Gold Edges Down Within New Higher Range

Gold trends down for third week

Gold declined -0.8% to US$1,918/oz this week, trending down for the third week towards the lower end of gold's new higher range between US$1,900/oz and US$1,990/oz that has held since the last week of February 2022.

TSXV large gold stocks seeing relatively weak performance in 2022

This week we look at the performance of the TSXV large gold companies so far in 2022 which has overall been relatively weak as the rise in the gold price has been offset by the continued pressure on the equity markets, especially small caps.

Producers and juniors decline as gold edges down

The producers and the juniors both declined, with the GDX down -1.2% and the GDXJ down -1.7% while the larger TSXV Canadian juniors were mostly down as the gold price edged down and equity markets continued to remain under pressure.

Gold Edges Down in New Higher Range

Gold edged down -0.8% to US$1,918/oz this week, moving towards the lower end of the new trading range from US$1,900/oz to US$1,990/oz that has held since the end of February 2022. There has been little change in the major factors affecting gold, including high and rising inflation and a big increase in geopolitical risk. However, the gold price may have been affected by a US Fed that is looking increasingly hawkish, which could lead to higher and faster interest rate hikes and may have put some pressure on the gold price. However, we expect that that inflation and geopolitical factors will continue to at least balance, if not outweigh, the downward pressure from the interest rate hikes, which we expect may be less aggressive than the market may be currently pricing in, and that therefore gold should be at least maintained within its current range and could see significant upside especially if inflation continues to surprise to the upside.

Performance of TSXV large gold stocks weak so far in 2022

This week we look at the performance of the large TSXV gold stocks so far in 2022, which has been relatively weak, especially in the context of the major gains for this group from 2020-2021. For the Canadian juniors operating mainly domestically, the two best performers, Probe Metals and Osisko Development, both declined -1%, and the next two, Amex and Tudor, were down -10%. This group are all explorers in the drilling stage which saw their big gains in 2020 and were up well over 100%, and all except for Osisko Development saw declines over 20% in 2020 (Figure 4). New Found Gold is down -17% for the year, after 191% gains in 2020 from its August listing and another 117% in 2021 driven by some of the strongest drilling results from the Canadian gold juniors over the past two years.

Eskay Mining, also in the drilling stage, was down -18% this year, and Artemis, which operates the Blackwater project and has already secured financing to build the mine is down -64%. Both of these companies had their major gains in 2020, with Eskay seeing moderate gains for 2021, but Artemis seeing the second year of substantial declines as investors may be gravitating more towards earlier stage plays with impressive drilling results, than later stage companies with less room for surprises.

Some of the Canadian TSXV gold juniors operating mainly internationally had a better performance than the domestic-focused operators, and we split the group between the gainers and the losers in Figures 5 and 6. Minera Alamos was the top performer, up 44% on continued strong drill results, while Orezone was second, up 28% as it nears production, and is the only one of the entire group to have seen three consecutive years of gains. Lion One is up 13%, also well into the development stage for its Tuvatu project, recovering from two years of losses, with Chesapeake Gold up 13% after decent gains in 2020 but seeing losses in 2021 as it continues to consider methods to bring down costs for its potentially huge Metates project.

Mako has seen a relatively flat performance over since 2020, as it is the only one of the group already in full production and possibly has less room for surprises to the upside or downside. Rupert Resources, up 7%, and Arizona Metals, down -1%, both saw by far the single biggest yearly gains of the group over the past three years with Rupert up 625% in 2020 on very strong drilling results from its Ikkari project and Arizona up 503% in 2021 on strong drilling results from its Kay Mine project.

Lumina Gold is down -5% after substantial gains in 2020 followed by losses in 2021 as it continues development of its Cangrejos project. Gabriel Resources has seen its losses contract over the past two years, from -51% in 2020 to -17% in 2021, to -8% this year as it is unable to advance its Rosia Montana project in Romania, which is on the site of what has become a World Heritage Site, possibly preventing development of the project. Bluestone Resources is down -12%, after gaining 41% in 2020 and 8% in 2021 as it continues to develop its Cerro Blanco project. Prime Mining is down -12% after being one of the big gainers in 2021, up 98%, on strong drilling results from its Los Reyes project. Novo is the only company that has seen three years of large losses, down well over 30% this year, and in 2020 and 2021 as the market has not been impressed with advancements on its Beaton's Creek project.

While the gold price has done well so far this year, boosted by high and rising inflation and a major surge in geopolitical risks, it has not been enough to boost most of these gold juniors this year. We believe that this is because of the offsetting factor of the start of rate hikes, especially by the US Fed, but this also looks to be moving more globally, as inflation picks up across the world. These rate hikes are expected to put pressure on the economy and stocks markets, and we have already seen investors pull back this year especially from riskier small cap stocks, and the juniors certainly fit into that category. So this year we expect to see a battle between the upside driver of the gold price, which we expect should at least hold up, if not gain further, versus the downside pressure on equity markets overall, and especially on small caps. If we were to net out these two drivers as neutral for this year, we are left with the specific developments at each individual company as potentially the major drivers for 2022. While both 2020 and 2021 could therefore be considered a bit more about the macro story, 2022 looks to be shaping up to more about the micro story for the larger TSXV gold stocks.

Producers mainly down with gold price near flat

The producing gold miners were mostly down as the gold price eased (Figure 7). Yamana reported an update on exploration at three mines, El Penon, Odyssey at Canadian Malartic and Wasamac and Centerra reported that it had entered an agreement that would lead to a clean separation regarding its operations in the Kyrgyz Republic at the Kumtor mine. Nova Gold reported its Q1/22 financial results focusing on the Donlin project and Equinox poured first gold from the resin and elution circuit at its new Santa Luz Mine in Brazil (Figure 9).

Canadian juniors mostly down

The Canadian juniors were mostly down as the gold price declined and the equity markets remained under pressure (Figure 8). For the Canadian juniors operating mainly domestically, Newfoundland Gold issued a press release clarifying some of its disclosure after a review by the British Securities Commission and Eskay closed the first $2.1mn tranche of its planned $7.0mn non-brokered private placement. Tudor Gold reported that crews were preparing for the planned May start for exploration at Treaty Creek and Probe Metals reported drilling results from the Monique trend at Val-d'Or East (Figure 10). For the Canadian juniors operating mainly internationally, Bluestone Resources released its Feasibility Study for Cerro Blanco and appointed Mr. Robert Gill as V.P. and M.D. of Guatemala and Minera Alamos reported a Q1/22 update on operations at the Santana gold mine (Figure 11).

In Focus: Laurion Mineral Exploration (LME.V)

Exploring the past producing Ishkoday project

Laurion Minerals owns 100% of a single past producing project, Ishkoday in Ontario, with a total 47 square k.m. with 22 mining leases for 21 years for 1,433 h.a. and 29 boundary and single cells totalling 3,200 h.a. and 5 boundary cells over 64 h.a. The project has access to a nearby power grid, water and skilled labour and the site is accessible year-round. Exploration permits are in place and the company has established relationships with local communities. The project had two pastproducing high-grade shafts, Sturgeon River, with output of 73,322 oz Au and 15,929 oz Ag from 1927-1942 with grades as high as 17.0 g/t Au and a 2013 stockpile of 10,326 oz Au and Brenbar, with grades as high as 20.0 g/t Au. The project is also part of the broader emerging Greenstone camp, which has seen several past producing mines, including Hardrock, with 4,325k oz Au, Sand River & Leitch with output of 898k oz Au, Brookbank, with 660k oz Au, North Empire, with 149k oz and the company sees potential at the project for stacked veins in gold or polymetallic-rich sulphides (Figure 13).

Completed four stages since 2018 with fifth stage in 2022

The company has completed five stages of exploration over the past four years. Stage 1 started in 2018, with 2D compilation-synthesis work and the collection of initial field data with three stripped trenches over 14,905 square m with 1,429 channel and grab samples completed. In Stage 2 in 2019 the company explored seven trenches over 25,773 square m and with channel sampling and assaying with 3,338 samples, and did a 6.0 km X 1.5 km Magnetic UAV survey and ground surveys which indicated the potential for bulk tonnage with polymetallic veins. In the third stage in 2020, Laurion refurbished the core facility, acquired the Brenbar property and did mapping and channel sampling and performed in-fill ground I.P geophysical surveys at A-Zone, Sturgeon River and Brenbar (Figure 14). It also did 7,937 m of diamond drilling on targeted anomalies in the A-Zone, CRK, Joe and McLeod zones, and completed a 2D and 3D comprehensive GIS database.

In Stage 4 in 2021 Laurion generated an initial genetic mineralization model and confirmed volcanogenic mineralization over a 1.4 m strike length from the A-Zone to the McLeod zone, with 8,390 m of diamond drilling. The company also completed LiDAR/Orthophotos to a five metres elevation all over Ishkoday, with stripping and channel sampling at A-Zone and McLeod and a geochemical program completed at North Ishkoday which identified a large copper anomaly. Drilling highlights since 2020 are shown in Figure 15, with the outstanding results in May 2020, with 0.58 g/t Au and 6.1 g/t Ag over 63.9 m for a grams times thickness of 37 for gold and 157 for silver, and in January 2021 with 3.9 g/t Au and 6.6 g/t Ag over 70.7 m for a grams thickness of 276 for gold and 457 for silver.

For Stage 5 in 2022 a 15,000 m infill and definition drilling from the A-Zone to the CRK Zone is planned, expected to cost about $2.7mn, property-wide mapping, at $0.05mn, trenching and sampling of the Jack Road and J-Vein, and extension to the west of the A-Zone/McLeod/CRK area, at $0.14mn, and data management, geological, geoscience and consulting supervision costs of $0.5mn. With company holding $6.2mn in cash as of its most recent 9M/21 results, and raising an additional $2.6 mn in December 2021, it will cover the total cost of Stage 5, estimated at approximately $3.4mn, and finance nearly two more similarly-sized programs.