The New Junior Miner Mandate

Written by Gerardo Del Real
Posted January 14, 2019

Newmont Mining just agreed to merge with Goldcorp in a $10 billion deal that creates the world’s premier gold company by output.

This deal follows the mega-deal in September which saw Barrick Gold merging with Randgold.

"This combination will create the world's leading gold business with the best assets, people, prospects and value-creation opportunities," said Gary Goldberg, Newmont's chief executive officer.

The combined company is expected to produce 6-7 million ounces of gold over the next 10 years. In 2017, Newmont produced 5.3 million ounces of gold, while Goldcorp mined 2.6 million ounces.

The transaction verifies what I’ve been telling Junior Mining Monthly subscribers for months: that they should expect to see an increase in M&A in 2019.

Expect that trend to accelerate and expect the mid-tiers and the juniors to follow suit.

For over a decade, majors rewarded shareholders by misallocating capital, slashing exploration budgets, and allowing reserves to be depleted at an alarming rate.

The deal comes just as gold is in the midst of a multi-month rally and is flirting with the $1,300 level.

For those of us who speculate in the junior resource space the mandate for juniors is now clear: make discoveries, grow the discoveries, or go away.

The years of sitting by idly collecting shareholders' checks while claiming to be an “exploration” company are over.

The good news is that we’re coming out of one of the most brutal bear markets in the junior resource space and there are clear takeout targets that, despite the recent bounce, are still trading at severe discounts.

I’m not talking companies with imaginary ounces in the Inferred category. I’m talking companies with PFS (Pre-feasibility study) and feasibility-stage ounces in the millions and projects that still hold substantial discovery potential.

One Junior Mining Monthly portfolio company has millions of gold ounces in a stable jurisdiction, community support, and excellent exploration potential with a project that has an NPV of nearly one billion dollars and has a fully-diluted market cap 1/3 of that.

A second company has nearly 5 million gold equivalent ounces — feasibility stage — is also in a stable jurisdiction, and also has strong community support and clear exploration potential.

It has been growing the resource for nearly eight years and for its troubles has also been rewarded with a market cap which is 1/3 of the project’s NPV. This after a 65% run up in the stock the past few weeks.

2019 will be a pivotal year in the junior resource space.

When I first launched Junior Mining Monthly, it was predicated on the idea that governments around the world were spending at an unsustainable pace, that the general public would soon start adding and subtracting the numbers and come to the conclusion that there needed to be a change.

I then speculated that volatility would ramp up as a result of geopolitical and monetary turbulence that would be magnified by a bond blowup overseas that would send the dollar and gold (initially) both rocketing higher.

I also speculated that the lack of exploration in the commodity space would amplify the gains for the juniors and we would be privy to — and benefit from — a junior resource bull market for the record books.

The first part has played out pretty much according to plan. The bond blowup will come as will the pivot from public to private assets.

I was early on the record bull market but being early has allowed me to increase positions and average down on the better names.

You should be positioned now in companies with advanced-stage assets. You should also be adding to your favorite speculative exploration companies.

Stick to management teams that have done it successfully in the past because they are the ones that will survive this next phase.

They’re also the ones likely to deliver the biggest gains.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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