If it looks like a bull market (technical breakout in gold), smells like a bull market (significant negative yielding debt) and feels like a bull market (funds flowing into gold), it must be a bull market. Our analysis shows that equities in smaller sized companies outperform during a bull market. However, not all junior miners are created equal, and we believe there are three keys to picking them.
Minera Alamos Inc.
Minera Alamos Inc. is an exploration and development company with a growing portfolio of Mexican assets. Current projects include the La Fortuna open pit gold project in Durango with positive PEA completed (Permits awaiting insurance) and the Santana open pit heap-leach development project in Sonora with test mining and processing completed (permits pending).
Minera Alamos is a gold development stage company with two ready-to-build assets in northwest Mexico. We expect the first to start production mid-2020, followed by the second in mid-2021. Based on this aggressive timeline, we believe the company should produce 86k oz at AuEq at US$627/oz Au by 2022, generating C$77.9M in EBITDA. With a team that has done it before in Mexico, we believe this timeline is achievable. We expect the stock to re-rate as the market gains comfort regarding the production and cost guidance provided. We are initiating with a fair value estimate of $0.40 per share (derived from 0.8x our base case 8% NAVPS of C$0.51).
Minera Alamos has announced the timely receipt of an Environmental Impact statement from Mexican authorities for the development of Santana, positioning the project for construction in Q4/19. Drawing on the extensive operating experience in Mexico, Minera is quickly acting on its strategy to build a mid-tier gold producer with its first mine, Santana on-track to be in production by mid-2020.
We believe that we are in a new gold bull market, as evidenced by negative real and nominal interest rates and over US$5.5B in funds flowing into physical gold ETFs. Our view is that smaller companies outperform in a bull market. Three keys to look at when investing in junior gold equities include scarcity, catalysts and potential.
We believe that a new bull market has started in gold. This along with investor interest, caused us to host a pair of gold conferences in New York and Toronto, last week. Each conference was opened by Derek Macpherson, VP Research at Red Cloud, highlighting why we believe we are in a new bull market, and 3 keys to investing in it (link). Followed by presentations from Tonogold Resources (OTC:TNGL), Brixton Metals (TSXV:BBB), Mawson Resources (TSX:MAW), Fiore Gold (TSXV:F), Minera Alamos (TSX:MAI), NxGold (TSXV:NXN), Gran Colombia Gold (TSX:GCM), Orford Mining (TSXV:ORM), Pacton Gold (TSXV:PAC), Aquila Resources (TSX:AQA) and RNC Minerals (TSX:RNX).
Minera Alamos has received technical approval for the change of land use permit by the Secretaria de Medio Ambiente y Recursos Naturales (SEMARNAT), which should pave the way for full approval in Q3/19. This in turn would allow construction to start shortly thereafter once funding is in place (expected in Q4/19). Minera Alamos’ combination of quick to production, low-capex projects in Mexico, together with a management team that has done it before, has the company well positioned to be the next production growth story that should rerate as management achieve respective growth milestones.
Introducing our inaugural Exploration Preview, which focuses on names within our coverage universe with drill bit torque. We review the exploration potential and try and quantify the potential impact on the share price should the company be successful in delivering results. We believe that exceptional drill results can create value regardless of where we are in the commodity cycle. Our top ideas are highlighted in Figure 1 below and will be presented in a similar alphabetical order within this document, bifurcated for precious and base metals focus.