Kitco News has launched its 2021 outlook, offering the most comprehensive coverage of precious metals markets in the new year. Trillions of dollars were pumped into financial markets in 2020 and it will not come without consequences. Economists expect investors to steel for inflation in 2021.
(Kitco News) – 2020 was an unprecedented year for the precious metals market. In August, gold prices rose to a record high of more than $ 2,000 per ounce.
Although the precious metals sector attracts the attention of new investors, the mining sector continues to underperform. The value of the mining sector is much lower than it was in the recent bull market in gold and silver.
However, some market analysts believe that this will change and investors will not be able to ignore the value generated in 2021.
With this in mind, we decided to contact some mining experts and ask them how they would invest $ 10,000 in the mining sector and what themes they would see play in 2021.
Authority: Joe Mazumdar
Claim to fame: Editor of Exploration Insights
Which three companies do you like the most in 2021 and why?
My top picks include the following:
Trilogy Metals (TMQ.T, TMQ.NYSE) has a joint venture with a large diversified miner, South32 (S32.ASX), over the feasibility phase. Arctic copper-dominant polymetal volcanogenic massive sulfide precipitate and source-stage Bornite carbon replacement precipitate in Alaska. It underperformed in 2020 because the COVID-19 concern led its JV partner to postpone its work program until 2021 to prevent local villages from being endangered. The access road to the remote project was approved, which was a major catalyst in 2020. The JV partners have announced their budget and plans for 2021 (US $ 21 million), which include exploration drilling in the Ambler district to add more resources.
Liberty Gold (LGD.T, LGDTF.OTC) is promoting the Black Pine Gold Project, which has the potential to become a significant target in the open pit and a heap of leaks in a mine-friendly part of Idaho. The company continues to drill and discover new zones of penetrating oxide gold mineralization by expanding its footprint (+4.6 sq. Km.) And expanding the drilling program for 2021 to more than 50,000 meters. Upcoming catalysts include a first resource (Q1 / 21), a scoping study or PEA (Q2-Q3 / 21), and a pre-feasibility study (PFS) on the Goldstrike gold project in southwestern Utah, which currently undervalued in the portfolio.
Bluestone Resources (BSR.V) operates the feasibility phase, high-grade Cerro Blanco underground gold project in Guatemala. The underperformance in 2021 is related to delays in catalysts due to the impact of the COVID-19 pandemic. The company resumed its drilling program in October 2020, delivering some significant high-quality advanced results. The current measured and indicated resource contains ~ 1.4 million ounces at 10.3 grams per tonne of gold.
The current valuation indicates that BSR has been trading at a 1.2x multiple of the value of the NPV @ 5% since the January 2019 feasibility study, which was done at a gold price of US $ 1,250 per ounce. The current price is much more than US $ 1,800. At US $ 1,500 and US $ 1,700 per ounce, the company would trade at 0.7-0.8x and 0.5-0.6x discounts, respectively. The next important catalyst is the funding package for the development of the project.
What investments would you avoid next year?
Although the desire to add more ounces to maintain or increase production profiles, coupled with a lack of development projects in the pipeline of many gold producers, suggests that M&A will be important, the emphasis may be on projects below lower gold prices work ( Therefore, I would avoid marginal green field assets in off-road countries.
The number of financing in the junior market has added more companies and new management teams focusing on promotion above substance. I will avoid it.
I will also avoid companies promoting assets small niche commodity markets. As a company like Energy fuels (EFR.T, UUUU.NYSE), which I own for my shares because they have a setback in the uranium market, make an advantage on the REE market, I do not find the fruits of it.
As equity investors, we need the share price to make money. Therefore, the denominator (number of shares) is just as important as the numerator (asset value). I will companies with a excessive potential dilution from warrants and options, or with a significant amount of shares acquired at a low cost held by weak hands.
Ultimately, I want to add or maintain exposure to mining companies under the leadership of quality management teams with the potential to discover or develop high-margin projects in jurisdictions that allow and develop mining projects.
What do you think will be the big themes next year: M&A activity, earnings, exploration, record gold prices?
Key topics that will affect my portfolio of mining stocks include the following:
Precious metal producers will continue to generate free cash flow at these gold and silver prices, which will compensate for any minor production shortfalls due to the COVID-19 pandemic. For example, Pan American Silver Corp. (PAAS.T, PAAS.NASDAQ) generated $ 292 million in operating cash flow, an increase of 54% over the same period last year, despite production deficits (35% decline in silver), as the realized gold and silver prices in Q3 rose + 44% and + 30% respectively.
With sound balance sheets, companies can not only consider lifting their balance sheets dividend yields – Pan American Silver has twice increased its dividend yield in 2020, but also to add their project pipeline maintain or even expand their production profiles.
Granted, growth is easier for middle-class precious metal producers than the single major producers like Barrick Gold (ABX.T, GOLD.NYSE) and Newmont Corp. (NEM.NYSE, NGT.T). The additions come in the form of increased exploration budgets and / or more JVs with juniors, M&A for producers of single assets and advanced development projects. Recently, for example, Equinox Gold (EQX.T, EQX.NYSE) offered Premier Gold (PG.T, PIRGF.OTC) for its 50% stake in the permitted open-pit mining project of Hardrock gold in the million million ounces in northern Ontario.
In addition, the majority of M&A transactions by non-state-owned enterprises have been carried out without premiums since Barrick Gold (ABX.T, GOLD.NYSE)’s merger of an equal acquisition (MOE), which shareholders find more attractive than the abundance of dilutions -M&A completed during the last cycle.
The four months hold for a significant amount of equity financing until February 2021 will continue, it could put some pressure on junior explorers. The funds were used to support exploration activities and G&A, which includes investor relations promotion it seems to have obscured positive news flow from exploration activities, as a major driver for positive stock price movements. This trend may continue into 2021.
Despite the positive trend in commodity prices, an enterprise with an asset will become a lightning conductor for NGOs, locals and other stakeholders no better than the market. Northern Dynasty Minerals (NAK.NYSE, NDM.T), for example, rose ~ 450% to a July 2020 high of US $ 2.34 per share; however, a negative decision on its Pebble Copper gold project in Alaska dropped its valuation by 85%. To date, it is more than 20% lower. Under a Biden Administration, US admission may take longer for projects on federal ground.
Several vaccines have been developed for the COVID-19 virus, but many countries may not develop a ‘herd immunity’ and return to ‘normal’ activities before the summer of 2021. Therefore, the impact on the slow turnaround time of the test (6-8 weeks versus 3-4 weeks) has reduced efficiency, especially in underground mines in Latin America, and travel constraints that the precautionary examination for M&A, financing (debt) and joint ventures will have. delayed, may persist in summer.
The negative impact of the pandemic on many emerging, developing and advanced economies could accelerate the development of tasty development projects to generate jobs and export earnings. A bid administration can continue to contract supply chains leading to more domestic production of critical minerals (REEs) and possibly protecting the uranium industry.
On the other side of the coin, miners may be subject to significant free cash flow from assets in emerging markets creeping nationalism in an effort to get a bigger share of the rent.
What are your final comments on what you think 2021 will look like for investors?
The Biden presidency will change the prospects for mining companies operating in the US, as it could take longer and those emitting significant greenhouse gases will be adversely affected, like coal companies. But I think this government would not be ashamed to spend the current economic slowdown and look at the protection of local industry, which could be good for uranium.
The interaction with China with its main customers (US) and raw materials (Canada and Australia) becomes problematic. Recently, China’s Shandong Gold attempt to acquire TMAC Resources (TMR.T) was shut down under the Investment Canada Act (Canada), and the parties are in talks about ending the deal. Relations between China and Australia are still deteriorating as 8.1 million tonnes of coal are currently trapped in 74 ships off Chinese ports.
Disclaimer: The views expressed in this article are those of the author and may not reflect the views expressed Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, not Kitco Metals Inc. or the author cannot guarantee such accuracy. This article is for informational purposes only. It is not a request to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article does not accept the blame for losses and / or damages arising from the use of this publication.