Note: This is not financial advice. I’m not a financial advisor and I’m wrong 100% of the time. Investments are risky and nothing mentioned here should be considered financial advice. Invest at your own risk.
Edit: With the stooooooooooooopid profits coming in Q3 for every producing miner in gold and silver in the known world, the sector is going to explode. It’s not IF, but WHEN. This is a math equation. EVERY ONE of these companies is making much higher profits than Q1, not by percentage points, but by many multiples. This is not opinion. So, for the most part, put a blindfold on, get some darts, and throw them. You will make a 3x from here over the next 2 years. With the right miners, you may make a 5-10x. If you have the right speculations, and get lucky with the right explorers, those investments could be a 10-100x. So – my list at the bottom is not meant to overthink this. There’s nuance between the miners, and this might make a difference between a 3x and a 4x. Jurisdiction is something big which may come into play. Leadership team is huge. Is the project economically feasible? Pipelines of projects. M&A bidding wars. It’s going to be fun.
If you have followed my blog at all, I’m all over the place. I like to write about a lot of different things – but recently I found a huge passion for gold and silver miners. I’ve been pounding the table and screaming from the rafters about this to my friends going back to December-ish of 2019. Note – it is also advised by many on the interwebs that before you buy any miners, you should buy physical metals. That’s another post…
As luck would have it, Warren Buffet bought half a billion into Barrick last month. This, from a guy, who called gold “a pet rock”. Mind you – he is NOT buying gold. He is buying a company he considers “cheap” which also can provide a lot of free cash flow. This sort of makes me look good to my friends now, and I’m not some whacko in his basement doing day trading. When Buffet does not invest for like a year, and when he does, it’s a sizable stake in the world’s second-largest gold miner, people take notice. He’s 6 months behind me, but he also has $800 billion more than me.
So – why gold (and silver) miners?
- Leverage to gold and silver. While you may not want to go to your local coin shop at pay $30 for a piece of silver to MAYBE get $35 back someday, you could take that same $30 and buy stock in a gold miner which could double or triple (or go 54x in the next 2 years like Great Bear).
- Gold at all time high prices. Silver to follow.
- Conditions set to continue to have high metals prices for years to come
- When everything else is a steaming pile of shit, these companies literally don’t know what to do with all of the cash coming in.
That’s the big picture of why, but the underlying principles of why gold and silver will continue to go up for years is a lot more nuanced and deals a lot with every company trying to race their currency to zero and the….unusual….amount of debts all nations have right now. The more basic answer to all of this is gold and silver have been money for 5000 years, and EVERY attempt to debase a currency or go on to a fiat (paper) currency system has led to….every…single…currency failing. Every one. In history. Since 1971, for the first time in history, ALL currencies were fiat.
So – you may hear things like, “the dollar strengthened today, gold was down”. No. It means other currencies we are compared against lit up their printing presses more than we did that day. They debased their currency harder, so by contrast, it makes ours look “stronger”.
Before we go further. There’s a key element many noobs miss when coming in to this. And, today, you must grasp this concept before you invest a dollar into anything.
And ounce of gold is worth – one ounce of gold. An ounce of silver is worth one ounce of silver.
All too often you hear things like “silver is going to the moon!”. Yes – I’m guilty of this, but it’s not because I don’t understand the underlying principles. It’s to get your attention.
The issue is how much paper fiat currency does one need to exchange for one ounce of each? As days are going on, your currency is being devalued. This means it takes more dollars to exchange for your gold or silver. It does not mean the intrinsic value of these went up.
So I get things like, “Nate, you projected silver would be $35 at the end of September.” Yes, mostly based on hearing the same thing from 22 precious metals analysts. Things happen to sometimes derail projections. But this is not the overall point. The point is, this might be going to a place down the road where you cannot get gold and silver because people will not part with it for paper dollars of any sort. This is the issue in places like Venezuela, where you have hyper inflation. So when people try telling me “I can’t see silver being worth $35”, they aren’t seeing the bigger picture. It may be getting to a place down the road where people will not part with an ounce of silver for $300 because the paper currency will be worthless. Before we get to that point, there’s a lot of runway to take your current fiat fed notes, convert them to mining share stocks, then convert profits to gold and silver.
OK – now that we have that settled, over the next 2-4 years, it’s going to take more and more federal fiat notes to acquire gold and silver. Not only is the currency getting debased, but at the same time you have more and more people wanting to buy it, creating supply/demand pressures to push price higher.
Real rates are the rates you ACTUALLY earn. I remember as a kid, savings accounts were 5% interest. Inflation was 2-3%. So my “real” growth of my money may have been +2% per year.
Gold and silver do not pay interest. So in the above case, it makes sense to put my money into a savings account to get me interest on my money.
Gold and silver are known as “safe haven assets” and compete with the 10 year treasury note. Years ago, this may have been 10% and inflation was 5%, giving a +5% “real rate” of growth with a treasury. Gold and silver do not pay interest, so the 10 year was preferred. Over the course of time, we have rung up so much debt, the 10 year is now at .7% interest AND the fed has promised not only near zero rates, but to have inflation “run hot” for quite some time, at least over 2%. This means, at bare minimum, if you were to buy treasuries and hold for 10 years, you are GUARANTEED TO LOSE 1.3% per year.
In this situation, people flock to gold.
Lastly, we saw in the 1970s how inflation ran hot. Gold ran up 24x in that decade and silver 28x. If you use the government’s inflation formula for 1980 (you can find at shadow stats), that meant silver was the equivalent of $600 per ounce today. Today, we are at $27 per ounce, and we are on our way back to destroy the “nominal” high of $49 inside of 6-12 months. By 2025-2030, many are calling with inflation to have us back to that $600 per ounce silver.
Note: In the last 20 years, gold has outperformed Berkshire Hathaway, as I’ve been told.
There’s a lot of ways you can play miners. I’m going to go over a few below.
- Explorers – these are people who are seeking precious metals. Many of these have no income and take money in. They might drill for $6 million a year and endlessly take money in. If they hit something, and look to develop a world class property, your investment could climb 100x. These are broken down into some sub-classes. Maybe there’s more early stage explorers which are extremely high risk. Then there’s later stage explorers, where things have been found and there’s less risk – now they are proving out the mineral resource to then sell the property (or develop)
- Developers – maybe they find a good property to buy and take 5-10 years to permit, raise funds, and build mines. I think the number is something like 1 in 3,000 projects (from early stage exploration) actually become a mine. Just because you find gold, doesn’t mean it’s economical to pull it out of the ground. These guys also suck in a lot of money and might need $1.5 billion to build a mine. I break these down into “near term” (less than a year away) and “far term” (more than a year out). As a project becomes closer to “first pour” it is de-risked even more and the value goes way up when the decision is made to build the mine.
- Producers – these guys actually pull it out of the ground. You have juniors, which are much smaller, and majors who are the ones some of you may have heard of these days. These guys are typically valued at a multiple of their free cash flow. This is where a miner goes from a money taker to a money maker, and of course, value goes up.
- Streamers/royalty companies – Some love these companies, I’m not a fan. You have a company like Franco Nevada which has $1 billion in revenue for every employee at the company. Let that sink in. These guys are essentially the banking system for miners, as typical banks and loans aren’t really suited for the mining sector. Whereas a bank may give you a loan with monthly terms, mining is very cyclical. Instead, these types of banks may have a royalty or stream on your property so they get x percent of your gold or silver for x years. It is great for a miner because they give you the capital needed up front and reduces the need you have to raise money, but the downside is it can also cap your upside.
With that, I have a mix of everything in my portfolio. The level of risk is also tied to your upside.
How can you navigate this? There’s like 2,000 mining companies out there!! Well, I subscribe to THREE services. These helped me understand who the best of the best are. And why. None of this is a slam dunk. The idea is to listen to a LOT of sources, learn, and apply some of this for you to think for yourself. One of my newsletter guys picks miners all over the world. Some of these have great upsides, but jurisdictional risk is something I’m not find of. For example, one picked “African Gold” which is in Mali. Mali is in the midst of a coup. SELL SELL SELL. What about Equinox gold having problems with labor and it shut a mine? SELL SELL SELL. Earthquakes? Floods? Mine collapsing? Papua New Guinea trying to nationalize a Barrick Mine?
So – because of counterparty risk, I have like 37 miners I’m invested in now. I listed them in a previous posting. I also have like 30 I’m no longer in for one reason or another. I love all of my children equally, but I had to evaluate who might make me the most money, quickest. This had me dumping a lot of my explorers for now. Maybe on these I miss a move from $.06 to $.12, but I pick up at $.12 and ride that to $4.00. However, maybe one of my junior producers is an M&A target and I can double my money in 6 months.
Lastly – you need to be aware of what kind of leverage you might see. I want you to consider 3 companies below and what silver price means to them.
Silver price = $17 (2 months ago)
Company A – silvercrest. Currently, it is in development, not a producer yet. They plan to have “all in sustaining costs” of $5 per ounce of silver, or some crazy low price.
Company B – First Majestic – they have an AISC of about $12
Company C – Impact Silver. They seem to break even at about $20 silver. Let’s call it $16 for the sake of this demo.
What you can see below is that as the price of silver goes up, the company that was struggling to make a profit then has the highest percent gain in earnings.
|Company||AISC||$17 silver||Profit %||$25 silver||Profit %||Profit diff|
Now, when you take that and apply it to $50 silver, you can see why a junior producer right now is attractive with earnings potential.
|Company||AISC||$17 silver||Profit %||$50 silver||Profit %||Profit diff|
That being said, with these cycles, most money first starts in the majors like Barrick. It then moves to juniors, M&A plays, and explorers later. Gold typically moves before silver.
My favorite major producers are:
Newmont (gold and silver) – I chose them over Barrick due to Newmont being the 7th largest silver producer. This upside will increase their GEO (gold equivalent ounces) much higher than Barrick’s. Barrick has a superior copper play, which suggests Newmont might be a better play earlier in the bull market at silver hits its apex and Barrick might be a better play on the way down as a recovery ensues and with this recovery, copper prices will increase.
First Majestic (silver and gold) – many of my peers like PAAS (Pan American) much better, but it’s short sighted. PAAS is only a 23% silver producer where First Majestic is a 60% producer of silver and 40% gold. They have really put money into grinding technology to improve their recovery rates. They have 3 operating mines, but looks like they are spinning some more up they have to increase their productivity.
Favorite Minor producers:
Fortuna Silver mines. They have a bunch of properties and the price isn’t factoring in a mine coming online.
Endeavor Silver. Like AG above, 60% silver and 40% gold
Impact Silver. 90% silver producer. Losing their ass over the last few years. Lightning bolts of profits about to hit them. Higher silver prices make this stock scream.
America’s Gold and Silver – lots of properties and produce both gold and silver
Favorite M&A targets:
These are more minor producers which look like the big boys are about to acquire at some point. 30-50% premiums? I want to see Q3 profits and their stock shoot up PRIOR to acquisition.
Wesdome, Terenga, Calibre
Pre-producers (less than a year out)
Pure Gold, Alexco, Golden Minerals
Pre-producers (more than a year out)
First Mining, Integra, Treasury, Chesapeake
Explorers (less risk)
Us Gold, Auryn Resources, Tudor gold, Discovery metals (1.5 billion ounces of silver, do the math),
Explorers (high risk)
Precipitate gold (property adjacent to one of Barrick’s massive gold mines and they have an earn in agreement with Barrick), Aftermath Silver, Brixton (silver and copper), bunker hill (silver)
Each of the above have pros and cons. There’s no such thing as a “perfect miner”. There’s a saying that “a miner is a liar standing above a hole in the ground”. Over the years, many people have been swindled by miners. Over the last 20 years or so, many regulations and standards have been put in place to reduce these risks.
Typically, today people invest in the best teams at the best holes in the best jurisdictions with the best upsides. You can subscribe to numerous journals and also follow heavyweight investors like Eric Sprott.