Maven Metals: February 2020

Maven Macro: COVID-19 Chaos: What Happened, The Paths From Here, and What To Do. Maven Explains: Developers. Portfolio Updates: Cameco, Kinross, Maverix, MAG, Pan American, Premier Gold, Probe, Roxgold, Sandstorm, SSR Mining,

I’m in Toronto at the world’s biggest mining conference…as the markets descend into chaos.

Well, that’s how it looked on Friday. Things stabilized today, but that’s no guarantee that the chaos is over.

I wrote this edition over the weekend, not knowing how markets would act today. I go through why gold fell so sharply alongside everything else and, more importantly, what to do from here. Long story short: gold always falls with everything else in the heart of a correction or crash but it rebounds first and hardest, which means strong gold companies that lost ground last week are buying opportunities just as soon as it seems the worst is over.

I highlight the stocks in the Maven Metals portfolio that fit that bill, with a full portfolio table designed to highlight the stocks I think represent the best Bottom Buys.

Then it’s time for the next installation of the current Maven Explains series, which today takes us through what development-stage companies do and what to expect from them.

Finally, I offer Portfolio Updates from Cameco, Kinross, Maverix, MAG, Pan American, Premier Gold, Probe, Roxgold, Sandstorm, and SSR Mining.

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COVID-19 Chaos: What Just Happened?

It’s chaos out there.

I’m in Toronto at the duo of conferences that happen at the start of March every year: the Metals Investor Forum and the Prospectors & Developers Association of Canada (PDAC) conference. I come to these events for three reasons: I give talks and interviews, I gauge investor sentiment, and I try to find new companies of interest.

Giving a talk about how to approach investing in the midst of a market crisis is…interesting.

Two weeks ago I was excited super excited to speak. Gold has very strong fundamentals and they were really starting to show through.

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Then we had last week, culminating with a Friday that saw gold fail to act as a safe haven and instead slide as much as 5% before stabilizing at 3.3% loss, down US$55 at US$1585 per oz.

Ouch.

Interestingly GDX fared much better. GDX is the biggest gold miners ETF and as such is a good check on the state of the big side of the sector. Its 5-day chart is ugly, down 17%, but Friday it looked sideways compared to everything else, including gold.

The Maven Metals portfolio was not spared. A chunk of the gains we’d earned over the last year evaporated.

I hate it, of course, but the primary characteristic of a black swan event is that it’s unexpected. And this is a Black Swan.

It’s not that I did not see reason for a stock market correction. I’ve been pointing to such reasons for several years. I had no idea when it would happen or how intense it would be.

I knew that a truly intense event would drag gold down, strong fundamentals be damned. And I suppose I should have realized that the odd nature of this long stock bull market left us vulnerable to

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an intense event. While clearly different, today’s odd setup shares similarities with how the unusual, overleveraged debt trades spread through the market left us vulnerable to the Great Financial Crisis.

What’s similar? A bull market that is arguably disconnected from fundamentals. We had record stock prices off a mediocre economy. We had half of small caps marking new 52-week lows when large-caps just kept climbing. We have a Federal Reserve that is already actively and directly supporting the stock market through its repo market actions (some of that money is going to hedge funds). And all of that is happening as fundamental changes in the global business landscape are threatening all of the hard-fought mediocre growth.

Key among those changes are Brexit and the trade war. The trade war is not only cutting into US-China trade; it is encouraging China to shift its source of high-tech components away from the US, which is likely to erode – and in a very serious way if not corrected – the star sector of the stock market.

There are real reasons to be worried. As a friend put it to me just a few minutes ago: the stock market has been a bubble waiting for a pin. COVID-19 and the associated mega quarantines are precisely such a pin.

And it’s that ‘waiting for a pin’ stance that’s causing havoc today. I don’t think we’re heading into another 2008 because, while there are some similarities, importantly there is not today a specific financial problem with major ramifications, like the subprime mortgage crisis.

And yet the reaction is on par. The VIX – the measure of volatility – ran as high as 49 on Friday. In March 2009, when the financial world was coming to an end for deep-seated reasons with the potential to destroy banks, VIX peaked at 44. Are we in those same financial waters? I would say we are not.

Instead, there is awareness that we are in an odd, somewhat-but-also-not- artificial setup that could fall apart, which is encouraging risk aversion in the face of challenge.

That’s why investors are selling today: risk aversion. And those who are selling are selling anything with a bid. That includes gold, to be sure.

But I would wager that many of those selling will look to re-enter in not too long. The last few crises have been fantastic buying opportunities. Things rebounded hard after 9/11; it didn’t take long for stocks to recover even after the Great Financial Crisis. And with those two experiences still fresh in our memories, investors are trained to expect market-supporting interventions.

The Paths from Here

CBOE Volatility Index

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Central bankers haven’t jumped in yet but if this carnage continues next week I think they will. Global growth has been slowing, especially in Europe, and no one ever wants a recession (especially Trump in an election year). US stocks turned up before the close yesterday and I think a lot of the reason was growing expectation that the Fed will step in with support on Monday if it’s needed.

If the Federal Reserve announces a program of direct liquidity injections or a rate cut, the combination of an infusion of buying, investors not wanting to miss out on a rally, and no large fundamental economic illness will likely stem the slide.

It may yet take some time. And there are no guarantees. But the market is trained to expect the Fed to support a sliding stock market and that such support works.

The other option is that the markets level off or start to gain this week, the chaos having ended on its own. That’s also possible.

In either case, what matters to gold investors is being prepared to profit off the bounce.

Here’s what happened to gold in the Great Financial Crisis.

Gold lost almost 30% and then turned up sharply. It retook its lost ground in just four months and then powered up another 90% in the next three years.

Chaos in the markets has

boosted odds of a rate cut from

almost nil to 100%. Ten days ago, odds were 90% of a rate

hike on Mar 18!

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Here how the main index of gold miners, the GDX, performed.

Gold stocks fell harder, losing more than 50%. But they rallied right alongside the metal to gain 230% against their crisis low within two years.

I expect the same kind of opportunities this time.

Gold is being sold in the midst of this crisis because it’s liquid and it’s up. Gold stocks are being sold for the same reasons, and than also because they are ‘risky’. I’ve talked to numerous brokers and portfolio managers in the last few days who told the same story: clients have been telling them to sell everything with a bid, especially anything risky.

Why are they selling? To get out in case things get worse. And to raise cash to invest back in at the bottom.

I don’t think that second reason is optimistic. I think it’s experiential. From the deep dive of the Great Financial Crisis to the shallow sharp dips we’ve seen many times since, this incessant bull market doles out big rewards to those with the guts to buy the drops. And there are many reasons to think that will play out again,

We live in a world where the stock market is conflated with the economy and therefore central banks need to keep stocks aloft to maintain confidence in the economy. That’s the main reason to expect Fed intervention if the slide worsens.

Investors want the bull market to continue. As soon as there is an ounce of reason for that to happen they will enter to create their own fate.

With each rebound from a dip, investors who hesitated and missed out kick themselves a bit more…and are motivated to not miss the next bounce.

When the slide stabilizes, gold stocks will lead the rebound. The deeper the dip, the more gold stocks will outperform the rest of the market on the rebound.

I do need to note that all of this is based on two assumptions:

1. The virus is not that significant.

2. Quarantines (outside of China) will not be extensive.

If those assumptions are incorrect, then the impact will obviously be much greater. The thesis still stands, though: gold and gold stocks will get sold alongside everything else in a crash but will rebound first and hardest.

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What To Do

The Maven Metals portfolio is designed for a low-risk investor. The best stocks to buy to benefit from the coming gold rebound are companies that provide straight leverage to the price of gold. That means gold miners, royalty companies, and companies with large and advanced gold projects.

There’s good alignment there. In short, the Maven Metals portfolio is a good starting place to find Bottom Buy stocks.

To pick those that I think will offer the best bounce returns, I simply looked at the gain it would take to get each stock back to where it was trading last week. And then I assessed that gain in the context of the stock chart.

Anything with a constructive chart that would give away 20% to simply recover the losses of the last week is in bold as a Bottom Buy.

Please note that I do not know when the bottom will happen. It might be this week; it might be next month. These stocks may well slide farther before it’s time to jump back in – which will mean a larger rebound opportunity.

The sign to buy will be a stabilization in the overall markets (no catching falling knives) and a gold price that has started to rise again. Once those aspects are established, it will be time to buy.

Company Ticker Bought Price Now Change

since entry If you own

If you do not own

Maverix Metals

TSX, NYSE: MMX

31-Dec-19 $6.61 5.33 -19% Hold; Bottom Buy

Bottom Buy

Constructive chart and 20% gain to recover. Buy for bounce.

Pan American Silver

TSX, NYSE: PAAS

30-Sep-19 $20.75 $26.56 28% Hold; Bottom Buy

Bottom Buy

Very healthy chart; 23% gain to recover. Buy for bounce

Probe Metals

TSXV: PRB 31-Aug-19 $1.33 $0.94 -29% Hold

Inconsistent chart; only 15% gain to recover.

Western Copper & Gold

TSX, NYSE: WRN

29-Jun-19 $0.85 $0.73 -14% Hold

Recent weakness in chart; only 10% to recover.

Cameco

TSX: CCO, NYSE: CCJ

26-Mar-19 $15.97 $11.61 -27% Hold

Overall chaos won't bring uranium bull market forward.

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Sand storm Gold

TSX: SSL, NYSE: SAND

22-Jan-19 $6.04 $7.84 30% Hold; Bottom Buy

Bottom Buy

Strong chart; 30% gain to recover. Buy for bounce

Premier Gold Mines

TSX: PG 16-Dec-18 $1.49 $1.24 -17% SELL

Weak chart, limited bounce. Giving up – SELL. See Portfolio Notes for more information.

SSR Mining

TSX, NASDAQ: SSRM

18-Nov-18 $14.72 $21.00 43% Hold

Strong chart but only 15% gain to recover.

Equinox Gold

TSX, NYSE: EQX

13-Oct-18 $5.00 $9.73 95% Hold; Bottom Buy

Bottom Buy

Strong chart; 30% gain to recover. Bottom buy

Sprott Junior Gold Miners ETF

NYSE: SGDJ

08-Sep-18 $23.53 $27.45 17% Hold; Bottom Buy

Bottom Buy

Sideways chart. 20% gain to recover. Advantage of being index - appeals to low-risk investors wanting exposure. Bottom Buy

Sprott Gold Miners ETF

NYSE: SGDM

08-Sep-18 $15.23 $22.66 49% Hold; Bottom Buy

Bottom Buy

Sideways chart. Only 16% gain to recover. Advantage of being index - appeals to low-risk investors wanting exposure. Bottom Buy

Kinross Gold

TSX: K, NYSE: KGC

14-Jul-18 $4.94 $6.75 37% Hold Buy

Dip erased very recent gains. Rebound level unclear. Love K for potential in a gold bull but it's not a bottom buy in particular

MAG Silver

TSX, NYSE: MAG

21-Jun-17 $16.83 $11.38 -32% Hold; Buy if you like silver

Buy if you like silver

Mixed chart because market hates waiting through contruction. Announced increased capex at under-construction Juanacipio mine last week; shorter timeline to production balanced impact but. Go to name for silver leverage in the bull market; gold is more important for bottom buys but great entry point for those who like silver

Morien Resources

TSXV: MOX

01-Feb-17 $0.45 $0.49 9% Hold; Buy Buy

Barely moved in market mess because tight shareholder base are holding in anticipation of this year's major catalysts. Re-iterate: Top Pick low risk stock

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Roxgold

TSX: ROXG, OTCQX: ROGFF

16-Mar-16 $0.88 $0.86 -2% Hold

Weak chart; limited bounce.

NexGen Energy

TSX, NYSE: NXE

02-Dec-15 $0.64 $1.19 86% Hold

Overall chaos won't bring uranium bull market forward.

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Maven Explains: Developers

The next group of companies we are looking at in the metals and mining space are developers. The development stage is the lull between the exciting (risky) exploration stage and the hopefully steady production stage, where a company starts to earn money instead of spending it.

At this stage, the company is still in the small-cap stage, likely worth somewhere between $10 and $50 million. It has announced a discovery and drilled a handful of good drill holes. The development stage involves putting in the work to define and quantify the resource. How much ore? How deep is it? Is it going to work as a mine? Any surprises?

If the exploration stage is the guessing stage, the development stage is the steps taken to reduce the guessing and shore up the details of the deposit and its mine-ability. The company will bring in various experts for advanced studies and raise money to fund more drilling, analysis and to pay the experts!

During the development stage there is no guarantee the project will result in a permitted, operating mine. The company has to step diligently through the process of creating an ever-more accurate model of the deposit below the ground and figuring out how to access it. As they go, the technical reports increase in detail, precision and confidence.

The first important document during the development stage is a preliminary economic assessment (PEA). The PEA takes a first stab at assessing whether it makes economic sense to develop the deposit into a mine and what that mine would look like. It’s the company’s first chance to demonstrate that its discovery has legs – but that opportunity encourages the company to make the PEA as positive as possible. And since PEAs are early-stage studies they do rely on lots of assumptions – about mining costs, metallurgy, metal prices, costs for capital items, and so on. As such PEAs are often labeled ‘dream sheets’ because the lack of data at this stage in the project means assumptions matter and a bullish or promotional team can paint a rosy picture. To capture that a bit: PEAs usually come in with 30 to 50% accuracy in terms of costs and value relative to a final mine – and that’s a big range!

Next come the Pre-Feasibility and Feasibility Studies. These studies add layers of data and definition to the mine plan. Each study requires reams of additional information: much tighter drill spacing to support a more confident resource, many kinds and scales of metallurgical test work, geotechnical and hydrological models to support that the proposed mining method will work, and oodles of properly costed engineering work to design and budget the entire operation.

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Resources and Reserves

As projects move from PEA to feasibility, geologists are drilling hundreds of drill holes – infill holes – to constrain the size and shape of the mineralization.

Here is where the jargon gets a little tricky. As geological evidence is collected – drill cores are logged and samples sent to the lab; trenches, pits and old working are studied and sampled; three-dimensional models are created – the geologists become increasingly confident about the size and grade of the deposit.

The official terms are defined by the Canadian Institute of Mining Standing Committee on Reserve Definitions and are only allowed to be used by Qualified Persons.

In order of increasing geological confidence, the categories used to describe a resource break down like this:

1. Inferred Mineral Resource is based on limited geological evidence and sampling

2. With more information, it is converted to an Indicated Mineral Resource and may be used for early mine planning

3. With even more information, it becomes a Measured mineral resource that can be used to support detailed mine planning and final evaluation of the economic viability of the deposit.

As confidence and evidence increase further, the Mineral RESOURCE is converted to a Mineral RESERVE. A Mineral Reserve is the economically mineable part of a Measured and/or Indicated Mineral Resource.

Mineral Reserves are announced once large samples of the ore material – the bits they are planning to mine – are sent to a processing plant. The final graduation for the deposit is from a Probable Mineral Reserve to a Proven Mineral Reserve.

Environmental & Social License

How long does the development stage last? How long is a piece of string?! Some projects go from discovery to production in a couple of years, but most take decades. The drilling and engineering certainly takes time but a big additional impact on the timing comes from how well the company handles the social and environmental factors.

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While geologists and engineers are working to define the resource and plan the mine, responsible companies will be working to establish relationships with local communities and Indigenous groups and collecting environmental data for the permitting process. Permitting varies from region to region, of course, but to generalize it take at least two years and often up to five years to go through the process to permit construction and operation of a new mine.

Opportunity?

The development stage is generally the most boring time for investors. All the drilling and studies and engineering and permitting needed to plan and permit a new mine:

Cost a huge amount of money

Don’t generate much exciting news

Take a long time

As such share prices generally drift lower during this period. It’s a bit backwards, in that the project is proving its viability and, if the process is successful, with exit this period worth a lot more than when it started. But investors are impatient and so a lack of splashy news plus a drawn-out timeframe mean momentum just dies.

That creates opportunity. If you understand the project well enough to have confidence that the project makes good economic sense and will be permitted, buying near the end of this ‘orphan’ period can generate very nice returns. Once a permit is in hand, the company raises construction capital and builds a mine. That in itself creates significant value; having a project at this stage also means the company become a target for larger operators that want to buy build-ready assets.

I’ve published the chart below before but it captures the price action I’ve been trying to describe.

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Last week I concluded that Explorers are not a suitable investment arena for the novice metals investor. Developers are similarly risky and also not suitable.

The opportunity lies in buying a stock once it has started the second upswing on the chart above, which is after it has finished all the studies, achieved all its permits, raised all the money to build the operation, and started construction. Only then have both the risk and the need to really understand the details of mining and permitting fallen significantly – and, as it turns out, that happens just when upside is around the corner.

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Portfolio Updates

Cameco (TSX: CCO)

Cameco reported its 2019 numbers this month. The company posted US$74M in net earnings and US$41M in adjusted net earnings for the year on revenues of US$1.8B. However, given the current state of the uranium market and Cameco’s position as the leading uranium company, numbers matter less than what CCO has to say about the state of the market.

On that note, the release included an update on the company’s long-term contract portfolio, to which CCO just added 36 million pounds of deliveries. Overall, management sees the current environment for contract business as the most robust it has seen since 2011.

In other words, long-term contracting is happening. Parties are not shouting about deals, but they are getting signed. It’s a start.

CCO went on to say that supply-demand fundamentals make an eventual transition to a higher-price regime inevitable. The only question is timing. On that note, management believes that “the longer the transition takes, the greater the likelihood that the uranium price will go beyond what is required to incent Tier 1 production to return to the market.” In short, CCO believes a delay in this transition could actually be beneficial for its long-term prospects.

Supporting that notion is the fact that CCO elected to delay some of its spot uranium purchases last year, resulting in purchases of 19 million pounds instead of management projections of 21 million to 23 million pounds. Did they postpone buying in the spot market to keep the spot price down longer to encourage a bigger price run when it happens? They might have!

Kinross (TSX: K)

Kinross made its contribution to earnings season this month as well.

The company hit production guidance of 2.5M gold-equivalent oz and posted all-in sustaining costs of US$995/oz. Capex was $1.11B for the year. Adjusted net earnings for the year hit US$423-million, more that triple the number it posted in 2018.

Thanks to lower costs at some its key operations, margins expanded by 28%. Moreover, K increased its liquidity position to US$2B and its cash flow to US$1.2B, a 55% increase over 2018. Those numbers were bolstered by the sale of the company’s remaining position in Lundin Gold ($113M) and

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the sale of its royalty portfolio to Maverix Metals (more on it in a minute) for US$25M in cash and 11.2M shares of MMX.

K’s numbers for 2019 production, cost and capital expenditures all met guidance for the eighth year in a row. In a compelling signal that operations are on the right track, the company’s three biggest mines turned in its portfolio’s lowest costs. It was a year that included record production for both its Paracatu and Tasiast operations and record low costs for Tasiast.

Work in 2019 to boost K’s production profile should begin to bear fruit in 2019. Key expansion efforts underway include the expansion project at Tasiast, development of the Chulbatkan project K purchased last year in Russia, the restart of La Coipa in Chile and new production contributions from the Round Mountain and Bald Mountain projects in Nevada. K will also continue advancing the Fort Knox Gilmore project in Alaska.

Kinross’s Tasiast mine in Mauritania

At Tasiast, the company forecasts boosting production to 24,000 tonnes/day by mid-2023. Exploration drilling at Chulbatkan is underway to expand that project’s 3.9M-oz gold resource. The restart at La Coipa should also add to the story. Current economics on the project forecast a 28% IRR and a US$118M NPV using gold and silver prices of just US$1,200 and $17, respectively. K expects to begin stacking the leach pad at Fort Knox Gilmore by the fourth quarter of this year.

Production guidance for 2020 is 2.4M gold-equivalent oz, and management expects both all-in sustaining costs (US$970/oz) and capex (US$900M) to come in below 2019 levels. Given the company’ s production profile, gold’s recent run and the yellow metal’s strong long-term prospects, K has a definite chance to outperform the market in 2020 and beyond.

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Maverix Metals (TSX: MMX)

MMX announced Q4 and 2019 production numbers. The company posted 7,000 attributed gold-equivalent oz in Q4 and a record 24,000 attributed gold-equivalent oz for the full year.

The Q4 numbers show that production is continuing to ramp up. 2019 full year ounces came in on the high end of guidance. The company used the news as an opportunity to remind folks what it’s done this year, and it has been busy. Between acquiring K’s royalty portfolio, increasing its royalty on the Hope Bay mine to 2.5% and nabbing a 22.5% silver stream on the El Mochito mine, MMX has positioned itself for success in 2020 and beyond. During 2019, the company also declared its first dividend and increased its financial flexibility by upping its credit facility to US$120 million.

Looking ahead, the company’s guidance for 2020 (between 27K and 30K oz) shows output rising by roughly 4,500 oz gold eq. or almost 20%. Growth is a key reason we invested in MMX

All that said, the company’s shares did get hit by news the Coeur Mining is shuttering the Silvertip mine in Yukon, where MMX holds a 2.5% NSR. Silvertip is a relatively small asset for MMX, but the closure does erase about 2,600 oz. gold for 2020, reducing its 20% output increase to less than 10%.

The Silvertip news kept Maverix’s share price contained in recent days. Darn. But the thesis still holds: production is still growing and this team is very likely to do more deals to bolster that further, which puts MMX on the path to a re-rating as a mid-tier royalty company rather than an emerging one.

MAG Silver (TSX: MAG)

MAG and Fresnillo provided a joint update on development at Juanicipio that included an 11% increase in forecasted capex for the project.

The April 2019 capex estimate was US$395M. It is now US$440M. The increase relates to the partners’ decision to speed up the beginning of production on the project from 2021 to June 2020. Once production has begun, ore will be sent to the plant at Fresnillo through the balance of the year, while the start-date for Juanicipio’s flotation plant has been pushed back from early 2021 to the middle of that year.

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Now that development has reached the upper portions of the deposit, widths and grades have been lining up with modelling estimates. In conjunction with this effort, the partners are also conducting infill and expansion drilling that has the potential to both upgrade some of Juanicipio’s inferred resources and expand the overall resource still further.

In all, I see this announcement as having a neutral impact on MAG. The higher development costs should be offset by the project going into production sooner. It’s great to see that the upper portions of the resource are as expected now that they’ve been reached.

Pan American Silver (TSX: PAAS)

We got unaudited results for Q4 and 2019 from PAAS in February. The company posted US$404.4M in revenues for the most recent quarter and US$1.35B for the full -year. Those revenues generated net cash from operating activities of US$129.5M in Q4 and full-year net cash from operating activities of US282.0M.

Net earnings for the quarter and the year were, respectively, US$51.7M and U$111.2M. PAAS produced 25.9M oz of silver and 559.2K of gold in 2019. Consolidated all-in sustaining costs were US$4.44 per silver ounce sold for the full year, which was well below guidance (and helps explain the robust earnings numbers). Management also announced an increase to its upcoming dividend from US$0.035 per share to $0.05 per share.

The dividend hike sparked a nice share price jump for PAAS. Folks love dividends! The hike stemmed from a strong year with reduced debt and an improved balance sheet. Plus, net cash generated from operating activities in Q4 was the highest in company’s history.

Overall, PAAS remains well priced against peers (though there aren’t peers really, in the silver world!) – there’s no upside specific to undervaluation but there is upside from silver leverage, especially since PAAS has strong free cash flow expected in 2020 (~US$160M).

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Premier Gold Mines (TSX: PG) - SELL

I’m selling PG at a 17% loss. For a producing gold company to have slid during the latest gold run shows fundamental problems, or at least a market perception thereof. The recent financing was popular but the company expanded its gold prepay agreement with Orion, which handicaps its leverage to higher gold prices going forward. The need to raise US$38M underlines that they aren’t making it work.

Yes, things should get better…but that was my thesis when I invested 15 months ago and instead things have only gotten worse. The Mercedes mine has not improved. The Lupita extension there holds promise but won’t have an impact any time soon. Exploration and development efforts at South Arturo and McCoy-Cove are effective, but expensive. Debt levels are high. And now they are in a legal battle with Centerra over Hardrock, which is bad for perception, legal costs, and the value of that asset.

Overall: I can’t hold a producing gold stock that has slid 40% since mid last year while the price of gold has gained 13%.

Probe Metals (TSXV: PRB)

PRB delivered results this month from ongoing drilling on its Val-d ‘Or East Courvan property in Quebec. The results include 20 holes totaling 5,834 m of drilling from a new area west of the past-producing Bussiere Mine and from the overall Courvan Gold Trend.

The discovery hole was drilled 850 m west of historic Bussiere mine and 250 m west of the Bussiere West deposit. It hit a relatively near-surface intersection of mineable-grade gold (1.3 g/t over 15.5 m). Other hits from this batch of holes from the Courvan area included 2.0 m of 8.2 g/t from the Southwest zone and 10 m of 1.2 g/t from the Creek zone.

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Val-d’Or East

The Courvan trend is parallel to the New Beliveau gold system, where Probe has outlined 2.5M oz. Probe has grown the resource at Val-d’Or East dramatically, from just 700K oz in 2016 to a global resource of 3.2M oz today. Growth like that demands ongoing discoveries, and Probe might be onto exactly that at Courvan now.

There are four drills turning on the Courvan and Monique trends and testing regional targets. I bought Probe because it keeps demonstrating that this project hosts a robust gold system – I think the gold count could continue to grow rapidly in 2020. And a rapidly growing gold resource in a top jurisdiction is why Probe is a takeout target.

Oddly, Probe trades at a discount to its peers. Given its exploration success, top jurisdiction, proven management, and strong balance sheet I think it should trade in line with if not at a premium to peers.

Roxgold (TSX: ROXG)

ROXG is generating solid results from drilling on both its Boussoura project in Burkina Faso and its Seguela project in Cote d’Ivoire.

The news from Boussoura included multiple high-grade assays from the Galgouli target (e.g., 14 m of 10.5 g/t) and from the Fofora target (e.g., 5.8 m of 11.1 g/t, 14.9 m of 9.8 g/t and 8.0 m of 8.5 g/t). At Seguela, recent drilling on the Agouti target tagged into high-grade as well, including 2 m of 30.6 g/t and 16 m of 13.5 g/t (mineralization hit almost at surface), 8 m of 23.9 g/t, 9 m of 12.2 g/t and 14 m of 6.2 g/t.

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Roxgold’s Boussoura project in southern Burkina Faso

The results ROXG is pulling at its two exploration projects are compelling. If Roxgold were only an explorer, I think the stock would react positively to these results. Since it is a producer with a valuation of $370 million, it’s hard for drill holes to have enough impact.

Nonetheless, these results matter. The investment thesis for ROXG has two potential outcomes: either the stock performs well in the gold bull market as a well-run single asset operator with a growing production profile following the expansion at Yaramoko or the company gets bought out. The latter could happen just for Yaramoko, but it’s more likely to happen if ROXG offers upside beyond that mine – which is precisely what Seguela and Bossoura provide.

So, while the market isn’t paying attention to the drill results, potential suitors likely are.

Sandstorm Gold (TSX: SSL)

Sandstorm generated another quarter and year of record production and revenue. Revenue was US$24.0M for the quarter on attributable gold-equivalent oz sold of 16,113. Net income for the

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quarter was US$5.3M. For the year, SSL generated US$89.4M in revenue and US$16.4M in net income on 63,829 oz of attributed gold-equivalent ounces sold

Looking ahead, SSL has lots of firepower (~$7M cash and $275M in a credit facility) available to buy new deals if/when they find things they like. Production will be flat in 2020 versus 2019, but will rise in 2021 as Hot Maden in Turkey comes on line.

Some streams/royalties actually did not do great this year: examples include Diavik, Hounde, and Black Fox. All have seen output decline quarter over quarter in the last year. Having Cerro Moro come online more than made up for it though, along with increased prices for gold and silver.

Assessing 2020, the Fruta del Norte royalty will start contributing this quarter, as will SSL’s Relief Canyon stream. The share price took a haircut this week in the broader market carnage, but I’m happy to hold this flagship royalty company with growing production given my long-term views on the gold market

SSR Mining (TSX: SSRM)

It being the season, we also got Q4 and 2019 financial results recently from SSRM. The company’s three mining operations produced 421,828 gold-equivalent oz for the full year and generated US$606.9M in revenue. Cash costs for the year were US$740 per payable gold-equivalent oz. For Q4, revenue increased 71% on a year-over-year basis to US$177.6M

Overall, it was a great year-end report. SSRM achieved guidance on output and costs for the eighth year and reported record annual production at Seabee (for the sixth time – this is a real mine turnaround story!). The production level put the mine past guidance. We also saw record annual production at Marigold (also above top end guidance) and a successful ramp up at Puna.

SSRM’s Marigold mine in Nevada

Other accomplishments of note in 2019 included increased resources at Marigold and Seabee and the consolidation of its ownership of Puna. SSRM also acquired good exploration ground contiguous to Marigold and increased its balance sheet by $29M to $504M.

19

With the Marigold expansion question no longer hanging over the project – they won’t spend the extra to buy the big shovel – the market is back to wondering what SSRM will do with all its cash. It’s not a bad problem! But it’s a question.

SSRM ran to $24 from $15 in the spring before this week’s selloff. Even after this week’s broad market sell-off, which impacted SSRM as well, it’s still trading above $21, which is well above its $11 trading levels 18 months ago. Those big gains (and the current uncertainty in the stock market) mean I don’t see the stock as a particularly strong buy right, now but I will hold to see what this fiscally careful team does with increasing cash inflows and a huge balance sheet.

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