FN Media Group Presents Oilprice.com Market Commentary
London – September 20, 2021 – If you’re following rising oil prices that are smashing records right now, it should lead you directly to gold. Inflation is coming, and some say gold is our only true defense. Mentioned in today’s commentary includes: Sociedad Química y Minera de Chile (NYSE: SQM), Freeport-McMoRan (NYSE: FCX), Gold Fields Limited (NYSE: GFI), Compañía de Minas Buenaventura S.A.A. (NYSE: BVN), Harmony Gold Mining Company Limited (NYSE: HMY).
Oil prices are now at a six-week high, with Oman even predicting that prices could increase to $200 per barrel if global climate policies are pushed through. But it all could mean higher inflation.
As oil prices rise, inflation tends to rise in tandem because oil is a major input in the economy. When those inputs rise, costs do the same, leading to inflation. That’s why Biden has been calling on OPEC to produce more to keep oil prices down. It’s all about taming inflation. Gold is considered a hedge against inflation.
Gold soared in 2020 on realized fears of inflation when stimulus checks started hitting American accounts. Gold finished 2020 up 28%–its biggest win since 1980. And while gold may have already priced in inflation based on pandemic stimulus, what we think it didn’t figure in was soaring oil prices.
While oil prices look set to break new records, gold is flying under the radar, and there has never been a better time to gain direct exposure against the coming inflation. Right now, smart money is looking at gold. But it’s not looking at physical gold …we think it’s looking at small-cap miners who stand to benefit the most from future inflation.
Why We Believe Discount Gold Is The Only Gold To Watch
Fear is a bargain. And right now, with the Delta variant of COVID-19 surging through the world, threatening renewed lockdowns and more economic stimulus, and with oil prices rising, we think gold should be on everyone’s radar. But there’s only so many ways to find discount gold …
One of the best avenues is through the potential of the small-cap miners and their underpriced assets that could realize outsized gains with any jump in gold. With gold trading in the $1800 range, imagine getting it for $2-$3 an ounce, instead. This may be the ultimate safe haven.
When Wall Street hunts for bargain gold, it targets the junior miners with major upside potential, setting short-term price targets that could make these juniors look incredibly undervalued. Discount gold was a hot commodity when gold prices were in the $1200 range not too long ago. When they’re in the $1800 range, it becomes even more precious. Big miners don’t offer the same potential upside.
In 2016, we saw a run on junior gold miners for the same reason. Then, we saw gold increase by about 26% in 6 months. Even mid-cap Endeavour Mining Corp gained nearly 200%. IAM Gold gained nearly 260%. The smaller you go, the bigger the potential gains. Small-cap Argonault soared by nearly 300%, while Great Panther Mining jumped by about 340%.
For 2021, the numbers look even better, with $1800 gold, coming off a 28% increase in 2020, and oil-price-led inflationary fears appearing to mount fast.
Now, it’s small-cap Starr Peak Mining Ltd (STE.V; STRPF) in our spotlight, backed by a gold encounter that has turned into much more than that. This early-stage exploration play jumped on our radar when they scooped up territory adjacent to Amex Exploration, right before Amex made a stunning high-grade gold discovery in 2019. Since then, it’s been fast-paced news flow.
Not only did Starr Peak buy property right next to Amex and right next to the past-producing Normetal Mine, but it bought the Normetal Mine itself, which has historically produced ~10.1 million tonnes of 2.15% copper, 5.12% zinc, 0.549g/t of gold and 45.25 g/t of silver.
Drilling began and results started to come back, Starr Peak encountered something that major miners are said to be always on the lookout for but rarely hit: A VMS (volcanogenic massive sulfide ore) deposit, containing multiple base metals, including zinc, copper, silver, and gold.
In March, it released its first results, showing large intervals of high-grade sulfide mineralization, and new results have come in every month since then–each time with higher grades than the last. Now, Starr Peak has expanded its drilling program to 60,000 meters. It looks to be paying off, too.
On August 12th, Starr Peak released another set of results from its NewMetal property in Quebec’s Abitibi Greenstone Belt, which includes the Normetal Mine, showing ~10.1 million tonnes of 2.15% Cu, 5.12% Zn, 0.529 g/t Au and 45.25 g/t Ag.
Adding to high-grade results from July, August’s showings highlighted the copper-rich zonation in the Deep and Upper zones of Normetmar. Starr Peak Chairman and CEO Johnathan More lauded the results as the highest-grade copper results to date.
“As we continue to be blown away by the results and potential of the Normetmar mineralized system, we are seeing an increase of copper mineralization at depth. This often occurs in these polymetallic VMS deposits, with metal zonation from zinc-dominant to copper-dominant at depth. We are excited to be releasing some of our highest-grade copper mineralization to date, and look forward to increasing our understanding of this highly continuous zone of rich mineralization with our recently announced 60,000 meter expanded drill program.”
This is the third time Starr Peak has expanded its drilling program based on encouraging results. After announcing results showing high-grade gold, silver, copper, and zinc on its first two drills, Starr Peak is starting to gain attention, and we think it’s not just as one of the best potential discount gold exploration plays of the past several years, but also as a great exploration play on soaring base metals.
It could be seen as a de-risking basket deal that could benefit from record prices for metals such as copper and zinc, too. And with high-risk/high-reward discount gold exploration plays, a 98% hit rate on drill targets is extremely attractive in our view. For this discount gold exploration play, we think Starr Peak Mining Ltd (STE.V; STRPF) isn’t just going for a repeat of Amex Exploration’s success.
It’s aiming for the ever-elusive VMS deposit that could attract the major miners like nothing else. With each drill hole and set of results, Starr Peak looks to further de-risk its Quebec hunting ground, and we think the timing is perfect for discount gold.
Gold and Metal Prices Could Soar
Sociedad Química y Minera de Chile (SQM) has seen its stock price nearly double from $30 in mid-February 2020 to its current price of $47.23. Sociedad Química y Minera, for example, signed in December a long-term supply deal with LG Energy Solution, which in turn supplies batteries to carmakers such as Tesla and GM. Under the deal, SQM will supply battery-grade lithium carbonate and lithium hydroxide to LG Energy Solution between 2021 and 2029.
Sociedad Química y Minera sees the lithium industry growing at around 20 percent per year in the long term, supported by rising EV sales and emission reduction goals from China to the United States.
While Freeport-McMoRan (FCX) is primarily known for its significant copper mining operations, the resource giant also has a fair influx of gold as well. In fact, its Grasberg mine in Indonesia holds of the world’s largest deposits of copper and gold. But that’s just scratching the surface of the miner’s global assets. Freeport-McMoRan also has extensive operations across the Americas, including mines in Arizona, Mexico and Peru.
Though its business struggled as global demand for copper took a hit, panic-buying from China has lifted prices higher in recent months – and that’s good news for Freeport-McMoRan. In addition to climbing copper prices, gold prices hit record levels, which will add even more to the mining giant’s bottom line.
Gold Fields (GFI) has catapulted itself into the global mining elite in recent years thanks to its forward-looking vision and exceptional management. Based out of Johannesburg, South Africa, Gold Fields is one of the de facto leaders in the region. With operations in South Africa, Ghana, Australia and Peru, Gold Fields is well-diversified.
In 2019, Gold Fields produced over 68 tons of the precious metal, up nearly 8% from the year before. And thanks to last year’s rally in gold prices, it produced even more, setting itself up to a great start to 2021.
It’s rare to see miners from outside of North America on the New York Stock Exchange, but Compania de Minas Buenaventura (BVN) is an exception. Listing on the NYSE in 1996, Minas Buenaventura has clawed its way up the ranks of the global mining elite. Currently valued at $3.51 billion, the mining giant is far from its all-time highs. But it’s not down for the count just yet.
Harmony Gold (HMY) is another South African miner which has exploded onto the radars of investors this year. Though it’s only the third-largest miner in the country, it has made some stellar moves in the marketplace. Domestically, it has nine underground mines in the resource-rich Witwatersrand Basin and one open-pit mine in the Kraaipan Greenstone Belt. It also has a major joint-venture with Newcrest Mining in Papua New Guinea.
In 2020, Harmony raised a whopping $200 million to partially fund a key acquisition of AngloGold’s assets in its home country. The deal is expected to more-than-triple its gold production to as much as 1.8 million ounces per year.
By. Tom Kool
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Forward-Looking Statements
This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that prices for gold, silver, copper, zinc and other base metals will retain their value in future as currently expected, or could continue to increase due to global demand and political reasons; that Starr Peak can fulfill all its obligations to acquire its Quebec properties; that Starr Peak’s property can continue to achieve drilling and mining success for gold and other metals; that historical geological information and estimations will prove to be accurate or at least very indicative; that high-grade targets exist; that Starr Peak will be able to carry out its business plans, including future exploration and drilling programs; that the preliminary drilling results will be confirmed as further exploration continues; that the lab results from Starr Peak’s initial exploration program will confirm evidence of a significant VMS deposit; that Starr Peak’s exploration results will gain the attention and interest of larger mining companies and investors; that Starr Peak’s exploration results will continue to show promising results justifying ongoing exploration and possible development efforts. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that politics don’t have nearly the strong effect on gold and other base metal prices as expected; that demand for base metals may not continue to increase; that the Company may not complete all its announced mineral property purchases for various reasons; that the Company may not be able to finance its intended drilling and exploration programs; Starr Peak may not raise sufficient funds to carry out its business plans; that geological interpretations and technological results based on current data may change with more detailed information or testing; that the lab results from Starr Peak’s initial exploration program may not support evidence of a significant VMS deposit; that the preliminary drilling results may not be confirmed during further exploration efforts; that Starr Peak will fail to gain the attention and interest of other mining companies and investors; that Starr Peak’s exploration results may fail to find additional promising results justifying ongoing exploration and/or development efforts; and despite promising results from drilling and exploration, there may be no commercially viable minerals or ore on Starr Peak’s property. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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