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Guy on Rocks: This report is about to have a significant impact on smouldering gold prices

‘Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week. Former geologist … Read More
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This article was originally published by Stockhead

‘Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week. Former geologist and experienced stockbroker Guy Le Page, director, and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.

 

 Market Ructions

A good week for precious metals on the back of spiralling US inflation figures which came in at an eye-watering 6.2% year-on-year (figure 1) and the PPI (Producer Price Index) at 8.6% (figure 2).

Federal Reserve chair Johnathon Williams calculates his inflation figures the old way (using the same inputs applied in the 1980s) and comes in at a whopping 14%.

Figure 1: 10-year US inflation figures (Source: www.tradingeconomics.com).
Figure 2: Producer Price Index by Commodity (Source: www.fred.stlouisfed.org/series/PPIACO).

If this isn’t a good platform for gold I don’t know what is!

Anyway, gold touched US$1,885/oz on Wednesday before pulling back to US$1,854/oz (figure 3) with silver, platinum, and palladium all stronger.

Figure 3: 60-day gold price chart (Source: www.kitco.com).

The pull-back in gold from five-month highs was more than likely a reaction to a rising US dollar (up 52 points – figure 4) responding to strong monthly advance sales in the US that were up 1.7% year-on-year to US$638.2 billion.

This was just over double the growth of retail and food services in September, which came in at $627.5 billion, an increase of 0.8%. Industrial production was also up over 1.6% in October.

These figures aren’t surprising given the underlying inflationary affects boosting sales figures.

Figure 4: 3-year US Dollar index chart (Source: https://www.marketwatch.com/investing/index/dxy/charts)

The gold bulls will be watching the updated PCE core inflation index for October which is due for release on November 24. They’re likely to have a significant influence on gold prices.

Turns out that Kitco gold survey showed the Wall Street bulls, who were in the majority, got it right on the gold price trajectory.

I suppose that is why the Main Street pundits who forecast a fall in gold are on Main Street.

In other news, the copper market remains chaotic with sellers outnumbering buyers and trading around US$4.40/lb with the futures remaining in backwardation.

Finally, there is some light at the end of the tunnel for iron ore which is sitting around US$89/tonne (62% fines) with the likelihood of monetary easing in China over the next quarter which is likely to see a reversal of Chinese steel production that was off 21% in September and 9% in August (figure 5).

Steel consumption over September was also down over 20%.

Figure 5: 10-yr Chinese steel production (Source: www.tradingeconomics.com/china/steel-production)

 

New Ideas

Figure 6: TRL 2-year price chart (Source: CMC Markets, 17 November 2021).

Tanga Resources (ASX:TRL) (figure 6) has recently completed a $4.6 million capital raising (ASX Announcement 15 November 2021) at 5 cents to fund exploration at its Okombahe gold permit (part of the Damaran Project covering 2,838sqkm) in Namibia where a recently completed soil survey returned a +2.2km undulating strike defined by the “Kokoseb” +100ppb gold anomaly coincident with elevated arsenic and antimony.

This included peak values in excess of 1g/t Au with the anomaly remaining open in both directions along strike.

Mapping and trenching along the anomaly has also identified an abundance of felsic intrusions (dykes, sills etc) within folded fine-grained quartz-biotite schist with gold anomalism appearing to be situated along the contact zone between these granites and the metamorphic sediments.

Reconnaissance soil sampling, mapping, and trenching is ongoing with results due shortly.

I am not sure what the gold anomalism thresholds are like in that part of the world, but I do recall in the Tanami (North Flinders Mines Ltd) we used to dance a merry jig (when I wasn’t half-asleep in the back of the Toyota Landcruiser) if we could string something together at +5ppb Au, so I am thinking 100ppb should do the job.

At an EV of just under $20 million the stock isn’t cheap (nothing is cheap as we know) however I am quietly optimistic that drilling in early 2022 will hit something of interest.

Figure 7: Infill soil sample grids on the Okombahe permit (Source: TRL, ASX Announcement, 15 November 2021).

 

At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting, and corporate advisory roles.

He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada, and the United States. The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

 

Stockhead has not provided, endorsed, or otherwise assumed responsibility for any financial product advice contained in this article.

The post Guy on Rocks: This report is about to have a significant impact on smouldering gold prices appeared first on Stockhead.




Author: Guy Le Page

Energy & Critical Metals

Is Phosphate Rock Sexy? Yes! And, Arianne Phosphate is Looking Hot

PSA-Presenters-Arianne-Phosphate

 

This article was originally published by Epstein Research.

Severe shortages of critically important commodities are highly likely this decade. For instance, there are legitimate concerns about the supply of copper & lithium. If demand is too strong, prices will reach a point where users try to substitute less expensive materials. Either that or higher prices get passed on to consumers.

Admittedly, not being able to buy an all-electric Ford F-150 pickup truck is not the end of the world. However, reliable access to some commodities can mean the difference between life & death. Water & food, for example. Or, consider the case of fertilizers. NPK stands for Nitrogen, Phosphate, Potash.

While farmers can fiddle with the ratios applied each season, all three are essential macronutrients. Reduced yields or diseased / failed crops due to deficient levels of NPK can lead to food shortages, famine, starvation. Soaring food prices can spark violence & food riots.

Readers might be familiar with giant agriculture/fertilizer companies like Nutrien or Mosaic. They and several others are vertically integrated, controlling an estimated 85% of all NPK production. In the past year, several trends have been coming together to make that vertical integration even more crucial.

 On-shoring (obtaining materials from, and selling products in, the same region) is incredibly important for a number of reasons. The practice facilitates speed, accuracy & reliability from raw material procurement to manufacturing, to sales & delivery of finished goods.

It cuts shipping costs & transport times, both of which have soared, with no easy answer or short-term workaround. Perhaps more important, it fosters the urgent need for security of supply. In addition to on-shoring, there’s also ESG – Environmental, Social, Governmental initiatives.

ESG mandates for industrial companies & miners require adherence to minimizing CO2 emissions, tailings, chemical use & fresh water in each step of the supply chain and through delivery to end-users. Moreover, investment funds increasingly have their own ESG criteria.

While there are > 800 gold & silver juniors, in N. America, how many nitrogen juniors are there? There are fewer than a dozen N. American-listed juniors focused mainly on N, P or K. Yet the fundamentals of macronutrient demand are strong & incredibly consistent.

Arianne Phosphate (TSX-V: DAN) / (OTCQB: DRRSF) has a world-class asset that’s larger, cleaner, and purer than almost any NPK project on earth. The Company’s Lac à Paul phosphate rock project in Quebec, Canada is at BFS-stage, in fact, it’s been at BFS-stage since 2013.

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In the above chart, Arianne’s 100%-owned Lac à Paul is the largest & has the highest concentrate grade phosphate project not owned by a Major. It’s also one of the most advanced (shovel ready), with two long-term off-take agreements in place & good relations with local communities & First Nations.

I mentioned security of supply and on-shoring — look at the countries some of the other projects are in — the DRC, Guinea-Bissau, Angola… I’ll take Canada over those three. Quebec is well situated to serve both Canadian & U.S. farming interests, especially farms on both sides of the border near the Great Lakes.

With Lac à Paul management proposes to produce & sell 3M tonnes/yr. into a 200M tonne market that’s growing by 1.5%-2.0%/yr. {perhaps 2.0%-2.5%/yr. with LFP battery demand}.

Nutrien, CF Industries, Mosaic, Archer-Daniels-Midland Co. & Yara Intl. have operations around the globe, including in Canada. These companies should be very interested in Arianne’s project.

Despite a market downturn from 2012-2019, then prolonged somewhat by COVID-19, a very substantial de-risking of the story has occurred. Management continued to advance Lac à Paul, most notably by:

the signing of 2 long-term off-take agreements, (working on 1-2 more)

the full permitting of the Project (now shovel ready),

improving expected recovery rates from 90% in BFS to 91%-93%,

enhancing concentrate grade assumption from 38.6% to 40.0%,

reducing proposed op-ex by 15%!! from $93.7/Mt to less than $80.0/Mt,

streamlining trucking logistics & environmental footprint,

progressing on higher-margin specialty products,

identifying new opportunities in LFP [the P is for phosphate] batteries in EVs,

green hydro-electric power in Quebec rising in importance,

the signing of a collaboration agreement with first nations,

talking with banks, royalty companies & prospective strategic partners

 

Nutrien, Mosaic, CF Industries, Bunge Limited, and others need continued access to long-term supplies of NPK, the closer to their own facilities & customers as possible. World-class, advanced development assets, be they copper, gold, uranium … are few and far between.

If Arianne can deliver a growing volume of products into specialty applications, project margins could be greatly expanded. One area of great interest in the P in LFP batteries. Tesla made the LFP chemistry, a version of a Li-ion battery, famous in China for smaller, entry-level vehicles.

A year ago, pundits thought LFP was just a niche market. However, Elon Musk changed that view by announcing last week’s plans to expand its use of LFP batteries across more models & regions of the world. Some pundits now believe LFP batteries could capture a quarter of the global market for EV batteries by 2030.

China’s BYD (a top-selling EV manufacturer), battery manufacturer CATL (China’s largest battery maker), Tesla & Stellantis have announced plans to use LFP cathodes. Volkswagen & Ford are also pursuing LFP.

If the LFP battery chemistry really takes off, where will the EV market get all the phosphate it needs? This is a very new development worth watching, how big a part of the market could batteries become? 

How large a premium could be obtained vs. selling phosphate concentrate to fertilizer Majors? Will other phosphate producers be able to make suitable material to sell to LFP companies?

The main takeaway here is that Arianne delivered a strong BFS in 2013, but the economics are meaningfully better today. Leaving pricing the same, recoveries are up and op-ex is down 15%.

The concentrate grade has been improved & trucking logistics streamlined to save on costs & lower traffic emissions. Arianne has key ESG credentials, sourcing power from a green hydro-electric grid & the cooperation agreement with First Nations groups.

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That BFS, if updated for today’s reality, would generate a notably higher NPV & IRR. A hidden gem in the financial workings of the BFS model is that the USD$/C$ exchange rate has moved significantly in the Project’s favor. How much of a move?

As the decline in op-ex, (down 15%) the improvement in the FX rate is currently +15% (this could change). These enhancements would increase the NPV by hundreds of millions of dollars. Better recoveries & a higher concentrate grade would also help the economics. Management believes the Project will be in the bottom (best) quartile on the cost curve.

Near-term catalysts include new off-take agreements, plus updates on funding discussions (debt + royalty/streaming), possible upfront payments for off-take & equipment financing. These options are being pursued to keep the equity component of a construction funding package manageable.

If these and other milestones are met in the coming months, I imagine the share price could move much higher than today’s C$0.49. The Company’s Enterprise Value {market cap + debt – cash} is currently ~C$112M. The Company has a moderate amount of net debt, but it’s not due until 2026.

With a strong strategic partner, Lac à Paul could be in production by 2024, in time to repay and/or refinance the debt.

The province of Quebec, and various agencies & investment funds there, are known to be very supportive of major metals & mining projects. Arianne Phosphate (TSX-V: DAN) / (OTCQB: DRRSF) is in the right place, at the right time, with the right team and the right products.

Disclosures / Disclaimers: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Arianne Phosphate, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market-making activities. [ER] is not directly employed by any company, group, organization, party, or person. The shares of Arianne Phosphate are highly speculative, not suitable for all investors. Readers understand and agree that investments in small-cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Arianne Phosphate was an advertiser on [ER] and Peter Epstein owned shares in the Company.

Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reason whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector, or investment topic.

Author: Peter Epstein

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Articles

Is the Newfoundland Gold Junior Sell-Off Done?

newfoundland_gold_camp_belt

This article was originally published by Epstein Research.

 

Commodity prices have been rallying for months, leading economists to worry about inflation. For example, lithium & coking coal prices have quadrupled from last year’s lows, and WTI crude oil & tin have doubled. Precious metals typically do well during inflationary periods.

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However, so far this year gold has not done well. In fact, it’s down ~14% from an Aug. 2020 high ~$2,070/oz. This pullback has caused gold juniors to trade much lower. Well-known names are down up to 69%, Osisko Development -40%, Sabina Gold & Silver -55%, Novo Resources -58% & Pure Gold -69%.

Why is gold lagging so many other commodities? It should be leading the charge as a hedge against growing inflationary pressures. Many believe gold will bounce back above $2,000/oz. next year (if not sooner). Even a move above $1,850/oz. could rekindle interest in the sector.

Several months ago, the Newfoundland gold camp was the hottest in North America….

Newfoundland, one of the hottest gold camps on the planet earlier this year, has gone a bit cold. Pure-play Newfoundland juniors Labrador Gold, Exploits Discovery & Sokoman Minerals are down 44% – 65%. News from the island has slowed as companies are in no rush to announce drill results into a weak market.

One company that’s made tremendous progress, despite poor investor sentiment, is Marvel Discovery (TSX-V: MARV) / (OTCQB: MARVF). From < 15,000 hectares of owned or controlled property in Newfoundland a year ago, Marvel has accumulated just shy of 92,000 ha.

If management closes 1 or 2 more of the transactions they’re currently looking at, they would own/control the 5th largest land bank on the Island. Right now, few seem to care about 92,000 ha (and growing) in a great jurisdiction, but that could change in a heartbeat.

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New blockbuster drill results like the ones reported by New Found Gold [NFG] and/or a higher gold price are all that’s needed. Readers are reminded that NFG reported one of North America’s best gold intervals of the century.

In the chart below, notice that Marvel is trading at an Enterprise Value [EV] {market cap + debt – cash} to a hectare of just $49/ha. Compare that to peers valued at an average of $496/ha. Note: {each company’s EV is adjusted to reflect only its Newfoundland portfolio, all companies are pre-maiden resource}

Marvel Discovery trading at a 90% discount to Newfoundland peers (based on EV/hectare)

By this metric, Marvel is trading at a 90% discount to the peers in the chart. When gold prices rebound, Newfoundland juniors will have a nice bounce. Marvel is positioned to enjoy more than just a bounce. At some point, it should re-rate to a valuation closer to that of the peer average.

As Newfoundland juniors rebound, the peer average EV/ha ratio might increase by say 50%. If that were to happen, and Marvel can shrink its peer discount from 90% to 60%, then its shares would trade at $0.47. The current share price is $0.125.

Imagine that, MARV’s share price could nearly quadruple and its Newfoundland portfolio would still be valued at a 60% discount to pre-maiden resource stage Newfoundland peers.

Clearly, the market doesn’t believe in or doesn’t understand, what CEO Karim Rayani is up to in Newfoundland. Yet, unless he’s lying about the transactions & staking being done — it’s not that hard to understand…. ~92,000 ha owned outright via staking or controlled via option in a world-class mining jurisdiction.

Is it possible that Marvel’s property is situated in bad places? Sure, it’s possible. However, that fear makes little sense as Mr. Rayani has staked & optioned near established leaders on the Island.

When gold rebounds Newfoundland juniors could soar

MARV’s Victoria Lake? It’s near Marathon Gold’s flagship 4.8M ounce Valentine project. MARV’s Slip project? It touches property held by Exploits Discovery and is near Labrador’s high-grade Kingsway project.

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Gander East, South & North are contiguous with, or close to, NFG’s world-class Queensway project where blockbuster assays have vaulted that company to a C$1.5B market cap. The Gander properties total ~29,000 ha, so a very substantial property package next to the hottest gold project in North America, if not the world.

MARV’s Hope Brook property is contiguous with, or close to, First Mining Gold and to a Sokoman + Benton Resources JV. First Mining has delineated 954k ounces (Indicated + Inferred) at a healthy grade of 4.7 g/t gold at its past-producing, 26,650 hectare Hope Brook project (same name as MARV’s property).

MARV’s Baie Verte property is in the Rambler Mining Camp, host to past & current gold producers, most notably Anaconda Mining. Hope Brook is 19k ha, and Baie Verte is 29k ha.

CEO Rayani has amassed three blocks of 29k, 29k & 19k hectares, each of which is larger than entire land packages held by peers in Newfoundland.

Before the end of this decade, Newfoundland will host multiple gold mines. NFG will gobble up the surrounding high-grade deposits that don’t become mines themselves. Marathon will grab nearby stranded deposits. First Mining will do the same.

Marvel has seven properties on the Island, a few of which could become mines, or if not mines, some might make it as valuable satellite deposits for Marathon, NFG & First Mining.

In my opinion, Marvel’s Newfoundland portfolio alone is worth well more than the entire EV of the Company. But wait there’s more…. In addition to the seven properties mentioned, there’s also a potentially important Rare Earth Elements property near Defense Metals’ advanced exploration play. Defense Metals has done a great job advancing its REE project.