (EQX) announced groundbreaking for full-scale construction at the Greenstone Gold Mine in Ontario. This is a 60/40 joint venture partnership with Orion Mine Finance Group.
This is going to be one of the biggest gold mines in Canada, producing more than 400,000ozAu per year and 5+ million ounces over a 14-year mine life, at industry-leading costs of $618/oz. First gold pour is estimated for H1 2024.
Will it be a sound investment? The project requires $1.22 billion in upfront capital (up $200+ million from original estimates), split between Equinox and Orion, but still a massive sum for any miner to handle.
At $1,400/oz gold it looks like a marginal project, carrying a NPV of $1.05 million (post-tax, 5% discount). Thankfully, Greenstone is highly leveraged to gold prices and that valuation soars to $1.841 billion using a $1,800/oz gold price, with a superb 28.9% IRR.
Investors should also consider exploration & development upside. The feasibility study value does not include upside potential from the Hardrock underground deposit or the nearby Brookbank, Kailey and Key Lake deposits.
What top news did I miss this past month? Let me know in the comments below.
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