Spot Gold closes at $2,614 USD - what it means for Tocvan. Tocvan traded only 97,909 shares for the entire week, less than 5,000 shares on Thursday, and didn't even trade on Friday. I believe the low trading volume implies there are simply too many factors at play for shareholders to part with their shares at these low prices. The probability of Tocvan achieving production in the near term remains very high.
Tocvan provided an update at the beginning of the week. Results are pending for 476 samples collected along the northern and eastern extensions of the Main Zone, North Hill and 4-T Trends. These samples cover an area over 2.2 times the original concession, representing the potential for a significant increase in resource. It is interesting to hear they have discovered multiple artisanal underground workings that have been tied to a broader mineralized system. Progress is ongoing for the permitting of a 50,000 ton pilot production facility.
Drilling is a bit dependent on the weather but will hopefully start later in the month. They are anticipating between 1,200 to 2,000 meters of core drilling for resource definition with emphasis on the Main Zone, and 1,700 to 2,500 meters of reverse circulation drilling to conduct further step-out and infill drilling. This should provide a maiden resource estimate by the end of the year that will be sufficient to showcase the real potential of Pilar. They have contracted with CANMEX for 3,000 to 5,000 meters of core drilling, this contract accompanies a 10,000 meter contract for RC drilling across Gran Pilar that was established earlier.
I have been constantly asked by shareholders, "why are the volumes so low?"
My answer is short and sweet, "Brodie is building a company not a promotion". I know this sounds rather pretentious, but I believe Tocvan's story is solid, and the real answer is partially tied the downturn in the mining sector for the last several years.
China is the largest gold producer in the world accounting for about 10% of the world's production, followed by Russia, Australia, and then Canada. Gold production plateaued in 2016-2018 when record high production was reached. Since then, global production actually decreased 1% in 2020 for the first time in over a decade. It has been relatively flat since then with gold increasing just 1.35% in 2022, and only 1% in 2023 to about 3,600 tons.
In part, this has created a unique supply and demand situation, which is partly responsible for the recent increase in the price of gold. The industry started to react with the injection of capital beginning in 2023, resulting in a 4% increase in gold production during first quarter of 2024 year-over-year.
But it gets better, there has been a 16% increase in gold production since the first quarter of 2024. Interestingly, this increase hasn't been because of new mines being brought into production, but rather there has been a shift toward mining lower grades (4% lower), suggesting that in order to capitalize on the rising price of gold, they have decided to mine lower grades rather than finding new resources.
This isn't a sustainable business model.
For those not watching the composition of the broader gold market, it is interesting to see how recycled gold impacts the supply and demand of the gold market. This practice is loosely termed "Urban Mining", i.e., the purchase and selling of gold unrelated to gold production. This activity accounts for about 1,200 tons, or about 33% of the gold produced in all of 2023 from mining operations, representing a significant portion of the overall "gold food chain".
Recycling gold is an important part of the gold market, and as the world's population continues to grow, it is anticipated the net effect will be the removal of gold from the market through a process termed "Hoarding". This is particularly prevalent during the current times of escalating geopolitical risks, decreasing interest rates, a tool to hedge inflation, and of course, the "Pure Pleasure" of buying gold for personal use.
Taking into consideration the net effect of all the factors mentioned above, the price of gold is likely heading much higher.
I must say that I am getting pretty excited about a major run in gold. Gold contracts pushed a high of $2,614 USD on Friday, this is exciting. Gold's performance has been nothing short of spectacular, up 33.95% over the last year, 26% YTD, and 10.9% in the last 3 months alone. It also looks like the price of gold has fully consolidated in the $2,200 to $2,400 USD range.
The forces of supply and demand are beginning to take hold, for example, Barrick gold production is at a 20 year low, and commercial sellers such as Costco have sold record amounts of gold to the average shopper. Combine this with personal consumption of gold at a record clip by countries like China, India, and Saudi Arabia, the overall negative effect on supply is beginning to have an impact on price.
The United States has the largest gold reserves in the world holding 8.1 tonnes, largely held in Fort Knox, followed next by Germany with only 3.3 tonnes, then about equal amounts by Italy, China, and Russia. Other countries are beginning to change their monetary policies, which has also put an upward pressure on the price of gold.
The average time it takes a company to proceed from discovery to production is about 10 to 30 years. A study of 127 mines reaching production took on average 15.7 years. There are over 3,000 junior mining companies listed on exchanges around the world of which the probability of the vast majority of these companies reaching production is very low. The full life cycle of exploration, reserve identification, and permitting is very costly. Adding further complexity to the production cycle, is the actual discovery of new gold properties. Many of the productive mining areas around the world have largely been explored, thus it is getting more and more difficult to find significant new reserves. Interesting to note that the vast majority of the gold is produced by only 40 Global mining companies, so the supply can be quickly interrupted by environmental, labor issues, and Political situations.
You are likely asking yourself, why have I reviewed the supply and demand factors related to the price of gold.
My hypothesis is simple, advanced companies like Tocvan Ventures, if they manage to achieve production, and/or build a significant resource, they will become a takeover target by a major producer looking to expand their dwindling resource. I believe all the factors are there for gold to remain strong, and go higher, thus money will eventually follow the more advanced junior gold resource companies.
Tocvan Ventures is a typical example of a company that acquired an existing discovery with about 17,000 meters of drilling but no resource estimate or proven economic extraction model. They have continued with exploration for about 4 years, conducted essential metallurgy and extraction testing, and concluded a very successful smaller scale, heap leach test. They are also very close to publishing a maiden resource estimate and bring the Main Zone of Pilar to full Proof-of-Concept with a 50,000 ton pilot production plant. If one does a comparison with other gold companies, it quickly becomes obvious that the value proposition for Tocvan is excellent.
The cost and time to production is far less with an open pit mine than with an underground hard rock mine. The geology of the area has been heavily weathered resulting in surface exposure of gold related structures, a constant grinding of top of these gold veins distributed gold along and within the upper surface. Image it like an uneven surface, with the dips filling in first with gold rich material and eventually spilling over into the rivers and valleys below. This has happened over millions of years. All of the indicators are present within Gran Pilar, from intense Placer mining along the old river beds at lower locations, to the existence of open audits scattered throughout the property, which local miners have exploited underground veins of gold using old techniques for generations.
I believe Tocvan is in a sweet spot with rising gold prices, making the economic proposition compelling from a number of viewpoints, specifically: 1) excellent share structure and ability to raise capital, 2) the cost required to operate an open pit mine is substantially less than an underground mine, and 3) Tocvan is a legacy company with an existing mining concession, so the approval process is relatively straight forward.
As my dad always said, "Make the best call you can with the information available", simply put, put trust in your own due diligence. I believe that if the price of gold continues to climb, the rest should take care of itself.
I am beginning to feel that previous to this time we have been simply playing checkers, now we are about to switch over and play the game of chess.