PALM BEACH, Florida, April 17, 2018 /PRNewswire/ --
Marketnewsupdates.com News Commentary
Higher gold prices could potentially bring with it higher gold stock prices and stellar investment returns. With a potential trade war looming, some gold mining companies that could benefit from a rising gold price include Goldcorp Inc. (NYSE:GG), Novo Resources. (TSXV:NVO) (OTC:NSRPF), Barrick Gold Corp. (TSX:ABX) (NYSE:ABX), Newmont Mining Corp. (NYSE: NEM), and American Pacific Mining Corp. (OTC:USGDF) (CSE:USGD).
In general, major gold producers usually get hammered at the beginning stages of a run, before aligning their portfolios, selling off lackluster deposits and gearing their portfolios to take advantage of the real, much longer bull run. And it is at this point, where the smart money needs to get and maximize their returns.
In 2017, gold broke the $1,300 per ounce mark to rise 13% year over year, but most of the heavyweight gold stocks disappointed. Only Newmont Corporation showed positive gains (+9%) in 2017. However, history shows that the investors that outperform the market a hundred fold are those willing to invest apart from the herd in the junior gold stocks. American Pacific Mining (OTC:USGDF) (CSE:USGD), is already giving returns, up +62.5% from its IPO listing price only a month ago.
Gold to Rally Further
Before taking office, Trump pledged to "make America great again.", but his handling of the Chinese import situation has been far from it. For the longest time, China had been dumping its excess steel on the American market since all other major trading regions had imposed tariffs, effectively closing their doors. Now America has hit back, sparking a tit-for-tat war.
Should this continue, China is likely to reduce its US debt holdings as a retaliatory tactic, causing other countries (mainly the EU and Japan) to follow suit. The result would be long term dollar weakness; a trend that has always aided gold stocks.
Even Before this Trade Spat, Gold was a Favorite
Since the start of the year, over 43 billion dollars has been piled into gold there is a renewed appetite for junior gold stocks as investors seek to nab those ten baggers. Current spat aside, gold has long looked like a sure thing for 2018. In general, while the large caps remain the stalwart of any portfolio, junior gold companies, which are leveraged to the gold price, tend to outperform.
With respect to American Pacific Mining (OTC:USGDF) (CSE:USGD), the company just went public in March 2018 and The company expects to spend $1.2 million on 19 drill holes and geophysics but has already managed to raise $3 million in cash through the issuance of 32 million shares.
Large Gold Companies Seek to Streamline Operations
More evidence that gold is at the start of an upward trend, is the fact that larger gold companies are increasing their gold investments, and streamlining their portfolios by selling off non-performing assets in an effort to generate meaningful cash flow and take advantage of the bull run.
While mature gold companies offer scale and diversification which junior companies cannot, many of these larger companies face falling head grades, deeper mines and higher costs. As such, they generally rise tremendously during a gold boom, but are hindered from providing truly stellar returns and becoming the much envied "ten bagger." Junior gold companies have a reputation for providing truly mind-blowing returns for those who are savvy enough to spot an opportunity and get into these stocks at the bottom of the cycle.
Junior Gold Companies Should Outperform
Fewer than 5% of all junior gold mining companies ever reach production. Some run out of funding, some never get drilled; some get drilled, but turn up nothing. In short, mining startups are very risky business, and good choices are critical. However, the junior gold mining industry could present investors with the best chance of getting a ten-bagger (and even a hundred-bagger), without a bubble or hype situation.
There is historical precedence that demonstrates massive returns in this sector are certainly possible for those investors who choose to direct exposure to exploratory gold companies.
During the Gold Mania of 1979-1980 gold rose 276%. On average, the returns of the major producers was 289.5%, presenting slightly higher returns than if one had invested in gold bullion. Junior miners during this time returned an average of 2,317%.
The gold run between 1981 and 1983, caused by discoveries in the Hemlo area, major producers' returned an average of 72% to investors, while the junior gold miners, with exposure to the Hemlo area, returned a dazzling 4018.8%.
In the mid-90's mature gold companies returned 211.7% to investors, but those investors with the foresight to buy a junior stock at a low price and wait for the company to demonstrate good metallurgy, realised a return of over 3,500% within only a couple of month.
This could potentially be a start of another major rally in the gold market. The weaker dollar, political, social and economic unrest, spurred on by geopolitical and financial market uncertainties created by Brexit, the Scottish Referendum, Uncertainty surrounding US interest rate hikes and now the potential for a US-China trade imbalance could present the perfect set up to drive the smart money back into gold.
It is true that not every junior gold stock can be a ten-bagger, but a good investment meets three major criteria, namely:
- A Good Address
Location, location, location. Ideally, the mine should be in close proximity to another producing mine, or better still, many producing mines; in a country with a strong rule of law, mining friendly policies and good infrastructure. In the case of American Pacific Mining (CSE: USGD), their flagship project, Tuscarora, is in Nevada; an area that's become synonymous with large discoveries and producing gold mines of high grade; one couldn't really ask for a better address.
- Grade is still King
NOVO Resources Corporation was the best performing junior gold stock of 2017. Novo Resources Corporation's share price rose from under 20 cents in May last year all the way up to a high of $8.50 by October.
The fact that American Pacific Resources' Tuscarora project was originally evaluated by NOVO definitely piques our interest. Most recently, NOVO intersected 1.5 miles at 143.5 grams per tonne gold on the Tuscarora property, and before that in the 90's, Newcrest intersected 1.5m @ 182 grams per tonne gold at relatively shallow depths. Given that the world's top ten highest grades gold mines have grades ranging from 11 gram per tonne to 44 grams per tonne, these findings are spectacular. As American Pacific's drill programme gets underway, the company should quickly be able to possibly confirm and expand these findings.
- Solid Management Team
A good venture capitalist tends to back people, not projects. If faced with the choice between a poor management team with the best deposit, or a great management team with an average deposit, they always choose the latter.
In reality, one can take as many pictures of the ground as one likes, but one can never know with certainty what's down there until the deposit has been drilled extensively and meticulously. As such, it is important to consider the mine managers' past successes.
Considering American Pacific's President, Eric Saderholm, the company's co-founder, left a senior position as the Exploration Manager of Newmont, to join the project. He brings with him vast experience in both major and junior resource companies with numerous discoveries to his credit.
Having secured a high grade deposit in an enviable jurisdiction, a solid management team and enough cash to allow the company to drill thoroughly with the eventual aim of confirming a resource statement, American Pacific Corporation is well-positioned to take advantage of the impending gold rally.
Other Companies In Gold Mining Space
Goldcorp Inc. (NYSE:GG) - Based in Vancouver, Canada, Goldcorp is considered an industry leader in the gold mining business, with operations across Canada as well as Mexico and Central and South America. Last year, the company produced 2.6 million ounces of gold, and its guidance for 2018 is 2.5 million ounces. The plan is to increase production by 20% to three million ounces by 2021.
Barrick Gold Corp. (NYSE:ABX) - Based in Toronto, Canada, Barrick is considered the largest gold mining company in the world. Currently, its mining operations span Argentina, Australia, Canada, Chile, the Dominican Republic, Papua New Guinea, Peru, Saudi Arabia, the U.S., and Zambia. In Nevada, the company operates the Cortez and Goldstrike properties, which produced a combined 2.3 million ounces of gold last year.
Agnico Eagle Mines Ltd. (NYSE:AEM) - Agnico Eagle is a Canadian gold mining company operating eight mines across Canada, Finland, and Mexico, with exploration and development activities extending to the U.S. and Sweden. Last year, the company posted gold production of 1.7 million ounces, its highest ever.
Newmont Mining Corp. (NYSE: NEM) - Based in Colorado, Newmont Mining is one of the world's largest gold producers with assets in the U.S., Australia, Peru, Indonesia, Ghana, Canada, New Zealand, and Mexico. The company reported gold reserves of 68.5 million ounces for 2017, unchanged from the previous year. Its production outlook for this year is between 4.9 and 5.4 million ounces.
For a more in-depth view on American Pacific Mining Corp. (OTC:USGDF) (CSE:USGD), visit Microsmallcap.com
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