| At the end of 2021 I introduced a new concept where I would create a collection of KRO Favorites which weren't missing any pieces for success like those resource juniors I tag with a Bottom-Fish rating, and make them available on an unrestricted basis to the public. The 2022 Favorites featured only 8 companies, of which P2 Gold was one. The idea was that individuals would pay $450 per year to get access to the research platform and my collection of Bottom-Ftagged juniors which needed to secure some missing piece in order to develop an uptrend. As these pieces fell into place I would convert them into a KRO Favorite, ideally after the stock had risen several times from its bottom-fish equilibrium level. What a terrible year to launch this initiative!
At first it worked well, with the group gaining 32.8% by April, but since then it has been downhill, bottoming down 39.4% in September and currently limping along at down 33.9%. Worse, or perhaps fortunately so, I have not felt it necessary to add any bottom-fish graduates during 2022. Gold is down 9.7% so far this year, and the TSXV Index is down 36.8%, but it is no consolation that the 2022 KRO Favorites Index is down slightly less than a market index which is 50% polluted by non-resource juniors which we know have done much worse than resource juniors. The table below shows that only one KRO Favorite, Verde Agritech, is up for the year; the rest are down 31%-67%.
P2 Gold is down 59.6% thanks largely to how gold and copper have performed this year. Copper is understood as a proxy for the trend in the global economy, and despite all the talk about the demand boost required by the energy transition, a demand boost whose deliverability is not evident in the copper mine development pipeline, copper is not just signalling a macroeconomic downturn, but a failure of the energy transition dream. Or, more charitably, a disconnect between the market and projected reality. Gold is another matter because if Mr Goldfinger turned the 6.8 billion ounce above ground gold stock stored in vaults radioactive, it wouldn't change a thing in the way the real world operates, just as the flash evaporation of every Bitcoin wallet wouldn't. So what gold's price should be is anybody's guess, but in the case of copper it needs to be high enough to justify mining enough to make the energy transition a reality.
The flagship project of P2Gold is the Gabbs copper-gold project in Nevada for which the junior plans to deliver a PEA by the end of 2022. Early this year I created an outcome visualization which imagined a 20,000 tpd open-pit operation that simultaneously heap leached the higher gold grade oxide cap and milled the copper rich sulphide resource. At the time when gold was $1,900 and copper $4.50 the LOM DCF model just barely cleared development hurdles with the existing resource. But that didn't matter because what P2 Gold's Ken MacNaughton and Joe Ovsenek planned to do was create an optimized mining plan which heap leached the gold cap first and used the cash flow to fund the later CapEx to mill the the sulphides. Meantime the prices of gold and copper have declined sharply, such that my simplistic OV's outcomes are far below development hurdles. The question now is what have current prices done to the assumptions in the optimized PEA mining plan?
The market has given Gabbs a big thumbs down, which is only fair if you assume current metal pricing relative to costs represents the long term reality. But not if you consider that once the PEA is published, the clock starts ticking on a balloon payment to the vendor that is not in the bank. The vendor is Waterton, which as part of the Gabbs deal is the largest shareholder of P2 Gold. Ken and Joe have put serious personal money above the current market price into P2 Gold, so this is not an example of some deal where the principals got nearly free paper in a private company that was then folded into a shell. The value of the PEA will be that it establishes the optimal mining scenario for Gabbs and its underlying cost structure. It may not be viable at current gold and copper prices, but in the case of copper it is reasonable to assume that the future which depends on copper is not viable at the current copper price. Now if Waterton operates in the mold of the Carlsbad school where you always press your advantage, next year it will force a default, leaving it in control of a shell whose only asset is the Bam gold project in the Golden Triangle and a couple principals who put their money where their mouth was and upgraded the optionality value of the Gabbs project which Waterton scavanged during the bear market of the past decade.
The upside now hinges on Bam. During 2022 P2 Gold drilled 13,958 metres in 95 holes into the epthermal Monarch gold zone of which 59 holes are still pending. At the start of 2022 there was a plan to test the hypothesized feeder for this gold mineralization which required some deep holes. But weather delayed the geophysical surveys so the company has focused on shallower drilling designed to outline a near surface resource and provide zonation data which when correlated with the geophysical data will allow vectoring into the likely feeder target for testing in 2023. Bam has its own approaching vesting deadlines which may not be achievable if Waterton extracts Gabbs and tries to turn Ken and Joe into P2 Gold minions. So P2 Gold is in a sense a complex bet on how title to Gabbs will be established on a win-win basis. The wild card is that the remaining Bam results are so good that Gabbs becomes irrelevant as P2 Gold turns into a Golden Triangle gold discovery delineation story. |
