Commodities - APRIL 10, 2019

The world’s gold majors are facing a real estate crisis

by Released

Forget about peak oil. The real crisis hitting the commodity markets is peak gold. The Financial Post reports that “all major deposits have been discovered.” Goldman Sachs forecasts there may be only 20 years of supply left. The world’s gold majors may soon be in a real estate bidding war.

For companies such as Euro Sun, this could represent a major windfall. Their Rovina Valley project in Romania is the #1 copper/gold resource in Europe, with reserves totaling 7.5 million ounces of gold and 1.5 billion pounds of copper.

Rovina’s previous owner — Carpathian Gold — spent $51 million sinking 138,000 meters (453,000 feet) of drill holes to prove up the potential $13.3 billion resource. It’s a similar and, perhaps even better image, than that of the Timok project in neighboring Serbia, and the company that owns Timok was just snapped up for $1.4 billion. And, unlike Nevsun, Euro Sun has its mining permits — the first issued in Romania since 2003. It could be in production within as little as 24 months.

Here are five reasons to pay close attention:

  1. The World Is Facing Peak Gold
  2. Europe’s #1 Copper/Gold Find
  3. Robust, Mine Ready Economics
  4. Their $1.4 Billion Serbian Neighbor
  5. Romania’s First Mining Permit Since 2003

Reason #1 — The World Is Facing Peak Gold Reserves

Simply put, the world is running out of viable gold reserves. In comments to the Financial Post, Ian Telfer, chairman of Goldcorp, said, “If I could give one sentence about the gold mining business … it’s that in my life, gold produced from mines has gone up pretty steadily for 40 years.”

According to the USGS, indicated and identified reserves are down from 57,000 tons in 2017 to just 54,000 today. That’s a precipitous drop in two years. Meanwhile, demand is skyrocketing on the back of the highest central bank buying in 50 years. It’s now at 4,345.1 tons, up 4 percent from just a year earlier. Goldman Sachs is already forecasting $1,425 per ounce.

For Euro Sun, which has millions of ounces of 43-101 proven gold reserves, this represents a huge opportunity.

Reason #2 — Europe’s #1 Copper/Gold Find

Amidst this active gold market, Euro Sun might be perfectly positioned with its Rovina Valley project in Romania. Cantor Fitzgerald reports that “Rovina Valley, when up and running, will be Europe’s largest gold and copper mine in terms of resources.”

According to their 43-101, the Rovina Valley property has reserves totaling 7.5 million ounces of gold and 1.5 billion pounds of copper. At today’s prices, that's approximately $13.3 billion in resources.

Their key project is located in the famed Golden Quadrilateral, where mining has taken place since the Roman period, over 2,000 years ago. The region has produced greater than 55 million ounces of gold, worth roughly $71 billion at today’s prices.

The Golden Quadrilateral Mining district has established power, transportation (road and rail) and all needed infrastructure for commercial-scale mining. Prior to being acquired by Euro Sun, Carpathian Gold spent approximately $51 million exploring, drill defining, and completing a PEA (2010) on Rovina Valley.

The current 43-101 compliant resource (2012) was based on 138,000 meters of drilling completed by Carpathian over a period stretching from 2005 to 2014. Euro Sun acquired and now sits on an immense, proven resource.

Reason #3 — Mine Ready Economics

Euro Sun’s Rovina Valley Project has robust economics and upside. This a property that already has a Preliminary Economic Assessment, with 138,000 meters (453,000 feet) of exploratory drilling and a huge resource. At present, the current 43-101 compliant resource across all categories stands at 432.6 million tons of ore grading 0.54 grams per ton of gold and 0.16 percent copper.

According to analysts at Cantor Fitzgerald, “If another ounce is never found, Euro Sun already owns a potentially extremely robust project.”

A recent test of the Euro Sun metallurgical plant delivered an average gold recovery of 73.2 to 81.5 percent and copper recoveries of up to 94.7 percent, without using cyanide. That’s very favorable compared to industry averages.

Their 2019 PEA estimates Phase 1 mine production of 108,000 ounces of gold and 13.3 million pounds of copper per year, worth $172,054,000 annually.

It also projected all-in sustaining costs (AISC), on a gold-equivalent basis, at $742/oz. Current gold prices are around $1,300 an ounce. This gives Euro Sun roughly $558 of cash flow per gold-equivalent ounce.

Reason #4 — Their $1.4 Serbian Billion Neighbor

Another project, the Timok, developed by Nevsun Resources, is just a few hours away, in the same geological belt. It’s one of the most promising copper-gold porphyry deposits in the world. And it could tell prospectors a lot about what it might be sitting on.

Production estimates for the two properties are similar. According to its 2010 PEA, Euro Sun estimates a 310,000-ounce gold equivalent production over a 19-year mine life versus 455,000 over 10 years for Timok. That’s 5,890,000 ounces GE compared to 4,550,000.

For Euro Sun, that’s $7.6 billion of copper and gold. In terms of Net Present Value, they’re virtually identical at $1.197 billion and $1.198 billion, respectively.

In late 2018, China’s Zijin Mining Group turned that NPV estimate into reality. They agreed to buy Nevsun Resources Ltd. for a stunning $1.41 billion. Like Timok, Rovina Valley has the size, scale and grades that are attractive to large-tier and mid-tier gold and copper miners. But, Rovina also has another major edge over its Serbian neighbor.

Reason #5 — The First Romanian Mining Permit Since 2003

When Zijin acquired Nevsun, it didn’t have mining or environmental permits for the Timok property. In some jurisdictions, that might not matter. But this is Europe we’re talking about. Environmental issues are serious.

That’s where Euro Sun (ESM, CPNFF) stands out. In November 2018, they were granted a 20-year mining license for their Rovina Valley project. It was fully approved by six senior cabinet ministers and the Prime Minister of Romania.

This is the first mining permit issued in the country since 2003 when Gabriel Resources faced extensive protests over its plans to use cyanide for heap leaching. There have been no new mines in the country since then.

These Factors Could Make Euro Sun A Prime Acquisition Target

In 2011, gold peaked at a historical high of $1,917 per ounce. When it collapsed, it took the junior mining industry with it. Exploration dried up. Today, world gold reserves are shrinking. If Goldman Sachs is right, there may only be 20 years of production left.

For the world’s gold majors, that’s a life or death problem. Euro Sun’s Rovina Valley project could potentially be a “crown jewel” asset for any of the majors. It’s the #1 copper/gold project in Europe, with robust economics. The property could be mine ready, with permits and a bankable feasibility study in 12 months.

Today Euro Sun might represent an excellent takeover candidate.

Other companies to watch in the gold-sphere:

Seabridge Gold

Seabridge owns four core assets in Canada; the KSM project, which is one of the world’s largest underdeveloped projects measured by reserves, Courageous Lake, a historically renowned property, and Iskut, a product of a recent acquisition by Seabridge.

Recently, Seabridge closed a major extension deal to continue expansion at its KSM project. CEO Rudi Fronk stated, “We are pleased that our EA Certificate has been renewed until 2024 under the same terms and conditions, reaffirming the Government of British Columbia’s support for KSM and the robustness of the original 2014 EA.”

Teck Resources

Teck could be one of the best-diversified miners out there, with a broad portfolio of copper, zinc, energy, gold, silver and molybdenum assets. Its free cash flow and a lower volatility outlook for base metals in combination with a potential trade war breakthrough could send the stock higher in H2 of this year.

Teck Resources recently received a favorable investment rating from Fitch and Moody’s, and it will likely benefit from its upgraded score. “Having investment-grade ratings is very important to us and confirms the strong financial position of the company,” said Don Lindsay, president and CEO. “We are very pleased to receive this second credit rating upgrade.”

Teck Resources (check this name; same company as above?)

Teck Resources is a mid-cap Canadian mineral exploration and development company headquartered in Vancouver, British Columbia. Its focus is on the Pacific Rim where it is in the process of developing several large mines

Turquoise has seen its share price languish last year, and the successful development of its world-class Oyu Tolgoi project in Mongolia is of utmost important to the future of this miner.

In the short term, investors can expect the share price to come back somewhat as the company looks undervalued by any means. If oil prices break out above $1320 per ounce, Turquoise Hill Resources is poised to profit from it.

Great Panther Mining

Based in Vancouver, Great Panther is active in Brazil and Mexico where it explores for silver, gold, lead, and zinc ores. The second half of 2018 was tough for the midcap miner, but its share price doubled recently, shortly after the acquisition of Beadell resources, which adds another 200,000 gold equivalent ounces  to its reserve base.

According to a recent statement in the press, the focus in the near-term will be on the integration of the Brazilian operations, the continued optimization of the Tucano gold mine, and advancing an exploration program to unlock the significant exploration potential of Tucano.

Endeavor Silver

Endeavor Silver operates three silver-gold mines in Mexico, but it has also got three attractive development projects. Production has dropped and all-in sustaining costs have risen, leading to a negative cash flow. But the company has significantly reduced its debt, so its future is anything but bleak.

2019 could be a bit of a mixed bag for Endeavor Silver as earnings expectations remain negative for first quarter. Its three mines in Mexico and a planned fourth mine in the Mexican state of Zacatecas are expected to see their output increase this year. While the company managed to keep AISC at reasonable levels last year, the question remains whether it can keep the costs low this year.


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