Gold and miners to shine in 2021 as Biden administration won’t be shy with stimuli

Kitco News has launched its 2021 Outlook, which offers the most comprehensive coverage of the precious metals markets for the new year. Billions of dollars have been injected into financial markets in 2020 and this will not be without consequences. Economists expect investors to prepare for inflation in 2021.

(Kitco News) – 2020 has been an unprecedented year for the precious metals market. In August, gold prices hit a record high above $ 2,000 an ounce.

Although the precious metals sector is attracting the attention of new investors, the mining sector continues to underperform. The value of the mining sector is much lower than it was during the last bull market for gold and silver.

However, some market analysts believe that will change and investors will not be able to ignore the value generated in 2021.

With that in mind, we’ve decided to reach out to some mining experts and ask them how they would invest $ 10,000 in mining and what themes they plan to play in 2021.

Expert: Joe mazumdar
Claiming fame: Exploration Insights Editor

Which three companies do you like the most in 2021 and why?

My top picks are:

Metals Trilogy (TMQ.T, TMQ.NYSE) has a joint venture with a major diversified miner, South32 (S32.ASX), at the feasibility stage of the arctic copper-dominated polymetallic volcanogenic massive sulphide deposit and the replacement bornite carbonate deposit at the resource stage in Alaska. He underperformed in 2020 as concerns over COVID-19 led his partner JV to postpone his work schedule to 2021 to avoid endangering local villages. The access road to the remote project was approved, which was an important catalyst in 2020. The JV partners announced their 2021 budget and plans (US $ 21 million), which include exploration drilling in the Ambler district to add more resources.

Liberty Gold (LGD.T, LGDTF.OTC) advances the Black Pine Gold Project, which has the potential to become a major open pit heap-leachable target in a mining-friendly part of Idaho. The company continues to drill and discover new zones of ubiquitous oxidized gold mineralization by expanding its footprint (+4.6 km2) and increasing the 2021 drill program to well over 50,000 meters. Upcoming catalysts include an inaugural resource (T1 / 21), a scoping study or PEA (T2-T3 / 21) and a pre-feasibility study (PFS) on the Goldstrike gold project in southwestern Utah, which is currently undervalued in the portfolio.

Bluestone Resources (BSR.V) operates the feasibility phase of the Cerro Blanco high-grade underground gold project in Guatemala. Its underperformance in 2021 was linked to delays in catalysts due to the impacts of the COVID-19 pandemic. The company relaunched its drilling program in October 2020 and is generating significant high grade fill results. The current measured and indicated resource contains approximately 1.4 million ounces at 10.3 grams per tonne of gold.

Its current valuation suggests that BSR is trading at a multiple of 1.2x to the 5% NPV of its January 2019 feasibility study, which was performed at a gold price of $ 1,250 per ounce. The current price is well over US $ 1,800. At US $ 1,500 and US $ 1,700 an ounce, the company would trade at a haircut of 0.7-0.8x and 0.5-0.6x, respectively. The next important catalyst is the financial package for the development of the project.

What investments would you avoid next year?

While the desire to add more ounces to maintain or increase production profiles, combined with a lack of development projects in the pipeline of many gold producers, suggests that mergers and acquisitions will be important, the focus can be put on projects that operate at lower gold prices (Therefore, I will avoid marginal greenfield assets in remote countries.

The number of financings in the junior market has added more companies and new management teams with a focus on promotion on substance. I will avoid them.

I will also avoid companies from advancing their assets small niche product markets. However, if a company such as Energy fuels (EFR.T, UUUU.NYSE), whose stocks I own for their leverage on a uranium market rebound, is making a foray into the rare earths market, I’m not afraid to reap the benefits.

As equity investors, we need the stock price to rise in order to make money. Therefore, the denominator (number of shares) counts as much as the numerator (value of the asset). I will avoid companies with a excessive amount of potential dilution warrants and options, or with a large number of shares acquired at low cost and held by weak hands.

Ultimately, I want to add or maintain exposure to mining companies led by quality management teams with the potential to discover or develop high-margin projects in jurisdictions that have a history of licensing and development of mining projects.

What do you think the main themes will be next year: M&A activity, profits, exploration, record gold prices?

The main themes that will influence my mining equity portfolio are:

Precious metal producers will continue to generate free movement of capital at these gold and silver prices, which will offset any minor production shortfall due to the COVID-19 pandemic. For example, Pan American Silver Corp. (PAAS.T, PAAS.NASDAQ) generated US $ 292 million in operating cash flow, a 54% increase over the same period last year despite production shortfalls (35% decrease in cash) as in Q3 only its realized gold and silver prices were up + 44% and + 30%, respectively.

Healthy balance sheets will not only allow companies to consider lifting their dividend yields – Pan American Silver increased its dividend yield twice in 2020 – but also to add to its portfolio of projects maintain or even develop their production profiles.

Certainly, growth is easier for mid-level precious metal producers than it is for the few large producers such as Barrick Gold (ABX.T, GOLD.NYSE) and Newmont Corp. (NEM.NYSE, NGT.T). The additions will take the form of an increase in exploration budgets and / or several JVs with juniors, M&A for producers of unique assets and advanced development projects. For example, recently Equinox Gold (EQX.T, EQX.NYSE) made an offer on Premier Gold (PG.T, PIRGF.OTC) for its 50% interest in the licensed multi-million ounce open-pit Hardrock gold project in northern Ontario.

In addition, the majority of M&A transactions by non-public entities since Barrick Gold’s (ABX.T, GOLD.NYSE) merger of the equal parts acquisition (MOE) of Randgold has been executed without a premium. that shareholders find more attractive than the plethora of dilutive mergers and acquisitions carried out over the past cycle.

The four-month period for the large quantity of equity financing run until February 2021, could put some pressure on junior explorers. The funds were used to support exploration and G&A activities, which includes investor relations as promotion appears to have eclipsed the flow of positive news from exploration activity as a major driver of positive stock price movements. This trend could continue in 2021.

Despite the positive trend in commodity prices, a company with an asset that becomes a lightning rod for NGOs, locals and other stakeholders will not outperform the market. For example, Northern Dynasty Minerals (NAK.NYSE, NDM.T) rose about 450% to a July 2020 high of US $ 2.34 per share; however, a negative ruling on its Alaskan Pebble copper-gold project caused its valuation to drop 85%. Since the start of the year, it has fallen by more than 20%. Under a Biden administration, authorization in the United States may take longer for projects on federal lands.

Several vaccines have been developed for COVID-19[female[feminine virus, but many countries may not develop “herd immunity” and resume their “normal” activities before the summer of 2021. Therefore, the impacts on the slowness of processing times (6-8 weeks versus 3-4 weeks ) have reduced efficiency, particularly in underground mines in Latin America, and travel restrictions that will slow down due diligence for mergers and acquisitions, financings (debt) and joint ventures could continue through the summer.

The negative impact of the pandemic on many emerging, developing and advanced economies could accelerate the development of acceptable development projects to generate jobs and export income. A Biden administration may continue to seek to contract supply chains leading to greater domestic production of critical minerals (REEs) and potentially to protect the uranium industry.

On the other hand, miners generating large free cash flow from assets in emerging markets may be subject to creeping nationalism in an effort to secure a larger share of the rents.

What are your final comments on what you think 2021 is going to look like for investors?

Biden’s presidency will change the outlook for mining companies operating in the United States, as clearance may take longer and those that emit significant greenhouse gases will be negatively affected, such as coal companies. But I think this administration will not hesitate to get out of the current economic downturn and seek to protect local industry, which can be good for uranium.

China’s interaction with its main customers (United States) and its sources of raw materials (Canada and Australia) is becoming problematic. Recently, China’s Shandong Gold’s attempt to acquire TMAC Resources (TMR.T) was halted under the Investment Canada Act (Canada) and the parties are in discussions to end the transaction. Relations between China and Australia continue to deteriorate, with 8.1 million tonnes of coal currently stranded on 74 ships off Chinese ports.