Gold is trading near a new recent high and yet gold juniors are at best tracking sideways on modest volume. Historically there have been three basic types of gold juniors that attract different audiences. The first type is the discovery exploration play where past examples are Hemlo in 1982, Eskay Creek in 1989, and Frutta del Norte in 2006. The audience for discovery oriented gold juniors has traditionally been Canadian speculators and to some degree Americans. One did not need to know much about how to value an emerging discovery so long as you had a broker who followed such plays.

The second relatively rare type is the innovation story usually involving some new form of extraction technology such as heap leaching during the 1980s which made it feasible to put large low grade oxide deposits in Nevada into production. The audience for this type of gold story is smaller because new technologies are infrequent, the investor needs some technical understanding about why the innovation might work, and definitely needs to know how to value a future mine in terms of the discounted cash flow model. This audience consists of very high net worth and institutional investors.

The third type is the optionality play where an existing gold deposit becomes the focus of feasibility demonstration work designed to show at what gold price the deposit becomes worth a lot of money and deserves to be put into production. The historical audience for this type of story has been wealthy Americans, generally Republicans, and the big question has always been when and what will deliver that higher gold price. This audience emerged during the 1970s after Nixon dissolved the gold standard that had fixed the price at $35 per ounce, allowing gold to establish a new trading level at a ten times higher price in less than a decade. At $35 per ounce the only way to make money through a gold junior was for it to make a fabulous discovery with the grade and size to make it profitable at the fixed price. During the 20th century costs gradually crept higher while the best gold deposits were depleted. At $350-$400 gold a lot of marginal known deposits were suddenly in the money and to some degree the 1980s and 1990s were about rediscovering such forgotten deposits. Gold production had slumped during the 1970s but expanded dramatically during 1980-2000. A similar phenomenon affected base metal deposits during the 2000s thanks to expanded raw material demand created by the China super cycle. American investors were attracted to gold courtesy of the gold bug story created by pundits such as Doug Casey who spent two decades predicting gold would hit $2,000 during which gold not only tracked sideways but finished off the millennium lower in the $250-$260 range.

Gold discovery exploration plays still exist, and currently my top pick is Solitario Resources Corp and its Golden Crest project in South Dakota. During the 1980s and 1990s the Canadian audience for gold discovery exploration juniors was cultivated by the brokerage sector at a time when brokers made money by charging commissions for each trade as high as 3%. The Internet did not exist and brokers functioned as information network hubs between the promoters and speculators. Today no broker plays this role because the new profit mechanism involves gathering the assets of high net worth individuals and charging a fee on their portfolio's value; churn and earn is a thing of the past. Social media has emerged as the new network hubs but these are not inter-linked in the manner of the old school financial network hub. Individuals who wish to speculate on gold discovery plays are largely on their own, following company news releases and reading what experts have to say about a play, experts who these days mostly get paid by the companies to market their stories and are as clickworthy as the "sponsored" results that show up at the top of a Google search.

It would be good if the financial establishment were completely out of the picture, but unfortunately it is ubiquitous in the form of predatory trading accounts that harvest incoming risk capital by selling short and covering their naked shorts by the end of the day by leaning into the bid side of the order book which is legal after elimination of the uptick rule. The uptick rule had to be eliminated because the regulators decided there should be competition in the form of alternative trading systems which the financial sector welcomed because it created new ways to abuse and manipulate the market at the expense of investors and the juniors. Killing the uptick rule was necessary because different speeds at which computer generated orders traveled through the various alternative trading systems made it impossible to establish what the last different price was at any point in time, making the uptick rule unenforceable. This vampire squid role of the financial sector hinders the exploration discovery gold juniors from generating anticipation cycles, leaving them stuck as lottery tickets which pay out only when a major discovery is delivered. During the past decade there have not been any seriously big gold discoveries, so this story operates in a glass worse than half empty mode and is on track to extinction by the end of the decade.

While Solitario is up 50% from the bottom-fish level where I first tagged it several years ago, it will take a major discovery hole to kick start trading activity. Ironically the enhanced technical sophistication of today's audience actually harms the gold discovery play because when a major discovery hole is delivered, the upside potential gets quantified and reached very quickly. We saw this already in 2006 when Aurelian went from $0.60 to a peak valuation of $40 within three months of the discovery hole. Such a valuation pace is too rapid to allow a shareholder crowd to build and so such stories become isolated events that benefited the lucky ones on board before the discovery hole. For an emerging discovery play to inject life into the market it must climb a lengthy wall of skepticism. The result of efficient assessment is that we have a type of chicken and egg situation where nobody wants to be a shareholder before a discovery that may never happen, but if a discovery does happen, it is too late to get on board with lots of upside still left to come.

My bottom-fishing concept emerged during the 1980s when most discovery exploration juniors operated in Canada which has a pronounced winter-summer exploration cycle. One could bottom-fish in December when there was no more pending news and investors sold their losers to crystallize tax losses. There used to be a January Effect where investors would start buying juniors with good exploration stories and one could make money trading these seasonal anticipation cycle. Today when a junior issues incrementally positive news any surge of buying is snuffed out by the financial predators and the owners of warrants dumping their long position to capture a free ride on the stock's upside potential. The discovery exploration gold junior eco-system needs both fear and greed to thrive; today it is only inhabited by fear.

In this regard Solitario is unusual because it has been able to raise money without including warrants. It trades on the TSX under the symbol SLR and on the NYSE-AM under XPL. It is far more liquid in the US market and its listing allows the younger generations with Robinhood accounts to trade the stock, though I would be shocked to hear Solitario has a shareholder under the age of 40. Solitario is also unusual because Golden Crest not only offers several types of deposit models for discovery, but it also has multi-scale potential ranging from an open-pittable 5 million ounce deposit similar to Rupert's Ikkari in Finland, all the way to a hundred million ounce district similar to Homestake on the other side of the Black Hills. Assuming Solitario achieves the milestone of showing that ore grade gold values also exist in the third dimension, not just at surface, Golden Crest can keep scaling bigger over the years as more exploration gets done. The complex and time consuming nature of the permitting required by the USFS has also created a structure where Solitario has multiple plan of operation applications underway as its surface assessment keeps generating new targets in different areas not covered by the POO granted this year. It will take years for Solitario to make or break Golden Crest which does have a seasonal May-October exploration window that will not change until there is a major discovery that justifies a winterized camp. Solitario with a not implausible future potential $100 stock price is ideally suited to allow a growing crowd to gather and the Golden Crest play, because it is accessible to the Gen-Z and Millennial generations, could become a giant teaching platform for exploration and geology that regenerates the traditional audience which is literally dying out.

I have not yet attempted an outcome visualization for Golden Crest because I first need to see what deposit model will emerge from the 5,000 m 10-12 hole drill program. But I can use my rational speculation model to assess what sort of outcome is embedded in the current implied value of CAD $93 million (this tool is muddied by Solitario's ownership of a 30% fully carried interest in the Florida Canyon zinc project which, if Nexa's economic studies result in a development decision, would make Solitario's stake worth more than $93 million). Golden Crest is currently at the target drilling stage where the certainty of an economic expected outcome is only 1%-2.5%. Under the principle that the fair value of an expected outcome is its certainty multiplied by the value of the expected outcome, if we take the mid point of this uncertainty ladder's rung, 1.75%, and assume the current $93 million implied value reflects efficient market assessment of the potential outcome and that the current pricing represents fair speculative value, we can calculate the size of the expected prize, which is CAD $5.3 billion or $64 per share assuming no further equity dilution. That size of a prize would be a truly world class gold discovery and not likely to be delivered by a single target. So at this stage the pricing of Solitario reflects the district scale potential outcome.

There is also something called the S-curve channel which is the observation that an emerging discovery while the limits are still unknown manages to achieve a valuation not justified until the project has been pushed past the feasibility study-permitting stage. It is also called the Lassonde Curve after Pierre Lassonde who pointed out the valuation cycle of a new discovery. The S-Curve, which has its own "certainty" ranges for each stage, kicks in when a major discovery hole is delivered. If we apply the upper end of the S-Curve range for the target drilling stage the expected outcome shrinks to CAD $1.9 billion or $22.40 per share. This potential outcome is plausible for the 800 m by 500 m Downpour target corridor Solitario is currently drilling. The ability of Golden Crest to keep scaling bigger over time gives Solitario has the potential to become the ultimate gold discovery cult play, perhaps at last a rejoinder to the betrayal created by Bre-X in the mid 1990s when discovery plays still dominated the attention of Canadian audiences. The current gold price is irrelevant to Solitario's upside potential, so there is no gold price related disconnect, just a disconnect between the fundamental potential and investor expectations.

The disconnect between the price of gold and gold juniors applies primarily to juniors with deposits for whom feasibility demonstration work has already established the price where the deposit is worth far more than the capital cost of building a mine. A good example in the 2024 Favorites Collection is West Vault Mining Inc whose Hasbrouck project in Nevada is shovel ready and not only meets development hurdles such as NPV at a minimum matching CapEx and IRR exceeding 15% at the base case price of $1,790, but does so with NPV at multiples of CapEx at the current gold price of $2,421. In the case of West Vault one could argue that a mine which will produce only 72,000 ounces annually over an 8 year mine life is not big enough to attract a major gold producer. But if gold hit $3,000-$4,000 without serious accompanying inflation the cash flow would become big enough to make Hasbrouck worth developing, especially if it becomes the first mine for a developer consolidating other deposits in the Tonopah district. This should attract the traditional American gold bug investor who bets on what a gold stock will be worth when gold finally makes its big move. Under the rational speculation model a project that is permitted with a reasonably up to date economic study should be trading at 50%-75% of the projected NPV which at the base case price is $3.24-$4.58 per share for 10% and 5% discount rates. The fair speculative value range ahead of a buyout by a producer should be $1.62-$3.44, and if you apply $2,241 gold to the DCF model, the fair value range becomes $3.47-$6.90. Instead West Vault trades at $0.95 as if there is no longer such a thing as a traditional American gold bug investor. The disconnect between the pricing of this advanced gold junior and the price of gold is caused by the disappearance of the American gold bug.

What happened to the American gold bug audience? The answer lies in what attracted American investors to conferences such as Hard Assets and newsletter writers such as Doug Casey and Brien Lundin. The demographic was largely well off Republicans who loved hearing that they were well off because they were full of merit, but endangered by big government keen on redistributing at least some of their wealth to the needy who were needy because they were self-made losers compared to these self-made winners. They embraced the libertarian song that everybody is best off under free market capitalism and the only proper role for government was to provide a police force to protect the wealth of the winners whether it was self-made or inherited. They sang of freedom and liberty from the yoke of communism and socialism. They wagged their fingers against trade protectionism and industrial policy. And they very much supported the military-industrial complex and its efforts to protect the democracies of the free world.

They loved the story of gold because, although they were confused about the concept of money, they intuitively understood that above ground gold is stored energy, and to create more of it you need to invest an increasing amount of energy. Money, or currency, is an information system that keeps track of debits and credits over space, time and agent, and its expansion to allow tracking of rising economic activity should cost very little. Money by definition is a fiat currency, but the problem with all information systems is that they can be abused and degraded. The term "fiat currency debasement", which has its roots in the old swindle of blending cheap lead with valuable gold, became the rallying cry of American gold bug investors. The only way to protect oneself against the ongoing fiat currency debasement and its eventual implosion was to own hard assets, and the hardest asset of all was physical gold.

But there was a problem with gold ownership which is that in the United States gold is treated as a collectible, and when you sell gold you have owned for more than a year any gains are subject to a 28% tax at the federal level and more depending on the state of residence. The idea of owning gold to hedge against a societal collapse where money systems are in limbo and tax collection is no longer happening does not really appeal to most Americans who intuitively understand that this is like taking out a life insurance policy on yourself and naming yourself as the beneficiary. So the case for gold was moderated by the goal of hedging against inflation, which makes sense because inflation manifests itself in energy costs, and since energy in various forms is the primary input for extracting gold from the earth and concentrating it, you would expect the market price of gold to reflect inflation.

After the big accumulated inflation catchup event of the 1970s gold stabilized at $400 in 1980, and while it did nothing for the next 20 years, during the past two decades the increase in the price of gold has tracked inflation. If you apply the annual average CPI to $400 gold in 1980 it should be $1,554, though in fact at $2,421 it represents a 56% real gain. But even this real gain can be glossed over by arguing that CPI does not fully track the inflationary impact of fiat currency debasement, so gold is doing its job of tracking inflation. But this creates a paradox, because if by converting gold back into dollars so you can spend them you lose 28% of the gain to the federal government and more to the state you reside in, you have not hedged against inflation at all. And, if you own enough gold, you probably also had to pay storage costs all those years.

This paradox became the basis for the gold optionality play promoted to American gold bugs which is a coherent strategy because the gold price need not track inflation on a linear basis which would see the cost side of a marginal mine always match the revenue side. The gold price can have its own cycles as it did after the 2008 financial crisis when it shot to $1,900 before reversing in 2011. If feasibility demonstration shows that a developed deposit would be break even at the prevailing gold price, then a real gain in the price of gold takes the net present value beyond zero and the deposit becomes worth developing when the NPV exceeds CapEx. Most current economic studies use a base case price below $2,000, and those which just meet development hurdles are intrinsically worth a lot more at the current gold price. When gold undergoes major real price gains the leveraged impact on gold junior investments goes far beyond the effect of fiat currency debasement, and while taxes are never fun to pay, it is not like selling gold where your investment has lost you buying power through the taxation of the nominal gain. Stocks like West Vault should be trading at $1.64-$3.44 in anticipation of a buyout at $5 plus but it is languishing at $0.90-$1.00. Why are American gold bugs not bidding the stock into its fair value range?

The answer is that the Republican of yesterday is no longer the Republican of today. Donald Trump has remade the Republican Party so that it now rejects free trade, is hostile to science, celebrates stupidity and vulgarity, is not worried about fiscal debt that originates from its own decisions, is indifferent to the invasion of democracies by tyrannies, and rather keen on stripping Americans of their freedoms such as reproductive rights and the separation of state and church. Furthermore, they do not like the explanation for the rise in the real price of gold, namely that the world is hedging for the day when America in its pursuit of MAGA stands alone and the Global East absorbs the rest of the Global West. Republicans seem to have abandoned gold as a symbol of what they stand for and have embraced Bitcoin, a digital mirage whose pricing in US dollars has no grounding in anything except optimism that the American box of greater fools is gigantic. In terms of talking points it is as if the Republicans have traded places with the Democrats, whom they accuse of being responsible for things like globalization and social structures that promote the elitism of plutocracy. Unfortunately for the advanced gold juniors Democrats have historically shunned gold, which John Maynard Keynes whom the hard asset pundits loved to bash once called a "barbarous relic". They instead bet on prosperity growth coming through technology. Gold is also not on the radar of the Gen-Z and Millennial generations, and with "gold" poisoned in the minds of older generation liberals, the gold optionality play has become a market orphan. This disconnect, however, presents a "back up the truck" opportunity.

Vista Gold Corp was promoted from a Bottom-Fish Spec Value rating on July 17, 2024 to a Good Spec Value rated Favorite at USD $0.53 based on its 100% owned Mt Todd gold project in Northern Territory of Australia which is fully permitted for a open-pit 50,000 tpd milling operation that would produce 6,313,000 ounces gold over 16 years from a proven and probable reserve of 280,375,000 tonnes at 0.77 g/t gold. The history of Mt Todd and the rationale behind the upgraded recommendation is spelled out in Tracker July 18, 2024. The stock trades under the symbol VGZ on both the TSX and NYSE-AM though the NYSE-AM is by far the more liquid listing. With average projected annual production of 430,050 ounces Mt Todd has sufficient scale to be attractive to a major gold producer. There remains exploration potential for the Batman deposit itself along strike and at depth, and within the 158,100 ha land package.

Vista Gold published a feasibility study in February 2022 which showed that Mt Todd's after-tax NPV and IRR met key development hurdles using $1,600 gold as a base case price. However, during the past two years the world has experienced substantial inflation up to 9% annually which high interest rate monetary policy has brought down to 3%. But the question about Mt Todd was to what extent were the cost assumptions in the 2022 FS affected by the inflation, which tends to be worse for mine inputs. On March 13, 2024 Vista Gold republished the FS with updated cost figures and filed the 43-101 technical report on April 16, 2024. Despite increases in capital and operating costs the economic outcome improved at the higher $1,800 base case price which is 25% below the current spot price. At a 5% discount rate the after-tax NPV is USD $9.24 per share based on 126.5 million fully diluted compared to the current stock price of $0.53, dropping to $4.46 using a 10% discount rate. A fully permitted project with updated cost numbers for which a construction decision has not yet been made should be trading at 50%-75% of the indicated NPV. For Mt Todd that should be a fair value price range of USD $2.23-$6.93 but the stock trades in the $0.50-$0.55 range.

I have adapted the Mt Todd cash flow model and ore schedule to my own DCF model so that I can see how the project fares at both 5% and 10% discount rates at gold prices up to $4,000. At $2,421 spot the value range is $13.85-$22.63 per share for 10% and 5% discount rates. The company has raised USD $20 million through the sale of a 1% NSR to Wheaton which allows it to wait 5 or more years for a buyout offer while burning about $3 million annually for site maintenance costs as required by the 2006 acquisition agreement. The current $67 million implied value is so low it means either that the market thinks the price of gold will crash back below $1,800, which, given the current geopolitical context at a global and US domestic level, I find very unlikely, or that there is something wrong with Mt Todd which makes it unattractive to a major gold producer.

Since the project is already permitted and the aboriginal group in whose jurisdiction the project falls has a very meaningful risk free stake in the form of an NSR ranging 1.125%-3.0%, the risk of environmental or stakeholder obstacles is minimal. The only possible obstacle is lingering skepticism that the project's flow-sheet has truly solved metallurgical issues that have sunk two prior operations in the 1990s. Since 2006 Vista Gold has invested USD $115 million in Mt Todd and is run by an extremely professional group headed by CEO Frederick Earnest. When Vista Gold took on the project in 2006 it did so with eyes wide open and much of the effort during the past 18 years has been focused on solving the metallurgy.

There is always some degree of risk that a flow-sheet does not work as expected at commercial scale. At the $1,800 base case price for the FS the valuation does not offer much room for error, but at the current $2,400 plus gold price there is lots of margin. So it may be that the market is biased toward expecting the price of gold to slide back below $2,000, an unwillingness to accept that a secular gold bull market has begun and has a long way to go. There is a third possible reason why the market is assigning such a low valuation to Vista Gold, which is that the market is so shell-shocked by disappointment with the mining and metals sector that it assumes anything with a flat-lining chart will do so forever. Everybody wants to boast they are a clever contrarian, but most are captive to the notion that the trend is one's friend. Vista Gold's trend for the past decade has been nobody's friend, so you need to look at the fundamentals and bet the trend is about to turn up in a big way. The flat-lining chart from the past decade is understandable because economic studies generally failed to clear development hurdles. The company has, however, worked on refining the flow-sheet and bringing recovery to the 92% level. What does not make sense is that the stock continues to flat-line this year despite gold's rise to the $2,400 level. I have tried to find a fatal flaw that might explain this disconnect, but have not found any. The big disconnect that affects all gold juniors is the market's refusal to act on the economic implications of where gold is today.

Effective July 17, 2024 I upgraded Vista Gold Corp to a Good Spec Value rating at $0.53 and added it to the 2024 KRO Favorites Collection as the best leveraged proxy for gold with the highest probability of becoming the focus of a competitive buyout auction that delivers gains of ten-fold or better from current levels without even the price of gold going higher. It is important to point out that Vista Gold Corp trades on the TSX and NYSE-AM with the symbol VGZ, with most of the trading done on NYSE-AM. This is very important because this makes Vista Gold one of the few advanced gold juniors that retail investors, in particular the younger generations with Robinhood accounts, can buy and sell. The very good speculative value of Vista Gold should serve as incentive for younger people to learn how the discounted cash flow model works and why Vista Gold is such a bargain. Once the market starts to believe a long running gold bull market is underway Vista Gold Corp will re-price upwards very rapidly. The election outcome does not matter, because the existential threat for the Global West is coming from the Global East headed by China and Russia. Unless these nations engineer their own face plants they will continue their drive to make America no longer great.