- As recession fears emerge amid slowing global growth, signals are emerging of a possible resurgence in gold, precious metals, and the mining industry as a whole. The public mining sector has been stagnant (for investors) for most of the 10-year U.S. economic boom, but that could be changing
- Gold has finally found a bid, and M&A among major industry players is booming as they scoop up under-appreciated assets. Ecuador has been a hotbed of activity and is a top destination for investors with some appetite for high-risk high-reward endeavors; junior miners are known for explosive moves
- Lucky Minerals (LKY) has a promising property in this region that is showing early signs of quality mineralization, and they’re performing deeper exploration in 2019. With some more good findings, LKY’s $15m valuation might not stay there for long
Ten years into an equity bull market and a booming economy, investors are right to be thinking about hedging opportunities in case of a recession. Gold had been left for dead through the last ten years, but the precious metal is showing signs of life and some signals are pointing to a possible resurgence.
The mining sector and junior miners are an intriguing proposition. In the aftermath of the 07-09 recession, for example, select junior miners were some of the best performers when they got going, with some returning multiples of their languishing stock prices.
Consolidation and M&A are taking off in this industry as the supply of easy-access gold dwindles, and combined things could be looking up for junior miners. Ecuador has become a hotbed of activity as this region opens up to new foreign investment. It’s been untapped for years due to stringent government regulations, but that’s changing, and one standout undiscovered company with a promising property, Lucky Minerals (LKY), could be worthy of a look as gold starts to heat up.
The Smart Industry Money Is Acquiring Left-For-Dead Assets
Following the smart money is one of the best ways to source investment ideas, and the mining majors are telling you exactly what they’re most worried about: they need untapped gold supply, and the M&A activity in this sector suggests they like the prices they see.
According to Ernst & Young, Global mining and metals deal value rose 15% year-over-year to $51 billion in 2017, the highest total deal value since 2013!
Barrick Gold Corp.’s (NYSE:ABX)(TSX:ABX) recent $5.4 billion purchase of Randgold Resources Ltd. in 2018 was one of the largest deals in years. That was followed immediately by Newmont Mining Corp.’s (NYSE:NEM) $10 billion deal for Goldcorp Inc. (TSX:GG).
Golden Cross Pointing To A Gold Bull?
Gold also just experienced the famed bullish “Golden Cross” technical signal after a decade of stagnating. The term refers to what happens when a commodity or stock’s 50-day moving average crosses above its 200-day moving average. Investors and traders view this as a bullish signal that points to more upside.
Cornerstone Macro technician Carter Worth recently opined on CNBC’s “Futures Now” program that a “wedge” has formed in the gold chart over the past few years. “There is a lot of tension and typically this setup is resolved in a dynamic way,” he said. “Our bet is it’s going to be resolved up.”
Gold As A Hedge; Junior Miners Have Been Known To Rally
The technicals and fundamentals both may be pointing to a new gold rally, and this is especially attractive as investors consider increased macroeconomic risk and the potential for a new U.S. recession.
Commodity specialists at Goldman Sachs have found gold more attractive as a safe haven after a very volatile end to 2018, too. The bank recently raised its gold forecasts to $1,375 and $1,425 per troy ounce over the next six and 12 months. “The last few weeks have seen a sharp deterioration in risk sentiment following soft macroeconomic data in December and renewed concerns about the future direction of growth,” said Goldman’s Jeffrey Currie.
Buying gold outright is one way to hedge, but the explosive upside events often occur among the junior mining sector. They make for an interesting high-risk/high-reward shot on expressing this same hedge against a recession.
Immediately after the 2008/09 recession, Imperial Metals (TSX:III) had a 15x rally over 3 years, and Novagold Resources (TSX:NG) rallied from $4.00 in 2009 to $15 by 2011. Eldorado Gold (TSX:ELD) went from $35 to $108 between 2008 and 2011.
Pinpointing junior winners in the last 5 to 10 years has been more difficult as the entire industry has been asleep in the public markets. Investors simply had no interest - but now, it’s clear that the majors are putting money to work scooping up cheap assets and are looking for untapped resources the world over.
Ecuador Seeing Significant Investment, LKY Still Going Undiscovered
Ecuador is seeing a renaissance of its precious metals industry as the new government opens these borders to outside investors, making it an attractive place to look for unique precious metals plays. The famous Fruta Del Norte mine just received a $400 million influx of investment capital from Lundin Gold (TSX: LUG) after they purchased it in 2015 for $240 million. Australia’s largest gold producer, Newcrest Mining (ASX:NCM), upped its stake in SolGold (TSX:SOLG) in December 2018 to 15% for access to the promising Cascabel property in Ecuador, and major BHP Group (NYSE:BHP) is already their number two shareholder at 6% of the company. The $30 billion Anglo American (LON:AAL) entered a joint venture agreement with Luminex Resources (TSX.V:LR) for three copper and gold concessions in the area.
Lucky Minerals (TSXV:LKY) (OTCQB:LKMNF) is exploring the newly tapped Fortuna property just 50km away from Fruta Del Norte, and the company is finding early signs of porphyry mineralization during prospecting. Fortuna consists of 12 concessions, and the company has been focused on a porphyry system in just one area, Fortuna 3. After recent sampling, they’ve reported that surface prospecting has located what management believe is a mineralized system ovoid in shape 1.3 km long with an estimated width of 1 km. Among 48 initial samples, assays of up to 0.075% Cu (750 ppm), up to 0.03% Mo (300 ppm) and up to 1.21 g/t Au were reported. Anomalous gold values from 0 of up to 130 ppb have been also reported in breccias within the porphyry.
All this is suggestive that the company may be onto a major porphyry system at Fortuna 3, an early sign of copper and gold in the area as a result of cooling magma that rose from deep in the earth long ago. The company is planning field follow-up, while 50 mineralized samples from more recent veins have already been sent for assaying with results pending.
What might success look like for LKY? Aurania Resources (TSXV:ARU)(OTCQB: AUIAF) (Frankfurt: 20Q) demonstrates what the right findings can do for these Ecuadorian explorers. Aurania is slightly ahead in the exploration of another Ecuadorian project called the Lost Cities Cutucu Project. The company has a market value on the Canadian Venture exchange of CAD$95 million, versus Lucky’s $15 million market capitalization. The difference could be no more than a little time and further exploration, and Lucky is planning more prospecting and possibly core drilling in 2019.
Coming-out parties happen fast when sectors get discovered (or rediscovered). Cannabis companies like Amyris (AMRS) or The Green Organic Dutchman Holdings (TGOD.TO) have gone from total unknowns to mainstream in a matter months. Now, the time could be right for Ecuad orian juniors, like Lucky, to have their own breakouts.
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