Expectations for Gold Remain Low While Key Gold Indicator Wallows in the Dumps

The Grasberg-Saville Gold Rating remains firmly ensconced in bear territory this week. This is the Rating’s 13th such week signalling persistent bearish fundamentals for gold.

Although TIPS continue to consolidate above support, the KBW Bank Index Inverse Change Ratio continues to plummet, with the underlying Index rocketing northward for the second month above the key 104.43 breakout level. The 30s/Dollar Ratio and the 30s/5s Yield Curve Change Ratio also are under pressure.

We are paying particular attention to the KBW Bank Index ($BKX). It is set to open 2020 with a bullish bias in price-neutral territory. If it continues to rise, we expect selling at 117.36, which should afford gold a bit of relief. Selling could also hit the Index well-ahead of 2020 initial resistance, which also would bode well for gold.

$AUNFF : Aurcana Corporation — Independent Economic Analysis

Long-Term Price Case (Ag, Au, Pb, Zn)$24/oz., $1,700/oz., $1.00/lb., $1.20/lb.
Flagship ProjectRevenue-Virginius
Proven & Probable Reserves (AgEq) [FCM Estimate]17,165,350 ozs.
Shares Outstanding152,050,000
Market Cap$27,369,000
Average Annual Production2,673,731 AgEq ozs.
Recovery (Ag, Au, Pb, Zn)95%, 69%, 95%, 94%
Mill Feed Head Grade (Ag)24.70 oz/st (771.875 g/t)
Mill Feed Head Grade (Au) 0.06 oz/st (1.875 g/t))
Mill Feed Head Grade (Pb)4.97%
Mill Feed Head Grade (Zn) 2.15%
Payable Silver12,865,000 ozs.
Payable Gold19,600 ozs.
Payable Lead51,256,000 lbs.
Payable Zinc15,527,000 lbs.
LoM6.42 Years
True All-in Costs (TAIC)$14.43/oz.
Gross Revenue$411,968,400
Smelting & Refining($24,520,000)
Freight & Insurance($12,986,000)
Net Smelter Return$367,129,362
Total Operating Costs ($144,387,000)
Operating Profit (EBITDA)$222,742,362
Income Taxes($16,015,176)
Total Capital Costs($42,618,000)
Net Income$164,109,186
Net Profit Margin40%
Absolute Cost Structure (ACS)60%
MTQ Score (Higher is Better)0.7
True Value$1.08/sh.
True Value Discount (TVD)83%
Cash Flow Multiple10x
Average Net Annual Cash Flow$25,587,612
Future Market Cap$255,876,120
Future Market Cap Growth835%

There’s massive re-rating potential for Aurcana, which is the 100% owner of the fully-permitted Revenue-Virginius Mine, which also happens to be one of the world’s highest-grade primary silver mines at 24.70 oz/st (772 g/t).

Its estimated Net Profit Margin of 40% at $24/oz. Ag is wonderful and its Absolute Cost Structure is a mere 60%. Due to world-class Project Economics, Aurcana has been awarded a rare 10x cash flow multiple and potential returns of 800% if the mine enters production at or near our long-term price case.

The Virginius Ore Deposit

by Berton Woodward Coxe

The Virginius ore deposit, Ouray and San Miguel Counties, Colorado, yielded 14.5 million oz of silver between 1880 and 1912. The deposit consists of several quartz, base-metal, and silver mineralized fissures which is hosted by Tertiary volcanic rocks of the San Juan volcanic field and was deposited in fractures radial to the northwest margin of the Silverton caldera.

Four stages of mineralization have been recognized: (I) quartz, galena, sphalerite, chalcopyrite, and argentiferous tetrahedrite; this stage comprises a bulk of the total vein material and all of the silver; (II) rhodonite, rhodochrosite, quartz, magnetit, galena, chalcopyrite, and pyrite; this stage is observed only in the lower levels of the mine; (III) quartz, calcite and pyrite which replace stage I minerals; (III-A) barren quartz deposited locally crosscutting state II mineralization.

Vein-related wall rock alteration is confined to a 2.0 to 3.0 m envelope surrounding the vein and consists of sericitization, slicification, and pyritization. Tetrahedrite is the primary silver-bearing phase and averages 15.5% silver. Silver is negatively correlated to arsenic in tetrahedrite. Galena is conspicuously non-argentiferous. Homegenization temperatures of fluid inclusions average 218 degrees Celsius for stage I mineralization and 101 degrees Celsius for state III mineralization. No evidence for boiling was recognized in the samples studied. Salinities of the ore-forming fluids were mostly between 2.0 and 3.0 % NaCl equivalent. Oxygen isotope data indicate that the Virginius ore-forming fluids underwent extensive isotopic exchange with the country rock. The most notable aspects of the Virginius ore deposit include the overall high grade of silver (40+oz/ton), the general lack of mineralogical or metallogenic zoning, the extreme vertical range of the ore shoot (700 m), the lack of evidence for boiling of the ore-forming fluids, and the total amount of silver produced from such a narrow structure.


Coxe, Berton Woodward. “The Virginius Vein Ore Deposit, Northwestern San Juan Mountains, Colorado: A Study of the Mineralogy, Structure, and Fluid Inclusions of an Epithermal Base-Metal and Silver Vein in a Volcanic Environment.” (1985). https://digitalrepository.unm.edu/eps_etds/180

$DYLLF : John Borshoff’s Shopping List

We think a bid of up to U.S. $55M (cash and shares) for turnkey Kayelekera is possible in an effort to begin padding out Deep Yellow’s 2023-2030 development pipeline.

In other words, Borshoff certainly could strike a better deal than has already been made with Lotus — a deal with which the Malawi government would be comfortable, as the preexisting one that Paladin struck with Lotus is raw. It is our hope that Bintony Kutsaira continues to stonewall the June A$5M arrangement.

Were I Borshoff, I would aggressively undercut Lotus and negotiate with Kutsaira a mine stake boost of up to 30%, from 15-20%, in exchange for generous tax breaks through 2030.

This is just our opinion. As always, anything can happen.

We also think Forsys Metals is an attractive acquisition target, with each outstanding share of Forsys presently representing a whopping $15.11 worth of U308, or ~0.6 lbs./share (you WANT to command a lot of resources per share), a result of the company’s long-term commitment to effective dormancy and ultra-low cash burn.

Another metric that probably hasn’t gone unnoticed is Forsys’ Market Cap Valuation per Resource Lb., which is a mere $0.14, which in our eyes, makes the company one of the most undervalued development-stage uranium names.

Additionally, Forsys Metals’ $12.8M market cap is currently valued at half a percent of the value of proven reserves at Norasa ($2,371,805,000), which is outrageous.

$OGLDF : Otis Gold — Independent Economic Analysis

Long-Term Price Case$1,700/oz. Au
Flagship ProjectKilgore
Ownership100% (Royalty-Free)
Indicated Resource825K ozs.
Shares Outstanding175M
Market Cap$12,057,500
Average Annual Production111,700 ozs.
RecoveryCrush: 82%/ROM: 50%
Payable Product558,700 ozs.
LoM5 Years
True All-in Costs (TAIC)$1,239/oz.
Gross Revenue$949,790,000
Total Operating Costs ($435,570,000)
Operating Cash Flow (EBITDA)$514,220,000
Income Taxes($159,408,200)
Total Capital Costs($97,460,000)
Net Income$257,351,800
Net Profit Margin27%
Absolute Cost Structure (ACS)73%
MTQ Score (Higher is Better)0.4
True Value$1.47/sh.
True Value Discount (TVD)95%
Cash Flow Multiple5x
Average Net Annual Cash Flow$51,493,700
Future Market Cap$257,468,500
Future Market Cap Growth2,035%

Notes: All Values in U.S. Dollars

The kind of arrangements about which we daydream don’t happen too often, but there’s no practical reason why some of them couldn’t. For instance, we’d like to see an Otis/Bullfrog business combination.

I try to avoid as much modernist lingo as possible, including the catchword, ‘synergy.’ Which is to say, I don’t necessarily think an Otis/Bullfrog business combination would necessarily prove ‘synergistic.’ Rather, a single entity could better benefit from an economy of scale, enabling it to quickly fund additional inorganic growth.

I have also imagined an interesting three-way merger: Otis + Bullfrog + Paramount.

$GLATF : Global Atomic — Independent Economic Assessment

Long-Term Price Case$65/lb. U308
Flagship ProjectDASA
Mineral Resources82M lbs. (1,200 ppm)
Shares Outstanding144,200,000
Market Cap$53,930,800
Average Annual Production4,864,437
Payable Product69,075,000
LoM14.2 Years
True All-in Costs (TAIC)$48.54/lb.
Gross Revenue$4,489,875,000
Total Operating Costs ($24.96/lb.)($1,724,112,000)
Operating Profit (EBITDA)$2,765,763,000
Niger Royalty (12%)($331,891,560)
Income Taxes (30%)($829,728,900)
Total Capital Costs($467,100,000)
Net Income$1,137,042,540
Net Profit Margin25%
Absolute Cost Structure (ACS)75%
MTQ Score (Higher is Better)0.3
True Value$7.89/sh.
True Value Discount (TVD)88%
Cash Flow Multiple5x
Net Annual Cash Flow (Including Avg. BST, Iskenderun, Turkey Net Annual Cashflow)$86,568,633
Future Market Cap$432,843,165
Future Market Cap Growth703%

Statistical Bias of Common Uranium Stocks

Benchmark World Uranium Index, 22 November 2019 = NEUTRAL (-0.3194)

GoviEx Uranium, 22 November 2019 = NEUTRAL (-0.2679)

Denison Mines, 22 November 2019 = NEUTRAL (-0.0665)

Forsys Metals, 22 November 2019 = BEARISH (-0.6338)

Deep Yellow Ltd., 22 November 2019 = BEARISH (-0.5356)

Fission Uranium, 22 November 2019 = BEARISH (-0.7586)

NexGen Energy, 22 November 2019 = NEUTRAL (-0.3502)

Save for NexGen Energy and Deep Yellow (Sept. ’18), most of the uranium stocks under study have not enjoyed a significant statistical bull run over the last decade. We will be waiting for sustained readings above 0.5 for confirmation of statistically significant bull moves.

An Addition to our Proprietary Weekly Gold Rating

As of 22 November 2019, we will be adding a Statistical Bias reading (BULLISH, BEARISH, NEUTRAL) to our Grasberg-Saville Gold Rating. The simple math on which it is based is inspired by the work of William Feller. The visual display of our quantitative data will look like this:

As usual, our Weekly rating will be released at 4:00 P.M. EST. (HERE)

Note: Our measure of Statistical Bias driven by Feller Data works for all stocks. You are welcome to request a reading from us at any time at no cost. For stocks, we prefer the use of the reading on Monthly* data.

*Weekly data generates actionable intelligence for our actively traded accounts.