Thursday 19 April 2018

Silver outperforms gold for a change

There seems to have been increased talk about silver over the past few weeks.  Rather than rehashing the reasons why, here are a couple of good articles about how it may be silver's turn to shine:
I'd also previously indicated on this blog that a gold-silver ratio of 80 has historically marked the bottoms for silver.

Interestingly, silver moved up 2.5% yesterday while gold was only up 0.2%.  Could this be the start of a mean-reversion trend that sees silver move back towards its more typical range of 1-to-65 versus gold?  That would imply that silver should be trading at $20.75/oz, based on the a gold price of $1,349.  I hope so, given the significant silver exposure in my portfolio.  However, I have a hard time believing that silver can have a significant rally without gold's participation.  If gold can break out of its range and trade above $1,370, then I think silver will do very well.

While on the topic of relative performance, Scotia Mining Sales had an interesting graphic yesterday showing the performance of over 50 gold and silver mining stocks.  I thought the variability of performance was quite interesting, especially given that gold, silver, the GDX and GDXJ were all huddled right around the 0 mark.  Picking the right stock in the past year certainly made a big difference on returns.  

Red = Gold
Blue = Silver
Yellow = Streaming/RoyaltyCo
Black = Index / Commodity
Source: USD-Adjusted Price date from Bloomberg, Chart and Colour Scheme from Scotia Mining Sales

I don't own any of these stocks at the moment, but have done well in the past with Franco-Nevada, a relatively safe way to play gold.  B2Gold (one of the favorites of the IKN Blog) looks interesting.  On the flip side, while I've traded Pretium in the past before it started mining, I wouldn't touch it now with a 10 foot pole because there is way too much risk that lower than expected gold grades are going to persist.  If gold and silver do break out, a good way to play it is to buy producers with relatively high cash costs because that provides exponential margin growth when precious metals prices move.  While I'm not a huge fan of Kinross because of the baggage it carries from bad acquisitions, that stock does typically have high leverage to gold prices and can soar in a positive gold environment.  In the silver space, Endeavour Silver has fairly high cash costs and greatly benefits from higher silver prices.

No meme in this post, but I do have a joke.  What do you say when you drop a gold bar on your toes?  Au!!!

Tuesday 10 April 2018

Tin - no longer a boring metal!?!

Tin is a boring metal.  It is used predominantly for solder (yawn!), and for applying a thin, corrosion resistant layer on metal (a.k.a. tin-plating) (double yawn!).  Or, so at least I thought.

Recently, Rio Tinto Ventures hired MIT to study which metals would be most impacted by new technologies such as autonomous and electric vehicles, renewable energy, energy storage, and advanced computing and IT.  Never in my wildest dreams would I have expected tin to come out at the top of that list, edging out lithium and cobalt.

We've all heard lots of hype about lithium, cobalt, nickel, and even vanadium being the hot metals associated with electric vehicles and batteries.  Lithium has lost some of its luster due to Tesla's struggles as well as potential that SQM could flood the lithium market.  I still like cobalt due to the supply concentration from the DRC, a hellhole of a country that, ironically, has amazing mineral endowment.  But, this is the first time I've seen or heard anything about tin possibly becoming a hot metal.

How does one play tin?  I don't think there are many tin companies.  One TSXV-listed company I found is Alphamin Resources Corp. (TSXV:AFM).  Alphamin is in the process of building a tin mine with some spectacular grades and expects to be producing tin in Q1 2019.  But, guess what?  It is located in the DRC!  So, between its undesirable geopolitical risk and being in the undesirable phase of building a mine, I personally will pass on Alphamin.  However, if you are OK with the DRC, then take a closer look because Alphamin is a real company with a $194M market cap and it looks destined to become a producer.

Another tin company on the TSXV is Eurotin, which has the ticker "TIN".  It has a $7M market cap, despite not even being able to sustain its website.  I'm sure that a tin rally might bring this back to life, but I don't have the time to go digging to see if this is a diamond in the rough.

Strongbow Exploration (TSXV:SBW) looks like another decent tin play.  Strongbow holds the fully permitted South Crofty tin mine in Cornwall, UK.  A 2016 PEA suggested pre-production capex of $118.7M with a 23.4% IRR and after-tax NPV(5%) of $130.5M at US$10/lb tin.  Those economics are not terribly compelling, but they could be if tin goes on a tear.  Strongbow appears to have solid management and backing from the Osisko group.

Strongbow was kind enough to provide a summary of tin projects in its corporate presentation.  The comparison suggests that their resource is quite small, but their presentation suggests growth potential of 17 to 21 million tonnes.  So, a cursory glance suggests that Strongbow is interesting tin company in a good jurisdiction...not the DRC!

Part of the reason I was so excited to see MIT flag tin's potential is because one of my clients (and major holdings), Tinka Resources (TSXV:TK), has a significant tin resource.  The Ayawilca Tin Zone has an Inferred Mineral Resource of 10.5 million tonnes at 0.70 % Tin Equivalent (0.63 % tin, 0.23 % copper, 12 g/t silver) containing 145 million pounds of tin (66,000 tonnes), 53 million pounds of copper, and 4 million ounces of silver.  Relative to the table above, that puts it in the middle of the pack in terms of size and grade.  Considering that the market is not giving Tinka minimal, if any, value for the tin resource, that adds a compelling angle to Tinka.  The bullish outlook for tin by MIT will cause Tinka to emphasize the tin resource some more.  Given the beating Tinka's share price has taken this year, culminating in a financing at a disappointing price this month, some positive news to get retail investors excited again is very welcome.  Go TINka!

Trying to Build a 10-Bagger

Evolve or Die This blog started as an experiment when I was toying with the idea of starting a mining newsletter.  I figured that if I was r...