GFG Moves Forward on Two Fronts
In my latest book I try to make the point that at resource stock market lows, you can’t give shares away. That is all by itself a great indicator of where we stand in the cycle. We are now easing into the weakest seasonal period of the year for gold and silver and many companies are selling near their yearly lows.
Gold and silver seem to have bottomed in late summer of 2018. Platinum tumbled to a new multi-year low in February of 2019. Shares generally are higher, some much higher but I think a correction would shake out the remainder of the bulls so I think we will be weak into mid-summer before gold and silver start to react to the Great Reset in progress.
When I go through the stocks I own and follow I am astonished at how cheap they seem. It’s not the same as 2001 and 2009 when a hundred companies were selling for less than the cash they have on hand but there appears to me to be a giant disconnect between price and value. Harvest season is approaching and there is a lot of low hanging fruit. It’s hard for me to believe prices to be so cheap for so long. It won’t last.
I’ve written before about an interesting project in Wyoming named the Rattlesnake project. It’s a large alkaline system similar in nature to Cripple Creek (28 million ounces) and Lihir (40 million ounces). Quinton Hennigh brought the project into Evolving Gold where they began to explore and drill the project. Evolving Gold later did a deal with Agnico-Eagle that valued the project at about $110 million. During the decline from 2011 until 2015 when gold dropped, Agnico Eagle requested an extension of time and was refused by Evolving. Evolving couldn’t gain traction with either the project and the market and eventually GFG Resources picked up the project as cheap as chips.
There is something I call the curse of large projects. When you have properties with giant potential such as porphyries or alkaline systems, they require tens of millions of dollars to prove up that resource. It’s hard for juniors and many a poor boy has met his end trying to advance a billion ton project and blown the company sky high trying to raise the money.
GFG management was brilliant. They realized they needed two important parts. One, they needed a Plan B project that matched both the state of the market in general and their ability to raise money to advance it. They found several projects in Ontario in late 2017 and put them together to have an alternative news flow to Rattlesnake. And two, they searched to find a suitable partner for Rattlesnake with deep pockets who could do a proper job of advancing an alkaline gold project. They found such a partner in Newcrest. It’s just my opinion but I happen to think Newcrest is one of the top mining companies in the world.
The deal is a little convoluted but basically Newcrest can increase their part of the Rattlesnake pie by making staged exploration investments of up to just short of $100 million to earn 75%. Clearly Newcrest sees the potential for millions of ounces of gold and is prepared to belly up to the bar to get their hands on it. It doesn’t hurt that former Evolving Gold president Quinton Hennigh used to work for Newcrest and they trust his judgment.
Investors tend to think of their shares as being lottery tickets. Commonly they want new lottery numbers to be announced every week. But junior resource companies have to think in terms of years of work to show real progress. GFG came up with a plan to advance the company via their investments in both Rattlesnake and Ontario and the pieces are starting to fall into place.
In Ontario at the Pen project, GFG drilled over 4,700 meters in nineteen holes in 2018. All of those results have been released and included a number of high-grade intercepts proving their geological model. The 2019 drill program is budgeted for $2.5 million and consists of two 4,000-meter programs. The Phase one two drill program started turning in February and will complete in April. There will be a constant news flow of results through the end of the year with Phase two starting in H2.
At Rattlesnake Newcrest is funding somewhere between $3 and $3.5 million for exploration with two drills starting in July. I would expect drilling to continue until winter arrives in October so the 2nd half of 2019 will have a lot of numbers for the lottery ticket holders.
GFG has one of the best management teams of all the companies I deal with. They are cashed up and I think their time is coming. With a market cap of under $20 million and a partner who has implied a value of over $33 million for GFG’s eventual 25% share of Rattlesnake, sooner or later a few resource investors will wake up.
GFG is an advertiser. I own shares bought in the open market and in the last PP. I am biased. Do your own due diligence.