New Found Gold Corp V.NFG

The Potential Problem for Junior Explorers

[AlwaysLong683]

In the past few weeks, junior gold explorers have seen share prices drop signfiicantly more than senior producers. This is typical in most sectors when the market is falling - small caps tend to get hit harder than large caps, but also tend to rebound higher when the market moves upward again.

For example, many Canadian small cap tech stocks have been absolutely hammered not just over the past few weeks, but over the past year. I think it's because many of those same companies shot up much too high during the thick of the COVID period, then came back to earth when the market realized they were way overpriced given many are still not generating a net profit as defined by positive EPS. Then, with rising interest rates, those that have taken on signficiant debt (along with others who are also being dragged down given the entire sector is out of favour) are being nailed again with even lower share prices as the interest payments on their debt will rise as debt maturities come due while many have very limited cash flow.

I bring up the above because I think, in the case of junior gold explorers, it's not rising interest rates that are the big concern, which I think will rise a lot higher throughout the rest of 2022 given that the long run of very low rates we experienced since the 2008-09 financial crisis was not normal and was bound to trigger inflation at some point and thus higher interest rates.

Rather, as I stated in a previous post, I believe inflation is the problem. Junior gold exploration-stage companies have little debt yet ongoing expenses couple with no revenue, so higher costs caused by inflation is what would hurt them the most in my view. They can't control the ups and downs of investor sentiment and thus their share prices at any given point in time, but I suspect a number of investors who follow junior gold explorers realize the threat of inflation and rising expenses and are shying away accordingly. Even if the price of gold rises, junior explorers can't take advantage of them because they have no gold to sell, though again, investor sentiment may become a positive and "rise all boats" in the gold sector regardless of production if the gold price gets high enough. This would still not solve the problem inflation for junior explorers however as they would continue to incurr expenses at the going rate.

For gold producers, the big concern re. inflation is not only their variable cost per ounce (which I don't think would be huge on a per ounce basis), but also those who are starting or in the midst of building a mine in a country (like Canada or the USA) as mine costs will very likely rise as they work toward completion of the project.

I believe mega recently referenced IAMGOLD, a gold producer which partnered with another and are in the midst of constructing the Cote Gold Project near Timmins, Ontario. 

Here's an excerpt from their Q1 2022 Results PR dated May 3:

"On February 23, 2022, the Company announced that certain inflationary and other cost pressures had been identified impacting earthworks, electrical and instrumentation components, operations spare parts, key consumables, freight costs, indirect costs and EPCM services resulting in projected remaining costs to completion at that time to trend upwards above the high end of the range of the previous estimate and the timing of costs to potentially vary."

Canadian Inflation Rates in 2022 so far:

January     5.1%

February   5.7%

March        6.7%

However, gold producers who aren't currently developing a new project that is signficant given their size would still be OK in the grand scheme of things if the price of gold shot up and they could sell their ounces for more and more money (much like oil producers are currently eperiencing a boom after years of depressed share prices because of the sky-high price of a barrel of oil).

I think knockout assay results would trump inflationary / rising cost concerns among investors re. share price appreciation, so I suspect additional monster assay results or an impressive new zone would give a nice shot in the arm to NFG's share price. If not, NFG shareholders need to hope that some unforseen event boosts the share price significantly before the next equity raise, which will depend on how much any increasing monthly expenses may cause them to have to move the next planned equity raise forward.

[goldstd69]

I dont see NFG having an equity raise...they seem to have plenty of money to move forward in 2022??

[likeike]

They have more than enough to last into next year unless of course we start mining on  our own early but then again we can use our line of credit at Sprott inc at a more favourable rate from one of our largest shareholders. Gee this is exactly what I kept repeating endlessly one year ago now I actually have guys listening. I really hate this constant fixation on POG which affects no

[braindeadoldguy]

This post has been removed in accordance with Community Policy

[likeike]

goldstd69 I got onto the origin of this thread on my i-phone and really hope you are not listening to that windbags twisted logic.  After a long diatribe on the high tech sector (totally unrelated) then swing into the  gold exploration stocks that trade for pennies and are starved for cash is just totally  daft. Guess he did not know the market cap here is over a billion and