Capital as thin as air at Beaver Creek
Bearish mineral exploration & mining markets were the main topic for discussion at the Precious Metals Summit in Colorado North of 60 Mining News – October 6, 2023
Last updated 11/10/2023 at 6:30am
BEAVER CREEK, COLO. – The thin air at the 8,100-foot elevation of the 2023 Precious Metals Summit at Beaver Creek offers a perfect allegory for the markets faced by the gold and silver mineral exploration companies that summited the Rocky Mountains to connect with investors.
Mineral explorers in good financial shape hardly noticed the relatively low concentrations of capital atop Beaver Creek Mountain, those in decent shape may be winded but are hopeful they have enough financial oxygen to make it to the end of the current market downcycle, and mineral exploration companies most in need of a cash infusion descended the mountain with one or more symptoms of altitude sickness – headache, dizziness, nausea, weakness, and difficulty sleeping.
From conversations over coffee to keynote addresses delivered by mining legends, the bearish market for mineral exploration and mining was the main topic for discussion at the Precious Metals Summit in Colorado.
"This is a market I haven't seen in a long time ... a lot of companies are priced for failure right now," Octavio "Tavi" Costa, a portfolio manager for Crescat Capital, said during a panel discussion at the summit.
The mining sector, however, is a notoriously cyclical industry, and many involved have made generational fortunes by investing in mining stocks "priced for failure" and reaping the rewards when the sector comes back into favor.
"We have gone through periods like this before and this is a time that a lot of stories are selling at very low levels and there is very little interest in the market," said Rob McEwen, a mining legend who has built generational wealth as a mining investor, mineral explorer, and executive.
The founder and former CEO of Goldcorp Inc., and current executive chairman of McEwen Mining, said this is the perfect time to be loading up on mining stocks.
"I think right now is a delicious time to be buying," he said while sitting alongside Fiore Group CEO Frank Giustra during a Precious Metals Summit keynote panel moderated by The Northern Miner Group President Anthony Vaccaro.
Longtime mining analyst John Feneck, who was a member of the precious metals team at Sprott Asset Management before starting Feneck Consulting, agrees and believes the optimal buying window is closing.
"For all of you that made the decision to attend this conference, it is going to be fortuitous for you down the road because this is really close to the low," he said during a separate panel discussing what the global energy transition means for the mining sector.
The rising investor interest and prospect of a bottom in the mining cycle is welcome news to the executives of mineral exploration companies with share valuations that do not reflect their projects or the success they have had in recent years.
"Everything is priced for failure – good and bad stories – it is really interesting," said Costa.
What makes the current situation even more interesting is that it comes at a time when metals prices are relatively strong, and the public sentiment for mining is improving.
Even with the wider interest in mining and the prices of gold, silver, and copper about 10% higher than a year ago, however, the shares of most companies exploring for these metals remain battered – many selling at levels 80% lower than they were just two years earlier.
"There seems to be this huge disconnect, because finally people are talking about mining and mining is important, critical minerals, critical supply chains, domestic investment in a lot of countries, certainly here in the U.S.," said Emily King, founder of Prospector Portal, a new search engine for the mining industry.
"Scary as hell"
McEwen and Giustra, both avid history enthusiasts, believe the explorer-investor disconnect is largely rooted in a larger economic-political cycle that is culminating in governments creating extraordinary levels of debt. This is building economic and geopolitical uncertainty that is not conducive for investments in high-risk-high-reward enterprises like mineral exploration.
"We are slowly gradually falling off a cliff, but it will take perhaps another financial accident – like a Bear Stearns type of event – to set into motion a complete collapse or a currency crisis that then brings on hyperinflation and all the nasty stuff that comes with it," said Giustra.
Costa, who helps guide Crescat investments by tracking the current stage of the U.S. economic cycle, sees the current macroeconomic environment as an ideal backdrop for investing in commodities.
"This is an inflationary regime, I think it is unmistakably one," he said. "There are so many forces – deglobalization, inequality issues, wage price spiral, chronic underinvestment in natural resources, reckless fiscal spending – that has to create upward pressure in consumer prices that eventually drives you back to hard assets."
The silver lining to the gloomy picture is that precious metals, especially gold, have always served as safe and liquid assets to ride out financial storms such as the one currently brewing.
When Northern Miner's Vaccaro brought up digital currencies as a potential alternative, Giustra rattled off a list of reasons why gold is the superior safe haven asset:
• It is universally accepted, especially in the East.
• It's eternal, it has been around for 5,000 years.
• It's money full-stop, always has been.
• It's a tier-one asset, according to the Bank of International Settlements.
• Central banks are loading up like crazy on gold.
"Never listen to what a central bank has to say, watch what they do, and right now they are screaming 'buy gold,'" he said.
Giustra believes that central banks are loading up on gold in anticipation of a monetary system reset.
"We don't know what it will look like yet, but gold will play a role – otherwise, they would be loading up this way," the mining legend and history buff explained.
One likely monetary reset scenario is that central banks will adopt some form of digital currency, which Giustra finds "scary as hell" due to the implications such a monetary system would have on personal freedoms.
"Think about it – a central bank could put money in your wallet or take it out – they will have the power to punish or reward you for your behavior," he said.
Giustra invests in exploraiton
Despite the enormous global government debt that is pushing inflation, and the prospect of a "scary as hell" global economy reset that would hand more power and control over to central banks and governments, the pair of mining legends remain optimistic – and their eyes lit up while talking about the potential of the mineral exploration companies that they are involved with.
"I think there is lots to be found still in the world, it is just the general market has forgotten about our sector," said McEwen. "They will remember it soon enough – there are all sorts of opportunity out there."
Giustra, who built his wealth on developing and expanding mining operations, has joined the likes of McEwen in seeking mineral treasures.
"I am actually putting money into exploration for the first time," he told the audience gathered at the 2023 Beaver Creek Precious Metals Summit.
This includes investing in West Red Lake Gold Mines Ltd., which is drilling bonanza gold grades in an area of Ontario that is McEwen's old stomping grounds.
"West Red Lake Gold, which I am a major shareholder of, there is a big exploration component to that," said Giustra.
The mine developer turned mining explorer pulled from his pocket a chunk of drill core from a recent bonanza-grade intercept – 0.5 meters averaging 1,120 grams per metric ton gold – at West Red Lake's Rowan property.
This property lies just a few miles west of the Red Lake gold mine project that McEwen revived in the 1990s as the top executive of Goldcorp.
West Red Lake also owns Madsen, a gold mine development component that fits within Giustra's traditional wheelhouse.
The legendary mining financier's interest in the mineral exploration side of the business, however, goes beyond companies with near-term production potential. In March, he acquired a roughly 17.5% stake in Blackwolf Copper and Gold Ltd., a company exploring overlooked mineral properties in Southeast Alaska that are just across the border from British Columbia's Golden Triangle.
"We may hit, or we may not, but it sure looks attractive!" Giustra said of the greenfield exploration being carried out by Blackwolf. "If we hit, it's a huge win and that is exciting."
McEwen gave his career-long mining colleague a welcoming pat.
"So, I have seen the light now – I am coming into exploration, slowly," Giustra said.
McEwen, who has always had an appetite for mineral exploration, took advantage of a delicious opportunity to invest in Goliath Resources Ltd., a Precious Metals Summit attendee exploring the Golddigger gold-silver project just in BC's Golden Triangle.
In the week following the gathering in Beaver Creek, Goliath announced that McEwen agreed to make a C$1 million (US$740,000) strategic investment in the company.
"We are extremely honored and pleased to have Mr. McEwen participating in this financing as a lead order, which demonstrates that our new discovery has attracted the attention of an esteemed investor and experienced miner," said Goliath Resources CEO Roger Rosmus.
The consistency and strength of gold mineralization encountered at Golddigger is likely what attracted McEwen's attention – all 89 holes drilled in 2023 prior to the financing announcement had hit the targeted mineralized zone, and visible gold has been observed in the core pulled from 42% of them.
Goliath originally planned to raise C$5 million (US$3.7 million) in the financing, which was also backed by Crescat Capital, the mineral exploration company's largest shareholder, but upped the amount due to increased investor interest in the wake of the Precious Metals Summit.
Upon closing of the second tranche of this financing, McEwen will own roughly 2.4% of Goliath's shares, and Crescat will own 18.4%.
While one deal may not necessarily mean easier breathing for the entire mineral exploration sector, the investment in Goliath by McEwen, Crescat, and others likely signals that there will be more financial oxygen available when mining companies and investors convene at the top of the Rockies for the 2024 Precious Metals Summit Beaver Creek.
"I think that when we come back for this a year from now, for the next conference, we will say 'man I should have gotten in on some of those stocks'," said Feneck.