the doug casey method to investing in gold...

The Doug Casey Method to Investing in Gold Stocks

B Y L O U I S J A M E S A N D T H E C A S E Y R E S O U R C E T E A M

THE DOUG CASEY METHOD TO INVESTING IN GOLD STOCKSInternational Speculator

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Part I• Introduction

• It’s Time to Invest in “the Most Volatile Stocks on Earth”

• Our Key Advice on Buying Gold Stocks

• Nine Simple Steps for Finding the World’s Best Gold Stocks

• How to Choose the Right Canadian Broker

• Why You Should Also Own Physical Gold Today

• Important Closing Tips for Buying and Selling Gold Stocks

• Conclusion

Part II• The Nine Essential Gold Stocks to Buy Now

Part III• The Buy List


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The first time Doug Casey and I walked the mean streets of Vancouver’s business district, I had no idea what to expect. Doug is so affable. It was hard to imagine him browbeating the truth out of the con men and incompetents who infest the place.

In one meeting, the CEO was droning through his corporate presentation. Doug was quiet. I asked newbie questions. And then the guy started rattling off drill results the company was getting in one zone. I don’t remember the details (X grams per tonne of gold, Y percent copper, etc.). I do remember Doug sitting up and saying: “That’s $300 rock. Drill off enough of that and you’ve really got a shot here.”

Doug had done the math in his head, estimating the value of the metal contained in the rock the company was drilling, based on current spot prices. This was back in 2004. “$300 rock” was very rich back then. It still is, but was even more so all those years ago. Doug had, in a few words and even fewer seconds, summed up the entire speculation.

I was impressed by the precise, efficient way Doug’s mind tallied the critical numbers and brought the potential investment into focus.

I realized that it would be easy for people to underestimate him—which would be to his advantage.

But Doug doesn’t suffer fools lightly. He’s easygoing until you waste his time. I wasn’t there, but I heard firsthand the story of another meeting that didn’t go so well. The Casey team at the time was sitting through a pitch. Suddenly, Doug stands up and says, “Let’s go.” In the shocked silence that followed, Doug elaborated: “It says in this handout that management doesn’t own any shares—I’m not buying this stock if they don’t have any skin in the game.”

And walk out he did.

The point of these stories is that if you know what you’re looking for, you can find unrecognized value and bag tremendous gains, but if you don’t, you can lose your shirt to the crooks and fools who are out there.

In this report, I summarize all that Doug Casey has taught me over the years. It’s a beginner’s handbook of sorts. Speculation 101. I wish I’d had it when I started out. I’m glad to make it available to you, without further ado…

Introduction


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Anyone who thinks mainstream investing is safe today is kidding him- or herself.

We are all speculators now.

The difference is that some of us know it. If you have the courage, the following pages will show you how to play to win…

If you want maximum returns in the market right now and are willing to take the necessary risks, the junior gold space is the place to focus.A junior resource company is simply a very small resource company. Most are exploration companies, looking to discover a rich deposit of oil, gold, freshwater, etc. The term also covers small producers: companies that have already discovered a resource and are extracting it or tapping into it, but are still small.

Juniors often have market valuations of less than $10 million for the whole company. Most have no net income and no meaningful asset value.

When the market is way down, some juniors trade for less than cash in the bank. That means that the total price of the company’s shares is less than the company’s cash on hand.

Mainstream investors dismiss juniors as “penny stocks.” They think they’re too volatile to touch.

To a degree, that’s true. Some juniors do trade for pennies. And all of them, even the ones that trade for several dollars a share, are extremely volatile.

Doug Casey calls them “the most volatile stocks on earth.” He’s not joking, nor exaggerating.

But this is a good thing—if you know how to make volatility your friend.

We’ll get to that in a moment. First, let me explain…

Why Invest in Juniors?Imagine a typical exploration junior. It has no income. It has no measurable assets. Even the cash it has in the bank isn’t really an asset; it’s an obligation. The junior will use that cash to drill holes in the ground, hoping to make a big discovery.

Now, what is this company worth?

The answer can only be zero.

But what happens if it hits pay dirt? The stock will soar, of course.

It’s Time to Invest in “the Most Volatile Stocks on Earth”


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At this stage, it’s impossible to put an accurate value on a mineral discovery…

How big is it?

How deep does it go?

How stable is the rock?

How hard will it be to get metal out of the ore?

No one can answer these questions from just one drill hole. Any market valuation at this point would overvalue the discovery.

However, if the discovery does have economic value, that value will be greater than zero. And any value at all is infinitely greater than zero—so the change in value for a junior that makes a discovery is enormous. Share prices leap.

That’s why we speculate on juniors. They have the potential to “go vertical” like nothing else…

Going VerticalThe junior sector is 10-bagger hunting ground. A 10-bagger is a stock that goes up 1,000%, or more. It sounds mythical, but they are real. We’ve bagged quite a few over the years.

This is why some see buying juniors as just gambling. In a way, it’s not a bad idea to think of the junior resource sector as a giant casino. It puts you on guard. And it prepares you for the losses you’ll suffer on your way to big wins.

There is, however, a huge difference between gambling and rational speculation. A gamble is essentially a game of chance. Sure, professional gamblers learn how to play the other players.

But unless they cheat, the heart of the gamble remains random chance. You toss the dice. You win or lose.

A rational speculator does everything possible to stack the odds in his or her favor. This is not cheating. It’s research. It’s experience. It’s looking at trends. It’s looking at investments that should benefit from those trends, and picking the best.

All speculators take risks. But rational speculators use their intelligence and energy to minimize those risks.

Gambling is a game of chance. Speculation is an investment strategy that depends upon observation and intelligent planning. Chance can enhance or hinder it, but it doesn’t define it.

That’s why we’re here: we observe, strategize, and hunt for 10-baggers.


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Where Can You Find the Best Juniors?The best hunting ground for 10-baggers is the Toronto Stock Exchange and its venture division, the TSX-V.

London’s alternative market, the AIM, and the Australian Stock Exchange, the ASX, are also friendly to junior resource companies. Some juniors list in the countries where they operate, such as Peru. The lion’s share, however, goes to Toronto.

The chart below shows the number of mining juniors listed in Canada and other countries.

Many successful juniors do seek U.S. listings. But the requirements are too steep for most juniors, even on the lower rungs of the NYSE. By the time a successful exploration company gets a U.S. listing, it’s no longer quite so junior.

(You can find out how to trade on the Canadian exchanges—and find the right broker for you—in the quick primer below.)


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Here’s how to make volatility your friend: buy low and sell high.

That’s easier said than done.

To make it work, you have to be a contrarian investor. That means backing up the truck for stuff no one else wants.

It may be a cliché, but it’s true: the best time to buy is when there’s blood in the streets. And the time to sell is when everyone else piles in to the market you knew would go up.

Of course, this only applies to investments that have value. Buying after the pet rock market crashed in the 1970s was not a great move. But buying copper when it fell below the cost of production in 2001 was. The world still needed copper then, needs it now, and will need it in the future.

In an ideal world—or at least one in which we are immortal—disciplined contrarians could amass limitless fortunes. All they’d have to do is buy necessary goods after total market meltdowns and sell when the masses pile in.

Unfortunately, these cycles can last ten or twenty years. That’s well beyond the patience of most investors.

Enter our friend: market volatility.

Economists like to imagine that markets are rational. Experience tells us otherwise. Markets are often more volatile than pure theory predicts. Resource markets, and precious metals markets in particular, are among the most volatile.

Markets are made of masses of individuals, each with his or her own beliefs, fears, and needs. They don’t always make the same decisions, but sometimes large groups fail to value assets accurately. Frequently, painful experiences cause investors to exit an asset class en masse. This results in an oversold market. That means that the average company in that market is selling for less than it’s worth. The opposite is true in an overbought market.

Such market momentum is, frankly, stupid. But it’s real. And it often happens many times within larger mega-cycles. Whenever it appears, it’s an opportunity for contrarians.

But even such intra-cycle momentum can last years.

Enter our best friend: extreme volatility.

Most juniors trade on very little volume. When a company has fewer than 50 million shares outstanding, the stock might trade fewer than 100,000 shares each day. Some companies trade fewer than 10,000 shares a day.

The low volume results in frequent extreme volatility. That creates frequent contrarian opportunities…

Our Key Advice on Buying Gold Stocks


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It’s gut wrenching until you get used to it. Shares in a solid junior with great management, cash in the bank, and a major new discovery unfolding can drop 20–30% just because a large shareholder facing a margin call is forced to sell. They can also soar 20–30% because of a spectacular drill hole.

If you missed the bottom of a mega-cycle, or even the current market momentum trend, don’t worry. The extreme volatility of juniors often creates last-minute buying opportunities for the savvy speculator.

This is great news for investors late to the game. It’s even better news for those who’ve been paying attention and have a shopping list of great stocks ready. There’s always a contrarian opportunity somewhere, whether it’s long or short.

When to Buy Juniors?Obviously, the best time to buy junior gold stocks is when nobody else wants them…but there’s more to it than that.

Start by asking yourself what kind of speculator you are. Then pinpoint the market trends you truly believe in.

These may seem like abstract ideas, but they are absolutely essential.

Consider…

If you are cautious by nature, but you believe that gold will rise over the coming years, then focusing on profitable producers is your sweet spot.

If you’re keen to maximize gains and willing to take higher risks, early-stage gold explorers are the way to go.

If you’re somewhere in between, like most people, advanced explorers moving known discoveries towards production offer high returns with reasonable risk.

If you think silver has more upside than gold, replace “gold” with “silver” in the checklist above.

Even the largest and most stable mining companies in the world are more volatile than most investors are used to. The underlying commodities themselves are so variable that standard securities analysis just doesn’t apply.

You need to understand why you place the bets you do. If the stock drops despite the company delivering the goods, you need to be so sure of your premise that you don’t panic and sell (at exactly the wrong time).

This level of discipline is only possible if you are certain in your reasoning and your picks are sound. Even then, it’s hard. If it were easy, everyone would do it and there’d be no profit in it. That’s why you have to start with a little soul-searching.

Clarity brings confidence. Confidence enables discipline. Discipline is essential for success as a speculator.


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Buying in TranchesOne more thing on when to buy…

Even when all the stars align, and you’re sure you’ve found a great pick, do not buy all of your shares at once. Buy in “tranches.”

When you first decide to buy, buy a fraction of your ideal position. We recommend 20%. If the stock happens to take off for the moon the next day, at least you’ll have a stake. You’ll record a win, even if it’s not as large as you’d hoped. A win is still a win.

We discourage investors from going all-in because markets fluctuate—the juniors market more so than almost any other. Having a stock take off the day after you buy is so rare that it makes no sense to give it much thought.

Instead, expect the stock to dip at some point after you buy. Then buy a second tranche. We recommend another 20%.

This way, you end up with 40% of your ideal position at a lower average price than if you’d bought all 40% at once. This increases your upside on a much more substantial position. Then hold tight. If the company delivers, you’ll bag a nice win.

On the other hand, if the company keeps delivering but the market suffers a major correction, the shares will likely drop to stupid-cheap prices. That’s the time for a speculator to pounce with gusto, preferably on a day when the market is off sharply.

This is when you place a “stink bid”—an order well below the current market price—for the other 60% you’ve been waiting to buy. Now you’ve filled your ideal position at a huge discount to the price you liked in the first place.

Note that this is different from averaging down on a company that fails in some way. We don’t give failing companies a second chance to cost us money.

The idea is to build a position in a company that is creating value for shareholders, even if—especially if—other shareholders don’t see it at the time.

And then, come payday, you reverse the process. Sell in tranches when everyone else is buying.

We take profits whenever a stock doubles for the first time. We call this a Casey Free Ride. After recovering your initial investment like this, you ride whatever upside is left, 100% risk-free. Nothing beats speculating when you can’t lose.

When the people who told you that you were crazy for buying gold juniors jump on the bandwagon, it’s time to head for the exit.

That’s how you buy low and sell high.


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A Question of CourageSpeculating takes courage.

If you start as we suggest, with careful thought about yourself as an investor, and determine that hunting for 10-baggers is not for you, you should hunt elsewhere. No regrets. Unless you’re truly comfortable with contrarian speculation, you are guaranteed to lose money.

It bears repeating: courage and discipline are absolutely essential.

But consider this: In the wake of the near-collapse of 2008, governments around the world have done everything imaginable to prop up the global economy. They have also done the unimaginable, like making nominal interest rates negative and tripling central bank balance sheets in a matter of months. The amount of money governments have “created” from nothing defies belief. They don’t even bother to print the stuff anymore…

There will be unintended consequences.

Again, anyone who thinks mainstream investing is safe today is kidding himself.

Doug Casey likes to put it this way:

Rather than risk 100% of your portfolio for 10% gains, risk 10% of your portfolio for 100% gains—or more.

Yes, if you speculate as we do, you’ll lose on some picks. You may even lose on most picks, if you push for maximum returns.

But the doubles, triples, and the 5- and 10-baggers will more than make up for those losses. If you have the courage, this is how you play to win.


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Nine Simple Steps for Finding the World’s Best Gold StocksWhen I asked Doug what his secret for finding winning gold, silver, and other resource stocks is, he said: “It’s simple—the Nine Ps.”

The Nine Ps are a relatively simple question-and-answer process we use as part of our due diligence on the stocks we consider for recommendation in the International Speculator. Only a small fraction of companies successfully make it through the Nine Ps screening and into the pages of our publications.

With a little practice, you, too, can use them to screen any and all resource stocks you are considering for your portfolio. At the very least, answering the questions will give you a much better understanding of the true potential of a company. Here’s Doug:

PeopleThe first question you want answered is “Who are the key players involved with the company?” As is the case with all human beings, some are more skilled, more honest and harder working than others.

To state the obvious, Boy Scout virtues like honesty, thrift, courage, and diligence are always good traits for your management teams, as are competence, knowledge, experience and, perhaps most importantly, a track record of success.

You can find this information from a variety of sources, starting with management biographies (increasingly available on company web sites), then doing your research by talking with the managers themselves or their investor relations staff. Use a service like Stockwatch.com to research the track record of the companies that the management has been involved with previously (during their tenure, of course)...and don’t hesitate to ask your broker or even competitors what they think about the people in the deal. Despite being a multi-billion- dollar, global business, the mining and resource industry is actually a pretty small village. If someone is a known snake oil salesman or poseur, chances are good you’ll be able to ferret out that fact with just a couple of phone calls.

In addition to trying to sort out the black hats, a key goal of this exercise is to find out if investors have made money in their past deals. Or, if things didn’t work out too well—mining is a high-risk business, after all—did the company at least make an honest attempt to “do the right thing” for their shareholders? Remember, nothing succeeds like success.

While we are on the topic of People, it is worth noting that there has been a noticeable gentrification of the mining business during the 20-year-long bear market that ended in 2001. Everyone in the business is complaining about the fact that they can’t find qualified mining engineers and exploration geologists because so many have retired or are getting ready to.


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It is understandable: it would take a fairly odd engineering school graduate to opt in for what is perceived as a politically incorrect and faltering “Choo-Choo Train” industry, rather than taking their degree down the street to a more lucrative or modern line of business. As someone who habitually looks for the opportunity embedded in just about any crisis, we use the labor shortage as a useful leading indicator by watching the career moves of the superstar mining pros. The good ones are in such demand that they can work for pretty much any company they want to… and so, as is human nature, gravitate to those projects which they believe will provide them with the best personal upside. Conversely, if the good people start to jump ship from a company, it may be a negative indicator.

In the final analysis—bet on the winners.

(Useful Resource: Casey’s International Speculator includes the Explorers’ League—a unique service that follows the careers of the world’s most successful mine finders and builders. In order to be inducted into the Explorers’ League, an individual must have a minimum of three economic deposits to their name…no small feat considering that probably 99% of the geologists in the business retire without a single deposit to their credit. If you’re not currently a subscriber, there is no better way to benefit from our own application of the Nine Ps.)

PropertyAs you approach the topic of “property,” keep in mind that between 95% and 99% of all the properties controlled by mining companies will never actually become mines. That’s because finding a mineral deposit with the potential to host an economic resource is time consuming and expensive. And unlocking the economic value of the embedded minerals is even more so. The cost of building a mine and a mill starts at a minimum of $50 million these days, and can climb to a billion or more.

The good news is that you can make a fortune investing in companies that, for one reason or another, will never go into the production stage. It’s all a matter of timing and knowing when to sell.

But back to the question of property. Regardless of whether or not a company ever develops a mine, the big money flows into companies with big mineral resources — and it is the big money flowing into a company that drives the price of your shares higher and provides you with the liquidity to exit with your profits intact.

That’s the reason why the bigger and more geologically credible the prospective deposit, the better. How can you tell an ore body (definition: a deposit that can be economically mined) from moose pasture (definition: a large piece of land, usually located in the middle of absolutely nowhere that is good for nothing better than moose grazing)?

First off, start by ignoring claims made by mining company executives that are not derived from, at the minimum, drill results. (This advice applies in spades if the claims are not in writing for all the world to see.)

http://www.caseyresearch.com/xl

https://www.caseyresearch.com/products/international-speculator


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A favorite stunt used by some mining executives is to tell you that they have identified a major potential resource using grab, chip, or trench samples. In plain English, those terms mean that geologists working for the company (a) literally grab some rock from the surface of the property; (b) chip some rock from an outcropping; or (c) cut a trench across some interesting rock on the property… and then send the more prospective samples to a laboratory for assaying. As geologists are not paid to send in uninteresting rocks (otherwise known as “dirt”) to the lab, you can rest assured that grab, chip, and trench samples reflect the best possible rock the geologist can find.

Don’t get me wrong. Finding highly mineralized rock on the surface of a property is a good thing. Just don’t mistake it for a reliable predictor that an ore body rests beneath. Likewise, don’t accept gross value calculations that are derived by simply multiplying, say, the price of gold by the inferred number of ounces of gold in a deposit. Such a simplistic approach to valuation completely ignores the costs associated with getting the minerals to market, which can be affected by engineering problems, physical position of the ore body, metallurgy, commodity prices, stripping ratios, cost of transporting ore (if required), the cost of building the mine and any processing facilities, the cost of financing, and so much more.

What to do? We may, on occasion, buy stocks that have only the earliest-stage indication of a mineral deposit — if we like the management/ exploration team and know that they are fishing in the right pond. A company with respected management, a prospective property, and the money to embark on a good-sized drill program can make for a very good speculation.

Typically, however, we focus on companies that have tested their geological theories with a drill program and come up with logical results. And we will usually get a second opinion from a consulting geologist who will verify the company’s interpretation of the data.

Next, if the story looks sufficiently interesting, myself or one of our research team will often visit the property — even if it’s located in Outer Mongolia or some fly-infested corner of Africa. It is one thing to read about the geological characteristics of a property, but it’s another thing altogether to examine the rock yourself, then look the geologist in the eye and ask him to describe his theory about deposit. Geologists are usually not very convincing storytellers.

So, when it comes to property, make sure that you are investing in companies that are chasing elephant-sized deposits… that don’t insult your intelligence by pretending that early sampling or gross value calculations represent anything other than wildly speculative assumptions... and for companies with significant drill results, whose geological theory makes sense.

At the end of the day, before any decision is made on building a mine, the company will commission a bankable feasibility study — an exhaustive document that can cost millions of dollars to prepare. Only once that document is completed and confirms that an economic ore body exists can you assume that a mine may actually be built... and even then any number of factors (financing, metal prices, other company priorities, etc.) can stand in the way of it becoming a reality.

Put another way, never forget that you are not investing in this sector for the joy of seeing a mine built — but for the spectacular returns that can be made along the way to finding out whether or not a mine could be built.


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A couple of final observations on this point. (1) Look for companies with more than one prospective large property. That way, if there is bad news (e.g., poor drill results on one property), you have some downside protection from the company’s other properties. (2) When a stock in your portfolio goes up by double or triple digits, don’t forget to sell enough to lock in your returns and, ideally, scrape your original investment off the table. That way you are taking a free ride on any further upside potential and are protected if the next bit of news is negative.

PhinancingWhen we look at financing, we’re essentially trying to match up the company’s next-phase objectives with its ability to finance the cost of attaining those objectives.

Put another way, when we consider buying a junior explorer based upon prospective early drill results, the timing of our purchase may be predicated on the company’s ability to finance a more extensive drill program to better define the size of the target mineralization. In this case, you have to ask, “Where’s the money for the drill program going to come from?” Do they have it in the bank? Are they going to do another financing and, if so, what will the dilution factor be if we buy our shares today?

Or, are they going to keep their own corporate treasury intact and instead look for financing from a deep-pocketed senior mining company? If so, how much of the company or the rights to future development on the property will they have to give up?

Armed with the information of who is writing the checks, you then have to ask yourself, “How likely is the company to get the money they need?”

For this assessment, we again have to take management into account — i.e., money follows success, and the successes the executive team has had in the past are directly correlated to how easily they can find financing in the future. Finding financing at a reasonable price will also depend on the quality of the property, the stage the company is in, the current share structure, and so on.

This is probably as good a time as any to share with you an important concept regarding investing in this sector. Namely, that the size of your returns will largely be a function of timing your investment before certain “ifs” are answered… and then having the answers be good ones.

For instance, you can pick up a quick double by investing in a company after initial mineralization has been identified by some of the rudimentary, early-stage exploration sampling mentioned earlier — if the mineralization is subsequently confirmed at depth through a credible drill program.

If a comprehensive follow-on drill program confirms your initial results and demonstrates that your property contains a significant deposit, it’s back to the bank. If the company is then able to attract a deep-pocketed partner to fund additional drilling or even a bankable feasibility study, your stock lights up again.

If the bankable feasibility study confirms that the property can be economically mined, it’s happy times once more.


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I am skipping over a lot of other events that can trigger an overnight double or triple in your shares... including the vending-in of an attractive new property… pulling a “glory hole”... having a well-known mining pro join the management group… the company hiring a competent public relations firm... even being written up by a renowned stock analyst. Any of those, and more, can do the trick.

The opportunity to hit numerous home runs throughout the rapidly evolving life of a resource company is a major differentiator between resource shares and garden variety investments where stock gains are based on long-range business plans and new product development — it’s like Mattel actually drilling for the next Barbie doll.

Back to the topic of Phinancing: the bottom line is that you need to clearly understand where the money to move a project forward is going to come from – and at what cost to you as shareholders. This is an important question because running out of money and being unable to quickly find more at the right price is akin to a giant “TILT” on a stock.

PaperPaper and financing go hand in hand since capital is almost always raised in form of new shares being issued. As a result, analyzing the structure of the company is as important as the geology of a company’s property holdings. That’s because some companies will too quickly dilute existing shareholders by raising money from sweetheart financings completed through private placements, often with full warrants.

While I personally think these are wonderful — and I have made more than a few dollars by participating in private placements myself — there is a right way and a wrong way for a company to do financing

To that end, we probably spend more time looking at the financial structure of a company than any other aspect. How many shares are outstanding? Who owns the shares? What percentage does management own? (I like to see management have a clear incentive for success.) Are any seed or private placement shares about to come free trading and, if so, when and in what quantity? The last question can be very important from a timing perspective. Take a position in a stock just before a large number of cheap shares from a private placement come free, and you could be trying to catch a falling safe. Conversely, if you wait a bit, then put in a cheap bid, you can buy smart.

It is always worth understanding who’s got the paper, at what price, and when the company may issue more. And don’t forget to go through the simple process of multiplying the number of shares outstanding, fully diluted, by the current share price to come up with the market capitalization — always a useful indication of value. In overheated markets, it is not unusual to see companies with little more than early- stage drill results on land located somewhere north of Timbuktu, boasting a market cap in the hundreds of millions.

Sure, they might get lucky, but are you really willing to bet your money on it?


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PromotionYou can have the greatest product in the world, but still go broke if no one knows about it” is an old business adage that holds true in mining as well.

In more instances than I can remember, I’ve come across a well-run company turning up strong results on a geologically attractive property in a mining-friendly country... and the shares of the company are selling for pennies.

In these cases, the missing element is “Promotion” — the fine art of being able to communicate your story to the broad community of investors and analysts. I have a soft spot in my heart for these companies, which are typically run by mining engineers and geologists — scientifically minded individuals who sincerely believe that if they do their work well, the market will eventually discover them. While that occasionally happens — and finding an under-promoted company can offer us a terrific opportunity — more often than not these companies run out of cash and are unable to raise additional financings… at least at a cost that is not usurious to shareholders.

There are, of course, important nuances. If you can find an under-covered company with real merit that has just hired an investor relations staff or engaged a firm that specializes in corporate public relations, you can make a very nice return very quickly as the company gets the recognition it deserves.

Regardless, a company with an active investor/ media awareness program will generate trading volume, driving your shares up and, again, giving you the opportunity to get your profits off the table when you decide to sell. Therefore, before you invest you should ask company executives about their specific plans to get the company noticed.

So, promotion can be a good thing. It can, however, also be a bad thing when a company is built solely around promotion. It is that kind of company that proves true the old Mark Twain quip that a gold mine is “a hole in the ground with a liar standing over it.”

If you do your homework, however, it won’t be long before you’ll be able to tell the real cowboys from the ones that are all hat and no cows.

PoliticsYou may wonder what politics have to do with mining, but that would demonstrate a dangerous naiveté… because politics touch virtually every aspect of life, in literally every country in the world.

Politics can make or break a promising junior stock. Remember that a lot of the gold deposits found today are located in fly-blown third-world countries and backwater banana republics. That’s why it is so important to research the political climate in a country where your company wants to go mining—is the government stable? Are there rebel groups or kidnap gangs operating around your mine site? Is the country prone to nationalizing foreign interests at the first sign of financial trouble? These are all good questions to ask company executives.


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Perhaps the biggest threat to mine development these days, however, is ecopolitics. Try to build a mine in the remotest corner of the remotest desert in the U.S. and be prepared to have your application blocked by the Committee of Friends of the Box Turtle. And it is not just the U.S. but a wide range of countries — to name just two, Romania and the Dominican Republic — where the permitting process can take many, many years.

It is for that reason that you will so often see mining projects being promoted in areas such as Mongolia or Eritrea — countries that are sufficiently desperate for money that they tend to be more tolerant of the mine aesthetics. (In case you are wondering, almost all new mining projects now factor in the cost of reclaiming the land once the mineral deposit has been mined out.)

One of the reasons why I find it so worthwhile to personally visit a mine site — and so far I’ve traveled to over 165 countries and counting — is that it gives me an upclose opportunity to assess the mood of the locals and the greed level of politicians. Politics count.

PushPush is the answer to the question: “What’s going to move this stock?”

Often, impending or foreseeable drill results are the Push that’s going to bring us the returns we seek. That’s because we usually see the fastest, most dramatic increases in share price at the time when a small company makes a big discovery. And none of the years of preparation, surface work, geophysics, etc. count for anything until and unless drilling defines an economic tonnage of ore.

But Push can be anything: a successful transition to production, an major increase in the price of the underlying commodity, positive metallurgy or engineering reports, positive feasibility studies, a green light given to construction, a merger or an acquisition, realization of a royalty, the resolution of legal or political or regulatory difficulties... even a big promotional push can be the Push we’re looking for.

Generally then, Push is any important development that either adds value to the company or removes a negative.

And if we can clearly see the Push coming, or see what look like favorable odds of it happening, we have a basis for speculation on rapid returns in our desired timeframe (12 months).

“What’s the Push?” is a question we ask ourselves about every company we evaluate — and if we can’t see the Push, we turn our attention elsewhere. Why park cash in even a great company, if it has no Push?

PitfallsWhile the biggest threat to mining these days usually stems from (eco) politics, there are many other things that can go wrong in mine development. That’s where the “Pitfalls” P comes in.

Pitfalls can be viewed, in a sense, as anti-Push. Where “Push” lists things that can “go right,” “Pitfalls” sums up what can go wrong. Some of these things may also be discussed under the other Ps, but the “Pitfalls” make the risks involved in a specific speculation clear to those considering it.


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It’s important to remember that Pitfalls are never showstoppers. If they were, we wouldn’t be recommending the stock.

Here are a few examples of the Pitfalls we look for in our due diligence process:

• Security issues. Mine operators in certain parts of the world have to deal with crime, or even terrorism. Most companies know how to manage these situations, others are simply not affected, but this does happen on occasion. Understandably, some places (e.g. parts of Africa) are just more dangerous than others. As an investor, it makes sense to know how exposed your company is to this.

• Access to land. There have been cases of mining companies being bullied into renegotiating land agreements with members of local agrarian communities.

• Permitting problems. No two permitting processes are ever the same, and everything needs a permit these days. Not just production, but also drilling, and in some cases, you need a permit simply to get your boots on the ground. Permitting delays vary greatly in seriousness, depending on both the nature of regulator and the company. Failure to receive a green light from regulators in a timely manner can spell big trouble for a cash- strapped single-project company. On the other hand, an actual fine can amount to little more than a slap on the wrist for a profitable producer with a host of projects in development under its belt.

• Competition. When the resource markets are hot, it can be hard to find good people, available drill rigs, lab time, and many other things.

• Technical issues. From metallurgical problems, to stability of power supply, to unexpected weakness in the rock one is tunneling through… The potential technical problems are limitless.

• Financial issues. We cover this in Paper and Phinancing, but the nuances are myriad.

This list is by no means exhaustive. Potential “Pitfalls” are just too many to list in one place, so we’ll just conclude by saying that they are different for every company, and it is jour job to always be on the lookout for them on your behalf.

PriceA deposit may be worthless if the market price of the embedded minerals is “X”, but may become economic if the embedded mineralization goes to “2X.” At “3X,” the project may be worth hundreds of millions.

It is one of the more laborious aspects of analyzing resource companies that, as the price of the underlying commodity rises, you have to re-review your assessments on companies and properties almost across the board.

For instance, a few years ago, we were following a strategically-minded copper company that used low copper prices to inexpensively buy a huge package of proven properties. Back when copper had been selling for 75 cents a pound, no one had wanted anything to do with the company.


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As copper went over $1.00 a pound, the company’s in-situ resources became worth hundreds of millions of dollars and everybody and their uncle wanted to own the company. Our shares quickly doubled.

So, periodically, as resource prices rise, we do a reassessment of the companies we have previously evaluated and found unattractive due to the Price factor.

Also on the topic of Price, it is essential that you use rational price expectations when calculating the potential for your investment. Ultimately, gold might go as high as $2,000 or even $3,000 an ounce. But if achieving those high levels will be required in order for your company to do well, you are taking an unhealthy level of risk. So, ask yourself: “What will this company be worth at $500 per ounce? Will it be able to justify its current market cap?” If the answers are positive, you may be on to something.

RememberAt Casey Research, we have always been big believers in making the trend your friend… and the real money is to be made by investing ahead of the masses. Consequently, our approach has been to look for solid speculations in sectors of little public interest because that allows us to buy cheap and, if we are right, sell high as the crowds rush in.

Even a casual glance at the current state of the U.S. economy — the engine that drives much of the world — tells us that the end of a long road is ahead. The fact is that the U.S. government cannot endlessly take on debt, bail out every major bank and corporation, and create money by the truckloads. In time, the fundamentals will prevail — as we are already seeing — and tangible investments such as gold and silver will become the investment of choice of intelligent investors looking to avoid the negative wealth effect of a rapidly eroding dollar.

The metals’ rise in recent years is a clear sign that the trend is now the friend of resource stocks. Because there is only a limited number of quality resource investments available, as the serious money begins to flood into them, investors who take a position now will be very well rewarded. If you are seriously considering investing in natural resources, don’t put it off. The leverage on these investments can turn dimes into dollars… if you exercise diligence and take the time to carefully work through the Nine Ps.


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How to Choose the Right Canadian BrokerWhether you use a full-service or an online broker depends in large part on the extent of your Canadian trading and your level of experience.

In general, commissions will be lower with an online broker, and many investors just like controlling the process themselves.

But for larger accounts with lots of positions, or anyone who will be dealing with warrants or private placements (which are actively tracked in our alert services), we highly recommend using a full-service broker. The more money you have on the table, the more important it is that you work with a broker who is thoroughly plugged in to trading small-cap Canadian stocks.

Many investors use both. They might go online for a small trade—or for a large trade of a high-volume stock—and use a full-service broker for thinly traded stocks or more complex transactions.

Either way, here’s what to look for.

Full-Service BrokersA good broker will give you recommendations, provide feedback to your thoughts and suggestions, and give advice about when to buy and when to sell. He’ll also be of considerable help when it comes to selling.

Buying stock is easy, but it’s in selling that you make money—and selling a thinly traded stock can be difficult.

The right broker will likely sell your stock at a better price and terms than you could on your own.

A good broker can also be instrumental in getting you into private placements, and when it comes time to register and sell the stock or exercise your warrants, an experienced broker can make things far easier than going it alone.

You should expect your broker to add value to your portfolio. When all is said and done, a good broker should pay for himself.

The editors at Casey Research have worked with any number of brokers and brokerage firms over the years, and there is a solid handful of very good brokers who can help you a great deal.

See an up-to-date list of recommended brokers and contact information on the Casey website.

Here are what we consider to be the top 10 questions to ask any potential broker:

1. Can I buy foreign stock on the domestic Canadian exchange through your firm? What other foreign countries’ stocks can I buy through your firm?

2. How much trading does your firm do on the Canadian exchange? How familiar are you with the securities practices of the other foreign countries you do business in?

http://www.caseyresearch.com/brokers-new


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3. Have you worked with other clients who subscribe to Casey Research?

4. Is your firm licensed in my state?

5. What is the minimum to open an account at your firm?

6. What are the fees for me to buy foreign stocks through your firm? Are you able to avoid market maker fees and foreign currency transaction charges? What maintenance fees do you charge? Are there any other “fine print” charges with your firm that I should be aware of up-front?

7. Does your firm have a specialist who participates in private placement offers? If so, what is the minimum generally needed to participate?

8. What are the names of three private placements you were able to get your clients into over the last 12 months? How have they done? (Not all private placements are created equal, and the best placements are very hard to get a piece of; doing so says you have a well-connected broker.)

9. Do you keep my account in the U.S. or in Canada? If in the U.S., are there any options available to keep my investments with you outside the U.S., or at the least, in a foreign account?

10. What does your cash account currently pay? Does it have any exposure to subprime mortgages or CDOs?

Private PlacementsSometimes you’ll see recommendations to participate in private placements as we follow the stocks we like.

These are special financings that companies undertake to raise money to advance their business plans—and they can be an exciting and lucrative—as well as risky—part of investing in the resource sector.

Private placement offerings are usually denominated in units, which consist of a share and either a half or a full warrant. A warrant is a derivative security that gives you the right to buy additional stock from the company at a specific price, and within a specific timeframe—generally from one to five years. So, for example, the deal might be an offer for units of 10,000 shares, each with a full warrant—meaning you could buy an additional 10,000 shares at a set price within the given time period. With a half-warrant, you could buy an additional 5,000 shares.

The units are usually priced at a discount from what the stock trades for in the market. This is done in order to entice large institutional and strategic investors into the financing. It can also compensate for the con side of the balance…for instance, the fact that there is typically a minimum four-month hold before shares purchased in a financing become free-trading.

That said, there are few more lucrative ways to invest in Canadian stocks than through private placement financings that allow you to pick up a share and a warrant. After the hold period, you can often sell the share at break-even, or at a profit, and ride the potential of the stock through the warrant. These financings are in high demand, and the better ones are very hard to get into.


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Casey Investment Alert pays special attention to these offerings. Letting the offering company know that you are a subscriber is often a good way to get a seat at the table.

In order to participate in a private placement, you will need to be an accredited investor, which for individuals means that you must have a net worth of $1 million, or a hefty income for the last two consecutive years.

If you qualify, becoming accredited is a simple matter—you simply sign a form. Trusts and business entities become accredited by similar means.

Online BrokersCASEY TIP: If you use an online broker, make sure the stock you’re buying is the Canadian stock, traded on the TSX, using Canadian funds.

Generally speaking, with an online account you’ll pay lower fees and commissions than you would on similar trades transacted at a full-service firm. Paying lower commissions will be especially important for those who are not starting with a large dollar amount, or who plan to be active traders. Of course, doing your own trading online brings the responsibility of monitoring your own investments, which is especially important in the resource sector.

An online account is also a good way to place small orders for stocks that have good volumes, and as a result will be easy to sell when the time comes.

A good online brokerage will give you all the tools you need to do your own research, as well as to buy and sell at any time. You can even set orders at night, when a full-service broker wouldn’t be available. Those who trade online say this is what they love most—the freedom to make their own choices and the ability to set trades any time they choose.

This is a good time to repeat:

Regardless of the broker you use, you want to be certain that you are buying the actual Canadian stock on the Toronto Stock Exchange, and in Canadian currency.

With many online brokers, it can be very difficult to know exactly what it is you’re buying—over-the-counter pink sheet, or the actual Canadian stock. Here’s why:

Many (but not all) online brokers use a 5-digit international symbol when placing an order for a Canadian stock. The reason is straightforward enough, and here’s an example: GLW is the symbol for Gold Wheaton—a Canadian company—on the TSX. GLW is the symbol for Corning, Inc. on the NYSE. The international, unique, 5-letter symbol for Gold Wheaton is GLWGF. That is also a pink sheet symbol for Gold Wheaton—as is GLWGD and a few others.

The explanation for using the 5-letter symbol varies, depending on who you’re talking to. Some online brokers will insist that although they use the symbol to place an order, they are nonetheless routing the order to the TSX, buying the actual stock on the TSX, and doing the transaction in Canadian dollars—even though your online statement says you bought GLWGF and paid for it in U.S. dollars.


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Some say they use the 5-letter symbol for clarity when routing the stock purchase, and further, since they use an American clearing house, they must express the transaction in U.S. dollars. Others say they trade on the TSX, and use the 5-letter code “for display purposes.”

How can you tell what you’re buying? The bald truth is, you can’t always tell for sure. But the best clue is to look at the volume on the 5-letter symbol you bought, or are contemplating buying, and compare it to the actual Canadian stock. This is easy to do on the TSX website. Plug in the Canadian stock symbol, and every variation will appear.

In the GLW example, you’ll see GLW, GLWGF, and GLWGD, along with a number of other variations listed—some containing GLW but having nothing to do with Gold Wheaton. The quote page for each will show you the price and the day’s volume. If the 5-letter variation has about the same price and daily volume as the real TSX-traded GLW, chances are it’s the same stock—which is the case with GLWGF. If it’s radically different and the volume is significantly lower—as is the case with GLWGD—you can be sure you’re looking at the over-the-counter pink sheet that does not represent the Canadian stock.

Using this method (which isn’t nearly as cumbersome as it may sound), you’ll get a better idea of what you’re buying, but it’s still not the real thing if it doesn’t trade on the TSX.

That said, there are a few online brokers who do indeed buy the Canadian stock on the TSX, show the Canadian symbol on their statements, and show the amount in Canadian dollars. If you want to avoid any question about what you’re buying—and we recommend that you do—go with one of these online brokers.

Again, you’ll find all the details about how various online brokers trade Canadian stocks in our brokerage recommendations list on the Casey Research website.

http://www.tmx.com/

http://www.caseyresearch.com/brokers-new


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Why You Should Also Own Physical Gold TodayGiven the state of the global economy, and the U.S. government continuing to administer large doses of the wrong medicine, we first recommend that all investors place 10% to 20% of their investments in gold bullion.

We don’t mean 10% to 20% of your gold portfolio; we mean 10% to 20% of all your liquid assets.

This may sound extreme to some. But even if the global economy remains in a deflationary dip and the gold price struggles for a while, it remains the safe harbor during the upheaval.

Remember, it’s not simply a question of inflation or deflation; it’s a question of crisis. And that’s exactly what gold ownership is for.

Nothing replaces having physical gold in your possession and under your control.

WHERE TO BUY PHYSICAL GOLDIf you know an honest, reputable coin dealer in your area, that’s a good place to start for smaller purchases. Our editors buy their gold either with a local dealer or online, but either way it’s important to find a reputable dealer…as in every line of business, there’s no shortage of crooks.

In our experience, the best places to buy physical gold are:

1. Miles Franklin (1-800-822-8080). Miles Franklin has some of the deepest contacts in the industry and as a result has been able to source metal when many other dealers can’t.

And with some of the best prices in the industry, they’re one of our top picks. Be sure to tell them you’re calling from Casey Research to get the best deal.

2. The Coin Agent (1-888-494-8889, or email [email protected]). Proprietor Wayne Lemonier has some of the lowest costs we’ve seen in the industry.

3. Border Gold Corp. (1-888-312-2288). Border Gold in Vancouver, BC is where we go for the Canadian Maple Leaf. Costs are so low that you will likely get a better total price with shipping included than you would at your local coin shop.

4. Money Metals Exchange (1-800-800-1865). Reasonable prices on common gold and silver coins like American Eagles and Canadian Maple Leafs.

5. David Hall Rare Coins (1-800-759-7575). We go to one place for rare or numismatic coins: Van Simmons at David Hall Rare Coins, who actually helped create the Professional Coin Grading Service.

We don’t recommend entering the numismatic world as an investor unless you are or are willing to become a knowledgeable coin collector.

http://www.milesfranklin.com/

http://www.thecoinagent.com/

http://www.bordergold.com/

https://www.moneymetals.com/?utm_source=BINGADS-SEARCH-ECOMM_BRAND-PRODUCT&keycode=BINGADS-SEARCH-ECOMM_BRAND-PRODUCT&utm_medium=bingads&utm_campaign=cpc

http://www.davidhall.com/


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Keep in mind that premiums and delivery times will fluctuate according to market conditions.

There are other online dealers out there, and some may have good prices, too. The things to watch for are total costs (including product, shipping, and insurance) and availability; if a dealer claims it will be several weeks to “locate” the product, we would look elsewhere. It’s also not uncommon to find salespeople who try to talk you into other products, such as proof sets or rare coins (this is especially true with the dealers that advertise on TV), so beware of the hard sell. We haven’t had that experience with our recommended dealers.

Where do you store your gold? There isn’t a magic bullet for safekeeping, as each form has its own risks. Physical gold is subject to theft and fire; paper gold is subject to fraud and mismanagement. The most prudent approach is to own more than one form of gold, in more than one location, with an edge toward physical ownership.


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Important Closing Tips for Buying and Selling Gold StocksThe gold stocks we recommend have the potential to move up strongly and fast—but they also have the potential to move sharply to the downside. By taking just a little care, you can generate exceptional returns…well above those available in other markets. Here are key guidelines to always keep in mind:

Don’t try to buy every dealAt least, not without selling other positions to make room for your new stocks. If you buy without selling, in no time at all you’ll have a dog’s breakfast for a portfolio and will be out of touch with most. An attentive investor can keep track of 12 to 20 stocks, but the upper end of that range is pushing it.

Don’t chase stocksJust because we may think a stock is going to go to the moon doesn’t mean you should place a market order and pick up your shares after they have already left the stratosphere. Be disciplined about your bids—set a price at which you are willing to buy your stock and don’t pay a penny more. Then let the market come to you.

Yes, you’ll miss some of the big runners, but you’ll also keep your risk in check.

Use a trailing stop loss for larger companiesJuniors are too volatile for stop loss orders to be useful, but among the larger companies, a major retreat usually means that something is wrong with the company or the market. A stop order will limit your loss should the price reach a predefined level. Use a trailing stop loss on larger, more liquid stocks.

Don’t get greedyDon’t mortgage your house, sell the kids, or get otherwise carried away.

When you’ve got a profit, don’t be afraid to sell—especially when you’re looking at a double or triple. No one ever got hurt scraping their original investment off the table and taking a free ride on the rest.


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ConclusionThere you have it: the Doug Casey Method of gold stock speculation. I’ve tried to cover the most important ground you’ll need to get you started. There’s always more to learn, of course. We can always improve.

So, remember that I devote a serious amount of time and effort into what you might call continuing education in the International Speculator. If you want to learn more and improve your results, reading through our archives will help a lot.

And, of course, you can always send in your questions. I answer many every month, so don’t be shy. Send your questions and comments to: [email protected].

Finally, I cannot stress how vital it is that you approach resource speculation with discipline.

Clarity begets courage. Courage enables discipline.

Keep learning. Expand your understanding. Discipline is like a muscle you can train—with knowledge.

This is absolutely the most important thing Doug taught me: discipline pays.

Good luck and happy hunting.

Sincerely,

Louis James Senior Investment Strategist Casey Research

mailto:resources%40caseyresearch.com?subject=


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Part II The Nine Essential Gold Stocks to Buy NowThe stock picks in these pages are our very best picks today. These stocks all leapt with gold and silver in 2016, showing their great potential. They retreated when precious metals took a breather later in the year. They’re heading up again this year but remain relatively on sale. That’s great news for those looking to buy before the precious metals bull market gets going in earnest again.

All our research and experience tells us that we’re still in the early stages of this bull market—and that it will shatter previous records. We’re ready. A key point is that we strongly recommend against allocating more than 10% of your portfolio to a highly volatile sector like mining. Maybe 20%, if your intent is wealth creation rather than preservation. But no more. That way, you’ll still be able to sleep soundly no matter what our market is doing. When the gold bull charges ahead, this small fraction could deliver more gains than the rest of your investments combined. As Doug Casey likes to say, “It’s better to risk 10% of your portfolio for 100% gains than to risk 100% of your portfolio for 10% gains.” But it’s still taking a risk, so don’t get reckless.

But which opportunities are the best? Where to begin? That’s what this report is designed to help you with. This year we’re focused on Golden Runway picks. These are pre-production stories that could yield high gains with much less risk than is normal in our sector. We also have a potentially explosive exploration play, a high-grade producer, and a premier royalty pick. These nine essential picks all have the potential to generate extraordinary returns.

That said, remember that “markets fluctuate.” These are the most volatile stocks on earth. Do not chase them. Let the market come to you.

If any get away from you today with no company-specific news, don’t worry. You may have a chance to buy at lower prices in the future. Buy on down days for gold.

When you do buy, we recommend that you do so in tranches. In other words, buy 20% of your ideal position in a first go. Then, add 20% more in a second tranche when the stock price fluctuates. (10% in a day is common among these stocks.) Finally, if there’s another big retreat in the whole market but no bad news from the company itself, use “stink bids” (bids placed well under market) for the remaining 60% of your ideal position. You’ll sleep better at night knowing you built a solid position at great prices.

Also, remember that this report was written at a point in time that slips further into the past every day. Please be sure to check the portfolio page for each of these companies on our website. You’ll find our latest recommendations and most up-to-date price guidance. Make sure you’re up to speed before buying any of these shares. There are links at the end of each write-up below.

Without further ado, here’s our list of the best values with the most explosive potential in our market today.


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RUNWAY PICKS (PRE-PRODUCERS)

Atlantic Gold Resources: Gold

AGB.V, SPVEF.OB, Q9I.F, www.atlanticgoldcorporation.comPrice Share: C$1.41 MCap: C$244.4M On: 4/21/17Shares SO: 173.3M FD: 212.8M As of: 2/2017Warrants Unex: 23.1M C$0.60 8/2018–1/2019Options Open: 16.4M C$0.26–C$0.96 5/2017–11/2023

DebtC$115M, C$16M drawn Conv. Deb.: C$13M Cat Finance: C$8.2M

CDOR+5%, $1500 hedge 8.5% / C$0.60/shr. CDOR+5.35%

5/6/2019 5/10/2021 2017–2021

Cash C$32.2M Burn: C$3.9M/mo. On: 10/2016

Atlantic Gold is, in a way, a very simple story: The company has a high-margin open-pit gold mine under construction in Nova Scotia. It’s ramping up the Golden Runway towards production.

But there’s more; the mine could end up bigger and better than designed. There are satellite deposits that are not part of the current mine plan. The company is working to add them in ASAP. The plant under construction has oversized equipment in the usual bottleneck areas to enable rapid expansion.

And it could end up much bigger and better. The company’s geologists have an exciting thesis guiding their exploration for more gold. Basically, most past exploration in the province was for high-grade veins. Old-timers just didn’t look for disseminated, bulk-tonnage deposits. Now Atlantic is showing that such deposits are there—and can be very valuable. The whole province is wide open for this sort of exploration, and Atlantic has the first-mover advantage.

But none of these future possibilities need to come true for us to bag a big win on this stock. Mining companies often see their shares accelerate upwards in the months leading up to commercial production. Atlantic is entering that stage now. The stock is due for a rerating as investors become aware that the company’s new Moose River gold mine really is done. There could be another after the mine shows it can make money.

The odds look very good. The Moose River consolidated project includes the Touquoy and Beaver Dam deposits. Touquoy has 425,000 ounces of gold in the Proven and Probable (P&P) mine reserve categories, averaging 1.44 grams per tonne (g/t). Beaver Dam has 335,000 P&P ounces, also at 1.44 g/t gold. That’s “only” 760,000 ounces of gold, but the quality of these ounces is important. At a base case price of US$1,200 per ounce of gold, the project boasts a 30% after-tax internal rate of return (IRR). Payback on investments is just two years. The project still works down at the US$1,000 level, and it gushes cash at higher prices.

How? The ore has excellent metallurgy, with a high, 94% projected gold recovery. An extraordinary 70% of the gold can be recovered by gravity separation. That greatly reduces the amount of material that has to be processed more intensively, which saves money.

http://www.atlanticgoldcorporation.com/

http://www.caseyresearch.com/resource-dictionary/definition/gravity-separation


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The plant is going up right off the side of a paved road, with grid power on-site. In fact, the pit takes out a town park and moves a road. That’s already permitted and in the works.

Work on the open pit has begun, with waste rock being used for building roads and other works. There were no protesters anywhere to be seen. The people at the local mining

museum were keen to see mining return to their community.

Atlantic Gold’s new Moose River plant under construction. Once completed, it will be a state-of-the art facility, providing good jobs for Nova Scotia and, we expect, high returns for

investors.


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Another great advantage is that there’s a highly skilled labor pool within driving distance. The mine doesn’t need housing for employees and won’t have to suffer any of the hassles that come with that.

The main concern is that the project seems relatively small. This initial phase under construction doesn’t even have a million ounces of gold in the mine plan. “Go big or go home,” we always say. But Atlantic is working on proving up 1.13 million more ounces at the nearby Cochrane Hill and Fifteen Mile Stream deposits. Both have higher grades than the Moose River consolidated project (1.6 and 1.8 g/t gold).

There’s a lot of work to do on this, but it sure beats having to go out and make a new discovery to expand the business. The results so far are very encouraging. Drilling in 2016 and 2017 has confirmed the past work on the projects, and shown that both are larger than previously calculated. Atlantic has also found some higher-grade structures. Best intercepts included 23 meters grading 5.4 g/t and 8.0 meters of 31.8 g/t gold.

As if this were not enough, the company is working on brand-new discoveries. They have a new understanding of the regional geology and many targets to test. Whatever the odds may be of success, it’s free exposure to the upside we get when we invest in the mine already under construction. And if they do discover more, adding multi-million-ounce size potential to the story, Atlantic becomes a takeover target for larger gold mining companies.

We like it.

FORMAL RECOMMENDATION: Buy First Tranche on Market Weakness.Below is a summary of Atlantic’s Nine Ps.

People

Atlantic’s CEO, Steven Dean, is an industry veteran we’ve known for many years. He’s known for having been president of major player Teck Cominco, among other career highlights. In the field, we met Maryse Bélanger, COO, a Goldcorp and Kinross veteran, and Wally Bucknell, Director of Exploration, a 44-year veteran geologist. The guy in charge of building the mine is Alastair Tiver, a mining engineer with almost 30 years of experience, including a stint at Copper Mountain, which is familiar to us. These people and others we met demonstrated high degrees of technical know-how. Their rapid progress on the ground speaks volumes about their competence.

Property

As above, the flagship Moose River project looks like a cash cow in the making. There’s more upside in the satellite deposits already in hand, and the company is exploring the province for more gold to add to its future pipeline. This company gives us risk-free exposure to exploration success, on the back of the very high probability of success at building its first mine.

Promotion

Steven Dean knows how to promote a good story, and he has one in this company. It’s a relatively new story, however, and still “under the radar” for many investors. Atlantic only acquired its Nova Scotia assets in 2014, a time when the gold market was beaten up and heading down. This year, Atlantic seems to have almost appeared out of nowhere, already building its high-margin mine. As that reality sinks in, this story should promote itself.

Politics

Nova Scotia is not as high-profile a mining jurisdiction as Ontario or Quebec, but it has a long history of mining. The government clearly supports responsible mine operations. Best of all, this mine is fully permitted and already under construction. The company was able to do this despite having to move roads and a town park (with a monument commemorating a mine rescue almost 100 years ago). The political risk in this play is about as low as it gets.


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Paper

With 173.3 million shares issued and outstanding, Atlantic has a lot of paper out. It’s not an unreasonable number for an emerging producer, however, and it makes for decent trading volume for a junior. The warrants are all deep in the money, but they don’t expire until 2018, so not a near-term threat. The best thing about the paper is that management and insiders put their own cash into the deal, holding about 35% of the stock. We like having their interests aligned with ours as shareholders.

Phinancing

Atlantic is cashed up and has a debt commitment of C$115 million, a convertible debenture of C$13 million, and an equipment lease financing deal from CAT for C$20 million. Most important is that the contractor building the mine (Ausenco) has accepted a fixed price of C$86.3 million for its work. In other words, the company is fully funded to cash flow. Should more cash be required, early exercise of warrants and options would help, with no additional dilution. All good.

Push

There’s solid Push in this play:• Construction milestones, with plant commissioning slated for Q3 2017.

• Drill results and resource expansion at the company’s satellite deposits.

• Drill results and discovery potential on the company’s early-stage exploration targets.

• Takeover potential, if the above are successful.

Pitfalls

The main risk in this play is technical. Even the biggest and most experienced mining companies in the world make mistakes. You never know if a new mine is going to work as designed until you fire it up and shovel rocks into it. Even then, it’s hard to say if it will make money until it does. Based on what we saw on-site, this one has as good a shot at delivering as promised as any. Better yet, the margins are fat enough that, even if there are some unhappy surprises, it should still work out.

Price

Price in this play is our biggest concern. The stock is up sharply as we go to press. This shows that the market is starting to wake up to this story. That’s good, but there are many months of “boring engineering” work to be done here, so there is no hurry to get in. Buy only on general market weakness. I do think gold’s renewed bull run will resume before long, but that’s no reason to pay more than you have to.

Original Write-Up:https://www.caseyresearch.com/my/international-speculator/risk-rescue-and-reward

News and Analysis:http://www.caseyresearch.com/my/portfolio/detail/AGB.V/SU-00CIS

https://www.caseyresearch.com/my/international-speculator/risk-rescue-and-reward

http://www.caseyresearch.com/my/international-speculator/gold-is-deadlong-live-gold#New-Company-Recommendation--Klondex--KDX.TO-

http://www.caseyresearch.com/my/portfolio/detail/AGB.V/SU-00CIS


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Continental Gold Resources: Gold, Silver

CNL.TO, CGOOF.PK, 7C0.F, www.continentalgold.comPrice Share: C$3.32 MCap: C$471.1M On: 4/21/17Shares SO: 141.9M FD: 156.1M As of: 3/2017Warrants Unex: 5.8M C$4.75 11/2017Options Open: 8.4M Avg. C$4.28 Avg. life: 2 yearsCash US$19.2M Burn: C$3.2M/mo. On: 1/2017

We started tracking Continental Gold in 2013. The company had 5.4 million ounces of gold in all categories at its Buriticá gold project in Colombia. That has now almost doubled to 8.98 million ounces today. That includes 3.7 million ounces of Proven and Probable mine reserves averaging 8.4 g/t gold.

Unfortunately, the project area was swarming with illegal miners. That created political problems, which long delayed permitting. This was finally resolved in 2016. The question then became, after all the trouble, would anyone step up to the plate with the more than US$300 million needed to build the mine?

It took some time, but in early 2017, the company secured most of the money it needs to build the mine. That came from Red Kite, a well-known fund with a mandate to finance high-margin mining projects. The folks at Red Kite are no dummies. They conducted thorough due diligence before offering Continental a US$250 million debt facility. A key point is that this came with no gold hedge requirement, which would have hurt if set at today’s still relatively low gold prices.

With this in hand, the company should have no trouble raising the rest. It has decided to start building the mine, and the clock is now ticking on the kinds of gains our research shows a story like this can deliver by the time the first bar of gold is poured.

Here are some of the key reasons why we think this stock will do better than most as the company ramps up to First Pour:

• The feasibility study on the project shows an exceptionally robust mine. The base case at US$1,200 gold shows a 5% discounted net present value (NPV) of US$860 million, with an IRR of 31.2%. The mine still makes good money at US$1,100 gold, with an IRR of 23.6%. It gushes cash at US$1,400 gold, with the IRR rising to 37.8%. The NPV-5 rises to US$1.2 billion at that level. We think gold could easily top US$1,400 by the end of this year. It could be much higher by 2019, when the company should achieve First Pour. The return in such a scenario would be most gratifying.

• The almost 9 million ounces of gold the company has in the ground now is just the beginning. As they get into the mine and drill off currently Inferred resources, we expect the life of mine to lengthen. Better definition of higher-grade areas should add ounces to the tally. Plus, the whole thing is wide open for expansion laterally and to depth. And that’s not to mention the company’s other gold prospects in the area.

http://www.continentalgold.com/en/

http://www.continentalgold.com/en/continental-gold-secures-senior-debt-facility-for-the-buritica-project-from-rk-mine-finance/


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• We’ve been to Buriticá. The resource and reserve estimates only include gold in the vein swarms as modelled. We saw gold in tiny cracks in the stone between these veins. This sort of gold will never show up in the official resource calculations, but it’s there. We were not surprised when the company tested bulk underground mining methods and delivered more than twice the gold expected: 2,093 ounces averaging 31.1 g/t gold, vs. 1,033 ounces averaging 15.9 g/t gold. As with Pretium (see below), this deposit model has its critics, but we think the company has been conservative and has excellent odds to overdeliver.

You can see what looks like a single vein running along the ceiling of this tunnel within the Yaraguá vein swarm. It’s actually composed of smaller veinlets. You can also see rust from oxidized mineralization on the sides, which comes from parallel narrow veinlets too small to

see. Some of these are not included in the resource model.

In short, Buriticá is big and getting bigger. It’s high-grade and may deliver higher grades than modelled. The bulk of the financing is in hand, and construction has started.

This all boils down to a simple proposition: Continental is on the Golden Runway.


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FORMAL RECOMMENDATION: Buy First Tranche.Below is a summary of Continental’s Nine Ps.

PeopleContinental is led by Ari Sussman, serial developer of large, high-grade precious metal deposits. We’ve made money with him before. We’ve also met with the team on the ground, and their results speak for themselves.

PropertyContinental is far from a one-trick pony, with the historic Berlin gold mine camp being particularly prospective, but the focus is Buriticá. We have long seen this deposit as undervalued and poised to deliver. That delivery is now in motion.

PromotionThis is a high-profile story in the gold space. It has high grade and margins to propel it along. Promotion will not be a problem, but we know the company employs competent investor relations professionals. No worries here.

Politics

Colombia’s designation of Buriticá as a project of national interest has been a tremendous help to the company. We were not sure that would be enough, but now that the mine is fully permitted, the risk is much lower. The army is there to keep things calm. It’s reasonable to expect that to continue, minimizing the political risk in the play going forward.

PaperContinental has a reasonable share structure for a company with a major gold asset and most of the money needed to build the mine in hand. There are no penny options or warrants out there to slam the stock, and it trades on good volume.

Phinancing

The US$250 million credit facility and cash in hand is enough to cover the remaining cost of building the mine, but there’s another US$100 million in the budget for taxes, indirect costs, contingencies, and such. That could easily be raised with equity with minimal dilution at current share prices. It could be done with even less dilution if gold and CNL shares rise this year. There’s also room for a silver streaming deal, further debt, and other options. We’re not worried on this front.

Push

The Push here will come over time. But with the decision to build made, the countdown is on. Specific sources of push will include:

• More bonanza-grade drill results as underground development advances.

• Securing the remainder of the money budgeted.

• Construction milestones, photos of buildings going up, etc.

• Takeover potential.

Pitfalls

The worst pitfall likely before First Pour would be a resurgence of illegal mining or other local trouble on the ground. With the army on-site, this seems unlikely, but it’s a risk. If gold were to drop sharply and stay low for a while, that could make it difficult for Continental to raise more money. This too is unlikely, but it’s a risk. The biggest risk is that the deposit model could be wrong. That would make the mine much less profitable than the company projects or I expect. But this is a worry for 2020. We should be enjoying a Casey Free Ride long before then. (A Casey Free Ride is when you sell your original position and stay invested with the profits you’ve made.)

Price

Despite an excellent 2016 and having added huge value on the ground, these shares are not far from where they were back in 2013. That’s a clear opportunity. That said, there’s no reason to expect news that will make it pop in the nearest term, so we recommend buying on weakness. A first tranche on the next down day for gold should work out well.

Original Write-Up:http://www.caseyresearch.com/my/international-speculator/hiding-in-plain-sight

News and Analysis:http://www.caseyresearch.com/my/portfolio/detail/CNL.TO/SU-00CIS

http://www.caseyresearch.com/my/international-speculator/hiding-in-plain-sight


http://www.caseyresearch.com/my/portfolio/detail/CNL.TO/SU-00CIS


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Dalradian Resources Resources: Gold, Silver

DNA.TO, www.dalradian.comPrice Share: C$1.21 MCap: C$302.5M On: 4/21/2017Shares SO: 250M FD: 301.7M As of: 3/2017Warrants UnEx: 41.0M C$1.04–C$1.50 7/2017–1/2018Options Open: 10.7M C$0.67–C$1.30 4/2017–12/2021Cash C$35.7M Burn: C$2.8M/mo. On: 1/2017

Dalradian’s Curraghinalt gold deposit in Northern Ireland is both large and high-grade. This combination makes it probable that the project will become a highly profitable gold mine at any likely gold price, even though the company is not yet officially on the Golden Runway.

Curraghinalt has a bankable feasibility study published in December of 2016. The numbers are excellent, including:

• Proven and Probable mine reserves of 1.44 million ounces of gold averaging 8.54 g/t gold. (These occur within 4.4 million ounces in all resource categories, averaging more than 10 g/t gold.)

• After-tax NPV-5 of US$301 million.

• After-tax IRR of 24.4%.

• Initial capital required is a manageable US$192 million.

The study assumes US$1,250 gold—but it also excludes the 3 million ounces of gold not yet in P&P reserves. Those will not all prove up, but some will, adding value and mine life. The study also ignores the fact that the company extracted 35% to 54% more gold from bulk samples than predicted. The test stopes delivered less dilution of the ore with waste rock than predicted for the bulk method used. This tells us the numbers are quite conservative—even before the mine plan is optimized.

There’s more upside than just improvement on these figures, however: The current deposit is still open for expansion. Dalradian’s geologists have found similar high-grade mineralization kilometers away along strike. This suggests that there could be more similar zones along the trend. It’s even possible that the current zone is connected to those other showings, making it much bigger than it already is.

The dots rarely connect so nicely in mining. We’d have to call the monster-deposit scenario a long shot. Still, the drilling between the current resource and these new targets hasn’t ruled out the possibility. That gives this stock plenty of exploration potential. We expect some of this potential to be tested this year.

Given recent market conditions, however, we think the company was wise to devote its cash to proving up the mineralization on hand first, and showing that a gold mine in Northern Ireland can be permitted.

http://www.dalradian.com/


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Finding more won’t necessarily help the share price if investors are skeptical of the value of the gold already in the bag. Once that’s cleared up, the market should respond with greater gusto. The same work would also increase the attention the major miners are paying to the project (nothing this big and high-grade escapes their attention). Remember, they like acquiring projects with “district potential,” not just one sweet spot.

Louis James at Dalradian’s Curraghinalt. From what he saw of the veins underground, we were not surprised when the company’s bulk samples exceeded projections.

In short, Dalradian appears to have the goods in hand and has the cash to find more. It should soon be on the runway up toward profitable production. That makes it a great speculation.

FORMAL RECOMMENDATION: Buy First Tranche.Below is a summary of the company’s Nine Ps.

People

One of Dalradian’s directors is a winner we know well: Sean Roosen of Osisko Mining fame. Running the show is Patrick Anderson, co-founder and CEO of Aurelian Resources—that company that made the Fruta del Norte discovery in Ecuador, one of the largest high-grade gold deposits in the world. (See below.) The team includes many others, of course. The results thus far speak for themselves and speak well of all the People involved.


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Property As noted above, we see the current 1.4-million-ounce tally mine reserve as a beginning, but one rich enough to make good things happen for shareholders as is. This is a gem.

Promotion

Dalradian employs an investor relations professional we’ve known for a long time and has plenty of star power on its board of directors. Getting the story out as results come in won’t be a problem. Resource-sector legend Ross Beaty recently bought into the company via an $11.3 million private placement—quite a show of support.

Politics

Northern Ireland isn’t a place that’s famous for mining, but it’s a place where responsible mining is welcome and there is a stable rule of law. The local government has shown great support for Curraghinalt. The company has been able to get all necessary permits thus far. A small local opposition group has sprung up and posted anti-mining signs in the area, but there are vocal pro-mining groups as well. The opposition tried to make the mine an issue in the elections of 2016 but failed. We have been on-site and interviewed many locals, ranging from politicians to ordinary folks having a pint at the pub. We found widespread and very strong support for the project. The number of jobs at stake is a major positive factor. There will be bumps along the way, but we believe the project will go ahead.

Paper

Dalradian’s share structure is reasonable for a company with a large, advanced-stage project in hand. There are a few in-the-money options expiring as we go to press, but they don’t pose much of a threat. All the stock is free-trading (no restricted blocks are about to come free and hit the share price) and has good volume.

PhinancingThe company has enough funds to continue advancing Curraghinalt, but it will need capital for mine construction. The projected return is rich enough that funding on reasonable terms should not be a problem. This is the company’s top priority.

Push

There’s major Push on tap here:• High-grade drill results

• Mine finance package

• Final permitting

• Positive construction decision

• Potentially, a takeover before Dalradian can start building the actual mine

Pitfalls

The potential pitfalls here are typical of an explorer trying to become a producer:• Permitting. The government has been very supportive thus far, and we expect the company

to succeed, but there’s always a risk it won’t. You never know until you have your permits in hand.

• Financial. Dalradian needs at least US$160 million it doesn’t have. We think the project is rich enough to attract the capital needed, but share prices will suffer if this takes too long..

• Technical. Even the best feasibility studies in the world are only projections, not facts. We think the company has been conservative with its study, but as with any other company in this boat, this will remain a question until the mine is built and delivering to the bottom line.

Price This is a great gold speculation heading onto the runway up to production in a rising gold market. Buy it on the dips.

Original Write-Up:http://www.caseyresearch.com/my/displayIsp.php?id=250

News & Analysis:http://www.caseyresearch.com/my/portfolio/detail/DNA.TO/SU-00CIS

http://www.caseyresearch.com/my/international-speculator/vol.-xxxiv-no.-9-blood-toil-tears-and-sweat

http://www.caseyresearch.com/my/portfolio/detail/DNA.TO/SU-00CIS


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Integra Gold Resources: Gold

ICG.V, www.integragold.comPrices Share: C$0.87 MCap: C$436.5M On: 4/21/2017Shares SO: 486.5M FD: 517.5M As of: 4/2017Warrants UnEx: Nil — —Options Open: 31M C$0.20–C$0.90 11/2017–8/2023Cash C$35.0M Burn: C$2.9 M/mo. On: 4/2017

Integra is an exceptional story, the result of smart thinking, good luck, and a lot of hard work. It started as a small high-grade project beside the defunct Sigma-Lamaque gold mine in Val-d’Or, Quebec. The idea was to find a new deposit like the one that had made the old Lamaque gold mine one of Canada’s richest, back in its glory days. Integra’s Lamaque-South project was to explore for a new deposit with stand-alone merit. This was important because a company that had bought the old Lamaque mine out of bankruptcy went bust itself. That left much skepticism and ill-will towards anyone who might try again.

Integra hit the ground running. It found a few hundred thousand ounces of high-grade gold at first. Then drilling and more drilling pushed the tally towards a million ounces of gold. Then came a true game-changer. Integra bought the twice-bankrupt property next door out of receivership. They got it for pennies on the dollar. But the idea was still not to try to restart the old mine. The purchase gave Integra a permitted mill and tailings facility to sue for its new high-grade discovery. For just over a million dollars, the company leapt from early-stage exploration to having a very short, low-cost path to high-grade production.

In February of 2017, Integra released an updated preliminary economic assessment (PEA) on its Lamaque gold project. It’s based on a 2016 estimate of gold in the ground and a US$1,250 gold price assumption (GPA). The numbers are very good:

• After-tax NPV-5: C$362.5M

• 43% IRR

• All-in sustaining cost (including construction): US$718 per ounce

• Initial capital requirement: US$135.6M

Since then, the company has updated its estimates of gold in the ground. At a 3.0 g/t cutoff (which excludes gold at lower grades), the higher-confidence Indicated category increased 62%, to 1.9 million ounces averaging 7.1 g/t gold. The Inferred ounces stayed roughly the same, at 1.3 million ounces averaging 5.9 g/t gold. At a higher, 5.0 g/t cutoff, most of the gold is still there: 1.5 million Indicated ounces at 9.1 g/t gold and 900,000 Inferred ounces at 7.9 g/t gold.

This means that Integra’s Lamaque project is already bigger and better than the PEA shows. But the drills keep turning, and Integra’s discovery has grown again since then. It keeps growing and growing. It’s like the Energizer Bunny of great drill results, recently including:

http://www.integragold.com/


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• 108.4 g/t gold over 3.4 meters

• 19.81 g/t gold over 19 meters



We expect the next resource update and new feasibility numbers to deliver great improvements.

This is what a high-grade interval at Integra’s Lamaque gold project looks like. It’s not particularly gaudy, but it can carry a lot of gold

But that’s not all. Integra knew that the old-timers working the adjacent Sigma and Lamaque mines never fully explored what they had. So the company held a contest with a million dollars in prizes for those who could define the best drill targets for new discoveries on the old properties. The results were announced at the Prospectors and Developers Association of Canada (PDAC) convention in March of 2016. They were intriguing, to say the least. Integra is drilling two of these targets as we go to press and should have the first results soon. If either hits, it could be another “game changer” for an already excellent game.

Meanwhile, the company has started tunneling down towards its main zone of high-grade mineralization. That will help confirm its geometry and consistency, as well as provide a bulk sample and other data for more detailed feasibility work. The exploration tunnels could even be used for production. Between that and the fact that the company already has a processing plant ready to go, Integra is closer to the Golden Runway up to production than it may seem.


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We’ve been on-site. We like the People and the very smart way they’ve gone about the business. The results speak for themselves. This is a solid speculation on a fast-growing high-grade gold project with a short path to cash flow.

FORMAL RECOMMENDATION: Buy First Tranche on Market Weakness.Below is a summary of the company’s Nine Ps.

People

Integra’s CEO, Stephen de Jong, is, frankly, younger than we usually like to see. But he’s the one who closed the blockbuster Sigma-Lamaque deal. He also kept the drills turning and growing the company’s gold resources in the ground, despite the downturn in the gold market that only ended in 2015. There are a lot more People involved now than when we visited the project in its early days, but the consistently excellent results speak well on the whole team’s behalf.

Property Integra’s got high-grade, low-capital requirements, a pro-mining jurisdiction, and the most difficult part of permitting already taken care of. This is a rare gem among advanced exploration companies.

Promotion Integra’s grades tend to get attention on their own, but after the company’s million-dollar contest, this has become a high-profile story. No worries here.

Politics We like Quebec, but it can’t be stressed enough how important it is that Integra has a permitted plant and tailings facility right by a town that can’t wait for mining jobs to come back.

Paper

This may be Integra’s weakest P; with half a billion shares fully diluted, much of it issued at lower prices, there’s a lot of potential for selling on news going forward. That said, all of the stock is free-trading. All of the warrants have been exercised. So there’s no wall of cheap paper about to hit the share price all at once. The large float also gives the stock good liquidity. At the end of the day, management did what they had to do to keep the drills turning during the bear market and advance the project towards production. This has not held the stock down. With plenty of Push ahead, we don’t expect this to change.

Phinancing Integra will need project financing to build its new Lamaque mine, but it has plenty of cash for its current work and the milestones ahead.

Push

Push comes in several forms here:• Drill results from the current zones. We expect this high-grade Energizer story to keep

delivering.

• Discovery of new zones (the targets defined in the contest).

• New resource estimates. Should be bigger and better.

• New feasibility numbers. Should be even richer.

• Takeover potential. Integra is a plum waiting to be plucked by any mid-tier company looking for a high-margin operation as is. If the new targets deliver game-changing discoveries, however, it becomes a target for the major gold miners.

Pitfalls

Integra already has a permitted processing plant in a great mining jurisdiction. So the potential pitfalls here are fewer than those of most explorers trying to become producers—but they are never zero.

• Financial. Integra will need more cash to get to production. With a plant already in hand and production-sized tunnels already being blasted, it’s not too much, but if the market goes south, there could be more shareholder dilution on the way.

• Technical. We see a short runway up to production in this story, but the company’s feasibility work is still preliminary. The devil is always in the details, and we need to see more metallurgical testing and detailed engineering before we can say the technical risks are well understood and addressed. That said, the mineralization is of the same type as was processed in the same plant by past operators, so the risks here are relatively low.


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PriceThis stock is up in early 2017, but value has been added, so that’s not out of line. Shares did correct in late 2016, however, and they could again on the next big gold fluctuation. Don’t chase it, but with important news on the way, don’t dally, either. Buy a first tranche on the next down day for gold.

Original Write-Up:http://www.caseyresearch.com/my/international-speculator/vol.-xxxv-no.-10-price-vs.-valuethe-essence-of-speculation#a2

News & Analysis:http://www.caseyresearch.com/my/portfolio/detail/ICG.V/SU-00CIS

http://www.caseyresearch.com/my/international-speculator/vol.-xxxv-no.-10-price-vs.-valuethe-essence-of-speculation#a2

http://www.caseyresearch.com/my/international-speculator/vol.-xxxv-no.-10-price-vs.-valuethe-essence-of-speculation#a2

http://www.caseyresearch.com/my/portfolio/detail/ICG.V/SU-00CIS


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Lundin Gold Resources: Gold and Silver

LUG.TO, LUG.ST, www.LundinGold.comPrice Share: C$5.84 MCap: C$693.8M On: 4/21/17Shares SO: 118.8M FD: 122.6M As of: 3/2017Warrants Nil — —Options Open: 3.8M C$3.69–C$5.84 Avg. 3.6 yearsCash US$8.5M Burn: US$4.9M/mo. On: 1/2017

Lundin Gold is, admittedly, a one-trick pony. It’s all about building the world-class, fully permitted Fruta del Norte (FDN) gold mine in Ecuador. Fortunately, it’s a pretty darn good trick: Lundin Gold is second only to Pretium (see below) in its combination of size and grade, among the runway companies we’re tracking. FDN is a famous discovery, already on many investors’ radars. And while not “officially” yet on the Golden Runway, it’s about to be.

This alone is reason enough to buy this stock. However, as we’ve seen before, size, grade, value, return—none of the metrics you might expect—predict which runway picks will soar highest. Promotion by insiders and institutions and other heavy promoters helps, however. That makes it more than good news that the Lundin family and other “strategic entities” (as Thomson Reuters calls them) have a great deal of “skin in the game” in Lundin Gold.

http://www.lundingold.com/s/home.asp


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We could stop right there, given what our Runway research shows. But despite the powerful importance of having the right People and Promotion, We’d still rather invest in a project with real merit, rather than take our chances on one that might be exposed as worthless before we can get to First Pour.

Here’s a summary of FDN’s key base-case feasibility numbers at $1,250 gold:

• After-tax NPV-5% of US$676 million.

• 15.7% IRR.

• Annual production of 340,000 ounces of gold and 400,000 ounces of silver for 13 years.

• Initial capital of US$669 million.

• All-in sustaining cost: US$623 per ounce of gold.

The standout among these numbers is the IRR. While acceptable, it is relatively low for such a big, high-grade deposit. We met with management at PDAC to discuss this. We have to give them points for honesty. They told us that the rock around the deposit is not highly “competent.” That means it will cost more to shore it up and work in safety. They also said their studies show that it will be a wet mine. That means the cost of pumping to keep it safe and relatively dry will be high. Finally, they pointed out that unlike many other gold mines being built today, there are no old mine tunnels to make use of, no existing infrastructure in the area to give them any sort of head start. These factors make the project capital-intensive, which lowers the return, even though the overall value is high.


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The good news is that the company is close to releasing an updated economic study based on the detailed engineering work they’ve been doing over the last couple of years. I don’t expect this to drastically change things, but I do expect it to improve the critical numbers. This is near-term Push.

Also important is that the Proven and Probable mine reserves of 4.4 million ounces of gold averaging 9.7 g/t gold come from the most consistent part of the resource. The overall tally is almost three times as large, with 9.89 million Indicated ounces averaging 12.9 g/t gold and another 4.05 million Inferred ounces averaging 10.8 g/t gold. The areas of known mineralization not included in the current mine plan are less consistent than the P&P reserves, but they’re there. Once the mine is built, it wouldn’t cost much to prove them up and mine the better areas. In other words, there’s plenty of upside without making any new discoveries. But there is potential for more new discoveries, as the current FDN project covers only a small part of Lundin Gold’s 70,000 hectares of highly prospective land in the region.

And none of this even considers what happens when gold and silver go much higher, as we fully expect them to do.

The biggest red flag we see in this play is that the company doesn’t have much cash. And we don’t just mean compared to the US$676 million they need to build the mine. Fortunately, Lukas Lundin has stepped up to the plate himself with an unsecured, zero-interest US$35 million bridge loan. That should not only keep the lights on, it should pay for long lead-time items and even for the start of surface engineering and the tunnels down into the deposit.

Before this comes due (or starts accruing 5% interest) in May 2017, the company should be able to negotiate a streaming deal and a project finance bank loan based on the new optimized feasibility study. There is some risk that management will fail to line all these ingredients up, but this is a Lundin play, and the Lundin mining empire is not going to let it fail. Of this we have no doubt.

There are a lot of other technicalities we won’t get into. Our basis for speculation is simple. FDN is a big, high-grade story that already has a lot of attention and is going to attract more. The Lundins have a lot of skin in the game, and they will pull no punches to make it work. We are convinced that a positive Construction Decision, project finance, and ground-breaking are all in the cards in the near term. Best of all, we can get in right at the beginning.

FORMAL RECOMMENDATION: Buy First Tranche.Below is a summary of Lundin Gold’s Nine Ps.

People

It’s almost enough just to say that this is a Lundin play. The family is legendary in the resource sector, having delivered numerous successes for their shareholders over the years. We’ve known CEO and president Ron Hochstein and other members of the team for many years. Most important of all, we’ve made money with these People several times before. We have full confidence in them.

Property

FDN is famous as one of the biggest, highest-grade discoveries in decades. Like Pretium’s Valley of the Kings zone, “everyone” knows about it. If it were in Canada instead of Ecuador, Lundin Gold shares would probably be trading at twice their current prices. Since we believe the people running the show will move this story onto and up the Golden Runway, we think FDN will hand us a big win long before we find out if Ecuador’s new pro-mining stance is real or not. This is a peach of a project, and it’s on sale.


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PromotionGiven how famous FDN is, this is a story that will promote itself as the project passes important milestones. That said, the Lundin name commands attention, and we know the group is very good at promoting its companies. No worries here.

Politics

Ecuador is the big question mark. The country has harmed foreign investors before, and the current administration once put in a countrywide mining ban. The place has settled down in recent years, however, and the government now says it needs and wants responsible mining. Be that as it may, we expect to more than double our investment and go risk-free in the play long before we find out if Ecuador really is pro-mining now. And the perceived risk is part of why this stock is on sale.

Paper

For a company with a world-class deposit heading onto the Golden Runway up to production, Lundin Gold has a remarkably tight share structure. There are no warrants out and the few options are not too cheap. The stock has good volume. All a testament to good management, given that the company has been around for a while. (It was previously known as Fortress Minerals.)

Phinancing

This is without a doubt the worst of Lundin Gold’s Nine Ps. If it were almost anyone but the Lundins, the lack of cash in the bank would be a deal-killer for us. But the Lundins have a knack for arranging financings with no warrants and building mines as promised. We’ve seen it several times and expect no less in this case. Most important is that we expect material good news several times before the company gets around to issuing any equity to help finance the project, so we would not wait for that to create buying opportunities. (We would look to participate, however, if, for some reason, there is a warrant attached this time.)

Push

There’s lots of Push here, in several forms:• Better project economics in the optimized feasibility study.

• A positive Construction Decision.

• Breaking ground on the new mine portal; other signs of construction starting.

• Project finance progress, probably starting with a streaming deal for silver.

• Project finance completion, probably in the form of a combination of new equity and a bank loan.

• More spectacular drill results as the company gets underground and starts drilling off the first stopes to be mined.

• If Ecuador remains stable and Lundin Gold remains unmolested by the government, there’s takeover potential in this play.

Pitfalls

It might seem that failure to raise the money needed to build FDN is the big risk here, but we’re convinced the Lundins will not allow that to happen. That leaves political risk as the most likely pitfall. But even if the government does turn psychotic, we think they’ll wait until the mine is built before trying to steal it. There is technical risk, as always, but these People are pros, and we’re sure they have that in hand.

Price This stock has traded largely sideways with high volatility over the last year. Take advantage of that to buy on the dips.

Original Write-Up:http://www.caseyresearch.com/my/international-speculator/this-is-how-fortunes-are-made

News and Analysis:

http://www.caseyresearch.com/my/portfolio/detail/LUG.TO/SU-00CIS

http://www.caseyresearch.com/my/international-speculator/this-is-how-fortunes-are-made



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Pretium Resources Resources: Gold, Silver

PVG, PVG.TO, www.pretivm.com

Price Share: US$10.49 MCap: US$1.9B On: 4/21/2017Shares SO: 180.8M FD: 187.5M As of: 4/2017Warrants SO: 180.8M FD: 187.5M As of: 4/2017Options Open: 6.7M C$5.85–C$15.17 Avg.: 2.5 years

DebtC$312.1M credit C$90.9M offtake C$269.9M stream

Credit at: 7.5% Credit due: 12/31/2018 Ext. to: 12/31/2019

Cash C$190.4M Burn: C$44.4M/mo. On: 1/2017

Pretium Resources is on the verge of becoming the poster child of Golden Runway companies, with First Pour imminent as we go to press on this report. Still, it’s got a lot after that, given the unique situation of its monster-sized, bonanza-grade Brucejack gold project in British Columbia, Canada.

It’s no exaggeration to say that one can count deposits in this class on one hand—and this one may deserve to be the first finger. Pretium’s Valley of the Kings discovery is still wide open for expansion, but already boasts 8.1 million ounces of Proven and Probable mining reserves averaging 16.1 g/t gold.

These occur within 9.1 million ounces of Measured and Indicated gold resources averaging 17.2 g/t gold. There’s another 3.1 million ounces Inferred at 20 g/t gold. Altogether, the current resource tally comes to 12.2 million ounces, averaging 18.2 g/t gold. With the average grade of all gold deposits around the world close to 1 g/t, this is one for the record books.

Of course, it’s not about how much gold a project has in the ground, but about how much money one can make getting it out. The company’s 2014 bankable feasibility study projects an after-tax NPV-5% of $1.45 billion and an IRR of 28.5% at $1,100 gold. The project still works all the way down to $800 gold, yielding a 16.5% IRR. It gushes cash at just $1,400 gold, generating a very robust 38.7% IRR from after-tax net cash flow of $4.1 billion.

And that’s not the end of the story: new drilling keeps finding more bonanza-grade gold. Further, the results of a bulk sample mined out of various representative areas of mineralization greatly exceeded projected gold production, telling us that management has been conservative with its estimates.

Still, as a fully studied base case, the current project is already a blockbuster. That’s despite the fact that Pretium has almost finished building the mine. Brucejack is on the verge of showing that it’s one of the richest gold mines in the world.

Why is it still relatively on sale? Well, in mining, no matter how detailed the studies, you never really know if a mine will make money until you build it and it does. The whole business is one of shoveling dirt through a very sensitive chemistry set. Everything has to be done just right. Worse, we can’t see through rock, so we build models of the mineralization in the ground, based on drill holes. Even the best models are never perfect, and you never know how good they are until you mine the rock.

http://www.pretivm.com/


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In this case, the deposit is so exceptional, management has done some things not normally done. The details are technical, but the result is that there’s widespread skepticism among certain industry insiders. We’ve been on-site. We think the skeptics are wrong. They would be right, if this were a normal deposit, but it’s not, and they are missing the forest for looking at individual trees. For more details, see our recent special report on the project here. The short version is that we think Pretium will prove it’s right, and that will send the stock sky high.

Yes, there is risk in this play, which is why it’s still relatively cheap, despite having the best of both main attributes: monster size and bonanza grades. But we know and trust management. If anything, we think the company has underpromised and will overdeliver.

If we’re going to speculate, we want to do it on the biggest and the best. This story combines both. Simply put, Pretium is a stock we wouldn’t want to be without.

Underground in the heart of the Valley of the Kings deposit. The brown stuff is oxidized electrum: gold-silver alloy. Veins like this produce Pretium’s spectacular, kilos-per-tonne drill

results.

FORMAL RECOMMENDATION: Buy First Tranche.Below is a summary of the company’s Nine Ps.

https://www.caseyresearch.com/special-reports/red-gold/kpov2/n


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People

President and CEO Bob Quartermain is a geologist we’ve known for many years as one of the most competent and ethical people in the business. His team has been with him for years as well. Some for decades. Together they have delivered numerous discoveries. These People are some of the best in the business and have earned our unqualified support.

PropertyThere are few monster-sized gold deposits in the world. There are few bonanza-grade gold projects out there as well. But there are very, very few that combine both attributes. Pretium’s Valley of the Kings is at the top of our list of those that do.

Promotion The bonanza grades and size of the deposit drive this story by themselves, but management does a good job getting the word out as well. All good here.

Politics

British Columbia is generally pro-mining, but there are local issues with First Nations bands and other complexities to doing business in the province. Fortunately, we’ve been on-site and see strong support from the affected First Nations. Provincial elections are always a cause for concern. Fortunately, Brucejack is permitted and almost built. There will be a few more permits needed for full production, but those should be routine at this point, especially with the province in need of jobs.

Paper Pretium’s share structure is nice and tight for a company with a major, feasibility-level exploration and development project.

PhinancingThe company has the funds needed to get to cash flow, including contingency funds. It also has “flow-through” (tax-incented) funds dedicated to keeping the exploration effort going at a fast clip this year. No red flags here.

Push

Push should be dramatic in this story:• First Pour any day now.

• Production stats validating mine reserve modelling.

• Bonanza-grade drill results. Past best results have graded up to 40 kilos (not grams) of gold per tonne.

• Further resource expansion and upgrades.

• Potential discovery of new bonanza-grade zones.

• Takeover potential.

Pitfalls

With permits and cash in hand to get to production, the main potential pitfall here is technical. If, despite all the studies and the very positive bulk sample results, the company’s model is wrong, the mine will not deliver as expected. We have no doubt that there’s a lot of high-grade gold there, but if the model is wrong, it will be more expensive to mine, and the stock will fall hard. We expect just the opposite, but this is the big risk—and the nature of the coiled spring under these shares.

PriceThis stock is not as cheap as it was a year ago, but it’s still undervalued. There is major news pending as we go to press, so we recommend buying at least a first tranche without delay. Add a second if you get a shot at lower prices before make-or-break news comes out.

Original Write-Up:http://www.caseyresearch.com/my/international-speculator/vol.-xxxii-no.-2-the-best-of-times-the-worst-of-times#a5

News & Analysis:http://www.caseyresearch.com/my/portfolio/detail/PVG.TO/SU-00CIS

http://www.caseyresearch.com/my/international-speculator/vol.-xxxii-no.-2-the-best-of-times-the-worst-of-times#a5

http://www.caseyresearch.com/my/international-speculator/vol.-xxxii-no.-2-the-best-of-times-the-worst-of-times#a5

http://www.caseyresearch.com/my/portfolio/detail/PVG.TO/SU-00CIS


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OTHERS

Fission Uranium Resources: Uranium

FCU.TO, FCUUF.OB, www.fissionuranium.com

Price Share: C$0.77 MCap: C$373.1M On: 4/21/17Shares SO: 484.6M FD: 421.2M As of:4/2017Warrants UnEx: NIl — —Options Open: 48.5M C$0.25–C$1.65 12/2017–2/2022Cash C$59M Burn: C$2M/mo. On: 2/2017

Not all that glitters is gold. For reasons we outlined in our December edition, we expect 2017 to be a breakout year for uranium. The best combination reward/risk ratio we see in this space is Fission Uranium (FCU.TO). Fission’s Patterson Lake South (PLS) project hosts a world-class uranium discovery.

PLS’s Triple R deposit has 45.1 million Indicated pounds of U3O8 averaging 18.22% U3O8 (uranium oxide, the mineral uranium mines produce). These occur within 81 million pounds averaging about 1.83% U3O8. This lower-grade material is 10 times higher grade than most deposits around the world. It’s about 26 times richer than the super high-grade gold at Pretium’s Valley of the Kings discovery. And there’s another 13.9 million Inferred pounds at 25.06%.

It’s only because uranium is the most hated metal in the world that this stock is on sale.

But that won’t last long. Apart from the recovery we expect in uranium prices throughout the rest of this year, there’s extra Push in this play: Fission keeps discovering new zones with high-grade potential.

Whether or not the new discoveries prove up, there are key pluses for the project as is:

• PLS is in Canada’s prolific Athabasca Basin. The region is home to the world’s highest-grade uranium deposits. Most are on the east side of the basin, but PLA is on the west side, where Fission has a large land package.

• What makes Triple R special, even among Athabasca projects, is that it starts near the surface, about 50 meters down. This is a major benefit, as the deeper you go, the more it costs to mine the ore. The big eastern basin deposits are all much deeper.

• Both the bonanza-grade core and the merely high-grade mineralization around it show good continuity from section to section. The zones are thick enough to allow for low-cost, bulk underground mining methods.

• PLS has a preliminary economic assessment showing great numbers:

1. After-tax NPV-10%: US$1.02B

2. After-tax IRR: 34.2%

http://www.fissionuranium.com/

http://www.caseyresearch.com/my/international-speculator/project-y


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3. 1.4-year payback on US$1.1B capital expenditures.

4. Extremely low operating cost of US$16.60 per pound.

• Drilling done since the last estimate has confirmed the resource model. It’s made it much bigger too. Drilling keeps hitting more high-grade mineralization both to the east and west of the current official deposit. New targets on parallel structures are hitting pay dirt as well. This thing is wide open.

• We were impressed with the technical people on-site. Their depth of knowledge, the number of technical issues they had to resolve, and their passion for their work were all very encouraging.

• The nearest town is 60 kilometers away. Not having people in the area to panic about uranium mining is a good thing…and such projects are common in Saskatchewan anyway. One of the main First Nations bands in the area does a lot of work for the company, so their interests are aligned.

• Unlike gold ore, in which the gold is usually invisible, you can see when you drill into high-grade uranium zones. And you can smell it. Pitchblende has a distinct odor. Most drillers know to call the geos over to look when the drill core “stinks.” Readings from radiation detectors correlate highly with grade. This matters because you don’t need to wait for assay reports to know you hit pay dirt. And that means you can keep drilling until you know you’re out of the zone. It also speeds up targeting the next drill hole.

Nothing is perfect, of course. As the name Patterson Lake hints, much of Triple R lies under a lake. The lake is shallow, however, and building a berm to keep water out until the mining is done is common practice. It also means the open pit will leave a smaller visible footprint once the mine is closed and the lake fills it in.

The PLS project camp is no Taj Mahal. It’s got everything needed and nothing more. The money goes into the ground.

https://en.wikipedia.org/wiki/Uraninite


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Drilling PLS on the lake. The technical team had to solve many problems to get this done right and at an affordable price.

Pay dirt. Smelly uranium ore, so high grade it’s almost off the scale…but even so, nowhere near levels that are dangerous.


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This is a straight-forward, super-high-grade discovery story. PLS is already world-class, and it’s getting bigger, fast.

FORMAL RECOMMENDATION: Buy First Tranche.Below is a summary of the company’s capital structure and the Nine Ps.

PeopleChairman and CEO Dev Randhawa has been well known to us for many years. President and COO Ross McElroy is a solid geo. Others on-site were also impressive, and their results speak volumes about their qualities.

PropertyFission is a one-trick pony, but being big and super-high grade is our favorite trick. PLS is the real deal—and it’s getting bigger. Best of all, it’s not in Africa or Mongolia, like many of the world’s other uranium mines.

Promotion Fission has competent IR professionals on staff. It also delivers a steady flow of super-high-grade drill results that get plenty of attention without much help. No worries here.

Politics Saskatchewan is one of the world’s top mining jurisdictions.

Paper The company has a lot of paper out, but that produces excellent trading volume. There are no warrants outstanding, and the few options are no threat. No red flags.

Phinancing Fission has more than C$50 million in the bank. It’s fully funded for years of value-adding work. All good.

Push

The Push here is big:• Drill results have been consistently spectacular, and we expect the same going forward.

• The next resource estimate should be much larger.

• This company has strong takeover potential.

PitfallsThe biggest near-term risk is that uranium could fall before it heads up. We’d see that as an opportunity to average down, but it is a risk that must be mentioned. Permitting problems could also arise, but that’s very unlikely at this stage of exploration.

Price Given the near-term Push and that we see higher uranium prices ahead, the current share price looks like a good entry point.

Original Write-Up:https://www.caseyresearch.com/my/international-speculator/todays-prometheus

News and Analysis:http://www.caseyresearch.com/my/portfolio/detail/FCU.TO/SU-00CIS

https://www.caseyresearch.com/my/international-speculator/todays-prometheus

http://www.caseyresearch.com/my/displayIsp.php?id=232#a4

http://www.caseyresearch.com/my/portfolio/detail/FCU.TO/SU-00CIS


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Klondex Mines Resources: Gold, Silver

KDX.TO, www.klondexmines.com

Price Share: C$4.80 MCap: C$851M On: 4/21/2017Shares SO: 177.3M FD: 193.8M As of: 3/2017Warrants UnEx: 11.1M Avg.: C$3.86 Avg. 12.3 yearsOptions Open: 5.4M Avg.: C$2.68 Avg. 3.2 years

Debt C$25M credit, 20,000 oz. GPA

Cr: LIBOR + 2.75% – 4.00% GPA at 18.3% End of GPA: 2018

Cash US$47.6M EPS (12-mo.): –US$0.01 On: 1/2017

Klondex Mines was once a Nevada gold explorer with a bonanza-grade discovery called Fire Creek. The veins were narrow and the company struggled for years to advance the project. That changed in 2014, when Klondex acquired the small but famous Midas gold mine from gold-mining giant Newmont. Price: $55 million in cash, five million warrants, and a $28 million reclamation bond. Assets: an operating gold mine with all permits in good standing and a small, high-grade resource left in the ground. This came with a fleet of mining equipment and a mill that could process ore from Fire Creek. The deal gave Klondex a quick shot at cash flow and a huge head start on getting Fire Creek into production.

Even though Midas and Fire Creek are 100 miles apart, the potential synergies were obvious. The bonanza-grade ore at Fire Creek would pay for trucking if there were enough of it. With Proven and Probable mine reserves averaging 42 g/t gold, Fire Creek may be the highest-grade gold mine in a public company anywhere in the world. The problem was that the price for Midas was steep for a cash-strapped junior explorer. At the time, we weren’t sure Klondex could pull it off. We were even less sure it could make money under a load of debt and forward-sold gold if it did manage to buy Midas.

The deal closed in the first quarter of 2014. Klondex posted 4 cents per share in earnings the following quarter. There’s been a steady flow of net income almost every quarter since. At the same time, the company keeps discovering more gold at both Midas and Fire Creek, more than replacing what it mines each year. Then, in 2015, Klondex announced the acquisition of the True North gold mine (then called Rice Lake) in Manitoba, Canada.

True North has been in and out of production for more than 100 years, with historic production totaling more than 1.5 million ounces of gold. The historic numbers included 1.7 million ounces averaging about 6.6 g/t gold. This was, in its most recent incarnation, a lower-grade operation than Klondex’s high-grade Nevada operations.

But Klondex didn’t buy this thinking they would just put it back into production as it was. Klondex specializes in very narrow, high-grade mining. The company has already made a positive production decision on a new mine plan, based on a smaller, but higher-grade Measured and Indicated resource estimate of 388,000 ounces of gold averaging 7.4 g/t gold. There’s another 668,000 Inferred ounces averaging 6.24 g/t gold.

http://www.klondexmines.com/


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Drilling continues. Management expects to produce 45,000 to 65,000 ounces per year at an all-in sustaining cost (AISC) between US$709 to US$784 per ounce. Almost anything in the world seems low-grade compared to Fire Creek, but these are high-margin ounces.

And as if this growth wasn’t enough, thanks to a sudden opportunity that came up in July of 2016, Klondex also bought the Hollister gold mine in Nevada. This is a past-producing asset that members of management have worked on. As with Midas, they know what needs to be done and where to look for more gold. Klondex is still digesting this acquisition, but they found some exceptionally high-grade drill results obtained by the past operators, which were never published, including:




• 16 g/t gold over 3.8 meters

If Klondex finds much more like this, Hollister could give Fire Creek a run for its high-grade money. That remains to be seen. The key thing is that Hollister, like Fire Creek, is within trucking distance of the Midas mill. That means the capital required to get back into production will be minimal, and the margins produced should be high. We’ll know more when the company produces updated reserve and resource estimates, as well as a new mine plan. We’re bullish.

The Midas mill and tailings dam. Note the power lines, a luxury many mines don’t have.


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We have been on site at Klondex’s operating mines in Nevada. We saw quality operations with much more high-grade upside ahead. The company uses a cheaper bulk-mining method usually used on thicker mineralization (long hole stoping) on its narrow, bonanza-grade veins. This highly precise blasting is a key factor in the company’s profitability—and its ability to turn mines other companies lost money on into cash cows.

The short version of the story is that this is a high-grade story with rapid growth on tap. Best of all is that the stock is on sale. Some investors have misunderstood and overreacted to a change of accounting practices resulting in a small net loss for 2016. Also, rebalancing of a major fund has put selling pressure on these shares as we go to press. We’re not worried about the company’s profitability, and see this is a great opportunity to get in at bargain prices.

FORMAL RECOMMENDATION: Buy First TrancheBelow is a summary the company’s Nine Ps.

PeoplePresident and CEO Paul Huet used to run the Midas gold mine for Newmont, and the VP for Exploration, Brian Morris, also worked for Newmont at Midas. Other key members of the team have decades of relevant experience—and they have produced a steady flow of excellent results.

Property

As noted above, we have two high-grade mines in hand with two more shaping up. All have excellent potential for new high-grade discoveries as well. The new True North and Hollister projects are awaiting new feasibility numbers, which make it hard to put a value on them. But management has delivered before, and they clearly believe in them. The drill results we’ve seen thus far back them up. This is a high-grade growth story, with the potential for unexpected upside.

Promotion Given the bonanza grades in this story and how well the stock did in brutal years like 2014 and 2015, we think it’s one that will promote itself to a significant degree. No worries here.

Politics

We like Nevada, and the company is already in production so there’s no great risk to its bread and butter. Manitoba has been off many resource investors’ radars for some time, but it’s well-endowed and has been a good place for mining before. Canada, of course, has excellent rule of law. Overall, the political risk in this play is low.

Paper

The share structure is good for a growing gold producer. The warrants and options are largely in the money, but there aren’t that many and they expire over a period of years (and none are dirt-cheap), so there’s no major threat here. The company has a streaming deal with Franco-Nevada, booked as a loan. This isn’t ideal, but it’s what management had to do to get into production. The Special Warrants will dilute the SO, but we get Hollister in exchange. No red flags here.

PhinancingThe company raised C$130 million to cover the Hollister acquisition and has enough cash and cash flow to deliver all planned activities, including putting True North back into production. We expect the same will be true of Hollister, come the day. Growth should be organic from here.

Push

This play has lots of Push:• High-grade drill results from all four mines

• Ramped-up mining increasing production at Midas and Fire Creek

• New reserve estimate and feasibility numbers for True North

• New reserve estimate and feasibility numbers for Hollister

• New production at True North

• New production at Hollister

• Takeover potential


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Pitfalls

Klondex was a small junior producer until recently. Buying a new mine and bringing it online is a challenge for any company—doing so with two new mines at once is going to be tough. We would not be surprised to see some guidance missed, timetables pushed back, and the like. If the company were to fail to make either of its new acquisitions profitable (“break its pick” on them, as we say in mining), it would certainly hurt the stock. The risk is real. But so are the people running this company, and they have consistently delivered outstanding operational results. We expect success.

Price This is a great company, on sale while gold is rising. That’s a clear opportunity.

Original Write-Up: http://www.caseyresearch.com/my/international-speculator/gold-is-deadlong-live-gold#New-Company-Recommendation--Klondex--KDX.TO-

News and Analysis:http://www.caseyresearch.com/my/portfolio/detail/KDX.TO/SU-00CIS



http://www.caseyresearch.com/my/portfolio/detail/KDX.TO/SU-00CIS


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Silver Wheaton Resources: Silver, Gold

SLW, SLW.TO, www.silverwheaton.com

Price Share: US$21.09 MCap: US$9.4B On: 4/21/2017Shares SO: 441.5M FD: 455.6M As of: 1/2017Warrants UnEx: 10M Avg.: US$43.75 2/2023Options Open: 4.1M Avg.: C$27.36 Avg. 2.6 years

Debt US$1,193.0M LIBOR + 1.2% – 2.2% + 0.24% – 0.44% 2/2022

Cash US$124.3M EPS (12-mo.): US$0.59 As of: 1/2017

Back in 2005, Doug called Silver Wheaton “the new ‘go-to’ silver company.” The same is true today, except that SLW is now well-known. It’s the biggest and most visible silver “stream” deal in the market. That makes it, without question, the most logical landing place for new investors looking for leverage to rising silver prices.

And why not? Royalty companies are the safest way to be in the mining business. That’s because they don’t have to trouble themselves with all the problems that arise from actually mining and processing rock into valuable commodities. They get paid their royalties off the top, regardless of whether the mines underlying the royalties make any profit. Streaming companies do almost the same thing by fixing costs while prices are down with advance payments. That secures huge windfall revenue when prices are up.

Silver Wheaton’s first deal was, in fact, the first deal of that kind, and the beginning of the silver-stream business model. Today, the metals-streaming business model has been copied by others, but Silver Wheaton remains the world’s largest player in the space.

Silver Wheaton has the largest attributable silver mine reserves in the industry, with 735.6 million ounces of silver and 11.55 million ounces of gold in Proven and Probable mining reserves. The company “produced” 56.2 million ounces of silver-equivalent in 2016, up 15% from 2015. The “equivalent” is from the gold, which the company is “producing” more and more of. Production comes from 22 different mines and projects in a dozen countries around the world, diversifying political risk. Still, about more than half the production is in relatively safe jurisdictions of the Americas.

A few key projects will drive the company’s near-term growth:

• Antamina, Peru (operated by Glencore). This huge copper mine (the 8th largest in the world) is Silver Wheaton’s latest major acquisition. In Q4 2016 alone, it delivered 1.6 million ounces of silver to SLW’s account.

• San Dimas, Mexico (operated by Primero). Silver Wheaton owns 100% of the silver production, or up to 6 million ounces per year, and then 50% of anything that’s produced beyond that. The mine is currently producing above its 2500 tpd nameplate capacity and new discoveries continue on the property. Q4 2016 production was 1.4 million ounces of silver.

http://www.silverwheaton.com/


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• Peñasquito, Mexico (operated by Goldcorp). The company owns 25% of silver production, which delivered 1.3 million ounces in Q4 2016. Goldcorp has a metallurgical enhancement project in the works that will potentially add about 1.5 million ounces per year to Silver Wheaton’s account down the line.

• Salobo, Brazil (operated by Vale). This copper project is one of the recent gold streams acquired by Silver Wheaton. The mine delivered 71,300 ounces of gold to Silver Wheaton in Q4 2016. It has more than 40 years of mine life as is, and exploration potential is being tested.

One more thing: When analysts calculate the net asset value of a mining stock, they often base it on the company’s mining reserves. Or, they might use estimated production to project cash flow. These models may grossly underestimate a streaming company’s future value if they don’t account for optionality.

You see, royalty and streaming companies like Silver Wheaton often negotiate royalties on more than just one mine; they often include the entire land package surrounding the main asset. So, as producers continue to find more ounces on their properties, more of them are automatically added to the streaming company’s account…without the company paying a penny more.

In Silver Wheaton’s case, the company projects additional flows of 6–7 million ounces of silver this year due to recent exploration success at Primero’s San Dimas project in Mexico. Further, it anticipates an additional 14–15 million ounces of optionality at the various stages of development at its projects.

In short, we see the stock as massively leveraged to higher production as well as higher silver and gold prices. That makes it a coiled spring, ready to soar as the upturn in precious metals continues.

The TaxmanSilver Wheaton retreated with silver and gold from 2011 to 2015, more than most profitable royalty companies did. Why? The taxman. Those are two of the most frightening words in the English language. In this case, that’s to the advantage of anyone new to the story.

You see, the company is involved in a dispute with the Canada Revenue Agency (CRA) that goes all the way back to 2005. For years, it seemed as though the taxman might just drop its challenge. But in July of 2015, Silver Wheaton received an initial “proposal” to have its taxes for 2005 to 2010 reassessed on income amounting to C$715 million. The stock got smacked down, of course. And it remained under intense pressure, since the actual tax bill might have ended up being worse than the initial proposal.

In September of 2015, Silver Wheaton got its official reassessment, alleging it owed back taxes of C$201 million and a penalty of C$72 million. Silver Wheaton is fighting the reassessment (still). Legally minded sources in the industry tell us the company has a good chance of winning, or at least of reducing the amount owed. If the company wins, it will get back, with interest, all the funds it has put on deposit ahead of the judgment.


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But here’s the thing: Even in the worst-case scenario of having to pay everything the taxman is asking for, Silver Wheaton can afford it.

The entire amount is only about twice the company’s typical quarterly operating cash flow, and the company has undrawn credit. This amount is so manageable that Silver Wheaton shares actually jumped on the formal reassessment news. In other words, it could have been worse…and that fear was already priced in. And since then, the shares have risen with gold and silver. Fear of the taxman will not hold Silver Wheaton down.

At the end of the day, the Canadian tax issue is a distraction. The main issue is the power of the company’s business model. As a streaming company, Silver Wheaton does not own or operate any mines. Nor does it explore for any silver or gold. It’s immune to the high risk in all those activities. It can still be hurt by low metals prices, but having fixed cash costs protects it from all but the very worst market conditions. And the company’s healthy cash flow puts it in an ideal position to load up on quality assets at bargain prices at such times. Another monster deal like Antamina could be just around the corner.

All of the above makes Silver Wheaton a strong buy for anyone who does not own the shares already, or is in at higher prices.

FORMAL RECOMMENDATION: Buy First TrancheBelow is a summary the company’s Nine Ps.

People

President and CEO Randy Smallwood is a respected geological engineer, but it’s the dealmaking that has put this company square and center on the map. The whole team excels at due diligence and creating win-win deals that help miners build mines and help Silver Wheaton shareholders lock in “production” at costs miners can only dream about. The track record here speaks for itself.

Property

Silver Wheaton’s “Property” isn’t land, but legal rights to the production of numerous mines. These have all been carefully chosen, not without setbacks, but with tremendous results overall. As noted above, there’s growth already locked in, and the recent blockbuster Antamina deal shows that there’s every reason to expect more on the way.

Promotion The company is a leader in its sector. That’s what it means to be the “go-to” pick. Promotion is not a problem.

Politics

It’s not possible to have a portfolio this large without some political risk, but this is mitigated by the same factor: the portfolio is so large, even a terminal setback on any given royalty or stream is just a setback, not a fatal blow. With most of the projects in relatively stable countries, we rate the country risk here to be relatively low.

PaperThe company has a lot of shares out, but the spread to fully diluted is tight, with relatively few warrants and options out. That means there’s no wall of cheap paper to chew through, and the large float gives us excellent trading volume.

Phinancing The company is a cash cow with excellent credit. No worries on this front.

Push

Push comes in several forms here:• New streaming deals

• Growth in “production” as new mines Silver Wheaton has deals with start delivering

• Quarterly profits and cash flow

• Resolution of the tax issue (one way or the other)

• Extreme leverage to silver itself


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Pitfalls

Silver Wheaton is a simple company to run. There’s no technical risk, nor risk from rising energy costs, nor exploration risk. Aside from lower gold and silver prices, there’s just not that much that con go wrong. The darkest cloud on the horizon is clearly the Canadian taxman, but even that’s not that big a deal to a company of this size. This makes Silver Wheaton one of the safest ways to speculate on the gold and silver bull market going forward.

Price This is a “must-own” precious metals stock, but still one to buy on the dips.

Original Write-Up:http://www.caseyresearch.com/my/international-speculator/xxvi-no.2-pure-play-silver-stocks

News and Analysis:http://www.caseyresearch.com/my/portfolio/detail/SLW.TO/SU-00CIS

http://www.caseyresearch.com/my/international-speculator/xxvi-no.2-pure-play-silver-stocks

http://www.caseyresearch.com/my/portfolio/detail/SLW.TO/SU-00CIS


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Part III 9 Essential Gold Stocks Buy List

RUNWAY PICKS

Company Status Price EV EPS (TTM) AISC

ATLANTIC GOLD (AGB.V) Buy (5B, TOC) C$1.41 C$250.6M C$32.2M C$3.87MCONTINENTAL GOLD (CNL.TO) Buy (5B, TOC) C$3.32 C$449.4M C$19.2M C$3.16MDALRADIAN RESOURCES (DNA.TO) Buy (5B, TOC) C$1.21 C$266.8M C$35.7M C$2.83MINTEGRA GOLD (ICG.V) Buy (5B, TOC) C$0.87 C$358.8M C$35.0M C$2.85MLUNDIN GOLD (LUG.TO) Buy (5B, TOC) C$5.84 C$684.9M C$8.5M C$4.82MPRETIUM RESOURCES (PVG) Buy (TOC) US$10.49 US$2.26B C$190.3M C$44.4M

OTHERS

Company Status Price EV Cash Burn/mo

FISSION URANIUM (FCU.TO) Buy (5B, TOC) C$0.77 US$319.7M C$-0.01 N/AKLONDEX MINES (KDX.TO) Buy (5B) C$4.80 C$840.7M US$-0.01 US$1,458 SILVER WHEATON (SLW) Buy US$21.09 US$10.38B US$0.45 N/AThese recommendations are as of April 24, 2017. Please check our portfolio pages for these companies to see our current recommendations.

http://www.caseyresearch.com/my/portfolio/detail/AGB.V/SU-00CIS

http://www.caseyresearch.com/my/portfolio/detail/CNL.TO/SU-00CIS

http://www.caseyresearch.com/my/portfolio/detail/DNA.TO/SU-00CIS

http://www.caseyresearch.com/my/portfolio/detail/ICG.V/SU-00CIS


http://www.caseyresearch.com/my/portfolio/detail/PVG.TO/SU-00CIS

http://www.caseyresearch.com/my/portfolio/detail/FCU.TO/SU-00CIS

http://www.caseyresearch.com/my/portfolio/detail/KDX.TO/SU-00CIS

http://www.caseyresearch.com/my/portfolio/detail/SLW.TO/SU-00CIS

http://www.caseyresearch.com/my/portfolio/international-speculator


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