Rosenberg on Gold

Gold is inversely correlated with either near zero rates, zero rates, or negative rates which makes it an ideal investment. Mark Twain coined the phrase “Lies, damned lies, and statistics”. But the thing about charts is that they don’t lie. Gold went through a long-term, multi-year basing period. Now, it has broken out and the chart looks fantastic. Also, gold is no country’s liability. For example, in the United States M2 growth is running at double digits. So when you compare the new supply of gold against the supply of money coming into the system from Central Banks, to me it’s a very clear cut case that you want to have very high exposure to bullion.

David Rosenberg, “Gold is an Ideal Investment” themarket.ch

$UURAF : Ucore Rare Metals — Independent Economic Analysis

Present Estimated Bokan Basket Price Case$77/kg.
Flagship ProjectBokan Mountain
Ownership100%
Mineral Resources (M&I)23,752,458 kg REOs
Shares Outstanding284,129,859
Market Cap$45,460,777
Average Annual Production2,051,349 kg
LoM11 Years
Payable REOs22,564,836 kg
True All-in Cost (TAIC) $52.08/kg.
Gross Revenue$1,737,492,372
Royalty($34,749,847)
Gross Income$1,702,742,525
Total Operating Costs($636,000,000)
Operating Profit$1,066,742,525
Total Capital Costs($221,000,000)
Income Taxes($282,686,769)
Net Income$563,055,756
Net Profit Margin32%
Absolute Cost Structure (ACS)68%
MTQ Score0.5
True Value$1.98/sh.
Cash Flow Multiple5x
Net Average Annual Cash Flow$51,119,617
Future Market Cap$255,598,085
Market Cap Growth462%
Target$0.90/sh.

Notes: All Values in U.S. Dollars

FCM 2020 BOKAN MOUNTAIN BASKET PRICE CASE BREAKDOWN
UpdatedHeavy Rare Earth MetalsLast 2020 Price ($/kg)TOTAL PRODUCTION (kg)
17-Jan-20Europium Oxide (Eu₂O₃)$30.6275,537
17-Jan-20Gadolinium Oxide (Gd₂O₃)$23.69778,320
17-Jan-20Terbium Oxide (Tb₄O₇)$513.87133,350
17 -Jan-20Dysprosium Oxide (Dy₂O₃)$248.57889,121
17-Jan-20Erbium Oxide (Er₂O₃)$22.96388,222
17 -Jan-20Yttrium Oxide (Y₂O₃)$2.924,782,634
   
UpdatedLight Rare Earth MetalsLast 2020 Price ($/kg) 
17 -Jan-20Lanthanum Oxide (La₂O₃)$17.132,009,622
17 -Jan-20Cerium Oxide (CeO₂)$1.686,096,947
17 -Jan-20Praseodymium Oxide (Pr₂O₃)$48.10758,162
17 -Jan-20Didymium Oxide (Nd₂O₃Pr₂O₃)$40.742,940,686
17 -Jan-20Neodymium Oxide (Nd₂O₃)$42.422,940,686
17 -Jan-20Samarium Oxide (Sm₂O₃)$1.82771,549
 BASKET PRICE ($/kg)$77.04
    
 GROSS REVENUE$1,737,492,372 

It’s important to keep in mind that we performed our Ucore analysis at prevailing rare earth prices (Table), so its 100%-owned Bokan Mountain Project is viable today with an admirable 32% Net Profit Margin.

Ucore’s IBAS bid partnership with high performance alloy supplier Materion is a plus, too.

GOLD:SPX Racing Form, 1975-2020

The Gold:SPX has successfully retraced 78.6% of its 2000-2011 move, and appears to be moments away from completing its post parade…

Bettors, it’s almost post time!

I’ve got Equinox and Victoria down for an Exacta in the first race and thoroughbred banker First Majestic to Win and quarter horse Fortuna to Place in the second, though we like to keep tabs on Endeavour, which tends to find its legs in the backstretch. I’m a sucker for long-shots so I plan to stick around late for the third race and place a big bet on colt Aurcana to Win in its maiden race with bug boy Brian Briggs in the saddle.

Incorrigible mudlark Bear Creek is another favorite. We think his post parade shenanigans with lead ponies, tendency to bolt in the homestretch and graceful nodding across the finish line are classy traits.

$TSRMF : Treasury Metals — Independent Economic Analysis

Updated, 14 January 2020

Long-Term Price Case$1,700/oz. Au & $24/oz. Ag
Flagship ProjectGoliath
Ownership100%
Mineral Resources (Measured & Indicated)1,174,668 AuEq ozs.
Shares Outstanding159,570,255
Market Cap$33,749,109
Average Annual Production90,100 AuEq ozs.
Recovery95.5%
Payable Product1,171,294 AuEq ozs.
LoM13 years
True All-in Cost (TAIC) $1,001/oz.
Gross Revenue$1,991,199,800
Smelting & Refining($5,376,239)
Total Operating Costs($622,637,915)
EBITDA$1,363,185,646
Taxes($340,796,412)
Total Capital Costs ($203,581,223)
Net Income$818,808,011
Net Profit Margin41%
Absolute Cost Structure (ACS)59%
MTQ Score0.7
True Value $5.13/sh.
True Value Discount96%
Cash Flow Multiple10x
Average Net Annual Cash Flow62,679,900
Future Market Cap629,799,000
Future Market Cap Growth1,766%
Target$3.95/sh.

Notes: All Values in U.S. Dollars

Were Goliath in production at $1,400/oz. Au, it would earn roughly 34 cents on every dollar it collects. From there, Net Profit Margins improve incrementally as the fundamental gold picture improves. An Absolute Cost Structure (ACS) of 59%* makes this possible. What is more, the ACS declines by ~11% as gold prices move from $1,400 to $1,700. It is this factor which underpins the improvement in Net Profit Margins.

We have learned to shy away from enterprises (catastrophes?) that cannot manage to rein in their ACS, but Treasury Metals is an example of a future gold producer that makes the cut.

*You’ll see plenty of ballyhooed Before-Tax Cost Structures below 50%, but they aren’t an accurate representation of reality. If you can find a gold producer with an ACS under 70%, you may have stumbled upon a real gem, though abiding by non-GAAP in your analysis won’t help you find gems. Which is to say, one must find new methodologies that enable one to push beyond AISC & All-in Costs in pursuit of extended valuation factors such as True All-in Cost and Absolute Cost Structure.

Uranium Stocks: Extreme Bear Scenarios

SYMBOLS1S2S3S4
DNN0.370.310.22.19
DYLLF0.150.09
FCUUF0.150.08
FOSYF0.050.02
GVXXF0.100.090.060.03
NXE1.070.830.450.23
CCJ7.716.404.253.35

LEVELS AT WHICH FCM WILL ADD TO LONGS

SYMBOLS1S2S3S4
DNN0.370.310.22.19
DYLLF0.150.09
FCUUF0.150.08
FOSYF0.050.02
GVXXF0.100.090.060.03
NXE1.070.830.450.23
CCJ7.716.404.253.35

$BCEKF : Bear Creek Mining — Independent Economic Analysis

Updated, 9 January 2020

Long-term Price Case$24/oz. Ag | $1.10/lb. Zn | $0.95/lb. Pb
Flagship ProjectCorani
Ownership100%
Mineral Reserves414,814,619 ozs. AgEq
Shares Outstanding103,157,064
Market Cap$212,503,552
Average Annual Production13,901,084 ozs. AgEq
Payable Product250,219,515 ozs. AgEq
LoM18 years
True All-in Costs (TAIC)$16.69/oz.
Gross Revenue$6,005,268,360
Treatment & Refining Charges($540,866,000)
Total Operating Costs ($2,630,922,000)
Operating Income$2,833,480,360
Taxes($429,932,000)
Total Capital Costs ($601,772,000)
Net Income$1,801,776,360
Net Profit Margin30%
Absolute Cost Structure (ACS)70%
True Value$17.47/sh.
Cash Flow Multiple10x
Average Net Annual Cash Flow$101,616,925
Future Market Cap$1,016,169,250
Future Market Cap Growth378%
Target$9.85/sh.

Notes: All Values in U.S. Dollars

$ALO : Alio Gold – Independent Economic Analysis

Updated, 8 January 2020

Long-Term Price Case$1,700/oz.
ProjectFlorida Canyon
Mineral Reserves1 Mozs.
Shares Outstanding84,700,000
Market Cap$65,219,000
Average Annual Production85,000 ozs.*
Recovery71%
LoM9.8 Years
Payable Product734,200 ozs.
True All-in Cost (TAIC) $1,283/oz.
Gross Revenue$1,248,140,000
Royalty($57,414,440)
Refining Charges($3,369,978)
Gross Income$1,187,355,582
Total Operating Costs($662,900,000)
Operating Profit$524,455,582
Income Taxes($136,358,451)
Total Capital Costs($81,900,000)
Net Income$306,197,131
Net Profit Margin25%
Absolute Cost Structure (ACS)75%
Total True Value$3.62/sh.
Cash Flow Multiple5x
Average Net Annual Cash Flow$35,445,000
Future Market Cap$177,225,000
Future Market Cap Growth172%
Target$2.72/sh.

Notes: All Values in U.S. Dollars

Alio Gold, with Mark Backens at the helm, has done more soul-searching than is common for a small producer. As a result, it has rapidly been transformed into an enterprise with few illusions and a no-nonsense mission.

At Fahy Capital Management, we typically invest in the deposit first and management second, but the reverse is true with Alio Gold. With this particular investment, we are primarily investors in Mark Backens, as he has made the hard choices required to bolster shareholder confidence.

From the bold sale of non-core assets and the negotiation of a smart financing package with Sprott to the recent lease agreement with Caterpillar and the swift development of a critical Phase II leach pad, Backens has attacked Florida Canyon with a laudable all-or-nothing attitude. He has spearheaded a right-sized capital spending program that is effecting material results for shareholders. He has transitioned San Francisco to residual leach, while pursuing a potential monetization of the mine. Meanwhile, spending at Ana Paula has been reduced to holding costs until the asset is monetized or a JV** is in place.

In closing, as we are confident that Alio Gold will boost production by up to 50% at Florida Canyon in 2020 and grow mineral inventory through brown field exploration, we have boosted our stake for the 3rd time in 24 months.

*For the time-being, we have included an approximately 12,500 ozs. of residual leach output from San Francisco in our valuation model. This will taper down over time.

**We think a JV is the ideal path forward for Ana Paula, an asset on which we have spent a lot of research hours, as well as one that we believe will prove of value to shareholders in the latter half of the decade.

$NORZF : NorZinc — Independent Economic Analysis

Long-Term Price Case$24/oz. Ag, $1.10/lb. Zn, $1.00/lb. Pb
ProjectPrairie Creek
Mineral Reserves159,766,517 AgEq ozs.
Shares Outstanding372,540,000
Market Cap$23,470,010
Average Annual Production10,064,587 AgEq ozs.
Recovery87% Ag, 88% Pb, 83%, Zn
LoM15 Years
Payable Product150,968,809 AgEq ozs.
True All-in Cost (TAIC) $18.59/oz.
Gross Revenue$3,623,251,416
Smelter Deductions($350,261,000)
TCRC + Penalties($333,905,200)
Gross Income$2,939,085,216
Total Operating Cost($1,386,771,250)
Operating Profit$1,552,313,966
Income Taxes($411,363,201)
Royalties($18,627,768)
Total Capital Costs ($305,436,850)
Net Income$816,886,147
Net Profit Margin23%
Absolute Cost Structure (ACS)77%
MTQ Score0.3
True Value$2.19/sh.
True Value Discount (TVD)97%
Cash Flow Multiple5x
Annual Cash Flow$54,449,416
Future Market Cap$272,247,080
Future Market Cap Growth1,060%
Target$0.73/sh.

Notes: All Values in U.S. Dollars

NorZinc Newfoundland NI-43-101 Compliant Indicated Resources

DEPOSITZinc (lbs.)Lead (lbs.)Copper (lbs.)Silver (ozs.)Gold (ozs.)Zinc Equivalent (lbs.)
LEMARCHANT328,113,98585,363,98836,279,27036,279,27086,112697,621,844
BOOMERANG212,695,86190,252,84115,342,9834,386,05466,069499,031,249
LONG LAKE70,167,40614,177,0468,703,630581,6716,766124,637,849
TOTAL610,977,252189,793,87560,325,88341,246,995158,9471,321,290,942

Like substantially de-risked Prairie Creek, NorZinc’s 1.3B lbs. of ZnEq in Newfoundland is not currently reflected in the company’s market cap, further deepening the special value proposition open to patient, risk-tolerant speculators.

$THM : Tower Hill Mines — Independent Economic Analysis

Long-Term Price Cases$1,700 oz. Au
Shares Outstanding187,111,857
Market Cap99,169,284
ProjectLivengood Gold Project
Ownership100%
Reserves9M ozs. Au
Average Annual Production294,100 ozs.
Recovery75.3%
Payable Gold6,763,900 ozs.
LoM23 Years
True All-in Costs (TAIC)$1,412/oz.
Gross Revenue$11,498,630,000
Royalty($344,958,900)
Total Operating Costs ($4,586,129,395)
Operating Profit (EBITDA)$6,567,541,705
Income Taxes($1,773,236,260)
Total Capital Costs($2,847,000,000)
Net Income$1,947,305,445
Net Profit Margin17%
Absolute Cost Structure (ACS)83%
MTQ Score (Higher is Better)0.2
True Value$10.41/sh.
Cash Flow Multiple5x
Average Net Annual Cash Flow$84,700,000
Future Market Cap$423,504,000
Future Market Cap Growth327%
Target$2.26/sh.

Notes: All Values in U.S. Dollars

Net Profit Margin is slim and Absolute Cost Structure is bad but scale works nonetheless for Tower Hill Mines, a fact that hasn’t gone unnoticed by the likes of John Paulson and Electrum. We became shareholders on 31 December 2019.