Gold Major & 2 Juniors, Leverage Compared

You are always going to get far greater leverage to the gold price among junior exploration companies compared to the major gold companies. The leverage of the major is about 3, whereas the leverage among the juniors is about 70.

Newmont Goldcorp
819.63M shares outstanding
x $37.45/share = $30.7 billion market cap
Source: https://investors.newmontgoldcorp.com/stock-information/default.aspx

Newmont Mining Corporation (NYSE: NEM) (Newmont or the Company) reported gold Reserves of 65.4 million attributable ounces for 2018
Source: https://www.newmontgoldcorp.com/operations-projects/reserves-and-resources/

65.4 M x $1400 = $91.6 billion

Leverage? 91.6 / 30.7 = 2.98

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West Kirkland
http://www.wkmining.com/_resources/presentations/WKM-Corporate-Presentation.pdf

428,022,975 shares fully diluted
Stock: WKM.V 4.5 cents/share
$19 million CDN Market Cap x .76 usd/Cdn
= $14.6 million market cap usd.

762,000 Au ounce Reserve in Nevada. at ~1 gram per tonne.
x $1400 gold = $1,066,800,000

Leverage? 1066 / 14.6 = 73

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Guyana Goldstrike
https://www.guyanagoldstrike.com/
$.155 CDN x 58.4 million shares issued: $9.05 million CDN. x .76usd/cdn
= $6.9 million USD.

Highlight! “Mazoa Hill zone 43-101 Mineral Resource Estimate – 259,100 Indicated Au oz within 4,428,000 tonnes grading 1.8 g/t, and 86,200 Inferred gold ounces within 1,653,000 tonnes grading 1.6 g/t”

Total indicated and inferred ounces = 345,300 oz. gold x $1400/oz. gold = $483 million.

Leverage? 483 / 6.9 = 70

For my prior report on Guyana Goldstrike:
https://revealingfraud.com/2019/06/silver-gold/guyana-goldstrike-private-placement/

(Leverage changes quickly, based on stock price changes. The stock is up to $.155 from $.13 earlier this week.)

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What is this leverage? It’s a comparison of the value of the resources in the ground divided by the value of the company. It’s a measure of what you get, compared to what you are paying for.

For the major, it appears as if to make 3 times your money, you have to assume that the major will mine all of its resources at zero cost. This is not feasible, as mining costs are high. I think all the major mining companies are all very overvalued.

The majors are overvalued for a wide variety of reasons.

  1. There is too much paper money in the world.
  2. The majors, being the largest mining stocks, tend to attract large investments from funds who tend to allocate more money to the larger companies just to get a “sector based” allocation, rather than a value based allocation. It’s “big dumb quick” money, trying to enter the “gold sector”.
  3. People are attracted to the larger companies for the greater liquidity, as they are easier to buy and sell.
  4. People like the perceived stability and safety of the major companies.
  5. The majors are well known companies but the juniors are hard to find.

What is the difference between “proven and probable reserves” (of the major) and “indicated and inferred resources” (of the juniors)?

The primary difference is that the indicated and inferred resources are not yet backed up by a full feasibility study. Meaning, they might not be economic. But before millions are spent on a feasibility study, we investors can try to estimate the potential feasibility by looking at both the grades of the ore, and the remote or proximate location of the project. If it’s located in a mining district, the potential distance problem is typically solved already.

A secondary difference is legal. “indicated and inferred resources” are a “Canadian National Instrument 43-101” legal designation, and this explains why most exploration companies are registered and trade in Canada.
https://en.wikipedia.org/wiki/National_Instrument_43-101

Even in flat market, where the gold price is not moving, you can make far greater money from investing in junior mining companies, compared to the majors.

11 replies on “Gold Major & 2 Juniors, Leverage Compared”

  1. I checked your West Kirkland calculations because they looked funny, but it checked out. Nice comparison, but aren’t these juniors both just potential resources, in other words, you’re comparing a large gold producer with 2 gold in the ground resources? There’s a lot to be done before a potential resource can begin to produce. Sometimes the potential can never be realized.

    1. You are correct, I AM comparing a producer to explorers, comparing ounces in the ground. There is a lot to be done to get a resource into production. It might not get funded, it might not be feasible, it might not get permitted, or funded to production, etc. I did not compare earnings, nor P/E ratios, as explorers have none. But go ahead and look at the PE of Newmont. It’s not good. Yahoo Finance says it’s 86. That’s extremely high, another indicator of poor value. https://finance.yahoo.com/quote/NEM/

  2. What is your opinion on a fund like GDXJ as compared to select individual junior? I noticed that most of the companies listed in the GDXJ fund are on the Toronto exchange which makes it more a problem to buy for an investor based in America.

    1. While I don’t like to change the oil in my car, I do like to direct my own investments. Reason is that investments are a lot more important. Funds are a good quick parking place if you want to make a decision quickly, before doing the “work” of evaluating an entire sector, which can take months.

  3. Jason:
    How NICE to see you online. I truly missed reading your thoughts. Years ago, (2011/2012???) you mentioned a small mining company and I bought their less than one dollar stock. I wonder if you remember what the name of that company was? Are they still around? It would go up a few pennies and I would sell and wait for them to drop again. Yes, I made quite a bit of money and when I mentioned it to you, you stated you were waiting for it to reach a certain number, but it never did. Be well and again, you are highly esteemed in my mind!!
    Thank you sir,

    1. Thank you. Last company I touted strongly was Mines Management. They were bought out by Hecla Mining, at a much lower price than I had hoped. Then Hecla Mining stock price dropped significantly.

  4. Mr. Hommel, I am glad you are back. I used to read your silver stock report regularly and followed some of the recommendations. I have held onto all of the penny mining stocks I bought back then. Some are still hanging on. Others tanked. It is difficult to find any information on most of them. Would you please comment on the following mining stocks?
    General Moly GMO, Coronado Resources (Interlapse Technologie) CRDAF, Klondike Silver KLSVF, NorZinc (the old Canadian Zinc).
    Norzinc is the only one on which I receive news, but would like to hear your thoughts on it. If you have any thoughts on Firma Holdings FRMA and Silver Bull Resource SVBL I would be interested in hearing them.
    Sincerely,
    F. Kuhn

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