Golden Opportunity: Quality Ounces are King as Producers Go Shopping

• Gold prices have risen significantly recently, changing the economics for gold mining companies
• Companies are seeing increased M&A interest from larger players looking to replenish reserves
• Exploration companies are focused on steadily drilling to increase resources and ounces in the ground
• Investors should look for companies with experienced management teams who have built mines before
• Key attributes are high-grade ounces, good jurisdictions, existing infrastructure, and long-term growth potential

Why Invest in Gold

Gold has long been considered a safe-haven asset and store of value. With economic uncertainty rising in recent years, gold prices have recently seen a significant uptick, reaching as high as $2400 per ounce before settling just below $2,300. This price appreciation is having ripple effects across the gold mining industry, from large producers down to junior explorers. For investors looking to gain exposure to gold, now is an opportune time to understand the dynamics at play and identify the most promising opportunities in the space.

Rising Gold Price Transforms Project Economics

The over $1000 per ounce rise in the gold price compared to just a few years ago is dramatically changing the economics of gold projects worldwide. Victor Cantore, President and CEO of Amex Exploration, noted that when his company first got involved in their flagship project in Quebec in late 2016, gold was sitting barely above $1200.

"What's amazing about that is that for all the exploration companies, especially the ones that already have ounces, these ounces in the ground right now are worth a lot more," Cantore explained. Those numbers will go much higher than how we gauge these companies today."

Ian Stalker, a mining executive with extensive experience building gold mines in Africa, echoed this point, citing his company's project in Liberia, which has seen its economics boosted by the rising gold price.

"For every $600 - let's say we did the feasibility study at $1,700 an ounce - that means there's $600 for every ounce you're making now extra free cash flow," Stalker said. "If you're making 200,000 ounces a year, then even my arithmetic tells me that's a shitload of money, quite frankly, that's extra. So we're in good shape.

Increased M&A Activity as Producers Look to Replenish Reserves

One of the impacts of a higher gold price environment is a pick-up in mergers and acquisitions as larger producers, flush with cash, look to secure new ounces to replenish their reserves and fuel future growth."I've noticed increased activity in the M&A space," Stalker noted. "There's certainly more action in some of the junior companies. Quite a few medium-sized, small- to medium-sized companies are getting attention. And there's a feeling amongst many of the guys who are acquiring that they better move fairly quickly because the gold price has changed the value of the ounce in the ground.

Cantore concurred, pointing to some recent high-profile acquisitions of development-stage companies at robust valuations. "If you look at some of the latest ones, you look at Great Bear when they got bought out. They got bought out at $200 per ounce. Balmoral in 2020, same thing. They got bought out for a little over $200 an ounce. High-grade ounces are selling in that range and probably even higher in today's environment.

Exploration Strategy: Drill, Add Ounces, Demonstrate Scale

For exploration and development companies, the recipe for success and attracting investor and acquirer interest is straightforward, if challenging, to execute: steadily drill to expand resources and ounces in the ground while demonstrating the potential for further growth.

Cantore explained Amex's strategy: "You just keep drilling and building up the ounces. We will put out a resource when we put out a resource, but it's the first sizable resource we will have. And from there, you continue building; you'll have to show that there's blue sky, making new discoveries, continuing to grow it.

Regarding an exploration company's plans, Cantore doesn't see the gold price surge necessitating a strategy shift. "I don't think there's much you can change as a company on a business plan or as a business model. You just increase your ounces in the ground and ensure it's economic. In this case, obviously, I can't pronounce myself, but it's pretty obvious that it will be economic here based on what we're seeing.

Attributes of Attractive Opportunities

For investors evaluating gold companies, the executives stressed a few key attributes to focus on:

High-Grade Ounces in the Ground: Grade is king in the mining business.

High-grade ounces are selling in that range and most likely in today's environment, which is probably even higher," Cantore said of recent acquisitions valued around $200 per ounce. The higher the grade, the more robust the economics and the more attractive the asset.

Experienced Management

Given the risks and challenges inherent in mineral exploration and development, backing a team that has successfully built mines in the past is crucial. "You've got to look for people who have already done it," Cantore advised. "Nothing against new people coming in, the young and hungry, but as long as they're surrounded by people that have already done it, to me that's important. That's having a really good jockey.

Jurisdiction

Both executives touted the favorable mining jurisdictions their projects are located. For Amex, Quebec is consistently ranked as one of the best places to explore and build a mine. "There's living proof of what happens after a mine has been mined out," Cantore said. "It's completely rehabilitated. From satellite, you can look at it, and it's all green; it's all been properly rehabilitated.

For Stalker's Liberian project, while West Africa carries some geopolitical risk premium, Liberia has a stable democracy, and his company has secured a mineral development agreement ratified by the national legislature."Of course we have a mineral development agreement which is really the corporate fiscal agreement cast in stone through the parliament in Liberia, that gives surety of terms and conditions to how we build this project and how it operates," he explained. "That takes away a lot of risk.

Infrastructure & Exploration Upside

Having good infrastructure in place is a significant advantage. Amex's project is right off the road near a town with an airport and a sizeable labor pool. The company also has 4-5 drill rigs turning to make new discoveries on its large land package.

Similarly, while Stalker's project already has a sizeable 4-million-ounce resource, 400 square kilometers of land provides an upside for exploration. "We've covered about 20 square kilometers so far," he said. "There is more to come.

The Investment Thesis for Gold

• Gold provides portfolio diversification and is a proven store of value in uncertain times
• Look for companies with high-grade ounces in the ground in favorable mining jurisdictions
• Experienced management with a track record of successfully building mines is crucial
• Having existing infrastructure (roads, power, water, labor) materially de-risks a project
• Exploration upside to grow ounces and make new discoveries is key to attracting buyout interest
• Producers are looking to M&A to replenish reserves, and juniors with quality ounces are attractive targets
• Don't chase promotional stories - focus on fundamental value, a proven team, and a viable path to production

With the rising gold price significantly improving project economics, mining companies - and their investors - are enjoying a cash flow windfall on existing production. Juniors with quality ounces in the ground have become increasingly attractive acquisition targets for larger producers looking to replenish their reserves. Exploration companies should focus on drilling to expand their resources while demonstrating further growth potential.

Investors are advised to seek out companies with experienced management teams who have built mines before, high-grade ounces in favorable jurisdictions, established infrastructure, and exploration upside. By targeting quality assets run by proven teams, investors can intelligently gain exposure to gold during this rising price environment while mitigating downside risk.