Gold mining shares poised for a sustained bull run?

2020 uncertainty proving to be a boon for gold

Investors in mining companies have had a rough ride over the past few years. Despite significant geopolitical uncertainty led by Brexit, US-China trade and military tension as well as continuous rumble of discourse in the Middle East, gold prices had not performed particularly well.

One of the reasons for mining equity underperformance has been the emergence of other sectors which have attracted speculative risk capital in recent years. Cryptocurrency, block-chain and more recently cannabis have all had a negative impact with respect to capital flows into the mining industry (especially in regards to retail and HNW money). Under performance at the junior end of the spectrum has manifested as funds have moved up the market cap scale in an effort to maintain their commodity exposure whilst retaining the ability to sell if need be due to the increased liquidity in the larger names.

Gold’s fortunes appear to have changed in recent months; particularly as the global crisis caused by SARS-CoV-2 / COVID19 have taken effect. Rising unemployment, rapidly ballooning Government debt and the prospect of a long a deep recession / depression have reawakened gold’s attractiveness as the ultimate hedge against future uncertainty. 

Gold prices closed their trading on January 1st 2020 at a price of $1,519.50 with Silver trading at $17.83. Today, the prices of those commodities are $1,778 and $17.90. Gold has increased by a whopping 16.2% YTD with Silver barely moving. 

All of this exciting action in the gold price has been hugely positive for the financing prospects of the junior gold companies that have struggled in recent years to attract the capital they need to operate, explore and develop. 

Juniors have been taking advantage of the renewed interest

In recent weeks we have seen a number of junior mining companies come to market to raise impressive sums of money. Taking the Toronto Venture exchange (which is heavily resource weighted in its composition) as an example; total monies raised increased from $143,978,370 to $339,521,302 in May of 2020.

In the months of May and June 2020 on the TSX & TSXv there were a total of 263 financings (equity and debt) with the following equity financings being over C$9m.

CompanyAmount raised (C$)
Ely Gold Royalties$ 15,000,000
New Placer Dome Gold$ 12,348,467
Great Bear Resources$ 25,000,200
Cordoba Minerals Corp$ 21,500,000
Discovery Metals$ 24,999,999
Amex Exploration$ 15,750,000
Pure Gold Mining$ 14,999,999
Prime Mining Corp$ 10,000,000
O3 Mining Inc$ 20,000,160
O3 Mining Inc $ 18,709,525 (FT)
Galway Metals Inc$ 17,352,101
Artemis Gold $ 70,000,000
Artemis Gold$105,000,000
Thor Explorations Ltd$ 14,400,000
Tudor Gold $ 9,313,780
Caldas Gold Corp$ 50,000,000
Mako Mining$ 28,400,000
AEX$ 45,000,000

As you can see, there has been a fair amount of capital raised for the smaller to mid cap sector in recent weeks giving a good indication of investor sentiment and appetite towards the precious metals space.

Moving across the pond to London, we have not seen this level of resource financings but funds have been topping up on the better value names in the market. 

There are a number of new and exciting companies emerging onto the scene when you look globally. One that we particularly like at Stellium is Artemis Resources an Australian listed company (ASX: ARV) headed by veteran mining operator Alastair Clayton. Mr Clayton has a long and successful history in the mining sector having been a Director of Extract Resources (a company that was sold to China’s CGNPC in 2011 for $2.2bln). He was also CEO of Bannerman Resources who hold the Etango uranium project in Namibia.

Artemis is a relatively unknown company in London despite having several shareholders there. A recent management shuffle which saw Mr Clayton join as CEO was followed by the appointment of a new Chairman, Mark Potter, who also has an impressive pedigree on the capital markets side of the mining industry.

Artemis holds ground in the Pilbara region of Western Australia that is more commonly associated with Iron Ore than with Gold. 

That perception changed in 2018/19 with the Havieron discovery made by London listed Greatland Gold (AIM: GGG) on their Paterson project. Havieron was discovered under 400m of cover which intially revealed strong Au and Cu mineralisation. The maiden drilling campaign revealed 121m @ 2.93g/t Au and 0.23% Cu. This was quickly followed by by a second drilling campaign in September 2018 where hole 1 hit 275m @ 4.77g/t Au and 0.61% Cu. Peak grades of 211.3g/t Au and and 12.38% Cu (with an additional Cobalt credit of 4,104ppm) got the attention of Newcrest Mining. Newcrest are now in the second phase of a $65m farm in deal that will see them scale up to a 70% interest in the project. 

Greatland’s share price responded and the company now has a market capitalisation of £449m giving some indication of just how much potential is at Havieron.

Artemis holds much of the ground around Havieron which was acquired prior to Greatland’s discovery. Crucially, the fault structures that host the Havieron mineralisation extend well onto Artemis’s ground so there is every possibility that a drill campaign that is scheduled for later in 2020 will reveal something very interesting for Artemis shareholders. 

Underpinning the value of the company is another asset, at Carlow Castle where Artemis’s drilling defined a 418koz resource when gold was at A$1,700. With the recent run in the gold price and Aussie gold sitting around $2,700 Artemis is putting effort into increasing the size of this resource with the goal of getting to 1moz before the end of 2020. The resource sits just 30km from the recently refurbished Radio Hill mill, a strategic asset that is also owned by Artemis and has a replacement value greater than the company’s current Market Capitalisation. 

With A$7.5m in cash and marketable securities and no debt, Artemis is one stock that could benefit from the perfect storm of a rallying gold price coupled with exceptional exploration potential in a geopolitically stable Country with great infrastructure. 

The share price today of A$0.06 gives Artemis a Market Capitalisation of only A$65m (EV of A$57.5). Artemis also has a number of non core projects that it’s looking to divest/JV (details of which can be found on their website: www.artemisresources.com.au). With steady news flow throughout the remainder of 2020 and a strong gold price, now could be the perfect time to get onboard if one of their arrows finds its mark. 

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