As a general rule, the most successful man in life is the man who has the best information
The current investment market for junior gold companies is arguably one of the worst since the United States went off the Gold Standard in 1971.
Despite the current high price of gold (and many other commodities), investors have almost abandoned the junior gold mining sector to invest in physical bullion, ETF’s, and producing companies. The value of the TSX-Venture Composite Index, shown below, is similar to what it was in the early 2000’s when the price of gold was below US$300 per ounce.
In 2013 I expect to see the equity market in the junior gold sector begin to correct itself and investors should currently be taking advantage of the investment opportunities resulting from the severely beat up junior sector. There presently exists a great opportunity for those investors who are “ahead of the herd” and want to invest in the market at or near the bottom.
TSX-V Composite Index 10 Year Chart
The Venture exchange is down over 50 percent from its March 2011 high.
The questions become – How does an investor take advantage of the dislocation in the junior markets? What might be a good junior to have on our radar screens?
Investing in junior gold miners is a speculative business at best, with risk on the downside but the potential for significant reward on the upside.
Two ways to mitigate risk for investors is to buy at market bottoms and have a long-term view of their investments to take advantage of a company’s increasing value as its projects move through exploration and development while markets recover. Ideally, the pay off comes when a project is brought into production, gets joint ventured, or is sold by the junior.
So in this environment, companies should have the following key attributes:
- Established track record
- Experienced and competent management teams
- Established mineral resources
- Projects in safe and stable jurisdictions of the world
- Strategically located properties – existing infrastructure
- Significant upside potential
One junior to consider when looking at the many juniors available to investors is Emgold Mining Corporation (TSX-V: EMR). Emgold has been in existence since 1989 and has survived numerous equity and mining cycles. It has an experienced management team with background in all facets of the mining industry, including exploration, permitting, project development, and mine operation.
The Company has a solid resource base in its Idaho-Maryland Project in California. And this resource has grade – something operating companies are looking for as mining costs continue to rise (higher grades typically equate to lower cost per ounce production). Emgold’s Idaho-Maryland Deposit was listed as the 9th top undeveloped deposit by grade in the Global Gold Mines and Deposits2012 Ranking, for deposits over one million ounces of gold, by Natural Resource Holdings.
“Another data point we found fascinating was that out of 439 mines or deposits, 189 are in fact producing mines owned by companies with an average market capitalization of $1.8 Billion. This leaves us with a universe of undeveloped deposits over 1 million ounces of just 250. Of course some of these 250 deposits are owned by miners (84) while just 166 are owned by independent junior companies, private companies, or government sponsored enterprises. Investors seeking leverage to gold should focus on these companies as they provide the best exposure to a rising gold price environment…In the United States we found only 33 deposits owned by 26 companies (23 Independents).” Global Gold Mines and Deposits 2012 Ranking
In emerging markets, political strife and resource nationalism have triggered increased taxation, social unrest and changing regulations which is hindering resource development and scaring away investment. Emgold works solely in North America with its transparent and structured regulatory regime. Its properties are located in California, British Columbia, and Nevada, some of the most attractive mining regions in the world being internationally known as safe and stable mining jurisdictions.
The Idaho-Maryland Project is in the historic Grass Valley District which produced over 17 million ounces of gold historically. The Stewart and Rozan Properties are in the historic Nelson Mining District of British Columbia, which hosted many small gold and silver mines. The Company also has the Buckskin Rawhide East, Buckskin Rawhide West, and Koegel Rawhide Properties all located in the historic Rawhide District in Nevada.
What is strategic about these locations? Obviously the Idaho-Maryland deposit in California represents grade. The mine historically produced 2.4 million ounces of gold at a recovered grade of 0.43 ounce per ton gold and holds a measured and indicated resource of 472,000 ounces gold (1.7 million tons at 0.28 opt gold) and an inferred resource totaling 1,002,000 ounces gold (2.6 million tons at 0.39 opt gold). The potential exists to delineate a 3-5 million ounce resource at Idaho-Maryland, subject to additional exploration.
In California, we are seeing a resurgence of mining activity with New Gold Inc.(NYSE:NGD, TSX:NGD) operating the Mesquite Mine, ATNA Resources Ltd. (TSX:ATN) operating the Briggs Mine, and Sutter Gold Mining Inc. (TSX-V:SGM) reopening the Lincoln Mine. Emgold is arguably undervalued because their main property is in California. While the state is sometimes viewed negatively by the mining investment community for its stringent environmental standards (not a bad thing), regulations for mine development and operation are clear and straightforward. A misunderstanding of California’s regulatory environment presents a significant opportunity for investors to capitalize on mispriced equities.
While historically there has been a lot of focus Emgold’s substantial Idaho-Maryland Project, many investors have failed to realize that the Companies other projects provide considerable opportunity as well. For example, the Rozan Property (Nelson Mining District, South West British Columbia, Canada) is adjacent to Altair Gold Inc.’s (TXV-V:AVX) Kena Property.
The Kena Property has a measured and indicated resource of 549,000 ounces of gold and an inferred resource of 513,000 of gold. Altair is well on its way to potentially delineating a plus one million ounce bulk disseminated resource which is sure to attract the attention of the majors. The Stewart Property is adjacent to the historic Yankee Dundee Mine that is owned byDuncastle Gold Corp.(TSX-V:DUN). Duncastle has just signed a production agreement with a private company called Armex Mining Corp. who appear to be looking to advance the property into production.
Emgold’s Nevada properties also represent substantial unrecognized potential. Over the past several years, Emgold quietly acquired a number of properties adjacent to or near the historic Denton Rawhide Mine in Nevada’s share of the prolific Walker Lane Gold Belt.
The Walker Lane shear zone straddles the border between Nevada and California and has a long history of exploration and mining, dating back to the discovery of the world famous Comstock Lode in the 1850s. The Walker Lane is notable for its numerous occurrences of volcanic-hosted epithermal gold and silver deposits.
The majority of gold deposits occur in the Walker Lane shear zone, which is a 100-km wide, NW-trending structural corridor extending southeast from Reno towards Las Vegas. The Walker Lane gold belt has historically produced over 50 million ounces of gold and 400 million ounces of silver.
The Denton-Rawhide Mine was owned and operated by Kennecott Minerals Company from 1988 to 2010. From 1990 through 2010, the Denton-Rawhide Mine produced 1.5 million ounces of gold and 12.7 million ounces of silver, according to Muntean (in Nevada Bureau of Mines and Geology Special Publication MI-2010, 2011). In 2010, the Denton Rawhide Mine was acquired by Rawhide Mining Company LLC (“RMC”) a private company, who continued to produce gold from historic heap leach pads. In late 2012, Rawhide Mining Company re-commenced production from the mine.
In late 2012, Emgold announced a deal whereby RMC is doing a CDN$1 million private placement into Emgold. Emgold will use part of the proceeds to buy out the underlying property interests in the Buckskin Rawhide East Property, which it will subsequently lease to RMC. RMC is now acquiring a second property, the Regent Property, from Pilot Gold Corporation (TSX: PLG), as per Pilot’s January 15, 2013 press release. Emgold’s Buckskin Rawhide East Property is surrounded by Denton Rawhide Mine on the east and south, and by the Regent Property on the west and north. Emgold’s Buckskin Rawhide West Property is adjacent and to the west of Regent and its Koegel Rawhide Property is just three miles south of Denton Rawhide Mine.
Conclusion
If you are looking for a junior gold company to put on your radar screen, one with an existing substantial resource and many paths to significant potential upside, Emgold definitely qualifies to be there. Is Emgold on your screen?
If not, maybe it should be.
Richard (Rick) Mills
Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites, including:
WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTReport, Vantagewire, Indiatimes, ninemsn, ibtimes and the Association of Mining Analysts.
If you’re interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us atwww.aheadoftheherd.com
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Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.
Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.
Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
Richard does not own shares of Emgold Mining Corporation (TSX-V: EMR).
