-- Published: Tuesday, 31 July 2018 | Print | Disqus
By Robert Kientz
Northern Vertex (NHVCF) produces gold in Arizona within the historic Oatman mining district, at the Moss mine. This mine originally produced 12,000 ounces of gold in the 1860s. The mine was largely untouched from 1930 to the 1980s until several companies conducted exploration activities.
Gold discoveries have been falling from the peak in the 1980s, where primary mines have steadily fallen in number.
Source: MinEx Consulting
The decreasing trend of primary gold discoveries is leading the industry to look farther and deeper for profitable gold ounces. As a result, while in the 1980s the trend was bigger greenfield discovery, recent times have miners re-examining past brownfield projects.
Source: MineEx Consulting
Northern Vertex is bridging the gold supply gap caused by decreasing gold field discoveries over the last decade by reinvigorating a past producing mine. Currently, the company is reporting above feasibility production at the Moss Mine while continuing their initial ramp into full production. Both May and June 2018 results outpace the company's production guidance for tonnes processed at this stage in the plan.
Source: Northern Vertex
The exciting aspect of the Moss mine is that the majority of the land package that Northern Vertex owns has never been fully explored or mapped. The potential for new discovery is so compelling that Sprott Lending has agreed to provide $100 million funding for future project developments or acquisitions, not only for the land package but for the management team that has delivered a working mine project at and above project projections.
I have previously written that the project NPV (net present value) has the Moss Mine project at $133 million, and the current company market cap (trading at $0.28 USD per share) is $51 million. The implied upside is 260% from the current share price.
Given that the company has met expectations on development and production per the feasibility study, and has a large investor committing a very large sum in additional funding, there seems to be a low risk of realizing sizeable returns on investment, or ROI, for new investors.
In an era where big gold producers are straining to maintain current production and profit levels, keen investors are looking for projects owned by smaller producers that project much higher upsides. Combining this shift with the early assurances that Northern Vertex has been able to provide investors in meeting project milestones, the Moss Mine provides good balance between upside and probability of success, also known as investment 'alpha'.
Next Steps - Sustained Execution
Several reasons exist for the lack of enthusiasm in the precious metals mining space. First, after years of under-performance by the mining sector, investors are wary of committing a lot of capital to the sector. Further, gold and silver prices have been stuck in a sideways range since 2016 and doubt exists that the underlying commodity prices, which can drive mining company valuations multiples higher on leverage, will break current resistance and reach plateaus last seen several years ago. Lastly, gold mining is not sexy with the Millennial generation who prefers digital companies like the FAANG stocks and cryptocurrencies.
It would seem that potential returns in the sector are murky, however many a successful investor confirm that buying low and selling high, particularly at the beginning of a macro trend, are the easiest and most sure ways of securing long term wealth while preserving precious investment capital by reducing trading risks.
I have argued rather strenuously, since 2010, that the macro economic trend is negative both in my book, Drop Shadow, as well as numerous online publications. My most recent macro article points to fundamental weakness in major economic data points, for which historically deep recessions have tended to follow.
Investors evaluating the current positioning of their portfolio would do well to examine these economic macro trends and considering adjusting positions into sectors that take advantage of extended business cycle downturns for which we are in the early stages of entering.
Gold and silver have done well during these periods historically, and solid gold and silver miners provide investors with a leveraged play on these trends that typically offer higher rates of return than direct investment in the underlying metals.
Northern Vertex is positioned to offer investors very attractive returns given these macro factors, and the company bears watching. Next steps for investors will be watching profits and losses in future earnings releases to confirm that the mine continues to meet feasibility projections. Short of new production cost surprises, I expect that Northern Vertex will continue to please the market and begin to receive more and more investment dollars, particularly as global macro data points worsen and investors begin to funnel dollars away from current investments in broad market fund options.
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-- Published: Tuesday, 31 July 2018 | E-Mail | Print | Source: GoldSeek.com