The Gold Report: What kinds of catalysts move gold and other precious metals stocks the most?
Jocelyn August: The announcements that move gold and precious metals stock are ones that indicate economic viability of a project, such as a feasibility study or the preliminary economic assessment (PEA), which obviously indicate the strength of the mineral or resource. Also, a resource estimate or even updated mineral resource estimates move these stocks because they can show whether or not a resource is getting larger, or if a company has been able to convert some of the mineral resource to a more economically strong asset. So, typically, we'll see a positive move as long as the catalyst indicates positive economic viability or an increase of the mineral resource.
TGR: In the current environment, do catalysts matter?
JA: They do matter. I know that last quarter was a negative quarter for a lot of stocks. But we did see a lot of stock movement in Q2/12 in the natural resources realm. We actually recorded 14 double-digit stock price moves, including four in the gold sector. Some of these are positive and some of them are negative.
TGR: Can you give me some examples of major one-day movement?
JA: In gold, the largest one-day move was a 13.6% downward move for Seabridge Gold Inc. (SEA:TSX; SA:NYSE.A) after its announcement of the completion of its updated preliminary feasibility study at the Sulphurets deposit at its Kerr-Sulphurets-Mitchell (KSM) project. The company framed it, of course, as a positive announcement with improvement in net present value and internal rate of return, but, in fact, the company had to make some concessions for the project plans in order to better accommodate the aboriginal communities and to address some permitting concerns. So, there was some negative news that was actually hidden in the announcement itself.
Also in gold, we had a one-day positive move of 13% from Golden Minerals Company (AUM:TSX; AUMN:NYSE.A) after it announced a resource estimate for its Velardeña project in Mexico.
We saw some positives and some negatives, but overall the catalysts do matter in this environment because these kinds of announcements do tend to affect the stock price, up or down, in a larger way than just regular news.
TGR: What companies would you like to talk about?
JA: Vista Gold Corp. (VGZ:NYSE.A; VGZ:TSX) is one; we're expecting Q3/12 to be a pretty eventful quarter for Vista. It has a couple of major projects it is working on, including the Mt. Todd gold-copper project in Australia and the Concordia gold project in Mexico. Both of those projects are still awaiting permits in order to begin construction. Both of the permitting processes have experienced some significant delays, so this is pushing back the start of production at both of these places. We anticipate several announcements on these projects this quarter. The company also has planned to release an updated resource estimate at Mt. Todd later this quarter, which it has hinted will be likely to show an increase in the Measured and Indicated resources at this project.
TGR: Would you go ahead and talk more about Vista's upcoming catalysts? I know there's a PEA you expect to hear about by the end of Q3/12.
"We're expecting Q3/12 to be a pretty eventful quarter for Vista."
JA: Vista Gold is still an exploration company and it could become a producer in 2013 or 2014 if the construction permit timelines are met for Mt. Todd or Concordia. It is also working on a couple of other prospects, including the Guadalupe de los Reyes project, which we're expecting a PEA on in Q3/12. The PEA is a necessary step for feasibility; it's an important step that will provide information regarding economic parameters and detailed cost estimates and will also allow Vista Gold to establish a pit design for the project. I think it's really great for it to be adding more projects to its portfolio and continuing to work on other projects, given that Concordia and Mt. Todd have experienced significant delays.
TGR: Vista Gold's relative strength has been high. It's far from the worst in its peer group over the last three months. It's up 5% in that period when many companies are down double digits. Relatively speaking, the Street seems to like it.
JA: It does. I think Vista Gold has some really good projects that it is working on. It seems to have diversified. It is not putting everything into one project.
TGR: What other company did you want to talk about?
JA: I also wanted to discuss Augusta Resource Corp. (AZC:TSX; AZC:NYSE.A; A5R:FSE). Augusta has had a lot of announcements in the past couple of weeks since we released our Outlook report. It has been working on its Rosemont project for quite some time, and it has had to get a lot of permits for this project. It is expecting receipt of the final two permits needed to start construction, the air quality permit and the Clean Water Act permit, in Q3/12. Hopefully, it will be able to get those. The company announced earlier this month that the Arizona Superior Court for Pima County has ruled in its favor regarding an appeal it had of the Pima County Air Quality Hearing Board's denial of the air quality permit. So, hopefully Augusta will be able to receive this permit in Q3/12.
TGR: That has to be the single biggest catalyst or event that could happen to the company.
JA: Yes. Augusta needs to get that air quality permit first. After that, it needs to finalize the economic impact statement and finalize the record of decision. When our analyst team wrote the Outlook report, Augusta was also expecting Q3/12 for that, but recently it announced that it was probably going to be by the end of 2012. This is going to further delay start of construction and start of production, which until recently was expected in 2014. But earlier this month, it changed that to 2015.
TGR: There are so many issues confronting Augusta. Is this speculative, or do you feel there's now a reasonable opportunity for production to begin in 2015?
JA: As you said, there are so many issues that it has been confronting. I've been following Augusta for five years now, and I think it originally started with 2010 as its estimate for production start. As you know, Rosemont is Augusta's major focus. It doesn't currently generate revenue from any other mine projects. It is putting all of its eggs in this one, hopefully large basket. I think that we need to see some more progress in terms of the permits and get construction started before we can give a really good estimate for a timeline for production.
TGR: Do you still follow MAG Silver Corp. (MAG:TSX; MVG:NYSE)?
JA: I do. It has some potentially large-impact catalysts coming up in Q3/12 for several of its projects. We're expecting some drilling and permitting announcements for La Esperanza as well as for Mojina. It is also working on the Cinco de Mayo project where we're expecting a PEA at the Pozo Seco deposit and also a resource estimate at Jose Manto. Cinco de Mayo is actually its second-in-line project.
TGR: Cinco de Mayo is 100%-owned.
JA: Yes, it is 100%-owned, but if you look at company documents, they usually highlight the Juanicipio project more so than Cinco de Mayo. Juanicipio is 44%-owned by MAG and 56%-owned by Fresnillo Plc (FNLPF:OTCPK). For that project, there was a recent catalyst that occurred, which was its PEA, and we actually saw an 8% move downward.
TGR: Jocelyn, over the past four weeks, MAG Silver is down 1%. Now, to me, that looks like a very strong stock compared to its peers. Even large-cap silver miner Coeur d'Alene Mines Corp. (CDM:TSX; CDE:NYSE) is down 12% during that same period. Could this mean that this stock is prepared for some nice upward movement on good news?
JA: I think it is prepared for some large upward movement if it has some good news. The company has some potentially large events coming up this quarter. We've been waiting for a while for some permitting and test results for some of the smaller projects. I think MAG could have one of those very large press releases where it gives a lot of positive news, resulting in a very large day.
TGR: So you're positive on this company?
JA: Yes.
TGR: Mergers and acquisitions are a catalyst. Extorre Gold Mines Ltd. (XG:TSX; XG:NYSE.A; E1R:FSE) is being acquired by Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE).
JA: Extorre jumped 50% after that announcement, which is basically what Yamana plans to pay for it. It's going to be a great buy for Yamana because Extorre's Cerro Moro project looks as if it could be very lucrative.
TGR: Could this be the beginning of a wave of new consolidation in gold and silver.
JA: I've been reading that as well, that this could be the beginning of a lot of mergers and acquisitions activity in gold.
TGR: What about Great Basin Gold Ltd. (GBG:TSX; GBG:NYSE.A)? Do you follow that?
JA: We do. We have some upcoming catalysts for Great Basin, particularly at the Hollister property, which is a gold mine in Nevada. It is waiting on an environmental impact completion statement, as well as a record of decision. So these could be some large-impact catalysts for it. That would enable it to begin to start commercially producing in this area. It does already have some production from Burnstone, but it doesn't look like too much.
TGR: Another one? Do you follow Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX)?
JA: We do. Royal Gold is interesting because it is a royalty company, and it has small portions of a lot of projects.
"If a royalty company is able to gain some revenue from projects without having to worry as much about the high costs of producing the mineral, it's obviously a much better situation for it."
TGR: Because the revenue is royalty-based, I'm wondering what catalysts are pertinent. It's up 24% over the past three months.
JA: In 2013, we're looking at $200 million (M) in revenue that we're expecting from new catalysts, like production-starts. So it looks as if it has a lot happening next year.
TGR: Companies that make royalty revenues have low cost of sales because royalties come in on the top line and go down unmolested to the bottom line. Is that a bullish point for Royal Gold?
JA: A lot of companies, especially gold and mineral companies, are experiencing pretty high cash costs in a lot of their projects. If a royalty company is able to gain some revenue from these projects without having to worry as much about the high costs of producing the mineral, it's obviously a much better situation for it.
TGR: Could you generalize that small-cap stocks have been resistant to good news?
JA: Not necessarily. At the end of June, we actually saw a huge move for Quaterra Resources Inc. (QTA:TSX.V; QMM:NYSE.A), which is a very small market-cap company, only about $61M. It had an updated resource estimate, and it had an 18% positive move after that. That was for the Nieves project.
TGR: Are you positive on Quaterra?
JA: It is still a small company and looks as if it is working on a lot of different projects. Again, probably this Nieves project would be the main project, but I think we have to wait and see. I'm probably neutral on this one. I'd have to wait and see what other results come from the PEA, which is actually a catalyst for Q3/12.
TGR: You mentioned Aurizon Mines Ltd. (ARZ:TSX; AZK:NYSE.A) the last time we spoke.
JA: It definitely has a lot of projects going on. We're still waiting on the catalyst that we had highlighted last time, which is a resource estimate from the Marban block in Quebec. It recently had some news for the Joanna gold project in development, also in Quebec. It is working on a couple of deposits there. On July 9 it announced some results for Heva and Hosco.
TGR: Thank you very much for your insights, Jocelyn.
JA: Thank you. Anytime.
Learn more about Sagient's CatalystTracker here.
Jocelyn August is currently the senior analyst and product manager for CatalystTracker, a proprietary research product focused on identifying and analyzing the future events that will materially impact publicly traded companies. In her five years at Sagient, she has developed expertise in the highly event-driven medical device and diagnostic sector. In addition, she spearheaded the development of a new Natural Resource Industry product within the CatalystTracker product line with the publication of the Catalyst Impact Study: Natural Resources Sector. Outside of Sagient, August was named the director of communications for the San Diego Professional Chapter of MBA Women International. August received a Master of Business Administration from the Rady School of Management at University of California, San Diego, and graduated cum laude from the University of California, San Diego, with a Bachelor of Arts degree in sociology.
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DISCLOSURE:
1) George S. Mack of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Vista Gold Corp., MAG Silver Corp., Extorre Gold Mines Ltd. and Aurizon Mines Ltd. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Jocelyn August: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.
