Joe Mazumdar, co-editor and analyst at Exploration Insights
Focus: Junior mining sector


I moderated a Keynote Investor Panel at the Precious Metal Summit in Beaver Creek, Colorado last month that included representatives from an institutional equity (Van Eck), a private equity (Resource Capital Funds) and the retail sector (Sprott Global). The panel provided some good insights into the precious metal market.

Gold needs a catalyst. The Van Eck portfolio manager thought that the current gold market was reminiscent of the turn of the century, with the gold price trading sideways, and that we may be in the late stages of a capitulation. Gold still needs a catalyst to switch the investor sentiment from greed to fear via some form of systemic risk.

Passive versus active funds. Precious metal sector-focused active institutional equity funds such as Van Eck and passive ones such as GDX and GDXJ peaked at around US$54 billion in 2011 according to a CIBC note. It was 94 per cent active versus about 6 per cent passive in 2011. Fast forward seven years and actively managed funds fell by close to 80 per cent to US$10 billion and now represent only one third of the total assets under management (AUM). It’s a smaller AUM pie, but a larger slice for passive funds.

In North America alone over the past three years, active funds have lost US$1 billion in AUM whereas the AUM of passive funds has risen by about US$7 billion. The “New Money” appears to be generalists who prefer passive funds due to the high liquidity, anonymity and trading flexibility according to Van Eck.

Private equity. Private equity funds like RCF have a long-term investment cycle and can afford to be commodity agnostic, as it has historically invested in over 30 different commodities. The firm employs a chief commodity strategist to recommend commodity exposures, which currently include gold, copper, zinc, and nickel.

The traditional focus is on late-stage development assets to write the big checks that require intense due diligence. Private equity firms (RCF and Orion) also offer a one-stop shop for mining companies (debt, equity and streaming). Although the financial equivalent of a 7-Eleven is convenient, it isn’t cheap.

To capture the value of earlier-stage developments, one private equity firm created a second vehicle known as the Opportunities Fund. It focuses on early-stage exploration ($1 to $1.5 million), the de-risking stage (the resource to feasibility study, $3 to $5 million), and strategic options for M&A and market dislocations. The fund takes more significant risks, but is more nimble. It writes smaller checks.

Private equity funds have also taken some companies with mining assets private (Dalradian Resources and Orion Mine Finance).

Australian producers. The weak Australian dollar, the strong Australian dollar/gold price and a push to production has generated a growth in mid-tier producers. Their strong valuations and balance sheets combined with the increasing geopolitical risks in Asia have underpinned a dedicated push to the Americas, which adds a serious suitor for Western Hemisphere assets.

Major producers and junior investments. The value proposition in mining is turning a worthless piece of real estate into a positive cash flowing hard asset. The paucity of quality projects in producers’ pipelines has also led them to private placements, joint ventures and earn-ins with non-cash- flowing junior explorers. We noted 12 producing companies made 40 deals worth $2 billion, mostly in gold, copper and zinc in low geopolitical risk jurisdictions.

Junior exploration drilling. We tracked 25 junior explorers over the past 24 months or so and they averaged returns of over 550 per cent over two months, but fell by 55 per cent over the next 10 months. Most of the companies were seeking precious metal in projects in the safe geopolitical jurisdictions. There’s a high reward, but also high risk which is the attraction for many junior investors. There’s less want to take on geopolitical risk.


Bought at $0.76 in September 2018.

Junior explorer GT Gold has an interesting copper-gold porphyry play in the Golden Triangle of northern British Columbia. We bought share in the company in September after it released an intersection of 430 meters grading 0.41 per cent copper with 0.67 grams per tonne (g/t) gold from a 1 km deep drill hole.

Although in a remote part of the province, it is located only 15 km from the Red Chris copper-gold mine operated by Imperial Metals (III.TO), which operates on grid power and is near a major highway.

Red Chris is a large (30,000 tonnes per day) open pit operation commissioned by Imperial Metals at the end of 2014 after spending about $660 million in upfront capital expenditures to support a 30-year mine life. Its 2018 production guidance is up to 77 million pounds of copper with 33,000 ounces of gold and it’s considered the company’s crown jewel as it generated around 70 per cent of the total revenue from its three active mines (Red Chris, Mount Polley and Huckleberry) over the first half of 2018.

If the rest of the copper-gold mineralization at Saddle North is consistent with hole TTD085, then it would not be open-pit amenable. But the grades (0.41 per cent copper, 0.67 g/t gold) compare well with Red Chris’ underground measured and indicated grades of 0.5 per cent copper and 0.7 g/t gold. The planned block cave underground component of the Red Chris mine plan lies over 200 meters below surface.

Large, long-life copper assets in the possession of junior companies are getting rarer. Therefore, delineating a porphyry copper-gold body at the Saddle North prospect in the Tatogga property of similar scope and scale to the nearby Red Chris mine would be significant for GT Gold.

Bought at $0.45 and at $0.58 in February and May 2018.

We purchased a partial position in the junior precious metal explorer in Sonora, Mexico in late February. There’s potential for the discovery of a major low sulphidation epithermal precious and base metal vein field at the Alamos silver project, which is focused in and around a historic mining district which extracted over 120 million ounces of silver. Our visit confirmed the geological potential and the favorable infrastructure (easy access) of the Alamos Silver Project.

We think that finding and testing new veins and extensions is key to adding shareholder value; the addition of the Nueva Europa Sur (0.6 km) and Promontorio Sur (1 km) vein systems is a good start. Our target is an average grade of about 375 g/t silver equivalent, predominantly driven by silver from testing the veins at depth. The drilling has indicated that the surface grades may not be representative of the potential at depth.

The discovery of more veins has led the company to expand its land package to 16,000 ha. We continue to hold the company, as it is well funded (after closing an oversubscribed $7 million private placement in May) to expand its land package, generate drill targets, and drill them. The company announced the resumption of its drill program in early September 2018 so we look forward to drilling results going forward.

Bought at $4.60 in May 2017.

We like to pick one stock that;s liquid (market capitalization of $977 million) and generates free cash flow. This year, we choose Sandstorm Gold, a streaming/royalty company that generates about US$10 million in free cash flow per quarter. It differs from its peer group as it is forecasts a double in its gold equivalent production profile by 2022-2023, which is underpinned by its 30 per cent stake and 2 per cent net smelter returns (NSR) in the Hot Maden gold-copper asset in Turkey. Hot Maden on a 100 per cent basis hosts 3.5 million ounces of gold equivalent grading just under 12 g/t gold equivalent.

In the near term, the company is looking forward to the Cerro Moro silver stream, a high-grade silver-gold mine in Santa Cruz, Argentina operated by Yamana Gold. Recently, it purchased a 2 per cent NSR on the Hounde gold project in Burkina Faso operated by Endeavour Mining.






  • Then: $0.40
  • Now: $1.50
  • Return: 275%
  • Total return: 275%


  • Then: $1.54
  • Now: $0.65
  • Return: -57%
  • Total return: -57%


  • Then: $3.17
  • Now: $1.92
  • Return: -39%
  • Total return: -39%

Total return average: 72%




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