My gold ounce in the ground 2022 Favorites, Galway Metals and Perpetua Gold, were among the worst performers even though gold didn't crash and burn like Bitcoin and other Cathie Wood darling stocks. Galway is nowhere near completing a PEA that allows us to see what gold price is needed to make Clarence Stream be worth developing. And in late 2022 Galway suspended drilling to "save money". Perpetua Gold is now in the comment period for its latest Environmental Impact Statement, but even if it is accepted as Final in Q2 of 2023, the real question is how inflation and project changes have affected the CapEx and OpEx numbers used in the feasibility study published late 2020 when John Paulson fired Stephen Quin's Canadian technical team. When I apply a 20% cost escalation to CapEx and OpEx within the FS mining scenario the project needs $2,000 gold to be worth developing. We will probably get $2,000 gold if inflation continues to rampage, but might that not simply drag up the costs and require an even higher gold price, like chasing the setting sun? The problem for projects like Stibnite is that they require a higher real gold price, not one that is merely tracking inflation because undeveloped marginal deposits stay marginal in the latter case.
The best hope for a higher real gold price is a continuation of the central bank gold buying trend unleashed by America's sanction response to Russia's invasion of Ukraine. The US dollar is the global reserve currency, but because it belongs to the United States, it has the ability to stop it being used to settle international transactions that do not have the United States as a participant. China has explicitly thrown in its support for Putin's imperial aspirations, and is perfectly happy to buy Russian commodities at a discount to the global market price. Other countries such as India have chosen not to take sides and are more than happy to ignore sanctions if it means buying commodities at a discount to market. This means settling transactions without using the US dollar. Autocracies have taken note how the United States was able to freeze Russia's US dollar reserves and their central banks are contemplating how to reduce holding USD instruments ahead of also becoming a sanctions target. Holding other currencies such as the China's renminbi doesn't seem like a great idea, but gold is nobody's currency and so we may see central banks step up their accumulation of gold. But until we see this translate into a sustained gold price rising much faster than inflation, I am reluctant to pretend that a higher real price has to happen. So for 2023 I downgraded Galway and Perpetua to Bottom-Fish Spec Value rating to reflect the key missing piece, either an economic study that reveals development and operating costs that show the project is in the money at the current gold price, or a clearly higher real gold price.
My three gold Favorites for 2023 are all discovery exploration juniors because I want the upside to hinge on what these companies deliver, not what happens to the gold price. Aurion has a 30:70 JV with B2 Gold on the ground adjacent to its 100% owned Risti project, which adjoins to the south of Rupert's Ikarri project in Finland. Aurion spent a good part of 2022 doing basal till sampling on the overburden covered part of Risti, a strategy that led Rupert to its 5 million oz Ikarri discovery which a PEA says is worth over $1 billion. Aurion has plenty of working capital which will allow it to contribute its share of B2 Gold's 2023 spending on the Helmi discovery, which doesn't yet have the grades and widths to be comparable to Ikarri, and allow it to drill new targets on Risti. B2 Gold is the obvious party to consolidate the district by acquiring both Rupert and Aurion, but Agnico-Eagle is also potentially in the wings and it is a much bigger company than B2 Gold.
Endurance Gold has an emerging discovery at its Reliance project in southwestern British Columbia which still has 14 holes pending, all in areas where good results would expand the mineralized orogenic gold system within the Royal-Treasure Shear corridor. The drilling in 2022 has enhanced management's understanding of the geometry, and a financing in late 2022 equips the junior to carry on drilling in 2023. The company also managed to get a fir needle arsenic sampling program done on the Olympic property to the northeast it optioned from Avino in 2022. This survey revealed a parallel linear arsenic anomaly which suggests a setting similar to the Royal-Treasure Shear corridor. A knock against the Reliance project is that it is based on a single gold zone, but this development supports the idea that a district scale rethink could reveal multiple such mineralized zones. So far the company has focused on shallow drilling tracing the strike of the gold system; these epizonal orogenic gold systems have substantial vertical extent, and the chemistry indicates that the mineralization at Reliance is much higher than at Bralorne, which opens the possibility that Bralorne style veins show up at depth. 2023 promises to be the year when Endurance adopts a more aggressive drilling strategy that chases the system down plunge.
Solitario Zinc Corp has been upgraded from a Bottom-Fish Spec value rating to a Fair Spec Value rating because the company expects to have its plan of operations approved in Q2 which will allow it to begin drilling the Golden Crest project in H2 of 2023. Golden Crest is a district scale land package equivalent in size to that which represents the 100 million plus ounce Black Hills district that includes the Precambrian aged Homestake deposit, the early Tertiary aged Wharf gold-silver system, and a host of other nearby deposits. The Golden Crest property has stratigraphy at surface which is younger than anything at surface in the Black Hills district to the east because this area was not uplifted and eroded like the Black Hills. For example, in the case of the Homestake deposit the Precambrian basement that hosts it is exposed at surface whereas at Golden Crest it is hidden under at least 300 m of younger sedimentary rocks.
What makes Golden Crest potentially the last and most exciting gold exploration frontier in the United States is that Solitario has discovered high grade gold at surface since acquiring the project in 2021. This mineralization may not hang together to create an open-pittable resource or a structurally controlled underground mineable resource, but at a minimum it represents leakage from a hydrothermal system that may have harvested its gold payload from a much older basement hosted Homestake style system, dropped out gold laterally when it passed through the Wharf style host stratigraphy, and potentially zones in receptive formations just below the surface that do not exist in the prolific Balck Hills district to the east. Once Solitario has its drill permit it will drill 500 m holes to test all three target types. Golden Crest has very little evidence of prospecting by old-timers, and Homestake drilled only a few holes despite completing a BLEG survey that yielded a sizable gold anomaly.
Even if Solitario finds nothing at Golden Crest, by 2024 Nexa will be ready to undertake a district scale drill to kill program on the Florida Canyon zinc-lead-silver project in Peru. Nexa is plodding through the permitting process which it expects to have completed by early 2024; it wants to test all these other replacement style targets so that it has an idea about the scale it should choose for developing Florida Canyon (ie deplete the existing resource quickly because there will be many more tonnes to feed the mill from these other targets?). Solitario has a carried to production 30% interest which when the time is right Nexa will want to buy out. It is also a 50:50 partner with Tech on the LIK zinc-lead deposit in Alaska near Teck's Red Dog mine. Solitario has a NYSE-AM listing which makes it eligible for trading by the Robinhood crowd but also the algo traders. If the bluesky of Golden Crest starts to confirm the hypothesis that Golden Crest is a new gold frontier on a par with Homestake, the stock could explode on the upside. |
