TCKRF - Should You Be Fully Positioned in the Junior Resource Space? | Benzinga
Source: Michael Ballanger 07/17/2024
Michael Ballanger of GGM Advisory Inc. shares his thoughts on the junior resource space and some stocks he believes should be on your radar.
As this is being written, the price of gold in spot terms is trading at a new all-time high, with the bellwether ETF SPDR Gold Shares ETF (ARCA:GLD) moving to all-time highs above $225.66. Since 2020, my long-range forecast has concentrated on two primary metals — copper and gold — outperforming all other metals for the entire decade of 2020 to 2030. Thus far in 2024, copper has seen a new all-time high back in May when the spot-month contract traded at USD $5.199/lb. Gold hit $2,450.05 around the same time, and after correcting back to just above $2,300 in June, it has been on a near-vertical trajectory since then.
Historically, the TSX Venture Exchange has been the trading venue for the majority of junior Canadian explorers and developers, and over the past fifty years, it has always responded favorably to rising commodity prices but never greater than when gold is in a runaway "bull" phase. It typically moves into "overdrive" when silver kicks into gear and plays leap-frog with gold in daily performance, but the one characteristic that dominates the landscape is volume. Escalating volume is representative of the enthusiasm generated by the underlying commodity price action, and it is during this early phase of advance that the bulk of the larger financings are completed. As the cycle matures, the financing dollars are less, which favors the grass-roots explorers who typically operate on shoestring budgets until the underlying commodity prices top out, at which point everything grinds to a halt.
The current cycle has been an anomaly in that the world has seen a huge uptick in gold and copper, yet there has been literally no escalation in TSXV volume and the coincident financing volumes that are always present. This is due to a number of factors, including competition from the stampeding U.S. technology stocks, whose performance has totally overshadowed the impressive action in copper and gold. Also affecting sentiment for the TSXV has been the Canadian economic scene, where household debt has risen to levels exceeding the U.S. subprime bubble in 2008. There seems to be little, if any, discretionary money allocated for the junior resource space. Lastly, foreign investors have been sour on the Canadian political scene with regard to investment, as the current leadership has been obsessed with climate change, creating a somewhat hostile environment for the mining companies.
Nevertheless, as has always been the case for the TSX Venture Exchange, the movement in metal prices has always resulted in capital movement into that exchange overcoming all odds, including spiraling interest rates in the 1981-1982 bear market that saw shares in International Corona jump 2,000% on their ownership of the Hemlo discovery near Thunder Bay, Ontario. This movement of investment dollars into the junior exploration and development space, while absent since the October 2023 lows, is merely delayed and, in my view, due to arrive on the capital markets' doorstep as summer grinds to a close. This enables investors to put together a shopping list of quality juniors with advanced resources or highly prospective (and largely de-risked) exploration projects in advance of the onslaught of generalist capital into the space.
For this reason, I am issuing this Special Situation Bulletin, providing investors with updates on the companies in my personal portfolio that meet the extensive list of qualifications that the bankers and analysts need prior to engagement. As mentioned earlier, they are all concentrated in the copper and gold space, with a bias toward copper as the top metal for the decade.
Getchell Gold
Getchell Gold Corp. (OTC: GGLDF): Getchell ("GGLDF") is currently in possession of a 2,059,900 ounce gold deposit in Nevada in a part of the world known for large low-grade gold deposits.
What sets the Fondaway Canyon project apart from others in the region is the higher-then-average grades reported during the 2020-2023 drilling seasons.
What also impresses the investment crowd is the uncanny ability of the exploration team, led by President Mike Sieb, to consistently drill into new zones of gold-bearing mineralization, resulting in the discovery of the previously unknown North Fork and Colorado Southwest zones, which remain open along strike and to depth.
In fact, this entire deposit is wide open to resource enhancement through additional drilling.
The company elected to forego further exploration in 2023 until they completed the $1.6 million final installment of the Fondaway Canyon Property which was no small feat in the final quarter of 2023 as funding for junior explorer/developers was virtually non-existent. However, a strong push in the final weeks of the year, led largely by the strong and loyal shareholder base comprised of high-net-worth individual investors, moved them over the line, and 100% of the asset was secured. However, that depleted any resources allocated for exploration, so the company is currently awaiting the return of the larger financing sources in order to secure drilling funds.
Another reason for curtailing drilling was that until the markets are rewarding junior explorers/developers for positive results, there is no sense in burning away one's treasury expecting a higher stock valuation and additional funding when there are few interested players.
GTCH is primarily a value play. With an indicated and inferred resource of 2,059,900 ounces (and due to report a revised resource estimate next month), the market cap of the company is approximately $20 million. (Assuming future exercise of all options and warrants, the share capital is approaching 200 million, putting an additional $5 million in the treasury.) Using the current indicated and inferred resource as a benchmark, this values the Fondaway asset at $9.90 per ounce, which, for Nevada, is particularly cheap. Furthermore, with an average grade of 1.4 g/t Au, the initial resource has an in situ metal value of in excess of $5 billion. When one considers that the resource is most surely going to grow over the next few seasons of extension drilling, for the entire company to be trading at 0.4% of the gross metal
value is verging on the absurd but in market environments such as the one we are in, undervaluation is just as common as is overvaluation in the artificial intelligence and mega cap tech space.
Using conservative assumptions for Nevada gold deals of $50 ounce, I contend that GTCH should be valued at $100 million or $0.50/share rather than the current $20 million, or $0.097/share. (CA$136 million or CA$0.732/share) That represents a 500% increase in the share price from current levels with greater blue-sky potential through further drilling.
Possible Catalysts
- Joint Venture participation by a senior or intermediate producer looking for presence in Nevada
- Sponsorship by traditional investment bank/corporate finance firm increasing working capital and liquidity
- Migration of the Millennial and Gen-X investor demographics to the gold and silver
Fitzroy Minerals
Fitzroy Minerals Inc. (OTC: FTZFF): Fitzroy ("FTZFF"), formerly Norseman Silver Ltd., was rebranded in 2023, making the name-change and pivot from silver-copper exploration in B.C., to copper-gold exploration in Chile and Argentina as well as a management change. This pivot ...