Like Exploration? Buy Gold & Silver Producers
When most people think of juniors, they think about exploration companies and drill plays.
The appeal of these stocks is their huge upside potential. One drill hole can change everything and make you rich.
However, the odds of success are extremely low. There are thousands of failures for every monumental success, like Snowline Gold or Great Bear Resources.
There’s a better way and safer way to invest in exploration.
Buy the producers that invest in exploration.
Producers can fund exploration out of their cash flow. Exploration companies have to issue shares continuously, and this becomes extremely dilutive if they do not add value with every drill program.
If a producer makes a discovery at or near an operating mine, it can add significant value because the capital to mine that new resource is extremely low. Generally speaking, they do not need to build a new mill or processing facility.
Kirkland Lake Gold was the greatest success of the past ten years, and it all happened because of a significant discovery at an operating mine.
Crocodile Gold was acquired by Newmarket Gold in 2015, which was then acquired by Kirkland Lake Gold in 2016. The stock went from $1 in 2015 when the Eagle Zone was discovered to $8 in 2016 after the ultra-high-grade Swan Zone was discovered, eventually reaching $50 in 2019.
Wesdome Gold is another example. In 2016, it discovered high-grade mineralization in the deep zone at its Kiena mine. After a sector decline, the stock went from C$1.70 in late 2017 to nearly C$15 in 2020.
A discovery by a producer need not be 3M oz Au to have a viable impact. The Swan Zone at Fosterville by 2019 totaled 2.34M oz Au @ 49.6 g/t. The Kiena Deep discovery grew to 835K oz Au @ ~17 g/t by the end of 2020. Sometimes, as little as 500K oz Au can move the needle.
While successes like these are difficult to find, I am always on the hunt for growth-oriented producers who invest significantly in exploration.
