This is The Best Environment I Have Seen in 6 years
I’m starting to feel like I did in 2015/2016 before the epic Q1 rally of 2016. Back then I didn’t know much about mining but I understood enough to realize that the valuations were absurdly low in the junior miners. Everywhere I looked I saw metals in the ground almost given away for free. Now, as I just said, I am getting that feeling again (keep in mind that gold was around $1,100/oz back then versus $1,770/oz today)…
Consider these examples:
Dolly Varden Silver
- 44.5 Moz of pure High-Grade silver in a tier #1 jurisdiction aka pretty unique today
- Enterprise Value: US$41.77 M
Defiance Silver
- Tepal: 1.8 Moz Au, 813mm lbs Cu and counting
- NPV of US$345 M at $1,500/oz gold and $3.00/lbs copper
- San Axacio: 16.9 Moz Ag and counting
- Enterprise Value: US$76 M
Rokmaster Resources
- 2 Moz AuEQ and counting in tier #1 jurisdiction
- Enterprise Value: ~US$35 M
Mayfair Gold
- 2 Moz Au with goal to finnish 2021 with 3 Moz in tier #1 jurisdiction
- Enterprise Value: ~US$40 M
White Rock Minerals
- Morning Star mine: 1 small operating mine after merger
- Red Mountain: 53.5 Moz silver, 352 Koz gold, 1.5B lbs zinc, 0.6B lbs lead
- Mt Carrington: 352 koz hold, 23.3 Moz silver
- Enterprise Value: ~US$31.5 M
Golden Tag
- San Diego: >200 Moz AgEQ
- Enterprise Value: ~US$34 M
… I can get going with a lot more examples but lets stop here for now. My “want to buy list” is like 60 companies long by now.
The combined Enterprise Value of the companies above is around US$258 M
For US$258 M one buys:
- ~7.5 Moz of gold (or AuEq)
- ~338.2 Moz of silver (or AgEq)
- 813mm lbs Cu
- 1.5B lbs zinc
- 0.6B lbs lead
- One small operating mine
- All of the current deposits are open with a lot more exploration potential
- Several district scale land packages
There is simply no way in hell that the Prices we see in the mining sector right now are sustainable. They are waaay too low especially given that the demand/supply trend is positive. There simply are not many discoveries being made nor big deposits around.
Remember that during the 2011 bull market peak we saw Kinross acquire Africa based Redback Mining for like C$9.2 B. That’s the kind of stuff we will see one day again and even if it takes 5 years for a 200% return on ones portfolio the Compounded Annual Growth Rate would be 24.57% and would be a return that is 150% better than what the broader market averages over the long term. Personally I expect a 200% return for my portfolio within a year or two and over 500% over five years.
Further Evidence
It’s the same in the early stage exploration plays:
- Mantaro Silver (US$6.22 M EV)
- Juggernaut Exploration (US$3 M EV)
- Headwater Gold (US$5.12 M EV)
- Ophir Gold (US$5.43 M EV)
- Pacific Ridge (US$5.73 M EV)
(There are countless more out there I am sure)
The combined Enterprise Value of those 5 early stage companies is around US$26 M and I get exposure to over >15 projects (and at least 5 projects are being drilled right now)….
On that note I would love to hear about any single junior explorer with an Enterprise Value of US$26 M which has >15 projects and is drilling 5 of them right now…
… See, these valuations don’t make any sense at all.
I know I am going to make a lot of money. The only way I can F it up is by passing on the easiest lay ups I have seen in 6 years.I guess the motivation would be the ole “I am afraid they could get cheaper so might as well sell”… Which is the most greediest excuse to make a mistake ever.
Sure, things CAN get even cheaper but I already know the current valuations are so low that it’s pretty much inevitable that I will make a good average return just by holding on. Some might first go down 30% before they go up 300% etc.
And sure, in absolute terms the 2015/2016 bottom might have seen even lower valuations but when one account for gold trading at bloody $1,770/oz instead of $1,100/oz the current investing environment is EVEN BETTER.
I would never in my wildest dream expect to see bargains like this at a time when gold is not that far away from its recent ATH. The market is totally brain dead. Totally inefficient. Totally underestimating how hard it is to find deposits. Totally underestimating the ongoing supply problem. Totally underestimating the forward looking demand given the macro environment.
Oh and why shouldn’t the best possible opportunities come at a time when literal memes such as Doge Coin get multi billion dollar valuations?
It all makes perfect sense.
Note: This is not investment advice. I own shares of all companies mentioned for IMO obvious reasons and they are all banner sponsors. Consider me biased an make up your own mind!
Best regards,
The Hedgeless Horseman
Erik is spot on as usual. My own risk management involves selling partial positions “too early” on the way up. My risk management position for PM’s at present depends on my probabilities for a blow off top in the general market – would it be a correction or a crash? If I anticipate a crash, I would be selling, because whether a crash or correction, mining stocks will also fall. I believe we “should” have a crash under normal circumstances, but the Fed will do everything in its power to limit a downturn to merely a correction. I am over 59% cash based on risk management over the past year. Now, based on my subjective probabilities, I am willing to hold my remaining positions and nibble at some good ones, like some of the 60 or so Erik has noted. If we get a correction my shares will go down and I will buy more. I estimate that 1-3 years out the probabilities favor high returns.
BEST ENVIRONMENT: URANIUM – ERIK? The supply-demand situation, Sprott’s SPUT and the “green” orientation makes uranium investing a no-brainer for the next 2-5 years. I would like to see Erik put some of his intellectual acumen into this field, although I realize that may dilute some of his intellectual energy from the PM’s. Two challenges – 1) Uranium stocks have risen dramatically since December 2020, and 2) the possibility of a Chernobyl-like disaster. Regarding 1, uranium stocks have finally been pulling back in the last several months and regarding 2, my subjective probability of an accident, given the latest safety technology, is extremely low.