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2019-10-24 03:25:04

'Just say no' The Fed cannot - announcing a new QE round two weeks ago. The Fed does not want to call it QE, and Chairman Powell emphasized that it is more of a mild adjustment. I talked about the soaring rates in the repo market about a month ago, and the Fed is injecting funds there. The Fed's new QE program of $60 billion per month will continue into the second quarter of 2020. QE is back, it is what it is, calling it a different name means nothing. The Fed and U.S. markets/economy are hooked on QE like a bad drug. They could not go long without it.

This is an old chart of the Fed Balance sheet and what was projected in bringing the balance sheet down from past QE programs. The red line is the reality I pasted in based on current Fed balance sheet data. They did get down to $3.759 trillion and are now up to $3.966 trillion. They will be adding on at least $60 billion per month so soon, the balance sheet will be back to the peak of 2017.

In the last QE program of 2013, not all of the $85 billion per month went into Treasury bills. $45 billion went to bills, while $40 billion went into mortgage-backed securities. Today, the whole $60 billion goes into bills, making this bigger than the old QE.

Next, I have a chart of December Comex Gold (GLD). There is a wedge pattern that has developed, and gold will soon break out of that to the upside or downside. If it is down, there is good support around $1,430, but with QE announced, I think the odds point to an upside breakout. In any case, the correction in gold and gold stocks is a buying opportunity, so I have a mid tier producer to consider.

I remember Endeavour Mining (Financing) [TSX:EDV] (OTCQX:EDVMF) that I bought back in 2002 and 2004 for around C$2.00. It had gains of about 500% when it went over C$10 in 2007. The stock did very well, but eventually, I was stopped out of it in 2008 with the crash and a large profit. The stock then ran up to C$30 in 2011 during the gold bull market. I wish I would have got back in at the gold bottom of 2013-2015 when the stock was down to C$6 and less. It just hit recent highs over C$28 and at today's price of C$23 has a market cap of about C$2.5 billion.

I have something that could even have more potential with the same proven management group. They have started a new company with a market cap at this time of only $700 million. This will be a strong growth story over time.

Leagold Mining (OTCQX:LMCNF)

52-week trading range $0.95 to $2.33

Shares outstanding 285 million approx. Fully Diluted 353.4 million approx.

Key Shareholders shares in $millions and %

Yamana Gold (AUY) $58.1M 20.4%

Orion Resource Partners $45.7 16.1%

Newmont Goldcorp (NEM) $34.6 12.2%

Frank Giustra $8.7 3.1%

Neil Woodyer $8.2 2.9%

Leagold Mining is a mid-tier gold producer focused on Latin America. Leagold owns four gold mines in Mexico and Brazil. They also have two fully funded growth projects, the expansion of the Los Filos mine complex in Mexico, and the restart of the Santa Luz mine in Brazil:

Leagold's four operating mines will produce 380,000 to 420,000 oz of gold in 2019 at all-in sustaining costs of $920 to $970 per oz;

Leagold's two fully funded growth projects - the expansion of Los Filos and restart of Santa Luz - provide a path to 600,000-700,000 oz of gold production per year;

The Los Filos expansion is scheduled to begin in Q3 2019, with a phased development plant that prioritizes the Bermejal underground beginning in Q3 2019, followed by Guadalupe open pit stripping beginning in Q4 2019, and CIL plant construction starting in mid-2020;The restart of Santa Luz is scheduled to begin in early 2021 with a 10-month construction timeline.

The management includes many from the past Endeavour Mining team, Doug Reddy Senior VP, Doug Bowlby VP Corporate Development, Richard Thomas, VP Operations and others, including Neil Woodyer, CEO that was a founder of Endeavour Financial and Frank Giustra.

I made a fortune with Wheaton River Minerals (673% on the takeover) and Goldcorp (NYSE:GG) (1,030% when stopped out in 2011 at $44). Rob McEwen, Goldcorp founder and Giustra purchased Wheaton River Minerals in 2001. In 2005, it was taken over by Goldcorp, and I am sure that anyone who knows a bit about gold knows the rest of the story with Goldcorp.

This video interview with Frank Giustra is a must watch, from September 2019. Not just about Leagold but his market and gold outlook. He comments that this is the 3rd phase in the gold bull market and will be the most explosive phase.

Management

Frank Giustra, Chairman is CEO of the Fiore Group, a private firm managing a broad portfolio of private equity investments and companies, specializing in food and lifestyle, art and entertainment and natural resources. He has an established track record of building natural resource companies through access to capital and creative deal-making. As President and later Chairman and CEO of Yorkton Securities in the 1990s, he grew the firm into a leading natural resource investment bank. As Chairman of Endeavour Financial from 2001 to 2007, his vision and leadership led to the successful launch of numerous resource companies. Mr. Giustra is a strong believer in philanthropy and devotes much of his time to a variety of causes.

Neil Woodyer, CEO and Director has extensive history in the mining sector creating growth strategies, implementing financing plans and leading management teams. In 1988, Mr. Woodyer was a founder of Endeavour Financial, a successful mining merchant banking and advisory business. In 2009, Mr. Woodyer, then Endeavour's CEO, and Mr. Giustra devised Endeavour's gold growth strategy, and in 2010, Mr. Woodyer led the transition of a financial company (Endeavour Financial) into a mine operations and development company (Endeavour Mining). Endeavour Mining successfully grew into one of the largest gold producers in West Africa through a series of acquisitions, successful expansion and optimization projects, and new mine construction. Mr. Woodyer left Endeavour Mining in June 2016.

Attie Roux, Chief Operating Officer, is a Metallurgical Engineer with over 40 years of operational, technical and executive management experience in the mining industry. He was the COO of Endeavour Mining Corporation until July 2017, where he was instrumental in the development and growth of the company over a seven-year period. Prior to Endeavour, Mr. Roux worked as a metallurgist for AngloGold Ashanti for more than 30 years, including at some of AngloGold's most successful mines in West Africa such as Siguiri (Guinea), Iduapriem and Obuasi (both Ghana). Recently, he has been providing consulting services to Leagold and has in-depth technical knowledge of all of Leagold's operating mines and projects. Mr. Roux is a Registered Professional with the South African Council for Natural Scientific Professions.

Properties

I will use a few slides from Leagold's presentation to highlight their production.

Santa Luz Project

Santa Luz was closed in 2014 and is planned to restart in 2021. An updated independent feasibility study was completed in October 2018 outlining a short 10-month timeline to restart. Leagold designed a two-phase approach, with initial phase reducing strip and accelerating cash flow, then a decision point in year three includes option for larger open pit and evaluation of upside potential from underground mining. Permits are in place for construction/resumption of operations.

Proven & Probable reserves are 1.3 Moz gold. The mine is projected with gold production of 1.06 Moz over an 11-year mine life and an AISC of $856/oz.

Financial

Last financials reported August 1st show $52.8 million cash at June 30, 2019. Also during Q2 2019, Leagold completed a $400-million debt refinancing, which was used to repay existing debt and provide additional financing to finance the phased exploration of the Los Filos mine complex and construction of the Santa Luz project.

The $200 million term loan has payments starting Sept. 30, 2021 until Dec. 31, 2024. Outstanding amounts on the $200 million revolving credit facility are due Dec. 31, 2024. Both have an interest rate of LIBOR plus 3.75% to 4.45% depending on the company's net debt.

Conclusion

I expect Leagold to leverage their M&A experience and access to capital to build the company into an entity with much higher production, reserves and market valuation. On the horizon that I see now, the company has substantial production growth ahead of them with the restart of Santa Luz and the Los Filos expansion.

The expansion of the Los Filos Mine will result in a considerable increase in production. The mine will add in underground production in 2022 with a 4,000 tpd Carbon in Leach (CIL) plant processing ore with grades of 6.5 g/t. The Guadalupe open pit will start stripping in Q4 this year with ore production to start in Q3 2020, so this will phase in two open pits. You can see the large jump in heap leach production for 2021 in the chart below. Taking the 2021 blip of higher production out of the chart, it is easier to see a nice ramp up to 400,000 ounces produced in 2024 with a combination of heap leach and the CIL plant.

After just 3 years, Leagold has four producing mines with 400,000 ounces per year of production with two fully funded growth projects to move into the 600,000 to 700,000 oz/year range. They have 7.1 million ounces of proven and probable reserves among a total of 14.757 million ounces of measured and indicated resources.

The recent dip in the share price is a good entry point into Leagold that is still valued quite low. The current market cap is about C$712 million or US$ 540 million. Ignoring the cash on hand, this values their 14.757 million M&I resources at about US$37 per ounce, very cheap for an intermediate producer. In fact, very cheap for any producer or gold company with resources. If this successful management team does half as well as they have in the past, we stand to make a lot of money owning this stock. In a gold bull market, it will just be that much better.

Leagold got started in 2016 when there was a very robust rally in mining stocks. The stock opened to trade in April 2016 around $2.00 and climbed to almost $2.80. I show a 3-year chart below that captures all the trading history that includes the stock coming down from the 2016 peak. I note a double bottom, and soon after, the stock broke above $1.60, and then, it shows a gap up to $2.30. The stock has come back and filled that gap, which you will often see happen. This means the pullback or correction is over, but if there is further weakness, there is stronger support around $1.70. I find this all short-term noise because the stock offers great value at these prices and at prices beyond the $2.80 highs.

Blackrock Gold Corp. (OTCPK:BKRRF)

This is an update from my July article. The stock ran up nice to about 25 cents and has corrected back down some. Blackrock announced an initial drill program on October 7th that will consist of up to 2,000m of core drilling on their Silver Cloud property in Nevada. Four holes are planned to follow up on past high-grade intercepts reported by Teck (including 158g/t Au over 1.5m) and by Placer Dome (5.5g/t Au over 12m).

Geologic modeling developed by Blackrock's team suggests that the historic high-grade precious metal intercepts may be associated with an east-west vein system rather than the north-south system that guided previous interpretations. This initial core drill program is designed to test the east-west interpretation over a 2km strike, with drill sites at each end aimed at targeting the Main vein and a sub-parallel hanging wall vein at a 1,500m elevation.

The next move in the stock will be determined by the drill results and whether the east-west running vein hypothesis is proven correct or not. The recent drop in the stock provides another good entry point for speculation on these drill results that could come out sometime in November. Keep in mind that drill speculation on thinly traded junior mining companies should be for risk capital only.

Disclosure: I am/we are long BKRRF, LMCNF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.


seekingalpha.com Ron Struthers
gold leagold mining stock million have production endeavour over into mine market



















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