TORONTO – Mining stocks, especially those in the exploration and development stage, are in the midst of a prolonged dip in sentiment, with many high-quality names down by more than 75 per cent from all-time-highs, despite global inflation having pushed commodities up over the past five years.
It is these same inflationary forces, borne out of the world’s re-emergence after COVID-19, that have pushed investors away from small-cap and micro-cap mining stocks, regardless of asset or operational quality, in exchange for the peace of mind of 3-4 per cent bond or savings yields, the highest since the 1990s, or owning physical commodities for their value preservation properties.
Core from Canada Nickel Company’s booth at PDAC 2024.
The current environment is the most propitious to invest in junior miners since the mid-2000s, leading into the Great Financial Crisis, when the S&P 500 and TSX Index were almost cut in half, unleashing a flight to safety in gold and silver that propelled the metals to all-time-highs.
Hundreds of companies that fit this thesis were in attendance this week at PDAC 2024, the Prospectors and Developers Association of Canada’s yearly convention to celebrate and expand Canada’s mineral resource industry. The convention – which ran from Sunday to Wednesday at the Metro Toronto Convention Centre – showcased enticing assets and experienced management teams from around the world, the majority of which have posted unjustifiably poor stock performances that should be ringing bells and whistles in value investors’ heads.
Stockhouse compiled commodity outlooks from six such companies in attendance, whose bright futures across gold, silver, lithium, nickel, copper and uranium represent a robust, untapped opportunity for investors keen to diversify into the junior mining space.
Founders Metals
Founders Metals (TSXV:FDR) is developing its flagship 20,000-ha Antino gold project in Suriname. The company has posted high-grade results from Antino since optioning the project in 2021 – most recently highlighted by 19 m of 14.23 g/t gold, 15 m of 8.18 g/t gold and 26 m of 5.52 g/t gold, and the discovery of a new gold zone in February – dazzling shareholders with a more than 397.22 per cent return year-over-year as of Thursday.
Founders is keen on continuing its track record of shareholder value, an outlier among the companies profiled in this article, with a fully financed 2024 drill program for up to 30,000 m, and an initial resource estimate with multi-million-ounce potential tentatively slated for Q2 2025.
Commodity outlook: Gold
Pascal Voegeli, Founders’ vice president of exploration, joined Stockhouse from the floor at PDAC 2024, commenting that “many of the macro fundamentals for gold are finally coming together. We’re probably going to see a weakening in interest rates soon, which should be a major catalyst for price action, especially after we just surpassed the US$2,100 per ounce threshold and retail is starting to re-enter the market. Possible recessionary influences and 2023 being the largest in terms of central bank purchases also play in gold’s favour.”
“Another supporting aspect is that a lot of the world’s major gold mines are nearing depletion,” he added, “and there’s been a massive deficit in exploration spending over the past 10 years, pointing to how this finally might be a time when gold prices translate into the junior stock market.”
Dolly Varden Silver
Dolly Varden Silver (TSXV:DV) is developing its Kitsault Valley project in British Columbia’s Golden Triangle, which houses the high-grade silver and gold resources of Dolly Varden and Homestake Ridge, and is considered prospective for more precious metal deposits.
The project resides in the same geology as numerous other on-trend, high-grade deposits, including Eskay Creek and Brucejack, in an area that has seen more than $5 billion in M&A since 2018. The project is also home to the Big Bulk property, which indicates the presence of porphyry and skarn-style copper and gold mineralization.
Kitsault‘s latest mineral resource estimate stands at 34,731,000 indicated silver ounces, 165,993 indicated gold ounces, 29,277,000 inferred silver ounces, and 816,719 inferred gold ounces, with recent high-grade drilling likely to increase mineral inventories for the next estimate.
The company is also 84 per cent owned by institutions and other companies, with a further 9 per cent with Eric Sprott, who is an institution all on his own, significantly de-risking the asset and management team for potential investors.
Dolly Varden’s stock, down by more than 40 per cent since 2014, has wallowed in obscurity, following silver’s relatively flat return over the period. But with silver entering its fourth-consecutive year in a deficit, and a new C$15 million financing backed by Sprott to propel further exploration, shares are nearing a critical mass in terms of untapped upside.
Commodity outlook: Silver
Diana Zoppa, head of corporate communications for Dolly Varden, told Stockhouse that “my outlook for silver has been the same since my dad told me they went off the gold standard in the 1970s and everything was going to hell in a hand basket. It’s real money, a store of wealth, and I think it’s prudent for investors to accumulate bullion contingent on their financial goals and risk tolerance. I think we’re at the beginning of a stellar bull market astronomically greater than any we’ve ever seen because global debt and currency devaluation are astronomically greater than we’ve ever seen. Central banks created hyper-inflation by overprinting fiat currency, we’ve seen banks failing and problems in the derivatives markets, and silver, for me, is insurance against that.”
Critical Elements Lithium
Critical Elements Lithium (TSXV:CRE) is developing its flagship Rose lithium-tantalum project in Quebec, which features probable reserves of 26.8 million tonnes at 0.96 per cent Li2O equivalent, or 0.85 per cent Li2O and 133 ppm tantalum pentoxide (Ta2O5).
A 2023 feasibility study supports Rose’s 17-year mine life, an after-tax NPV8% of US$2.195 billion, and an after-tax internal rate of return of 65.7 per cent, with average assumptions of US$4,699 per tonne of technical-grade lithium concentrate, US$2,162 per tonne of chemical-grade lithium concentrate, and US$150 per kg of Ta2O5. The price for a tonne of lithium averaged about US$3,800 in 2023, and is expected to continue falling until 2025, when demand should catch up with an expected surplus in supply and resume course to doubling by 2030.
Rose will average more than 200,000 tonnes of spodumene production per year, with ongoing exploration set to grow that number with more high-grade discoveries, guided by a chief executive officer who has been with the company since 2009.
Shares of Critical Elements Lithium have given back more than 75 per cent from their all-time-high in early 2023, serving up a potentially lucrative entry point as initial production at Rose ramps up in 2026.
Commodity outlook: Lithium
Eric Zaunscherb, chairman of Critical Elements Lithium, joined Stockhouse from the company’s booth at PDAC 2024 to weigh in on the state of the global lithium market.
“Obviously, we’ve seen a big contraction in lithium prices. A big reason behind this is how the industry in indexed. Because there’s a lack of transparency in the industry, with most lithium being transacted on a contract basis, the spot prices that people see aren’t representative. We’re also seeing a lot of de-stocking in the industry, particularly of lower-quality product in China, with the intention of driving the price of lithium down and minimizing competition. All of this leads to a very opaque market on the supply side.
“On the demand side, the media focuses on the pullbacks we’re seeing, particularly in North American OEMs. But the reality is that we’re seeing other OEMs, especially in China, grabbing market share. I would suggest to you that growth is still extremely strong for EV demand, with massive downstream investments and off-take agreements to lock in lithium feed moving forward.”
Canada Nickel Company
Canada Nickel Company (TSXV:CNC) offers exposure to nickel-sulphide projects aiming to supply the growing stainless steel and electric vehicle markets. The company’s flagship Crawford nickel-cobalt sulphide project in the Timmins nickel district boasts a bankable feasibility study supporting a US$2.6 billion NPV8%, free cash flow of US$546 million during its 27-year peak period, and total production of 1.6 million tonnes (Mt) of nickel, 58 Mt of iron, and 2.8 Mt of chrome over a 41-year project life. This makes Crawford the second-largest nickel reserve and second-largest nickel resource in the world.
The company anticipates to receive final permits for Crawford in 2025, followed by construction in 2026, and first production in 2027.
Canada Nickel owns multiple properties in the district, 11 of which have a larger footprint than Crawford with the same host mineralization. Recent highlights from these secondary opportunities include discoveries at its Mann Central and Mann Northwest.
Backed by C$35 million in flow-through capital, management with deep mining financing and nickel exploration experience, and major investors, including Agnico Eagle (11 per cent), Samsung SDI (8.7 per cent) and Anglo American (7.6 per cent), the small-cap miner is on track to capitalize on its expectation that nickel demand will double by 2030 to more than 5 Mt per year, according to its corporate deck.
Shares of Canada Nickel are up by only 64.44 per cent since inception in 2020, just ahead of nickel‘s approximately 42 per cent gain over the period.
Commodity outlook: Nickel
Steve Balch, Canada Nickel’s vice president of exploration, commented that his company is “very bullish on the price of nickel, despite its recent pullback, because there is huge demand and an overestimation of supply in both China and Indonesia. The nickel market is growing at roughly 9 per cent per year, and we expect that to continue as many existing projects are starting to shut down.”
“Canada Nickel has budgeted for between 90,000-100,000 m of drilling in 2024,” he said, “with the goals of delineating seven new resources known to contain nickel, making seven new discoveries, and better positioning the company to meet EV and stainless steel demand.”
Western Copper and Gold
Western Copper and Gold (TSX:WRN) has been focused on bringing its Casino Project in the Yukon into production since 2008, a timeframe that speaks to the thoroughness of Canadian mining laws, as well as the vastness of the undertaking. Casino will be Canada’s largest critical minerals mine once extraction gets underway, including 7.6 billion pounds of copper measured and indicated and more than 3.1 billion pounds of copper inferred, and 14.8 million ounces of gold measured and indicated and more than 6.3 million ounces inferred, representing more than 80 years of combined supply.
Casino is estimated to yield C$10 billion in after-tax cash flow over its 27-year life, according to a 2022 feasibility study, at conservative base-cases prices of US$3.60 per pound of copper and US$1,700 per ounce of gold, which represent 7.7 per cent and 21.15 per cent discounts, respectively, from Thursday prices on Trading Economics.
Western Copper and Gold has established a responsible development track record at Casino (slide 40) since the initial acquisition, and the company is equipped to continue it with ongoing permitting efforts, supported by investments and expertise from mining heavyweights Rio Tinto and Mitsubishi, steadily growing copper demand through 2035, a long-tenured management team, and a new chief executive officer, Sandeep Singh, who oversaw 19 producing assets as president and chief executive officer of Osisko Gold Royalties.
The Casino project’s demonstrated value has yet to be reflected in WRN shares, which have risen by only 120 per cent since the company acquired the project in 2006.
Commodity outlook: Copper
Singh spoke with Stockhouse from Western Copper and Gold’s booth at PDAC 2024, noting that his company sees huge upside in copper and gold prices. “I think that, over the next five to 10 years, there’s going to be a good runway for both commodities. In terms of copper as a critical metal, there aren’t enough projects moving forward around the world to meet demand from decarbonization and electrification, and we’ve seen disturbances in major copper-producing countries such as Chile, Peru and Panama, which have put the supply chain at risk.”
“In terms of gold, when you look at it as a counter to the U.S. dollar, and as a hedge against inflation, I think it’s a safe place to be,” he added. “With gold near all-time-highs, I don’t think the disconnect between stocks and the gold price is sustainable, and that will rectify itself when retail investors decide they want more levered gold exposure in world-class jurisdictions like the Yukon.”
CanAlaska Uranium
CanAlaska Uranium (TSXV:CVV) is active across a 500,000-hectare exploration portfolio in Canada’s Athabasca Basin, the world’s leading source of high-grade uranium, which produced more than 900 million pounds of high-grade triuranium octoxide since 1975, houses known resources of 606,600 tonnes, and offers ample room for further exploration. CanAlaska’s properties including the high-grade West McArthur joint venture with Cameco and Moon Lake South joint venture with Denison Mines, as well as high-potential prospects for nickel, copper, gold and diamonds.
The company has an aggressive drilling program planned for 2024 across five properties, with a highlight intersection of 16.8 m of 13.75 per cent uranium at West McArthur released on Feb. 28. It has paired ongoing exploration with an equally aggressive asset expansion plan, with three letters of intent and a property swap announced over the past two months.
With the spot price of uranium up by 86.27 per cent year-over-year and by almost 400 per cent since 2019, and demand for the alternative fuel source expected to double by 2040 amid an ongoing deficit, CVV shares’ 144 per cent return since 2019 has a lot of room to run as the company develops one of the largest portfolios in the basin.
Commodity outlook: Uranium
Cory Belyk, CanAlaska’s president and chief executive officer, joined Stockhouse to close out our commodity outlook roundup by shedding light on the future of uranium.
“My expectation is pretty simple,” he said, “it’s that we’re entering a whole new phase of nuclear build-out on a global scale across multiple decades because of smart modular reactor technology, including Microsoft’s new nuclear division, and I expect the price of uranium to stay high and move higher as new projects come online.”
“Concurrently,” he added, “CanAlaska shareholders can look forward to more assays and drill holes from our confirmed discovery at West McArthur over the next one to two months as we prepare to uncover new discoveries during the summer drilling season.”
A generational investment opportunity
With currency devaluation poised to continue unabated, as central banks deploy the blunt instrument of interest rates, and the demand for critical minerals practically bound to the upside as oil fades from view, junior miners with demonstrated progress and limited market recognition – such as the sextet profiled above – are likely to remain a high-potential playing ground as decarbonization ramps up across the globe.
The uncertainty surrounding how long this thesis will need to bear fruit, whether it’s a year or a decade, and the extreme volatility to be endured along the way, given the nature of micro-cap stocks, are what will eventually separate those who reap exponential gains from those who settle for tax-loss harvesting.
Which side will you be on?
Join the discussion: Find out what everybody’s saying about mining stocks and commodity outlooks on the Founders Metals, Dolly Varden Silver, Critical Elements Lithium, Canada Nickel Company, Western Copper and Gold and CanAlaska Uranium Bullboards, and Stockhouse’s stock forums and message boards.
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