If you’re following rising oil prices that are smashing records right now, it should lead you directly to gold.
Inflation is coming, and some say gold is our only true defense.
Oil prices are now at a six-week high, with Oman even predicting that prices could increase to $200 per barrel if global climate policies are pushed through.
But it all could mean higher inflation.
As oil prices rise, inflation tends to rise in tandem because oil is a major input in the economy. When those inputs rise, costs do the same, leading to inflation. That’s why Biden has been calling on OPEC to produce more to keep oil prices down. It’s all about taming inflation.
Gold is considered a hedge against inflation.
Gold soared in 2020 on realized fears of inflation when stimulus checks started hitting American accounts. Gold finished 2020 up 28%--its biggest win since 1980.
And while gold may have already priced in inflation based on pandemic stimulus, what we think it didn’t figure in was soaring oil prices.
While oil prices look set to break new records, gold is flying under the radar, and there has never been a better time to gain direct exposure against the coming inflation.
Right now, smart money is looking at gold. But it’s not looking at physical gold …we think it’s looking at small-cap miners who stand to benefit the most from future inflation.
Why We Believe Discount Gold Is The Only Gold To Watch
Fear is a bargain. And right now, with the Delta variant of COVID-19 surging through the world, threatening renewed lockdowns and more economic stimulus, and with oil prices rising, we think gold should be on everyone’s radar.
But there’s only so many ways to find discount gold …
Our pick for the best avenue is through the potential of the small-cap miners and their underpriced assets that could realize outsized gains with any jump in gold.
With gold trading in the $1800 range, imagine getting it for $2-$3 an ounce, instead. This may be the ultimate safe haven.
When Wall Street hunts for bargain gold, it targets the junior miners with major upside potential, setting short-term price targets that could make these juniors look incredibly undervalued.
Discount gold was a hot commodity when gold prices were in the $1200 range not too long ago. When they’re in the $1800 range, it becomes even more precious.
Big miners don’t offer the same potential upside.
In 2016, we saw a run on junior gold miners for the same reason. Then, we saw gold increase by about 26% in 6 months.
Even mid-cap Endeavour Mining Corp gained nearly 200%. IAM Gold gained nearly 260%.
The smaller you go, the bigger the potential gains. Small-cap Argonault soared by nearly 300%, while Great Panther Mining jumped by about 340%.
For 2021, the numbers look even better, with $1800 gold, coming off a 28% increase in 2020, and oil-price-led inflationary fears appearing to mount fast.
Now, it’s small-cap Starr Peak Mining Ltd (TSX:STE.V; OTC:STRPF) in our spotlight, backed by a gold encounter that has turned into much more than that.
This early-stage exploration play jumped on our radar when they scooped up territory adjacent to Amex Exploration, right before Amex made a stunning high-grade gold discovery in 2019. Since then, it’s been fast-paced news flow.
Not only did Starr Peak buy property right next to Amex and right next to the past-producing Normetal Mine, but it bought the Normetal Mine itself, which has historically produced ~10.1 million tonnes of 2.15% copper, 5.12% zinc, 0.549g/t of gold and 45.25 g/t of silver.
Drilling began and results started to come back, Starr Peak encountered something that major miners are said to be always on the lookout for but rarely hit: A VMS (volcanogenic massive sulfide ore) deposit, containing multiple base metals, including zinc, copper, silver, and gold.
In March, it released its first results, showing large intervals of high-grade sulfide mineralization, and new results have come in every month since then--each time with higher grades than the last.
Now, Starr Peak has expanded its drilling program to 60,000 meters. It looks to be paying off, too.
On August 12th, Starr Peak released another set of results from its NewMetal property in Quebec’s Abitibi Greenstone Belt, which includes the Normetal Mine, showing ~10.1 million tonnes of 2.15% Cu, 5.12% Zn, 0.529 g/t Au and 45.25 g/t Ag.
Adding to high-grade results from July, August’s showings highlighted the copper-rich zonation in the Deep and Upper zones of Normetmar.
Starr Peak Chairman and CEO Johnathan More lauded the results as the highest-grade copper results to date.
“As we continue to be blown away by the results and potential of the Normetmar mineralized system, we are seeing an increase of copper mineralization at depth. This often occurs in these polymetallic VMS deposits, with metal zonation from zinc-dominant to copper-dominant at depth. We are excited to be releasing some of our highest-grade copper mineralization to date, and look forward to increasing our understanding of this highly continuous zone of rich mineralization with our recently announced 60,000 meter expanded drill program.”
This is the third time Starr Peak has expanded its drilling program based on encouraging results.
After announcing results showing high-grade gold, silver, copper, and zinc on its first two drills, Starr Peak is starting to gain attention, and we think it’s not just as one of the best potential discount gold exploration plays of the past several years, but also as a great exploration play on soaring base metals.
We see it as a de-risking basket deal that could benefit from record prices for metals such as copper and zinc, too.
And with high-risk/high-reward discount gold exploration plays, a 98% hit rate on drill targets is extremely attractive in our view.
It’s aiming for the ever-elusive VMS deposit that could attract the major miners like nothing else. With each drill hole and set of results, Starr Peak looks to further de-risk its Quebec hunting ground, and we think the timing is perfect for discount gold.
Gold and Metal Prices Could Soar
Gold Fields (NYSE:GFI) has catapulted itself into the global mining elite in recent years thanks to its forward-looking vision and exceptional management. Based out of Johannesburg, South Africa, Gold Fields is one of the de facto leaders in the region. With operations in South Africa, Ghana, Australia and Peru, Gold Fields is well-diversified.
In 2019, Gold Fields produced over 68 tons of the precious metal, up nearly 8% from the year before. And thanks to last year’s rally in gold prices, it produced even more, setting itself up to a great start to 2021.
Last September, Gold Fields was trading at only $5.12 per share, but thanks to its increased production, and the dramatic rise in gold prices, it’s now trading at $9.27, which means investors who held on have brought home near 100% returns – with many analysts suggesting the stock could go even higher.
It’s rare to see miners from outside of North America on the New York Stock Exchange, but Compania de Minas Buenaventura (NYSE:BVN) is an exception. Listing on the NYSE in 1996, Minas Buenaventura has clawed its way up the ranks of the global mining elite. Currently valued at $1.8 billion, the mining giant is far from its all-time highs. But it’s not down for the count just yet.
Minas Buenaventure is exposed to six different mining properties around the globe which bring in an estimated 945,000 ounces of gold every year. But that’s not all its got going for it. It is also has exposure to a number of silver mines which produce as much as 26.5 million ounces per year, and tens of thousands of metric tons of industrial metals such as zinc, lead and copper from its domestic mines.
Harmony Gold (NYSE:HMY) is another South African miner which has exploded onto the radars of investors this year. Though it’s only the third-largest miner in the country, it has made some stellar moves in the marketplace. Domestically, it has nine underground mines in the resource-rich Witwatersrand Basin and one open-pit mine in the Kraaipan Greenstone Belt. It also has a major joint-venture with Newcrest Mining in Papua New Guinea.
In 2020, Harmony raised a whopping $200 million to partially fund a key acquisition of AngloGold’s assets in its home country. The deal is expected to more-than-triple its gold production to as much as 1.8 million ounces per year.
In March of 2020, Harmony dropped to a low of $1.93 in March as a result of the wider market downturn, but it soared by 260% in a matter of months, now trading at a high of $6.95 per share before falling back to today’s price of $4 per share.
Sociedad Química y Minera de Chile (NYSE:SQM) has seen its stock price nearly double from $30 in mid-February 2020 to its current price of $56.14. Sociedad Química y Minera, for example, signed in December a long-term supply deal with LG Energy Solution, which in turn supplies batteries to carmakers such as Tesla and GM. Under the deal, SQM will supply battery-grade lithium carbonate and lithium hydroxide to LG Energy Solution between 2021 and 2029.
The Chilean firm also announced a capital increase of up to US$1.1 billion, most of which will be used for lithium carbonate expansion in Chile, where SQM plans to more than double its production. Sociedad Química y Minera sees the lithium industry growing at around 20 percent per year in the long term, supported by rising EV sales and emission reduction goals from China to the United States.
While Freeport-McMoRan (NYSE:FCX) is primarily known for its significant copper mining operations, the resource giant also has a fair influx of gold as well. In fact, its Grasberg mine in Indonesia holds of the world's largest deposits of copper and gold. But that’s just scratching the surface of the miner’s global assets. Freeport-McMoRan also has extensive operations across the Americas, including mines in Arizona, Mexico and Peru.
Though its business struggled as global demand for copper took a hit, panic-buying from China has lifted prices higher in recent months – and that’s good news for Freeport-McMoRan. In addition to climbing copper prices, gold prices hit record levels, which will add even more to the mining giant’s bottom line.
Freeport-McMoRan has had a solid year, with the price of its stock bouncing off a low of $5.31 back in March 2020 to a high of $36.65 today, representing a strong 590% gain for shareholders in just over a year’s time.
Kirkland Lake Gold (NYSE:KL) is an international mining company with a strong presence in Canada. It has been operating since 1983, and currently employs over 1000 people. Kirkland Lake produces gold at low production costs and offers investors the opportunity to participate in the growth of their company through its dividend reinvestment plan (DRIP).
Kinross is another one of Toronto’s finest gold miners. Though not quite as established as Barrick or Newmont, Kirkland is no stranger to striking headline grabbing deals in the industry. In fact, just recently, Kirkland and Newmont signed a $75 million exploration deal that could wind up being a game-changer for the industry. The two companies have agreed to split the cost 50/50 over five years with each company investing $15 million every year into joint projects between both companies for exploration purposes only - at this point it seems like a win.
In the past thirty years, Barrick Gold (NYSE:GOLD) has had a profound impact on the global economy. The company is an international gold mining corporation with headquarters in Toronto, Canada. It’s even drawn the attention of one of the world’s most renowned investors. After years of anti-gold rhetoric,, Warren Buffett, has finally changed his stance on precious metals. In an announcement last year, Berkshire Hathaway said it was buying half a billion dollars’ worth of Barrick Gold shares at a time when gold nearing its all-time highs This change in attitude towards gold by Buffett could affect how many other investors view it as an investment opportunity. Buffett’s investment in Barrick and change in tune on the gold front shouldn’t come as much of a surprise, however. 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 dividend that comes with the purchase
Though First Majestic Silver (NYSE:AG, TSX:FR) recently took a significant blow, as a strong dollar weighed on precious metals resulting in a poor quarterly earnings report, there’s still a lot of bullishness surrounding the stock. Adding to the negative numbers, however, was a string of highly valuable acquisitions which are likely to turn around for the metals giant in the mid-to-long-term. And it’s already beginning to pay off, with First Majestic’s stock sitting comfortably above its 5-year trading average.
While its primary focus remains on silver mining, it does hold a number of gold assets, as well. Additionally, silver tends to follow gold’s lead when wider markets begin to look shaky. And with analysts sounding the alarms of a global economic slowdown, both metals are likely to regain popularity among investors.
Wheaton Precious Metals Corp. (NYSE:WPM, TSX:WPM) is a company with its hands in operations all around the world. As one of the largest ‘streaming’ companies on the planet, Wheaton has agreements with 19 operating mines and 9 projects still in development. Its unique business model allows it to leverage price increases in the precious metals sector, as well as provide a quality dividend yield for its investors.
Recently, Wheaton sealed a deal with Hudbay Minerals Inc. relating to its Rosemont project. For an initial payment of $230 million, Wheaton is entitled to 100 percent of payable gold and silver at a price of $450 per ounce and $3.90 per ounce respectively.
Randy Smallwood, Wheaton's President and Chief Executive Officer explained, "With their most recent successful construction of the Constancia mine in Peru, the Hudbay team has proven themselves to be strong and responsible mine developers, and we are excited about the same team moving this project into production. Rosemont is an ideal fit for Wheaton's portfolio of high-quality assets, and when it is in production, should add well over fifty thousand gold equivalent ounces to our already growing production profile."
Pan American Silver (NASDAQ:PAAS, TSX:PAAS)is a world-class mining operation with active projects in Mexico, Peru, Canada, Bolivia and Argentina. Though silver has seen better days, it is still a favorite among investors stocking up on safe haven assets.
Last year, Pan American made a major acquisition of Tahoe Resources, absorbing the company’s issued and outstanding shares. Michael Steinmann, President and Chief Executive Officer of Pan American Silver, said: "The completion of the Arrangement establishes the world's premier silver mining company with an industry-leading portfolio of assets, a robust growth profile and attractive operating margins. We are also now the largest publicly traded silver mining company by free float, offering silver mining investors enhanced scale and liquidity."
Sandstorm Gold Ltd (TSX:SSL) is a gold royalties company that follows in the footsteps of Wheaten Precious Metals, Franco-Nevada and the aforementioned Osisko Gold Royalties, giving investors a chance to cash in on this year’s gold boom while still maintaining some aversion to risk. Though it has not had quite as an impressive of a year as some of its pure-mining peers, it has still posted some moderate returns, especially considering the state of the wider resource market.
Like other gold and resource companies, Sandstorm took a hit when it saw a number of its assets temporarily halt operations to prevent the further spread of COVID-19, but it has since clawed back some of its losses, and is on track to see further gains as its operations return to normal. In addition to its upwards trajectory, it’s also sitting on a healthy balance sheet. Nolan Watson, President and CEO of Sandstorm, explained, “We're excited at Sandstorm to have a strong balance sheet, a strong portfolio, and significant growth ahead. As at this moment, we are entirely debt-free. We have $52 million in the bank. These are good times for Sandstorm and I genuinely think they'll keep getting better. “
Osisko Gold Royalties Ltd (TSX:OR) has been particularly busy this year, scrambling to make the most out of gold’s unprecedented rally. It’s made headlines with a string of deals, especially surrounding its Cariboo gold project in central British Columbia. In fact, in early October it announced multiple new high grade discoveries at the project managed by Barkerville Gold Mines, a wholly owned subsidiary of Osisko.
The success at the Cariboo project also highlights the company’s commitment to working with the community in a sustainable fashion. Just recently, it signed an agreement with the Lhtako Dene Nation to ensure the protection of the land and water near the drilling locations.
Chris Pharness, Barkerville Gold Mines VP Sustainability and External Relations of BGM noted, “It has been an honor and a privilege to be welcomed in the community and to hear the hopes and aspirations that LDN leadership and members have for their people. Our core belief as a company is based in reciprocity and the understanding that projects of this scale require mutually beneficial relationships, opportunities and outcomes to succeed. Our agreement is a key underpinning of that philosophy and an example of what respectful, honest dialogue can achieve.”
By. Charles Kennedy
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ
This publication 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 publication include that prices for gold, silver, copper, zinc and other base metals will retain their value in future as currently expected, or could continue to increase due to global demand and political reasons; that Starr Peak can fulfill all its obligations to acquire its Quebec properties; that Starr Peak’s property can continue to achieve drilling and mining success for gold and other metals; that historical geological information and estimations will prove to be accurate or at least very indicative; that high-grade targets exist; that Starr Peak will be able to carry out its business plans, including future exploration and drilling programs; that the preliminary drilling results will be confirmed as further exploration continues; that the lab results from Starr Peak’s initial exploration program will confirm evidence of a significant VMS deposit; that Starr Peak’s exploration results will gain the attention and interest of larger mining companies and investors; that Starr Peak’s exploration results will continue to show promising results justifying ongoing exploration and possible development efforts. 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 politics don’t have nearly the strong effect on gold and other base metal prices as expected; that demand for base metals may not continue to increase; that the Company may not complete all its announced mineral property purchases for various reasons; that the Company may not be able to finance its intended drilling and exploration programs; Starr Peak may not raise sufficient funds to carry out its business plans; that geological interpretations and technological results based on current data may change with more detailed information or testing; that the lab results from Starr Peak’s initial exploration program may not support evidence of a significant VMS deposit; that the preliminary drilling results may not be confirmed during further exploration efforts; that Starr Peak will fail to gain the attention and interest of other mining companies and investors; that Starr Peak’s exploration results may fail to find additional promising results justifying ongoing exploration and/or development efforts; and despite promising results from drilling and exploration, there may be no commercially viable minerals or ore on Starr Peak’s property. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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