Now everything is cheap…
One day gold/silver projects will be expensive…
Companies with multiple projects doesn’t even get fair value on their flagship project right now…
Their 2nd, 3rd and 4th projects pretty much come for free…
An ideal scenario would be to buy a company with a big pipeline for growth that has a discovery in a better gold market. Then said project could potentially be sold at a premium and shareholders could get a multi bagger. If the company then has say 1-3 high quality projects in addition to the flagship project it can start working on the next discoveries right away. These would be projects that a shareholder could have bought for free in the current market environment. I emphasize this point a lot: I don’t want to be a buyer in a hot market. Meaning that I prefer to buy companies today that will not need to acquire projects within the next 5 years (or as long as this bull market goes on ideally).
Lets say you bought a junior today with 3 high quality projects and you only really paid for one (and at a discount)…
Lets say the flagship asset had a fair value of C$50 M and the company’s Enterprise Value was C$25 M today (MCAP of C$30 M and C$5 M in cash)…
Lets say the second and third project have a fair value of C$25 M each…
Then one could say you are buying the flagship project at a 50% discount and get the other two for free…
The flagship project becomes a material deposit (but not tier 1) and gets sold for C$400 M within 2 years.
The second project becomes a material deposit (but not tier 1) and gets sold for C$600 M within 4 years.
The third project becomes a material deposit (but not tier 1) and gets sold for C$1,000 M within 6 years.
(Note that I am projecting a higher gold price environment which hikes up the take over price even if the projects would have the same quality.)
When all is said and done, excluding the obvious dilution along the way, the C$30 M company would have resulted in C$2,000 M of combined value. That’s a >66 bagger over 6 years. If one uses a C$100 M starting value in order to account for dilution that is still a 20 bagger.
I don’t need to see multiple projects in a junior but I prefer to see material growth potential even if it is a one project company.
Lion One Metals is a one project company but their Alkaline gold system could be drilled for >10 years and still be growing. That’s a tier 1 project with potential to be worth as much as a few tier 2-3 projects combined. In other words the Tuvatu project could fetch the same price tag ($2,000 M) as the three projects combined in the example above.
Eskay Mining has a district scale land package that already has a major discovery and there are >12 targets in addition to this that we know of. Eskay could find multiple deposits and the TV/Jeff system could be worth a lot more than the current Enterprise Value alone. This means that one might not really be paying anything today for the 2nd, 3rd and 4th potential deposit.
Cabral Gold controls an entire district and already has a 1.0-1.5 Moz resource. The company could be making new discoveries for decades to come and one isn’t really paying for any of that potential today.
Novo Resources is beyond any miner in the world when it comes to exploration potential and one isn’t paying for any of that today either.
Irving Resources probably has one of the best portfolios around and the Omu Project alone could keep the company busy for many years since the company has three major targets already. The limiting factor right now is the rig count which is only one.
Magna Gold has a mine and multiple gold and silver projects and has an Enterprise Value of around US$57 M. As I see it I’m not even paying for the operating mine, let alone the growth pipeline.
… These are the type of companies that I consider HODLs. Meaning that I reckon I could come back in a year or two and they will be worth a lot more than they are today. These are the types of companies that have multiple avenues to create more value (upside diversification) and could be busy for years to come. These are the types of companies that typically makes up the core of my own as well as family members portfolios. The best part is that gold could go sideways for years and I would still expect the value of said companies to be trending upwards (alpha plays).
High Risk, Micro Cap Examples:
FireFox Gold (EV of ~US8.5 M) controls more land in the heart of Finnish gold rush than any other company.
Juggernaut Exploration (EV of ~US6.5 M) has four projects in British Columbia.
StrikePoint Gold (EV of ~US$26 M) has two flagship projects and portfolio of projects in Yukon.
All the companies mentioned above are cheap relative to the potential of their project pipelines in my book. All companies could still be growing many years from now and would not necessarily need to acquire any new projects in order to do so.
One day the valuations of gold and silver projects will be multiples of what they are today, so I prefer to accumulate as many assets as I can as cheap as possible, before that happens. I simply want to have a portfolio made up of companies that will be the sellers and not the buyers going into a hot precious metal market. Ideally I actually want to have a portfolio of companies that will have outstanding project pipelines that will result in the companies becoming SERIAL SELLERS.
Buy NOW based on what the world will look like in say 12 months…
If you “knew” that gold would be at $2,500/oz and silver at $50/oz within 12 months how would/should you act now?
I am preparing and front running the turn. I am not preparing and expecting a correction that is already long in the tooth to continue for the next 12 months. Besides, the juniors are already pricing in a gold price of <$1,400/oz so why wouldn’t I invest when the margin of safety is so high? If I sold now, instead of buying, it would basically mean that I am betting on a scenario where gold is trading at several hundreds of dollars lower and taking that for granted. This might be one of the few sectors in the world that is incredibly cheap today and it is perhaps the sector that one would think has the brightest future. Honestly I think the current investing environment is way better than the 2015/2016 bottom because back then everything was cheap but it made sense because the gold (and silver) price was low and the miners barely made any money. Today the miners are printing money and the juniors do not reflect that potential at all.
Note: This is not investment advice. Do you own due diligence. I own shares of all companies mentioned in this article and many of them are banner sponsors of my site. Consider me biased.