Grizzle Gold & Silver Roundtable - Fall 2024

Bringing Together Industry Experts in Precious Metals

With the Fed triggering a rate cut cycle, we've brought together experts across the industry to discuss the most important topics in precious metals!

Watch and Listen: YouTube, iTunes & Spotify

Lead Partners:

Goehring & Rozencwajg Associates: https://www.gorozen.com/

Blokland Smart Multi-Asset Fund: https://bloklandfund.com/eng/

West Red Lake Gold Mines: https://westredlakegold.com/

Grizzle Research & Quant: https://grizzleresearch.substack.com/

Presenting Companies:

West Red Lake Gold Mines (TSXV:WRLG): https://westredlakegold.com/

Vizsla Silver (TSXV:VZLA): https://vizslasilvercorp.com/

Kobo Resources (TSXV:KRI): https://www.koboresources.com/

First Nordic Metals (TSXV:FNM): https://fnmetals.com/

Outcrop Silver (TSXV:OCG): https://outcropsilver.com/

Strategic Case for Gold

Speakers: Adam Rozencwajg, Goehring & Rozencwajg & Jeroen Blokland, Blokland Smart Multi-Asset Fund

Valuing Gold - A Historical Context

Valuing gold relative to the total financial assets of the world. Historically, gold's valuation has fluctuated based on how much of the monetary base it could back, with current valuations indicating gold is extremely undervalued. Rozencwajg explains that, while there have been times when every dollar was backed by more than $1.70 worth of gold, the current figure is around 10-15 cents per dollar, a significant undervaluation.

Gold Demand: Emerging Markets vs. Developed Markets

Rozencwajg contrasts gold-buying trends between emerging markets and developed markets. While central banks in emerging markets have been purchasing gold without concern for price, retail investors in these markets typically buy when prices dip. Recently, there's been an unexpected sustained demand from emerging market investors even as prices rose, something usually only seen in central banks. Western investors, however, tend to sell gold during periods of rising real interest rates but may return as rate cuts are expected.

Gold Miners vs. Physical Gold

Gold mining stocks do not perform well when gold prices are flat or falling, as their earnings leverage depends on higher gold prices. When gold prices increase, gold stocks tend to outperform physical gold due to their earnings leverage, meaning that a 50% rise in gold prices can lead to a 200% rise in the stock’s earnings. This leverage makes gold stocks the preferred investment vehicle when gold is expected to appreciate. Additionally, gold stocks can become undervalued during certain points in market cycles, which provides a significant buying opportunity for investors who believe in the future rise of gold prices.

Today’s gold stock prices are similar to the historical lows seen in 2015 and 1999, both periods when gold stocks were near market bottoms. On a net asset value (NAV) basis, gold stocks are trading at 60% of NAV, with an additional 40% of real option value, which reflects the potential for future growth in gold prices. This creates an attractive opportunity for investors, particularly when comparing today’s market with prior cycles.

The Golden Age for Scarce Assets

The speaker argues that the increasing global debt necessitates a search for scarce assets like gold. With bonds becoming increasingly abundant and volatile due to rising debt, investors are looking for stable, scarce assets to balance their portfolios. Gold, as a historically scarce and reliable store of value, is expected to play a critical role in alleviating debt sustainability concerns as central banks allocate a larger percentage of their reserves to gold.

The Value of Gold as a Diversifier

Gold has proven to be a superior asset compared to bonds, both in returns and in diversification benefits. While gold is more volatile than bonds, its volatility has been relatively stable in recent years, and its low correlation with equities makes it a valuable portfolio diversifier. The discussion emphasizes the importance of holding gold in an investment portfolio to mitigate risks associated with over-reliance on bonds, especially in light of recent inflationary pressures and increased bond volatility.

Gold vs. Silver in a Portfolio Context

Silver is viewed as a more volatile asset compared to gold, which makes it less attractive in a portfolio aimed at maintaining stability. The speaker points out that while silver does not have the same historical track record as gold, it is more commonly used in industrial applications. For these reasons, the speaker prefers gold as a more reliable store of value and does not include silver or other commodities in their portfolio, as it would dilute the focus on scarcity and the intrinsic role of gold.

The Structural Decline of Europe

This topic discusses Europe's economic decline, attributing it to poor policymaking and over-regulation, particularly in areas like sustainability and climate change. The speaker criticizes the focus on sustainability at the expense of other critical sectors like education, housing, and healthcare. This has created an environment where European growth is stunted while the rest of the world seeks to outpace it. The overregulation is seen as crippling European countries' ability to grow and innovate, contributing to a structural decline in competitiveness.

The Outlook for Scarce Assets

The discussion shifts to the outlook for gold and other scarce assets. With real rates and nominal yields declining, gold prices have reached all-time highs. The future of these assets depends on whether the U.S. experiences a recession, with central banks likely to cushion the impact through rate cuts. The speaker remains optimistic about the long-term value of scarce assets, particularly gold, as central banks are expected to continue supporting them in times of economic uncertainty.

The Canadian Gold Mining Advantage

Speaker: Gwen Preston, VP Investor Relations, West Red Lake Gold

Key Advantages of Investing in Gold Mining Projects within Canada

Canada is described as a "tier one" jurisdiction for mining projects due to its political stability, consistent rule of law, and reliable permitting process. These factors attract investor interest, leading to higher valuations for Canadian mining projects. Investors are particularly drawn to the reduced risks associated with currency stability, permitting transparency, and regulatory consistency, making Canadian gold mining projects more attractive compared to those in less stable regions.

The Value of Having a Permitted Mine on the Cusp of Production

Mines that are close to production hold significant value because the process of moving from discovery to production can take decades. This long timeline has discouraged investors from the gold equity space, but mines that already have permits and are near production offer a rare and valuable opportunity. With fewer projects ready to enter production, these near-production assets are increasingly desirable and are often targets for mergers and acquisitions, as seen in the recent Osisko deal.

The Prolific Gold Mining History of Red Lake

Red Lake is a small region with an impressive history, having produced over 30 million ounces of gold. The high-grade deposits and long history of mining have created a skilled workforce and a community centered around mining. This area’s rich geology continues to offer significant potential for new discoveries, making it a prime location for mining operations and a supportive environment for gold exploration and extraction.

The Importance of the Golden Runway for Investors

The "golden runway" refers to the period in a mine’s life when it transitions from development to production. This is a critical time for investors because it represents the point when a mine shifts from spending money to generating revenue. The speaker notes that many gold projects stalled during the bear market, so there are currently few projects in this golden runway phase. As projects in this phase move closer to production, they typically experience a rise in stock value, providing significant upside for investors.

The Madsen Mine in the Sweet Spot of the Golden Runway

The Madsen Mine in Red Lake is currently in the golden runway phase, with many key infrastructure elements already in place, such as a mill and tailings facility. The project is focused on creating a sound mining plan to ensure efficient production when the mine restarts, which is expected in 2025. The upcoming months will see the release of the official mine plan, along with final funding decisions to move the project into commercial production.

Investment Case for Silver Equities

Speakers: Craig Perry, CEO Vizsla Silver & Ian Harris, CEO Outcrop Silver

Driver of the Silver/Gold Ratio

This segment focuses on the silver/gold price ratio, which historically hovers around 60. The speaker predicts that silver will soon catch up to gold in terms of value, driven by its role as both a commodity and a currency. Demand for silver is rising, particularly in industrial applications, and the speaker anticipates a potential surge in silver prices, possibly reaching $100 per ounce within the next few years due to supply shortages and high demand.

Renewable Energy Demand for Silver

Silver is highlighted as a critical metal in renewable energy technologies, especially photovoltaics for solar panels. The demand for silver in renewable energy is growing at an annual rate of 11%, driven by large-scale solar projects like those in Australia. With increasing reliance on solar energy and other renewable technologies, the demand for silver is expected to continue rising, further pushing its price up. However, the silver supply is constrained by a lack of new discoveries, which adds to its scarcity.

The Scarcity of Quality Silver Assets

The discussion emphasizes the rarity of high-quality silver mines, with less than 30% of the world’s silver being mined from primary silver mines. Much of the silver is a byproduct of copper mining, making silver mines a scarce commodity. The scarcity of pure silver mines is seen as an opportunity for investors, as high-quality silver assets become increasingly valuable due to their rarity and independence from fluctuations in other mining sectors.

What Drivers Underpin a Valuable Silver Mine

In evaluating silver mining projects, three key factors are considered: grade, recovery, and payable amounts. The payable component is especially important in silver mining, as it dictates how much of the mined silver is actually sold at market value. Silver that can be processed into high-purity products, like Dore bars, tends to command higher prices, making projects with high-grade silver and favorable recovery processes more valuable to investors.

Silver Miners: Historical Drivers for Valuation Rerating

Silver miners have historically been valued based on their net asset value (NAV), and recent mergers in the sector reflect this. Silver stocks tend to have higher valuations than gold stocks, partly due to the commodity aspect of silver, which appeals to a more excitable investor base. As demand for silver rises, particularly in industrial uses, silver mining stocks are expected to experience significant rerating, offering opportunities for substantial returns.

Silver & Gold Miners: M&A Cycle

The current merger and acquisition (M&A) cycle in the silver and gold mining industry is compared to previous cycles, with the speaker noting that the trend is likely just beginning. High metal prices and rising demand for production have prompted large deals like Newmont’s acquisition of Newcrest. The speaker expects this to trigger more deals in the coming years, as major mining companies seek to replenish reserves and capitalize on the favorable market conditions.

Tier 1 Silver Development: Panuco Silver-Gold Project

The Panuco Silver-Gold Project is described as one of the most significant silver discoveries in the last 20 years, with exceptionally high grades and low capital expenditure. The project is expected to produce 20 million ounces of silver in its first two years, with an internal rate of return (IRR) over 100%. The project’s economics make it one of the most attractive silver development opportunities, and it is expected to become a major producer in the coming years.

High Grade Silver: Santa Ana Silver-Gold Project

The Santa Ana Silver-Gold Project stands out for its exceptionally high grades, with recoveries of 96% for silver and 98.5% for gold. This project is one of the highest-grade deposits in the world, with the focus on expanding the resource and demonstrating its long-term viability. The metallurgical test results are promising, showing the project can produce high-grade precious metal concentrates, making it a valuable project for future silver production. The ongoing exploration indicates there’s potential for the resource to grow even larger.

The Upside of Exploring for Gold Internationally

Speakers: Paul Sarjeant, President & COO Kobo Resources & Adam Cegielski, CDO First Nordic Metals

High Grade Gold in West Africa

Kobo Resources has been active in Côte d'Ivoire since 2014, taking advantage of the country’s underexplored geology and favorable exploration costs. The Kassu Gold Project, their flagship property, benefits from excellent logistics, being located close to a depleting mine and assay labs. The speaker highlights the cost efficiency and rapid turnaround of exploration results, making West Africa, particularly Côte d'Ivoire, an attractive jurisdiction for gold exploration, especially as geopolitical issues in neighboring countries push more mining activity into the region.

Scandinavian Gold Exploration

Scandinavia, particularly Sweden, is becoming an increasingly attractive region for gold exploration, thanks to recent openings for modern exploration, stable governance, and a pro-mining government. The region’s rich geological potential, especially with greenstone belts, has drawn attention, and the speaker praises the ease of operating in Sweden, where foreign capital is welcomed, and infrastructure, including green energy, is abundant. Scandinavian greenstone belts offer untapped opportunities compared to more mature mining regions like Canada.

Côte d’Ivoire: Underexplored vs Prolific Gold Neighbors

Côte d'Ivoire is 20 to 25 years behind its West African neighbors in gold exploration but is quickly catching up due to updated mining codes and increasing foreign investment. With a significant portion of the gold-rich Birimian formation within its borders, Côte d'Ivoire has vast geological potential. The country is expected to see further growth in gold production as more junior and major companies begin operations, spurred by the favorable legal framework and geopolitical issues in neighboring countries like Mali and Burkina Faso.

Open Greenstone Belt: Gold Mining Perspectivity in Sweden

Sweden’s greenstone belts are considered the final frontier for gold exploration, with entire belts controlled by individual companies. The comparison to Canada’s heavily mined greenstone belts highlights the untapped potential in Scandinavia, where deposits remain largely unexplored. The speaker emphasizes the depth potential and geological consistency of these belts, making them prime targets for large-scale gold discoveries. The supportive regulatory environment and access to skilled labor further enhance the attractiveness of Sweden as a mining destination.

Partnering with a Global Infrastructure Giant: Mota-Engil

Kobo Resources has formed a strategic partnership with Mota-Engil, a major European infrastructure company with over 70 years of experience in Africa. This partnership provides Kobo with the financial backing and expertise needed to pursue mining opportunities in Côte d'Ivoire and other West African countries. Mota-Engil’s role as both a mining contractor and infrastructure provider makes them an ideal partner, enabling Kobo to act on exploration and development opportunities that would otherwise be out of reach.

Having a Gold Mining Titan in Your Corner: Agnico-Eagle

Agnico-Eagle, one of the world’s top mining operators, holds a 55% stake in Kobo’s main asset. Their involvement brings not only financial support but also technical expertise, allowing for more efficient project development. Agnico-Eagle’s reputation as a top-tier operator opens doors for Kobo, attracting the attention of investors and analysts. The speaker notes that having such a partner provides credibility and increases opportunities for financing and partnerships.

Kobo’s Exceptional Assay Results & Fall Drilling Campaign

Kobo’s Kossou Gold Project has produced excellent assay results across three main targets: the Jagger, Road Cut, and Kadie zones. High-grade hits, such as 19 meters at 2 grams per ton, have confirmed the project’s potential. With plans to drill deeper and expand the exploration across the zones, the project remains open for further resource growth. The company is preparing for a 10,000-meter drilling campaign to continue defining the deposit and advance the project toward development.

The Path Ahead for First Nordic’s Flagship Barsele Gold Project

First Nordic’s Barsele Gold Project boasts a 2.4 million-ounce deposit with an average grade of just under 3 grams per ton. The geological consistency of the deposit, which extends to at least 950 meters in depth, suggests that the resource could grow significantly with further exploration. The project’s strong economics, including a billion-dollar net present value (NPV), make it a highly attractive development opportunity. The speaker outlines a clear plan to expand the resource and move the project toward production, with the potential to increase the resource to 4-4.5 million ounces.