It's Time To Return to the Fundamentals This Year
When the COVID-19 pandemic broke out last year, it ushered in an era of investing unlike any other. Securities in exploration and other companies were bloating off the backs of momentum behind gold and silver, as well as other precious metals. Even companies that lacked crucial investment criteria, such as a good management team, good assets, good jurisdiction, were raising huge amounts of cash and equities were sent through the roof.
For the most part, it was a fantastic year for investors and speculative companies, as momentum was driving the market. But as the economy returns to some degree of normalcy and reflation pushes through global markets, is it time to return to fundamental investing principles?
The short answer: yes.
Investing Has Not Changed
After 2020’s bull market, it’s easy to think that we as investors are invincible and that investing will always be this easy. We saw an investing environment where securities grew without any regard for intrinsic value and where hype and memes beat strategy and data. This occurred with traditional stocks like GameStop and AMC, but it’s flowed into the natural resource market as well. Just take a look at all the junior exploration companies that seemingly lack any real degree of longevity or ability to ever get into production, yet have raised millions.
Investors have been getting caught up in the mayhem and euphoria. Fortunately, for many - profiting off of it too. But at its core, the highs and lows of investing have not changed, and we’re soon to see that inevitable return to reality. Cycles will come and go with a predictable reality, as does the behaviour of investors.
Without basic fundamental indicators on their side, companies will fail.
When that happens, will you be prepared for it?
It’s critical to remember that the metals in the ground haven’t moved or changed. Mining is still extremely difficult, and no level of hype and hysteria will change that. The reality: most exploration companies will never find economic gold (or another resource).
If a company lacks basic fundamentals from the start then why would a smart investor assume that they will eventually get into production, or at any point soon?
Have You Determined Your Exit Strategy Yet?
A rule as old as the markets themselves: never purchase a security without knowing your exit strategy. It’s a simple, but somewhat forgotten rule over the past year. Investors have been buying securities on a whim just to get their feet wet before the boom slows down. Investors have not taken the time to determine whether the purchase makes sense or not, little evaluation of whether the company has the ability to mine economically, or if the commodity will remain profitable in the near future - for fear of missing out.
Instead, we’ve been assuming that the market will continue to appreciate. In those types of conditions, who needs an exit strategy? But as we’ve been emphasizing, the markets will come back to earth shortly. When this happens, instead of riding your portfolios all the way down in hopes of recovery, define your exit strategy and realign your goals for the long term.
So let’s stop and think about this for a moment. What should you be thinking when a stock falls?
First of all, don’t get emotional.
It’s worth noting that it’s much harder for a company to recover after taking heavy losses in the market. The odds of share prices returning to their current levels or climbing back to their all-time highs are, in fact, low.
Instead, set trailing loss orders. Determine your level of comfort, whether that’s selling at 5%, 20%, 30%, or 50% loss. Of course, you may want to stick with the securities that you’ve deemed worthwhile. Some junior stocks have serious potential, and other mid-to-major cap companies are in a great position moving forward.
Make sure you have an investment strategy. This will be unique to you and your personal circumstances and risk appetite.
What to Look For Moving Forward?
Look for management teams with a relevant track record, attractive geology, financing available, the permitting and licensing process, potential mergers and acquisitions, jurisdictional risk, and ultimately you’ve got to time the market.
We expect growth through the rest of 2021, but it’s not going to be 2020 levels of growth. Stocks with real and clear value behind them will be the frontrunners moving forward. It’s time to get serious about our investment decisions and ensure we’re putting ourselves in the best position for solid returns in the future.
Companies We’ve Identified That Have the Fundamentals
K92 is a world-class, tier 1 asset mining company and recipient of the 2021 Thayer Lindsley Award Winner for Best Global Discovery from the Prospectors & Developers Association of Canada.
K92 is self-funded and has a highly prospective exploration underway with 12 drilling rigs on site at Kora, Kora South, and Judd in Papua New Guinea. Approximately 20% of the vein field length has been drilled, most of which has been open at depth. They also have copper and gold porphyry targets with drilling underway at Blue Lake, roughly 4 km southwest of their Kora project.
Stage 2 expansion is set to start in late Q3 2021 and will double mill throughput. They’ve also completed their stage 3 PEA, which will add 300,000oz per year AuEq production. Best of all, the transition will be self-funded from mine cash flow and will have low sustaining costs of US$362/oz Au.
They also have a land package of ~725km² with an application in place for an additional 200km², all of which features well-established infrastructure.
What makes Neometals special is their engraved environmental, social, and corporate governance (ESG) values that make up the core of their business. Beyond ESG though, Neometals strives to de-risk their investments by approaching projects with a diversified outlook.
They enter the market with a streamlined but authentic strategy that keeps things simple for themselves and their shareholders. First, their goal is to de-risk projects and develop sustainability through strong partners, research and development investments, and downstream integration to maximize profits and share higher returns of wealth with shareholders.
Then, they’ve made an active pivot away from upstream mineral production and exploration but instead towards sustainable material recovery. Keeping up with the trends, the company focuses on energy storage and has cemented itself in the lithium, titanium, and vanadium markets.
This strategy isn’t an airy, theoretical one either. Successful execution at their Mount Marion project in Western Australia has laid the groundwork for future endeavours, and their strong balance sheet allows them to fund future projects internally. Purchasing shares of Neometals gives your portfolio a balance of growth opportunity, but also much-needed stability during these times.
The world may be moving more towards nuclear energy in the coming years as countries fight to reduce carbon emissions. If it does, then Energy Fuels which has a proven track record of US uranium production might see some serious growth. Energy Fuels’ assets have produced around one-third of the United States’ uranium over the past 15 years.
Energy Fuels has ownership of the White Mesa Mill, a highly unique and underappreciated asset. The mill is the largest uranium production facility and the only conventional mill in the U.S. Due to its ability to handle radionuclides, it might be the key to restoring rare earth production in the United States. A bonus - they periodically produce vanadium.
Alongside the White Mesa Mill, Energy Fuels hold two fully permitted, developed, and proven ISR projects that are currently on standby. These projects can be “turned on” very quickly and at very little cost compared to other projects that may have to be licensed, financed, and/or constructed, giving an extra hedge for weary investors.
In closing, Energy Fuels’ solid cash position and balance sheet put them on our list as a company with healthy fundamentals.
If you’re looking for an investment with asymmetrical risk, then you should look no further than Rupert Resources. The Canada-based company continues to find promising mineral deposits at its Ikkari prospect, a smaller part of its overall Pahtavaara project in Finland.
Finland is one of the world's most advanced, low-risk mining jurisdiction, which provides Rupert Resources the opportunity to develop a low cost, top tier, highly sustainable gold mine with low emissions. This is due to the proximity to infrastructure and renewable power.
The Ikkari mine continues to look robust from a grade and tonnage standpoint, as further testing continues.
With funds to back them for the next two years and a larger land package - they recently quadrupled their land package to 451km² - Rupert Resources has made a great start to this decade.
With footholds located in one of the top mining jurisdictions in the world - Western Australia - Superior Gold has 100% ownership of the Plutonic Gold operations located in the region.
With a clear organic growth plan in place, Superior Gold could double production using its current infrastructure. With a large mineral base (5Moz of Measured, Inferred & Indicated) the company has substantial exploration upside. With a newly announced CEO, Chris Jordaan, and a low share price, Superior Gold has great upside.
The Canadian-based Global Atomic is running a fully permitted, high-grade uranium deposit in the Republic of Niger with positive cash flow, coming from a currently producing Zinc asset in Turkey - Befesa.
The company has already begun advancing the project towards production - with a successful pilot plant that improved the economics and a completed DFS.
The Tier 1 Dasa uranium project, located in Niger, is a country with long and successful record of mining and exporting uranium. There is excellent infrastructure, strong government support, experienced mine workforce and equipment available from the recently closed Orano project.
Along with a solid ESG reputation, Global Atomic has a management team with a proven track record of successful projects. With cash flow established and the proper leadership behind them, we believe Global Atomic has the proper fundamentals in place.
Canada Nickel owns 100% of their flagship Crawford nickel-sulphide project in Timmins, Ontario, Canada. Its initial PEA shows great economics with US$1.2 billion after-tax NPV and 16% after-tax IRR at a first quartile net C1 cash cost of US$1.09/Ib of nickel over the life of the mine.
Canada Nickel expects the PEA to be just the initial stages of their untapped potential. There’s lots of resource expansion potential at Crawford, along with upside potential for improved metal recovery.
Through strong ESG values, Canada Nickel aims to become the leader in net-zero carbon footprint nickel projects.
With EVs on the rise, Canada Nickel is in a prime position to fulfil industry demands.
GoGold’s team, specifically the technical team, has a proven track record of permitting, building and financing four mines in Mexico over the past two decades.
Their Los Ricos asset already has a PEA with a NAV of US$295 million with more drilling coming by the end of the year. They also have ongoing operations at their Los Ricos North location plus another five targets that they plan to drill in during their first 100,000-metre program. There are close to 100 potential drill targets across the land package.
GoGold has no debt and about US$73 million in cash, plus cash flow of around US$2 million per month coming from their Parral project, which is funding exploration in Los Ricos.
Altogether, these three simple fundamentals make GoGold a serious junior mining company.
O3 Mining wants to become a best-in-class gold producer. With a strong focus on providing great long-term benefits and returns to shareholders, coupled with projects located in some of the world’s best mining jurisdictions (Quebec, Canada was voted as the 6th best jurisdiction worldwide for mining by the Frasier Institute), O3 Mining has great upside.
They’re well-financed, with C$128.1 million in cash and investments. They also have 3.9 million oz of total resources between the two projects. Marban, which is in deposit development, and Alpha, which is in the advanced exploration stage.
O3 continues to deliver on exploration upside, with one of the largest drilling programmes planned in Quebec, with a 250,000-metre resource expansion program for 2021-2022.
Based in Quebec, Canada, the Troilus Gold mine was profitable for 14 years as an open-pit mine during a weak gold environment, starting in 1996. Today, their newest deposit has the same grade and extraction methods as back then, just with the benefit of a stronger gold market.
The company seems to have all of the fundamentals in place: roughly US$350 million worth of existing infrastructure, a 22-year mine life, operating costs of $719/oz AuEq, and a PEA with a CAPEX of about US$333 million with room for expansion.
In 2011 the Quebec government set out a 25-year, $80 billion, development plan for northern Quebec, where Troilus is located, which promotes mining and infrastructure developments (among other things). Troilus also have a clear focus on ESG, and were awarded the “Excellence in Sustainable Development” in 2020 by the Quebec Mineral Exploration Association
All of these indicators give us confidence that Troilus Gold could be a strong growth company moving forward.
2020 was great for investing, and we hope you did well. However, economists are uncertain about what the future looks like. Economies around the world have been printing more money than has ever been in circulation; inflation is a serious concern and when things move they will move quickly. You need to be on the right side of that trade.
So, we strongly encourage you to return to the key principles of investing and start thinking about how and when you’re going to take your money off the table and what you’re going to do with it.
- Store it as cash?
- Buy physical precious metals like silver or gold?
- Put your money in steady ETFs?
- Invest in long-hold equities and dividend paying stocks?
2021 can be a good year if you manage your portfolio with a steady hand, sturdy decision-making and focus on the fundamentals. Write down your strategy. Examine it. Challenge it. If necessary, change it. Don’t be casual - after all, this is your money.