FN Media Group Presents Oilprice.com Market Commentary
LONDON, Aug. 27, 2020 /PRNewswire/ -- A post-COVID new normal and a flood wave of stimulus from the Federal Reserve have crushed the dollar and pushed gold to record heights. And with the real economy in a precarious situation, gold prices could soon hit $3000, $4000 or even $5,000 dollars per ounce. Mentioned in today's commentary includes: Newmont Corporation (NYSE: NEM), Barrick Gold Corporation (NYSE: GOLD), Kinross Gold Corporation (NYSE: KGC), Agnico Eagle Mines Limited (NYSE: AEM), Eldorado Gold Corporation (NYSE: EGO).
Investors of all types are piling into safe haven assets in unprecedented numbers, and when even the most gold skeptic investors are starting to bet big on bullion, one may conclude that things have fundamentally changed.
Last week, The Oracle of Omaha himself, Warren Buffett, disclosed Berkshire Hathaway's recent investment in gold miner Barrick Gold Corp. This is the first time he has bought gold, and it is a sign that the legendary investor places significant value in the yellow metal.
One thing Buffett knows is that gold mining stocks have historically always performed better than physical gold. Currently, the best indicators such as the popular Gold Miner ETFs are outdoing physical gold by 50% ...
VanEck Vectors Gold Miners ETF (GDX) has surged over 53% in the past 52 weeks.
VanEck Vectors Junior Gold Miners ETF has surged over 52%.
And for even bigger gains, Canadian junior Amex Exploration (AMX.V) is up a staggering 7,000% over the past 12 months …
That's because AMEX has hit very high-grade gold in three distinct zones including its iconic 100% owned Perron Gold Project located in the mining-friendly jurisdiction of Quebec. But if investors missed out on the mad Amex rally, don't worry…it could happen again. One possible junior company called Starr Peak Exploration (STE; LSGEF) is very well positioned for a potential gold strike.
It's sitting on the same gold region. And Amex management believes this is the next major runner. In fact, they are so confident that the founders of Amex Exploration were some of the early investors in Starr Peak.
Now, Starr Peak is gearing up for its first drilling campaign, and it has little exposure--yet.
Junior Gold Mining Stocks Are Major Multipliers
Gold Mining Stocks offer the best opportunity to multiply your returns over the long run. That's the case because gold mining stocks act as a leveraged play on gold, multiplying gold moves by 1.5x, 2x or even 3x.
When the first round of Amex investors earned over 7000% returns, it was because the company had no exposure and did something the major miners couldn't do: It found a huge gold deposit in the very place that the bigger drillers had failed.
The biggest risk/reward ratio for investors in junior gold is when they jump in before a major discovery, and before a company has exposure. That's exactly what happened with Amex. But the returns don't stop there: With every stage of proving up and development, the stock gets another boost. In the last 12 months alone, Amex is up over 2000%.
That's why the attention is beginning to focus on the exciting story that is unfolding with Starr Peak (STE; LSGEF) now--in Phase 2.0 of the Quebec gold bonanza. And the timing is perfect: Gold hasn't seen this kind of setup in nearly eight decades.
Government-ordered lockdowns have decimated economies everywhere, with the global economy experiencing its worst recession since WWII--and the pandemic still rages on. Unprecedented stimulus packages are being pushed through to the tune of $15 trillion globally, which could spark the classic cobra effect culminating in a hyperinflationary economic collapse.
Central Banks are printing money at the fastest clip in history, leading to a plunge in inflation-adjusted bond yields into negative territory and the dollar's sudden collapse. US election concerns with talk of postponement and refusal to accept results are leading to the worst domestic political uncertainty the country has ever seen. And amid this fog of chaos, US-China tensions have reached fever pitch once again over world dominance, espionage and even the pandemic itself.
It all triggers alarm over stagflation--a deadly combination of sluggish growth and rising inflation that quickly erodes the value of fixed-income investments. That's prompted investors to flee into safe havens like gold, the biggest and best of them all.
Wall Street is already full-on bullish on the precious metal.
If gold prices were to go to $3,000, Amex which netted the earliest investors in the neighborhood of 7000%, would have multiplied that massive return even more. And now, Starr Peak (STE; LSGEF) is positioning itself as a mini-Amex in more ways than one. So, this could be a re-run on a smaller scale.
Time to Drill Down on The Play That Made Amex Investors Rich
Now, it's time to drill. Amex is already drilling with a frenzy, but it's Starr Peak's upcoming drill that offers the best off-the-radar exposure. Both are fully funded to drill, too. But let's back up a bit to the Amex discovery, which we think sheds more light on what is anticipated with Starr Peak.
First of all: Amex did what major miners thought impossible in this gold-rich area of Quebec. They'd given up while Amex kept drilling until it hit high-grade gold in a series of holes in a stunning discovery. It was no secret that there was gold here, and tons of historical production was pretty easy to follow. But the majors weren't tackling the drilling right.
Anyone who was savvy enough to bet on this small company trumping the big gold miners was rewarded wonderfully because AMEX hit very high-grade gold in three distinct zones here, on its Perron Gold Project.
Amex currently has $25 million in cash and is now fully funded for their ongoing 200,000 meter drill program. They have 6 drill rigs working around the clock and have basically announced high-grade results hole after hole--with no sign of anything slowing down.
With Amex founders also shareholders in Starr Peak, Amex is drilling closer and closer to Starr Peak's property. The trend and strike direction of the discovery is heading due East towards Starr Peak's property.
It's now only about 1 kilometer away from Starr Peak's property border and with each easterly move it makes toward Starr Peak, the numbers get better. The grades are getting higher and the gold mineralization is open at depth. The grades are so high it is deemed to be some of the richest grades found in the Abitibi Greenstone Belt. As everyone knows, the best place to find a discovery is often right next to another discovery. That's Starr Peak.
The Golden End Game
This is all happening in the beating heart of Quebec's gold bonanza. Just as gold, in general, has moved from Wall Street to Main Street, Amex has followed suit--attracting institutional investors to keep it off the radar while it grew serious legs. Starr Peak (STE; LSGEF) shares have been on a tear since they doubled down on Perron, surging 386% over the past 12 months.
Yet, at a market cap of $40.3 million, Starr Peak could be seriously undervalued, depending on drilling results. And Starr Peak presents a highly asymmetrical risk-reward profile with risk capped on the downside but offering potential for outsized returns. Consider that AMEX is sitting potentially on ~10 million ounces of gold and has a current market cap of $264 million.
The opportunity for Amex is still mind blowing even after all the success they have already had. There is potential for its market cap to grow exponentially with all the drilling that they are currently doing and in the future as their stellar high-grade results keep rolling in.
Yet, Starr Peak's property could be sitting on a similar discovery … with a much smaller market cap. Currently, It has a $40 million market cap and they haven't even begun to scratch the surface. As the drills at Amex come closer and closer to their property line, it just adds to the probability of another potential discovery. And spurring it all along is this: The gold rally could have plenty of space to run still; so if you missed out on the mania so far, or if you missed out on Amex, this train hasn't left the station.
Early stage gold explorers like Starr Peak (STE; LSGEF) with a good discovery could make outsized returns for investors who get in early--especially when they set up shop right next to a major discovery that eluded the majors the first time around.
But watch what happens next as the news flow maintains a fast and furious pace: As Amex continues to drill, and with expectations of a substantial resource calculation by the end of the year, Starr Peak stock is hoping to be the biggest beneficiary.
Gold Majors Are Still In The Game, Too
Newmont Goldcorp (NEM; NGT) is the world's largest gold miner following last year's merger between Newmont and Goldcorp. Thanks to the merger, in addition to growing economic concerns fueling a wider gold rally, its revenue increase of 43%. The spike in income paid off for investors, who saw share prices increase drastically as well as a dividend hike of 79%, making its dividend yield higher than any of its top-tier competitors. Newmont recently updated its 2020 outlook, aiming for stable production of 6 million ounces while cutting back costs into 2020.
Tom Palmer, President and Chief Executive Officer noted, "We are pleased to be ramping up operations at our four sites previously placed in care and maintenance and we remain committed to protecting our workforce and neighboring communities,"
Though Newmont took the throne as the world's largest gold miner from Barrick Gold (GOLD; ABX) last year, Barrick is still a force to be reckoned with. In fact, it's even caught the attention of legendary investor and notorious gold bear Warren Buffett, whose Berkshire Hathaway invested over $560 million in the company, securing a clean 20.9 million shares, sending Barrick's stock price up by 12% in a single day.
As the future of the economy looks more-and-more uncertain, and the Federal Reserve continues to print money at a record rate, solid gold miners like Barrick have drawn a lot of attention for investors, especially considering the healthy 0.96% dividend per share that comes with the purchase.
Kinross Gold (KGC; K) is another veteran in the gold game. Though it does not boast a strong dividend like Newmont or Barrick, it has had incredible earnings reports this year, and aas a result, has seen substantial gains in its stock price. In its most recent report on its second-quarter earnings, Kinross reported a revenue of a whopping $195.7 million.
Not only did Kinross blow earnings estimates out of the water, it did so while maintaining a healthy balance sheet, with an operating cash flow of $432.8 million and adjusted operating cash flow of $416.9 million, a 30% and 45% increase, respectively, compared with Q2 2019.
Agnico Eagle Mines (AEM; AEM) is an especially noteworthy company for investors. Why? Between 1991-2010, the company paid out dividends every year. Though it is set to cut its dividends slightly following its poor 2019 performance, it is still treating its investors right.
Despite reducing overall dividend yield, Agnico's earnings-per-share and overall dividends-per-share have increased significantly this year. Agnico Eagle Mines has grown its earnings rapidly, up 37% a year for the past five years. And as gold prices continue to rise, Agnico remains as attractive as ever.
Eldorado Gold (EGO; ELD) is another Canadian giant that has had a stellar year. Despite the global COVID-19 pandemic and the extensive measures it's taken to protect its workers, Eldorado still managed to pull down over $43 million in the second quarter alone. All while maintaining a healthy cash flow of $63.4-million in Q2 2020, increasing significantly from $4.8-million in Q2 2019 and $7.2-million in Q1 2020 as a result of higher sales volume and a higher gold price.
"Our outstanding operational performance during the quarter positions us to continue to generate significant value for our stakeholders. Even while managing COVID-19, we achieved strong quarterly production while seeing lower all-in sustaining costs," said George Burns, President and CEO.
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
This news release contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this release include that prices for gold will retain value in future as currently expected; that Starr Peak can fulfill all its obligations to acquire its Quebec property, including receiving stock exchange approval; that Starr Peak's Quebec property can achieve drilling and mining success for gold; that historical geological information and estimations will prove to be accurate; that high-grade targets exist; and that Starr Peak will be able to carry out its business plans. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that the Company may not get TSXV approval; it may not be able to finance its intended drilling program; Starr Peak may not raise sufficient funds to carry out its plans; geological interpretations and technological results based on current data that may change with more detailed information or testing. The forward-looking information contained herein is given as of the date hereof and the Company assumes no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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