Perversity and Precious Metal Stocks

Well, at least my precious metals stocks…

Gold is solidly at an all-time high trading over $2333.

The Senior Gold Miner Index has gone up a bit but it is still well off its highs back in 2020.

The Junior Miner Index has similarly risen but remains well down from earlier highs.

Welcome, once again, to the perverse world of precious metals shares.

I own a couple of producers: Victoria Gold (VGCX.T) up in the Yukon and Orezone (ORE.T) in Burkina Faso. Victoria has enjoyed a nice run from $5.20 at the end of February, to a high of $8.01 yesterday. Orezone has resolutely stuck to the bottom trading at between $0.83 and $0.90.

A $300 per ounce increase in the price of gold is very good news for both companies but, unfortunately, the perceived country risk in Burkina Faso anchors ORE despite it having lower All In Cash Costs per ounce than Victoria. ($1127 for ORE versus $1488 for Victoria.) At a guess, Victoria will be lifted well past $10 a share if the price of gold keeps rising even gently. Orezone’s fortunes are more closely tied to the political situation in Burkina Faso than the current price of gold.

(I wrote about both companies couple of weeks ago.)

While there is a lag between a rise in the price of gold and a rise in the share price of producers, there is a chasm between that rise and the share price of explorers and developers. Which makes sense. After all, Tara Christie might have a resource of over 7 million ounces inferred at Banyan Gold in the Yukon, but that is years away from production.

Much the same can be said of Eloro (ELO.T), Cartier Silver (CFE.CN), Cartier Resources (ECR.V), Hercules Silver (BIG.V) or Bayhorse Silver (BHS.V) but the devil, as always, is in the details.

Bayhorse will have a producing mine as soon as its final permit is approved by the State of Oregon. Cartier Silver could go into limited production of its Bolivian silver resource in a couple of months if it wanted to and conditions were right. (That’s actually more than a little unlikely as Tom Larsen and his people are looking at a bulk mining situation as opposed to running the existing, quasi-artisanal mine. But with the right silver price?)

However, if precious metals go on their potential excursion to significantly higher prices, history tells us that it is the explorers and developers where the really large gains occur. 5-25X is not out of the question in the right conditions.

The sequence is something like this: precious metals prices rise enough that the mainstream media notices, institutions and savvy investors flock into senior and then middle-level producers causing their shares to rise significantly. This attracts more attention and retail and new investors start paying attention. However, the producers are now out of their reach so they turn to more speculative exploration and development stories.

Producers are all about business, how much metal can be produced at what cost. Junior explorers and developers are about potential.

Here’s the thing, most of the explorers and developers have very few shares traded on a daily basis. Cartier Silver has an average daily volume of less than 20,000, BYN averages a little over 110,000, BHS trades an average of just under 400,000, and BIG, the subject of an earlier run-up only trades a daily average of 600,000 shares, ELO averages just 94,000. A bit of interest in any of these companies and the share price could take off very quickly.

The junior market is next to impossible to predict, much less time, a full-on bull run. Gold may be at all-time highs but it might be months before the explorers or developers catch fire. Smarter people than me suggest that you look for a solid project, with good management and buy that story. With the right entry point and decent results, that sort of junior will tend to drift higher as it derisks its project. It will also be a company people will feel comfortable investing in if the bull breaks lose in the junior world.

(Disclaimer: I own shares in all of the companies mentioned in this piece. I am down on a few, a little up on a couple. I may buy or sell at any moment. This is not investment advice. Do your own due diligence. Call the CEO.)