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Nickel prices on a rip, as Palladium One expands Tyko and completes geophysical survey

2021.07.30
Palladium One continues to outline a high-grade nickel system at its Tyko Ni-Cu-PGE project in Ontario, where a second-phase drill program started…

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This article was originally published by A Head of the Herd

2021.07.30

Palladium One continues to outline a high-grade nickel system at its Tyko Ni-Cu-PGE project in Ontario, where a second-phase drill program started in April and a recently announced expansion increases the size of the property by over a fifth.

The company’s timing is good as far as attracting investor interest, with nickel prices currently at $8.82/lb and climbing due to healthy demand from stainless steel mills and electric vehicle battery makers.

Tyko

Notable for its high nickel tenor, Tyko is located in northwestern Ontario around 25 km north of the Hemlo mine (Barrick Gold) and 55 km from Generation Mining’s Marathon deposit, which hosts a measured and indicated resource of 3 million ounces palladium and 618 million pounds of copper. 

The Archean-aged mafic-ultramafic intrusion is rich in nickel; Tyko’s ore contains twice as much nickel as copper, and equal amounts of platinum and palladium. 

Tenors average 8.6% Ni, 4.6% Cu and 3.3 g/t PGE at the RJ zone, and 16.3% Ni, 8.7% Cu, and 12.8 g/t PGE at the Tyko zone, at 100% sulfides. According to Palladium One, the high tenor of the sulfide minerals suggests a valuable concentrate could be produced, and that even if the sulfides are disseminated, the deposit could still be economic. 

Though previous operator Noranda did some historical exploration, the property remains under-explored, and un-mapped, even by the Geological Survey of Ontario.

The Tyko project covers over 24,000 hectares, including the 7,000-hectare mafic-ultramafic Bulldozer intrusion, which has seen virtually no geological mapping nor exploration.

A VTEM (Versatile Time Domain Electromagnetic) geophysical survey run by Noranda clipped the Smoke Lake target that is currently Palladium One’s focus at Tyko.

The 2020 drill program was designed to test the Smoke Lake electromagnetic (EM) anomaly.

A drone-based magnetic survey also pinpointed a strong bullseye associated with soil anomalies (up to 565 ppm nickel and greater than 40 times background levels), representing the surface expression of the EM anomaly.

Mineralized boulders with high nickel (up to 0.41% Ni) and copper values were discovered, indicating potential for high-grade massive sulfide mineralization.

This potential was validated by the first two diamond drill holes, which intersected massive magmatic sulfides grading 8.7% nickel equivalent (Ni_Eq) (193 pounds per tonne) over 3.8 meters, and 4.8% Ni_Eq over 2.3m, both at less than 30m true depth.

This was the first confirmed occurrence of massive sulfides at the Tyko project.

Subsequently the remaining 11 drill holes were announced; each was a resounding success and intersected massive magmatic copper-nickel sulfides, confirming the high-grade nature of the deposit.

Additional EM surveys then identified two near-surface, closely spaced conductors (or plates, described and pictured below), the largest of which had a strike length over 300m.

 A second-phase, 2,000m drill program started in April, following up on high-grade hits of 9.9% Ni_Eq (23% Cu_Eq) (30 g/t Au_Eq) over 3.8m – US$1,765.70 per tonne at a price of US$8.09/lb and 6.3% Ni_Eq (US$1,123/ tonne) over 0.9m, published on Jan. 19.

The objective of the phase 2 drill program was to test the down-dip continuity of the two EM “plates” (an upper plate and a lower plate) that Palladium One modeled after the first-phase drill program in the fourth quarter of 2020.

On April 28 PDM announced that 11 of 14 holes completed so far intersected massive sulfides, ranging from 1.3 to 5.0 meters in length.

Assay results from the first six holes (TK21-029 to TK21-034) were delivered in June. Final phase 2 results were released June 23; they continue to be spectacular.

A number of high-grade intersections were reported, all near surface, including:

  • 1.7m @ 10.2% Ni­_Eq (or 31g/t Au_Eq) within 4.5m @ 7.5% Ni_Eq (or 22 g/t Au_Eq)
  • 1.7m @ 8.3% Ni_Eq (or 25vg/t Au_Eq)
  • 1.7m @ 9.5% Ni_Eq (or 29g/t Au_Eq)

These are some of the highest sulfide nickel grades in the world.

According to Palladium One, the two most important results of the phase 2 program were, number one, to extend the strike length of the lower conductor to 350 meters, and number two, linking the high-grade massive sulfide mineralization between the upper and lower conductors. 

“Smoke Lake continues to deliver exceptional nickel grades. These results, notably hole TK21-034 indicate that the upper and lower plates are in fact one continuous sulphide lens. Additionally, evidence exists that the high-grade mineralization has been remobilized, thus seeking the source of mineralization is our top priority,” Palladium One’s President and CEO Derrick Weyrauch stated in the June 17 news release.

Smoke Lake plan map showing EM conductor Plates with 2020 and 2021 (blue traces) drill holes overlain on first vertical magnetics. Mineralized intersections for drill holes where assays are pending, are given as: MS=massive sulphide, SM=semi-massive, STR=stringer, DISS=Disseminated.
Smoke Lake cross section showing continuity of the massive sulfide mineralization from the upper to lower EM plates.

Bringing readers up to date on the project, Palladium One has now completed a 2,000 square kilometer (3,100 line km) airborne geophysical survey (VTEMmax) — the first of its kind to be done across the whole Tyko property. According to PDM, the survey of closely spaced, 100m flight lines covered large areas for which no electromagnetic surveys had ever been flown, including the area around the Shabotik showing which has up to 1% Ni.

Mapping, prospecting and soil sampling is also underway, with 1,000 soil samples already submitted to the assay lab.

“Tyko continues to impress and warrants increased levels of expenditure and exploration. Results to date demonstrate robust mineralization spread over at least 18 kilometers, yet the area has seen virtually no government mapping or exploration,” said Palladium One’s President and CEO, Derrick Weyrauch, in the July 27 news release. “We believe that in addition to the high-grade Smoke Lake zone, there are new zones off nickel-copper mineralization yet to be discovered. We are awaiting result from the 3,100-kilometer airborne Electro Magnetic (VTEMmax) survey which will guide further exploration.”

Property expansion

Along with advancing exploration at the drill bit, Palladium One is also increasing its chances of hitting more high-grade massive sulfides by expanding its land position at Tyko.

Two earn-in agreements grow the nickel-copper project by 950 hectares and an additional 3,500 ha has been purchased from the original optioners of the project.

The upshot is an upsizing of the footprint from 20,100 hectares to 24,500 since phase 2 drilling was completed, an increase of 21% or 4,400 ha.

For the first option agreement, Palladium One can earn an 80% interest in the 700-ha Pickle Lake property, located on the west side of Tyko, by incurring exploration expenditures of at least $350,000 within three years and completing an NI 43-101-compliant technical report.

Pickle Lake is close to the historical RJ zone which returned up to 1.2% Ni_Eq (2.78% Cu_Eq and 3.6g/t Au_Eq) over 16.2 meters back in 2016, Palladium One reports.

The property comes with a 2% net smelter returns (NSR) royalty, which is subject to a 100% buy-back right, and wherein each 1% of the NSR royalty can bought back and extinguished for C$500,000, a fixed price.

The second option agreement, with a local prospector, involves the Cupa Lake property, which consists of 250 hectares and is located 8 km east of the Smoke Lake zone at Tyko. Under the terms, Palladium One can earn a 100% interest in Cupa Lake by incurring exploration expenditures of at least $180,000 within three years, plus a combination of $30,000 in cash and 30,000 PDM shares paid out to the prospector.

Palladium One retains the right at any time to purchase 50% of the 1% NSR royalty, via a one-time payment of $1,000,000.

Lastly, under a claims purchase agreement, the company has acquired 3,500 ha of new claims by re-imbursing staking costs to the original optioners of the Tyko project. These new claims are considered part of the original option agreement and thus are subject to a 3% NSR for which 50% can be purchased at any time for $1,500,000.

The Tyko project with various historical magnetic surveys in the background. Newly acquired ground is shown in black hatched areas.

Nickel market update

Palladium One is exploring Tyko at a very interesting time in the nickel market. Consider the challenges nickel mining companies face in ramping up production to meet skyrocketing demand for high-purity nickel required in electric vehicle batteries.

In addition to its traditional role in stainless steelmaking, the base metal is becoming more and more important due to its use in nickel-cobalt-aluminum (NCA) and nickel-cobalt-manganese (NCM) lithium-ion batteries. NMC 811 battery cells (8 parts nickel, 1 part each lithium and cobalt) are being produced on a greater scale, because they deliver higher energy density and greater storage capacity, at lower cost.

However, the nickel market is currently under-supplied in relation to demand, a condition that is supporting higher prices. Spot nickel currently sits at $8.82/lb, the highest since February and a 20% increase since April. Nickel earlier this year reached a six-year pinnacle.

Source: Kitco
Source: Kitco

It is up amid rising demand expectations pertaining to the electric vehicle battery sector, and strengthening macroeconomic conditions (especially in Asia) as some economies lift coronavirus-related restrictions, leading to higher consumption of raw materials for making stainless steel.

Supply disruptions have exacerbated the market imbalance, particularly at nickel mines in New Caledonia, Russia and Canada, while covid-related restrictions raise the possibility of delays to new projects in top producer Indonesia this year, a Reuters article states.

The undersupply situation is easily seen in the graph below, showing stocks of nickel in London Metal Exchange warehouses dropping by more than 15% since April, while those monitored by the Shanghai Futures Exchange are near five-year lows.

Source: Kitco

Robust demand from stainless steel mills and EV manufacturers is expected to support higher prices over the coming months. Macquarie, an Australian bank, has re-calibrated its nickel demand forecast to an increase of 16%, versus its +10% prediction in March, although supply from lead producer Indonesia is expected to gather pace next year and possibly weigh on prices. For now, though, the nickel market will be undersupplied, with Macquarie’s forecasted demand of 2.8 million tonnes beating 2020 supply of 2.5Mt, as shown below in the table by the US Geological Survey.

Source: USGS

The supply picture is clouded by the fact that not all nickel is created equal.

There are two kinds of nickel deposits in the world, sulfides and laterites, but only nickel sulfides can be easily (and inexpensively) processed to create battery-grade nickel used in lithium-ion batteries needed for electric vehicles.

While Indonesia has an abundance of nickel supply in laterite deposits, it is very expensive to produce, creates a lot of greenhouse gas emissions, and carries with it the added burden of tailings waste disposal, which in the archipelago nation has meant dumping it into the sea.

Any battery company or automaker in the least bit concerned about its green credentials which, when it comes to EVs, is the whole point, will have a hard time justifying a nickel laterite supply chain.

The main benefit of nickel sulfide ores is they can be concentrated using simple flotation.

Yet large-scale sulfide deposits are extremely rare. Existing sulfide mines are becoming depleted, and nickel miners are having to go to the lower-quality, but more expensive to process, as well as more polluting, nickel laterites such as found in the Philippines, Indonesia and New Caledonia.

Where will mining companies look for new nickel sulfide deposits, from which the extraction of high-grade nickel needed for battery chemistries is economically and technically feasible? The pickings are slim.

Limited nickel exploration in recent years has resulted in a very low pipeline of new projects.

That is regrettable, because the mining industry is going to need to find, develop and put into production more nickel mines, especially nickel sulfide deposits that can be mined cost-effectively and with a light environmental footprint. 

Nickel is among a handful of metals mentioned by Wood Mackenzie in a recent report wherein the Scotland-based consultancy says another commodities supercycle is on the horizon, but instead of being driven by fossil fuels, the vanguard will be industrial metals needed to electrify society, including nickel:

Under Wood Mackenzie’s Accelerated Energy Transition-2 (AET-2) scenario, which is consistent with limiting the rise in global temperatures since pre-industrial times to 2 °C, 360 million tonnes (Mt) of aluminium, 90 Mt of copper, and 30 Mt of nickel will feed the energy transition over the next 20 years. This level of additional metal presents obvious challenges for producers and consumers alike.

The report predicts by 2030, nickel producers will have to add 65% more supply, as the chart below shows.

Any junior resource company with a sulfide nickel project, like Palladium One’s Tyko, will therefore be extremely attractive to potential acquirers.

Palladium market update

Along with nickel, Palladium One is also keeping a close eye on palladium prices, as it develops its palladium-dominant LK (Läntinen Koillissmaa) copper-nickel-platinum group element (PGE) project in Finland.

Palladium is on track for a supply deficit for the 10th straight year. Driving palladium demand are higher sales of gasoline vs diesel vehicles and tighter pollution controls.

Palladium use in hybrids, seen as a bridge between gas-powered cars and pure electrics, is a growing source of demand. The lustrous metal is also used in electronics, surgical instruments, jewelry, watch making, aircraft spark plugs, hydrogen purification and groundwater treatment. 

Supply, meanwhile, is being challenged by production disruptions, for example flooding at Arctic mines. In February Russia’s Nornickel partially suspended output at two of its mines — which account for 36% of ore mined by the company in Russia — due to a sudden inflow of water. The Oktyabrsky underground mine returned to production in May and the interconnected Taymirskiy operation was back at full strength in June.

On May 4 palladium hit a new record of $2,890/oz. Year to date, the autocatalyst ingredient is up close to 10%.

Source: Kitco

Conclusion

Palladium One has been getting some very high-grade hits at Tyko, including up to 9.9% nickel equivalent over 3.8 meters in TK21-023, a hole drilled earlier this year.

Moreover, the value of the nickel sulfides at Tyko is impressive.

At today’s metal prices, 9.9% NiEq over 3.8m is worth $1,931.58 per tonne (total gross metal value in $USD), calculated using Kitco’s “Rocks in the Box” tool. This is the dollar equivalent of a 20% copper deposit, a 77 ounce per tonne silver deposit (28.3 grams in an ounce), and a 33 grams per tonne gold deposit. Any gold, silver or copper junior would be escstatic with those kinds of grades.

Obviously the average grade will be lower, but even if it’s $1,300 rock, or $900, the project economics would almost certainly be favorable, especially considering it’s sulfide nickel which is fairly easily separated by flotation, driving the costs per tonne lower than if it was laterite nickel.

When you consider all that Palladium One has going for it —  the right metals at the right time, ie., sulfide nickel for EV batteries, and palladium, used in gasoline-powered catalytic converters that will be needed for years during the transition from fossil fueled to electric vehicles — and deposits with top of the class grades in safe jurisdictions, Palladium One is a stealth company ripe for an acquisition.

Palladium One Mining
TSX.V:PDM, OTC:NKORF, FSE:7N11
Cdn$0.245 2021.07.29
Shares Outstanding 248m
Market cap Cdn$59m
PDM website

Richard (Rick) Mills
aheadoftheherd.com
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Author: Gail Mills

Articles

A greener trend for mining

An increasing level of stakeholder pressure has pushed the mining industry to re-think its approaches to environmental, social and governance responsibilities.
Australian…

An increasing level of stakeholder pressure has pushed the mining industry to re-think its approaches to environmental, social and governance responsibilities. Australian Mining speaks with some of the companies and organisations leading the transformation. 

The mining industry is a critical component to a decarbonised world. 

For it to remain essential, companies must adhere to external pressures to cut emissions and go beyond their responsibilities as corporate citizens.

A larger supply of critical minerals for net zero technologies will be needed for electric vehicles (EV), wind farm and solar power technologies if countries are to reach their emissions reduction targets.

Commodities including copper, nickel and rare earth elements will be important to this transformation, but growing stakeholder pressure means mining companies are needing to show a stronger commitment towards environmental, social and governance (ESG) requirements to retain offtake partners and supply chain stability.

ESG standards for mining include energy efficiency, emissions reduction and water efficiency, along with improved worker safety and community relations. 

Stronger ESG standards are also making their mark on other major commodities in Australia, including iron ore and gold, two of the key resources exported from Australia. 

Ernst & Young’s (EY’s) report, Top 10 Business Risks and Opportunities for mining and metals in 2022, reveals environmental and social risks will be the most significant factor for the industry to consider over the next year. 

The report surveyed 200 global mining executives that gave their insights into the risks and opportunities for the industry in the year ahead. 

“Investor and community relations have really changed,” EY global mining and metals leader Paul Mitchell says. “If you went back in time, community relations were down the flagpole and now it’s a factor that boards and CEOs ask questions about, and the importance of that role has increased.”

While the risks are present, there is value to be had by mining companies if they appease ESG demands.

Mining companies including BHP, Fortescue Metals Group and Rio Tinto have also partnered with organisations, including the Cooperative Research Centre for Transformations in Mining Economies (CRC TiME), to drive sustainable change in the industry.

CRC TiME has more than 70 industry partners across the mining and METS (mining equipment, technology and service) sectors, regional development organisations, community and first nations groups, state and federal governments and research partners, all looking to address complex challenges across mine closure and rehabilitation, which are essential aspects to ESG.

The organisation was founded through the Australian Government’s Cooperative Research Centre program in 2020 to improve trust between mining companies, regulators and communities. 

This is being delivered through four research programs that cover regional economic development, risk evaluation and planning, operational solutions and data integration, forecasting and scale. 

CRC TiME associate professor Bryan Maybee is part of the risk, evaluation and planning program, bringing experience in minerals and energy economics from Curtin University. 

Maybee says there is a strong value incentive for mining companies to get their rehabilitation measures completed correctly. 

“Responsible closure is one of the key factors that is used to measure ESG outcomes,” he says. “Instead of looking at a five-year or a 10-year mine life, we actually have to start looking at much longer timeframes, taking into account the life after the mine and think about the future economic use for the land.” 

Without a social licence to operate, mining companies may be at risk of being unable to develop new mining operations across global jurisdictions. 

If a mining company has an effective mine closure plan, government and community groups are more likely to accept a new development.

The risk, evaluation and planning program will aim to gel operational activity with mine closure planning, which requires changes to decision making in response to uncertainty. 

This involves advanced evaluation frameworks for assets, real-time predictive models and planning tools to identify risks. 

In June, CRC TiME initiated a study in collaboration with Fortescue, the University of Western Australia and Curtin University, which focusses on increasing plant nutrients in iron ore waste at Fortescue’s Chichester Hub operation in Western Australia.

The move towards “green” iron ore, which is mined using zero emissions is also a factor that Australia’s largest miners are having to consider.

“People want to know where everything has come from, so it is important to be able to show iron ore is mined in a responsible way,” Maybee says. “Green iron ore for example is becoming an important consideration in retaining customers for your product.

“Being a good corporate citizen being responsible as far as ESG goes, we actually have the opportunity to operate more sustainably.

“An operator that closes their mine responsibly and relinquishes it will build confidence with regulators.”

According to Maybee, stronger environmental outcomes can reduce community unrest related to an operation and therefore boost employee sentiment. 

“By operating in an ESG responsible manner and embedding those factors into the way that we operate you actually can reduce risk, which means smoother, more productive and efficient operations,” Maybee says. 

EY’s top 10 risks and opportunities for 2022. Source: Ernst & Young.

 

Solving the ESG puzzle 

There are several innovative ways that mining companies can boost their ESG compliance outside of progressive mine closures. 

Advancements in Industry 4.0 technologies have delivered real-time and predictive capabilities across the entire mining operation. 

Envirosuite global head, mining and industrial, Matt Scholl says environmental solutions offer more than just compliance for mine sites.

“Any mining company that treats environmental management as a compliance issue only, will be outcompeted by the wave of progressive miners who are already using environmental intelligence to optimise their operations,” Scholl says. 

Envirosuite recognises the importance of environmental management to ESG requirements for mine sites and has developed its environmental intelligence platform, which can optimise plans for weather risks and maintain compliance while reaching specific production goals. 

Environmental intelligence uses data, artificial intelligence and other digital technologies alongside environmental and sustainability research to prevent any environmental impacts. 

For example, the threat of changing weather patterns on an open pit mine could cause an unexpected shutdown. Envirosuite’s platform allows mine sites to develop an awareness of these risks before they occur. 

“ESG performance covers a range of areas, however, a key pillar of ESG centres on environmental management,” Scholl says. 

“ESG ratings are high-level indicators of whether companies have good measures in place to manage these risks. 

“Envirosuite provides real-time and predictive capabilities to help mining companies manage environmental risks while enabling them to optimise production.”

SRK Consulting offers specialised services for the mining industry, including environment, community and mine closure services and water management.

The company was founded in 1974 and has grown to work on more than 20,000 projects worldwide.

SRK also uses data analysis to determine strategies for mining companies to comply with regulations and address environmental and social challenges for a more effective mining operation. 

According to SRK principal consultant (geochemistry) Claire Linklater, stakeholder expectations for ESG requirements are growing. 

“I think those topics are much higher on the social and political agenda and the regulators are starting to become much more informed in these areas,” Linklater says. 

“The people that are financing mining projects pay much more attention to the ESG implications of what’s going on. 

“Poor ESG management can cause mining companies reputational damage on the global stage and might actually impact finance for another project elsewhere. 

“This is especially true of companies operating across multiple jurisdictions and continents.”

SRK can assess environmental risks in the early stages of a mining development to mitigate risks of poor environmental outcomes. 

For example, identification of problematic waste rock volumes during exploration opens up the opportunity to either avoid mining those volumes, or develop waste rock dump designs to control the potential for impacts on water quality once a mine site is up and running. 

By mitigating environmental risks before they occur, mine sites can save costly retrograde solutions down the line and prevent poor ESG ratings from stakeholder groups. 

Stakeholders are painting a clear picture of where mining company ESG requirements need to be to receive support for new developments. 

Through collaboration and the adoption of innovative ESG services, the mining industry will be able to move forward to deliver positive outcomes that are well-received by these groups.  

Australian Mining.


Author: Emily Murphy

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Precious Metals

Gold Uptrend Confirmed

It’s been a turbulent start to the year for the major market averages, with many sectors like Retail (XRT) and Staples (XLP) being hit by inflationary…

It’s been a turbulent start to the year for the major market averages, with many sectors like Retail (XRT) and Staples (XLP) being hit by inflationary pressures and continued supply chain headwinds while worries about rate hikes leading to a cool-down in valuations in tech. However, one asset class that is holding its ground is gold (GLD), which is up 1% year-to-date, outperforming the Nasdaq by 700 basis points. This outperformance appears more than overdue, with gold typically performing its best when real rates are deep in negative territory, in line with the current backdrop. Let’s take a closer look below:

(Source: YCharts.com, Author’s Chart)

Looking at the chart above, we can see that real rates continue to trend lower and are now sitting at their lowest levels in decades, spurred by continued high single-digit inflation readings. This backdrop has typically been very favorable for gold, given that investors are not getting interest elsewhere, meaning there is no opportunity cost to holding the metal, and there is an opportunity cost to holding cash. The one impediment to gold’s performance, though, has been the fact that the major market averages have been climbing higher with a relentless bid, allowing investors to park their cash safely in the market.

Chart, line chart

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However, since the year began, this does not appear to be the case, and gold is massively outperforming the S&P-500, as well as growth and value ETFs. This has created a perfect storm for the metal, and its outperformance can be highlighted by the above chart, which shows gold recently breaking out to new multi-week highs vs. the S&P-500. A new trend upwards following a period of significant underperformance has typically led to sustained rallies in the gold price, with the most recent example being February 2020 ($1,500/oz to $2,050/oz). Hence, this is a very positive development for the gold bulls.

The key, however, is that gold’s outperformance vs. the S&P-500 is not simply due to the S&P-500 being in a bear market and gold trending lower, but just losing less ground. The good news is that this is not the case, with the monthly chart for gold showing that it is building a massive cup and handle, with much of its handle being built above its prior resistance. This is a very bullish long-term pattern, and a successful breakout above $2,000/oz would target a move to at least $2,350/oz. 

Chart

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(Source: TC2000.com)

Meanwhile, if we look at the yearly chart above, we can see an even better look at the cup and handle pattern and why the discussion that gold is dead or in a deep downtrend is simply incorrect. While one can certainly make the case that gold has gone nowhere over the past 18 months and the daily chart remains volatile, the big picture has rarely looked better in the past several decades, and zero technical damage has been done. So, for investors looking for an asset with a favorable fundamental backdrop that’s also sporting a very attractive looking long-term chart, I am hard-pressed to find anything as attractive as gold among the 150+ ETFs and assets I track. 

Chart, line chart

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(Source: TC2000.com)

So, what’s the best course of action?

One of my favored ways to play the gold sector is Agnico Eagle Mines (AEM). The reason is that it has one of the best margin profiles sector-wide; the potential to increase production by more than 30% over the next nine years, and it operates out of the most attractive jurisdictions globally. This is evidenced by the fact that AEM should be able to grow annual gold production from ~3.4 million ounces to ~4.5 million ounces between now and 2030 and has 50% margins at a $1,800/oz gold price. 

Chart

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(Source: TC2000.com)

As the chart above shows, AEM’s technical picture continues to improve, with the stock building a 10+ year cup and handle base atop its prior multi-decade breakout level. This is a very bullish pattern, and a breakout above $70.00 would target a move above $95.00 in the next two years. So, with the stock consolidating near the right side of its cup and trading at a very attractive valuation of 1.0x P/NAV, I see this as an attractive entry point. Notably, AEM also pays a ~2.7% dividend yield, double that of the S&P-500. For those preferring to invest in gold, I continue to expect a trend of higher lows, with the $1,750/oz – $1,780/oz area representing a very low-risk buy zone. 

It’s no secret that GLD has massively underperformed other ETFs over the past 18 months, and with many focused on the last shiny thing and having recency bias, it’s no surprise that gold remains out of favor. However, the best time to buy the metal is when it’s been hated and has corrected sharply from its highs, making this an attractive entry point. Given that most other ETFs could use a rest, and the fundamental backdrop remains very favorable for gold, I remain medium-term and long-term bullish, and I would not be surprised to see gold above $2,080/oz this year. 

Disclosure: I am long GLD, AEM

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Given the volatility in the precious metals sector, position sizing is critical, so when buying precious metals stocks, position sizes should be limited to 5% or less of one’s portfolio.

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Author: Taylor Dart

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Precious Metals

7 Bear Market Stocks to Buy If You See Trouble Ahead

With the markets in the early stage of 2022, the stage seems set for some degree of uncertainty. The good news is that the pandemic might soon become endemic….

With the markets in the early stage of 2022, the stage seems set for some degree of uncertainty. The good news is that the pandemic might soon become endemic. This is likely to help in accelerating global economic recovery. The worrying news is that there is a case for at least four interest rate hikes in 2022. In these market conditions, it’s a good idea to hold some bear market stocks.

I would define bear market stocks as low-beta stocks that are relatively immune to economic or liquidity tightening. These stocks are good for capital preservation. When market sentiments are bullish, it makes sense to go overweight on high-beta stocks. However, in uncertain or bear market conditions, I would be overweight on low-beta stocks.

I must also mention that even with four interest rate hikes, real interest rates are likely to remain negative. Investors will therefore continue to pursue exposure to risky asset classes. While I am talking about bear market stocks, I believe that a big correction is unlikely.

However, profit taking in expensive stocks is a good idea and these profits can be parked in bear market stocks.

So, let’s looks at seven stocks that that also have a healthy dividend yield.

  • Walmart (NYSE:WMT)
  • AstraZeneca (NASDAQ:AZN)
  • Newmont Mining (NYSE:NEM)
  • JPMorgan Chase (NYSE:JPM)
  • Starbucks (NASDAQ:SBUX)
  • Equinor (NYSE:EQNR)
  • Microsoft (NASDAQ:MSFT)

Bear Market Stocks to Buy: Walmart (WMT)

Source: Jonathan Weiss / Shutterstock.com

WMT stock is among the top picks in the list of bear market stocks. The first reason is a low-beta, which will ensure capital preservation even in a market correction. Further, WMT stock has a dividend yield of 1.53% and considering the company’s balance sheet, dividends are secure.

It’s also important to note that the U.S. is a consumption driven economy. A key part of consumption expenditure is retail spending. Even in a bear market, the company’s financial performance is likely to remain robust.

From a business perspective, Walmart has built omni-channel sales capabilities. This is one key factor that will ensure healthy comparable store sales growth. For Q3 2022, the company reported e-commerce sales growth of 8%. On a two-year stack basis, e-commerce sales growth was 87%.

International presence is another driver of long-term growth. While divestitures impacted international sales growth in Q3 2022, Walmart reported strong e-commerce growth in India, China and Mexico.

Walmart reported free cash flow of $7.7 billion for the first nine months of the current financial year. This gives the company ample flexibility for dividends and share repurchase. At the same time, the company can continue investing in high-growth international markets.

AstraZeneca (AZN)

Exterior of the AstraZeneca's manufacturing facility at SnackvikenSource: Roland Magnusson / Shutterstock.com

The pharmaceutical sector is another defensive sector to consider for bear market stocks. AZN stock is a quality pick with a five-year (monthly) beta of 0.19. Additionally, the stock has a dividend yield of 2.35%.

One reason to like AstraZeneca is the company’s healthy growth trajectory. For Q3 2021, revenue growth on a year-over-year basis was 28% to $25.4 billion. Excluding the impact of the vaccine, revenue growth was 17%. I believe that strong top-line growth is likely to sustain in the next few years.

One reason is the impact of the Covid-19 vaccine. With the Omicron variant, revenue is likely to be robust even for 2022. Additionally, there is a case for annual booster doses of the vaccine in the coming years.

Another reason to be bullish is the fact that the company has a deep pipeline of candidates. The current pipeline includes 175 projects in various stages. As more drugs are commercialized for different conditions, revenue growth will sustain. It’s also worth noting that the company is expanding its bio-pharmaceutical product presence in emerging markets with significant growth potential.

For the first nine months of 2021, AstraZeneca reported operating cash flow of $4.5 billion. This implies an annualized cash flow potential of $6.0 billion. Considering the product pipeline and global reach, it’s likely that cash flows will continue to swell in the coming years.

Overall, AZN stock is among the quality names to hold in a bear market. The stock is also worth considering for the core portfolio.

Bear Market Stocks to Buy: Newmont Mining (NEM)

Newmont (NEM) logo on a mobile phone screenSource: Piotr Swat/Shutterstock

NEM stock has been sideways for the last 12-months. The 3.39% dividend yield stock with a beta of 0.28 is worth considering among bear market stocks.

Investors will be wary of rate hikes in 2022 and its impact on gold price. However, there are two important points to note.

First and foremost, even with three or four rate hikes, real interest rates are likely to remain negative. Gold is therefore likely to remain firm at current levels.

Furthermore, in a possible bear market, investors will move funds away from risky asset classes to relatively low-risk asset classes. Gold is likely to witness fund inflow if there is a meaningful correction in equities.

These factors make NEM stock worth considering. Specific to the business, the company has a robust asset base (94 million oz. of gold reserves) and expects steady production through 2040. This provides clear cash flow visibility.

Important, Newmont expects the all-in-sustaining-cost to decline to $800 to $900 an ounce in the coming years. Even if gold trades in the range of $1,800 to $2,000 an ounce, EBITDA margin will remain robust.

For the first nine months of 2021, Newmont reported free cash flow of $1.8 billion. With an annual FCF potential of $2.5 billion, the company is positioned to increase dividends and pursue share repurchase.

JPMorgan Chase (JPM)

JPMorgan Chase (JPM) lettering on a corporate office in New York City.Source: Roman Tiraspolsky / Shutterstock.com

Banking stocks has been under-performers in the last 12-months. JPM stock has trended higher by 8% during this period. I believe that the 2.69% dividend yield stock is worth considering in a bear-market scenario.

One reason to be bullish on the banking sector in 2022 is the guidance for rate hikes. With interest rates remaining artificially low, the banks have witnessed growth primarily from non-core banking activities.

However, when interest rates trend higher, the cost of borrowing will increase for businesses and consumers. However, deposit rates are much slower to respond to rate hikes. The result will be a net interest income expansion for the banking sector.

Therefore, even if the broad markets trend lower, JPM stock might remain resilient. In particular, with the stock trading at an attractive forward price-to-earnings-ratio of 13.4.

For 2022, JPMorgan Chase set guidance for net-interest income of $50 billion as compared to $44.5 billion in 2021. A potential bear-market can impact trading or wealth management income. However, that’s likely to be offset by core banking business gains.

Overall, JPMorgan has a strong balance sheet and healthy cash flows. JPM stock seems positioned for a rally in 2022 and is worth holding in the portfolio.

Bear Market Stocks to Buy: Starbucks (SBUX)

Starbucks (SBUX) coffee cup on a counterSource: Natee Meepian / Shutterstock.com

SBUX is another low-beta stock that has been sideways in the last 12-months. The downside risk seems to be capped for this 2.02% dividend yield stock.

For Q4 2021, Starbucks reported revenue growth of 31% to $8.1 billion. For the same period, the company’s global comparable store sales increased by 17%. For the full year, global comparable stores sales increased by 20%. Considering the growth momentum, the stock seems to be attractively valued.

It’s also worth noting that Starbucks opened 538 new stores in Q4 2021. The rate of store opening has been robust. Further, stores in U.S. and China comprised 62% of the overall portfolio. However, in the coming years, it’s likely that Starbucks will be more diversified. There is significant untapped potential in countries like India.

Starbucks is also well positioned from a financial perspective. As of Q4 2021, the company reported $6.5 billion in cash and equivalents. Additionally, for the last financial year, operating cash flows were $5.9 billion.

Financial flexibility will ensure that store openings remain robust through 2022. On the flip-side, inflation is a concern as it might impact operating margins. However, it seems that the inflation factor is discounted in the stock price.

Equinor (EQNR)

Illustrative editorial of EQUINOR (EQNR) website homepage, with EQUINOR logo visible on display screen. ISource: II.studio / Shutterstock.com

In general, oil and gas stocks have a high-beta. However, there are exceptions and EQNR stock is among the quality names with a low-beta. A key reason for low stock volatility is a strong balance sheet and low break-even assets.

With Brent trending higher, EQNR stock has seen bullish momentum with an upside of 45% in 12-months. However, at a forward P/E of less than 10, the stock looks attractive. EQNR stock also comes with an attractive dividend yield of 2.48%.

In the next few years, the company’s Johan Sverdrup asset is likely to be a cash flow machine. The asset has a full-field break-even of $15 per barrel.

Even besides this asset, Equinor is positioned to deliver healthy cash flows. Between 2021 and 2026, the company expects free cash flow of $45 billion. With Brent trading near $80 per barrel, the FCF visibility is higher than guided.

Another reason to like Equinor is the big push towards renewable energy. Over the next five-years, the company expects to invest $23 billion in renewable assets.

It’s also worth noting that as of Q3 2021, Equinor reported net-debt ratio of 13.2%. A strong balance sheet and robust cash flows allow ample scope for dividend upside. In addition, Equinor has been aggressive on the share repurchase front.

Overall, EQNR stock is a quality stock to hold in a possible bear market. Furthermore, the stock is also worth considering for the long-term.

Bear Market Stocks to Buy: Microsoft (MSFT)

The Microsoft logo outside a building representing MSFT stock.Source: Asif Islam / Shutterstock.com

MSFT stock is another name to consider among bear market stocks. The stock has delivered healthy upside of 40% in the last 12-months. Even with a relatively unattractive dividend yield of 0.82%, the low-beta stock is worth adding to the portfolio.

Recently, investment firm Bernstein opined that Microsoft is likely to be among the big winners in the metaverse space. Bernstein has a price target of $364 for the stock. This would imply an upside potential of 19% from current levels of $306.

Microsoft has also been reporting strong quarterly numbers. For Q1 2022, the company’s revenue increased by 22% to $45.3 billion. The cloud business remains a key growth driver. For the last quarter, cloud revenue was higher by 36% to $20.7 billion.

It’s also worth noting that for Q1 2022, Microsoft reported cash flow of $19.1 billion. With an annualized cash flow potential of $80 billion, the business is a cash flow machine. This also allows Microsoft to invest in emerging technologies through the organic and inorganic route.

Overall, MSFT stock is likely to remain resilient in a broad market correction scenario. The stock is also worth holding for the medium to long-term as the metaverse trend continues to grow.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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