- Gold and mining stocks have been left for dead as investors left mineral resources in favor of the returns seen in traditional equities. But as the markets get skittish, this sector could be a top contrarian bet in the near term. Historically the space hasn’t been THIS out of favor for long and could snap back in a big way.
- M&A hasn’t been this high in the sector since 2013 as majors know they can find quality assets at quality values. Ecuador has been a top destination for deals, and the emerging Lucky Minerals (LKMNF)(LKY) could be on the verge of a big 12-24 months as they report findings from the promising Fortuna Project. By way of comparison, the slightly more advanced ARU is valued at 6X LKY, and with more details in 2019, the gap between these two could close. Should this happen, investors long Lucky Minerals could see unheard of returns.
NEW YORK, NY / ACCESSWIRE / January 15, 2019 / Mining stocks have rarely been cheaper. Stock markets globally are choppy, and there are worrisome signs that the markets – and the U.S. economy – may be starting to get antsy after a tremendous run since 2009.
The oldest existing index of gold stocks, Barron’s Gold Mining Index (BGMI), trades at the lowest level relative to gold in about 80 years. The same goes for BGMI relative to the S&P 500, as illustrated in the chart below from Incrementum’s 2018 ”In Gold We Trust” Report.
Mining stocks haven’t been so hated in decades, and this sector has basically been asleep at the wheel. But they could be due for a huge return. The VIX, or the ”volatility index”, an indicator for the general sensitivity of the investing base is at the highest it’s been in a decade. The last time it was this high was right before the recession, which is to say right before investors liquidated their holdings and put it straight into hard assets like gold and silver. Looking back at how this has played out in the past, gold/mining stocks could be one of the best contrarian bets of the next few years.
Immediately after the 2008 recession, the Philadelphia Gold and Silver Index (XAU) tripled from $70 to over $200 into 2012. Gold/miners lit up as investors looked for safe havens.
Established majors and juniors alike have both been neglected. But within the industry, M&A is booming. It’s a sign that the industry experts LIKE the market valuations they’re seeing, and they’re doing deals left and right.
Global mining and metals deal value rose 15% year-over-year to $51 billion in 2017, the highest value of completed deals since 2013 according to Ernst & Young. The consultancy also wrote in 2018 that 58% of mining executives say they intend to pursue mergers and acquisitions in 2019, compared to 46% across other sectors. One of the biggest deals ever, Newmont’ Mining Corp’s (NEM) $10B Goldcorp (GG) acquisition, took place in January. As the investment dollars flow, it’s worth taking a look at some of these emerging projects.
Ecuador a Top RecentDestination For The Industry, and Lucky Is Reporting Great Early Findings
Against this backdrop, Ecuador is quickly becoming one of the hottest untapped regions for miners. The majors are laying down infrastructure and putting money to work in exploratory miners following a regime change in the country, which has opened its borders to more outside investment. Newcrest Mining Limited (ASX:NCM) and BHP Billiton Limited (NYSE:BHP) have both made substantial investments in the smaller SolGold (LON:SOLG) for access to the Cascabel property in Ecuador, a copper/gold project. Fruta Del Norte went through $400 million of fundraising by Lundin Gold Inc (TSX:LUG)(OMX:LUG) for a major effort with this gold/copper project. The $30 billion Anglo American (LON:AAL) entered a joint venture agreement with Luminex Resources (TSX.V:LR) for three copper and gold concessions in the area.
Lucky Minerals (TSX.V:LKY) (OTCQB:LKMNF) has been reporting compelling findings from their exploration project in Southern Ecuador, the Fortuna Property, which is less than 50km from the mega Fruta Del Norte mine. Fortuna consists of 12 concessions, and the company has been focused on a promising mineralized porphyry system in Fortuna 3. After recent sampling, they’ve reported that surface prospecting has located what management believe is a mineralized Porphyry system ovoid in shape 1.3 km long with an estimated width of 1 km.
48 first assays have indicated intriguing copper and gold mineralization. Among these, assays of up to 0.075% Cu (750 ppm), up to 0.03% Mo (300 ppm) and up to 1.21 g/t Au were reported. Anomalous gold values from 0 of up to 130 ppb have been also reported in breccias within the porphyry.
Lucky’s exploration team believes that this current mapping program has identified a large-scale Porphyry system. They’re planning ongoing field follow-up in the coming weeks, while 50 mineralized samples from more recent veins have already been sent for assaying with results pending.
2019 Could Hold MoreValue Unlocking Events
Starting in early 2019, Lucky plans to finalize the current mapping program along with an airborne geophysical survey. They’ll work to improve the existing dirt road and trails upon social approval. Aggressive grid-style sampling will continue on Fortuna 3 as well as regional prospecting on an extensive 40 km regional NNE structure. Other major regional NNE trending structures observed on the property will also be mapped and sampled.
Importantly, the company has said a drilling program may follow this later in the year.
At a CAD $0.13/share and a $15 million market value, it’s clear that there’s not a lot of value already baked into this small company. Their neighbor in the region, Aurania Resources Ltd. (TSXV:ARU) (OTCQB:AUIAF) (FSE:20Q) is a $100 million companyand is at a very similar stage of exploration in Southern Ecuador. Lucky appears substantially underappreciated compared to this regional peer, and 2019 could be key to realizing the difference in market values.
Indicators may be lining up for a big swing in gold and mining stock values, much like the pioneering cannabis companies of 2015-2017. After years of no value for the early cannabis players, this sector caught a categorical tailwind for broad secular reasons: legislation, social acceptance and regulatory. Companies like Tilray (TLRY) and Cronos Group (CRON) have become household names even before they’ve started turning a profit! It’s these kinds of sector tailwinds that can make for intriguing value propositions, and as a possible Gold renaissance looms, Lucky could be a hot strike in 2019.