FOCUS: Junior Mining and Exploration Stocks & Commodities

Market Outlook:

The volatility in the markets generated by the uncertainty of central bank policies has generated a bid for the yellow metal which is outperforming most asset classes and currencies in 2016. We are positive on precious metals over the next few years at least.On a fundamental basis, the current global production profile is flattening and the future supply is at risk with the lack of exploration and development. The gold mining industry is producing about 90 million ounces a year yet, only finding about 45 million a year. An even more pressing issue for miners is that the overwhelming majority of these new ounces are not high-quality/high-margin ounces and, are years away from going into production. This imbalance between production and discovery is setting speculators in the higher risk exploration stage companies up for some significant gains if, they own the right company. Fortunately, the preceding four-year bear market has winnowed the junior exploration sector down to a manageable list of technically and financially competent groups that are capable of partially filling the void in discoveries. That is where one should focus their speculative dollars.

TOP PICKS:

Brent's Picks

Mirasol Resouces (MSL.TO) 

Mirasol is a long term holding that follows the “Prospect Generator” exploration model whereby it generates conceptual targets and brings in a better funded company to spend the high risk dollars testing the thesis. It has two strong joint ventures, one with Yamana in Chile, the other with AngloGold in Argentina and, C$23 million in its treasuary. These are very high quality projects that are meaningful to Mirasol’s partners.

Kaminak Gold (KAM.V)

The company has technically solid and honest management and a homegrown discovery in the Yukon that actually works. A recent feasibility study shows the Coffee gold deposit to be a very robust with an after tax NPV5% of C$455 million and IRR of 37%, at a gold price of US$1,150 and Canadian exchange rate of C$1.00 to US$0.78. Initial and sustaining capex comes to C$317 million, and estimated cash production costs are US$482/oz, with all-in sustaining costs of US$550/oz. At $1,250 gold, the NPV5% increases to C$562 million and IRR to 55%. The value of the Coffee gold deposits lies in heap leach recovery characteristics and high grade. 

We view KAM as a likely acquisition candidate once as it nears completion of its permitting process over the next year or two. There however no urgency to acquire the stock now and we would wait for the inevitable pullbacks as the gold market swings over the coming year. 

Joe's Pick

Ivanhoe Resources (IVN.TO)

Ivanhoe has a market capitalization of C$650 million and although it is currently trading up 30% year to date, IVN is still trading about 70% below its 52 week high. IVN is blessed with some of the highest grade copper and zinc assets in the world with the Kamoa and Kipushi projects in the Democratic Republic of Congo in central Africa and platinum group metals (PGMs) in South Africa with Platreef, one of the largest PGM deposits in the world. IVN released positive results from a pre-feasibility study (PFS) for the first phase of development at the Kamoa copper project joint venture (47% IVN) with Zijin Mining (47%), a Chinese state-owned company, Democratic Republic of Congo (DRC, 5%), and a private company (<1%). In my opinion, the PFS confirms Kamoa as a high quality (<4.0% Cu) copper project that comes at an upfront cost that is below the average of a peer group of copper development projects with respect to capital intensity, as measured by the amount of upfront capital required for the forecast average annual copper production rate. The project should fall in the lower part of the cost profile allowing the project to live through the typical cyclical nature of the copper market. Importantly, the concentrate grades are high at just below 40%, with only 0.02% arsenopyrite, which is far below the limit (0.5% As) imposed by Chinese smelters. The grade and quality of the potential concentrate product would support demand for it as a blending material. This may generate a favorable treatment and smelter charge (TC/RC) for the Kamoa product. The Kipushi zinc deposit (68% IVN, 32% DRC government) in the DRC is probably the richest zinc deposit in the world, hosting an indicated 7.8 billion lbs of zinc grading 34.89%. The company is rehabilitating the underground workings. In summary, IVN has a portfolio of high grade assets that should fall in the lower cost quartile with joint ventures that will help advance the projects which require significant upfront capital.  

Past Picks: Mar. 4, 2015

Mariana Resources (MARL LN)

Dalradian Resources (DNA.TO)

Mirasol Resources (MSL.TO)

Total Return Average : +6.78%