Tudor Gold Corp
(CAN:TUD / US:TDRRF) and Minera Alamos Inc
(CAN:MAI / US:MAIFF) are two very different ways for mining investors to seek higher leverage in gold mining stocks.
More on these companies later. First some context.
If there were two words to sum up the emerging rally in gold and gold mining stocks, those words would be “exciting” and “predictable”.
It’s exciting in that gold itself is emerging out of a long bear market. And gold mining stocks were priced at historic lows in relation to the price of gold as mining companies caught fire.
It’s also predictable.
As usual in a gold sector rally, it was the large cap miners and some of the larger mid-tier producers that began moving first. The only smaller cap companies that were moving at the beginning of April were market darlings that already had momentum due to some big discovery.
As usual, the junior gold producers and exploration companies are now also starting to move – and move faster – as they always do in any significant rally.
Now another familiar (predictable) dynamic is entering the picture. Companies with lower grade gold projects are also starting to catch fire. Previously, it has been primarily companies with higher grade projects whose stocks have gotten the most traction.
Economics and risk/reward.
Higher gold grades typically mean higher margins. Higher margins imply lower risk – but also less leverage to a rising gold price.
A lower grade gold mining operation may only be marginally profitable (and moderately attractive as an investment) at $1,200/oz gold. But at $1,700+/oz the same project and company suddenly has more than enough meat on the bone to attract investors.
In the early stages of a rally (at a lower gold price) that risk/reward proposition is a little too speculative for most investors. As the rally gains steam and momentum builds, the appetite for more leverage grows commensurately.
For mining investors looking for higher leverage opportunities, here are two juniors that are certain to whet the appetites of most investors.
Tudor Gold Corp (B.C.’s Golden Triangle)
The Golden Triangle mining district in northwestern British Columbia is already famous for some monster gold deposits.
(US:SA / CAN:SEA) gigantic KSM deposit is a 50.4 million ounce gold resource
, but at an average grade of only 0.52 g/t. Pretium Resource’s
(US:PVG / CAN:PVG) Snowfield deposit contains 25.9 million ounces of gold
, but at an average grade of only 0.59 g/t Au.
Marginally profitable (at best) at lower gold prices. Huge cash cows at higher gold prices.
Tudor Gold’s flagship Treaty Creek Project is along trend with Seabridge’s KSM. The geologic fault structures are very similar.
And some of the assays that Tudor Gold has produced from previous drilling strongly imply the emergence of another monster gold deposit in the Golden Triangle. This is especially true of some of the numbers from the Goldstorm Zone.
- 563.8 meters @ 0.981 g/t Au
- 780 meters @ 0.849 g/t AuEq (gold equivalent)
- 1,081.5 meters @ 0.697 g/t AuEq
- a near-surface intercept of 336 meters @ 1.062 g/t AuEq, including 87 meters @ 2.006 g/t Au
As noted above, at $1,200/oz the economics of mining gold at these grades is dubious. This is because low-grade/bulk-tonnage gold mining operations typically require very large scale to make these grades economical.
In turn, this means that such mines require massive cap-ex, often in excess of $1 billion. But at $1,750/oz gold, the KSM deposit represents over $87 billion of gold in the ground
That’s more than enough of a potential payoff to get the investment bankers busy in capital markets.
At this stage, it is much too early to speculate whether Treaty Creek could be another KSM, or even another Snowfield. What is clear is that this gives all indications of being a multi-million ounce gold deposit – with enormous upside potential.
Tudor Gold currently has three drill rigs working the property. Yet even before any 2020 drill results have come out, its stock has already made a strong recent move.
The stock has more than doubled in the past month on high volume, with gains accelerating in recent days.
Minera Alamos Inc (Mexico)
Tudor Gold is a story about long-term potential. Minera Alamos is all about near-term production.
About the only thing that Minera Alamos and Tudor Gold have in common are lower grades. Although MAI’s management might bristle at the term “low grade” in reference to its emerging La Fortuna Project.
La Fortuna’s gold mineralization is generally above 2 grams per ton gold, with much of its resource base above 3 grams per ton. Minera Alamos has already acquired a 2,000 tpd mill for the project.
Production is expected to commence at the end of 2021 at an initial throughput of 1,100 tpd.
However, even before La Fortuna starts producing gold, Minera Alamos is expecting its original Santana Project to be in full production.
Santana is lower grade gold ranging from ~0.50 g/t in the Divisadero Zone up to around 1 g/t gold in the Nicho Zones. But while grades are low, efficiency is high.
This is simple, ultra-cheap heap leaching. Minera Alamos has already extracted roughly 50,000 tons in pre-commercial bulk mining. Commercial production is expected to commence in Q4 2020.
While the monster gold deposits of the Golden Triangle are multi-billion mega-projects, the Santana Gold Mine is going into production with a cap ex of ~CAD$10 million
Santana is expected to be a 25,000 – 30,000 ounce per year gold producer, a USD$50 million per year revenue producer (at current prices) from CAD$10 million in cap-ex. Efficient.
The preliminary economic assessment (PEA) for La Fortuna estimates preproduction capital costs at US$26.9 million. Expensive compared to Santana, but cheap versus most other gold mining operations on the planet.
The PEA projects all-in sustaining costs (AISC) of US$440/oz
. The after-tax IRR is 93% -- but that was based on $1,250/oz gold. At current prices, La Fortuna would turn a profit well before the end of its first year.
Minera Alamos has also seen its share price trending steadily higher in recent weeks.
Two hot junior gold mining stocks.
Tudor Gold market cap CAD$303.38 million (up 19.39%)
Minera Alamos market cap CAD$$228.18 million (up 1.82%)
Both pursuing gold opportunities toward the lower end of the spectrum in grade. Both offering investors very attractive opportunities.
Two totally different mining companies.