Ralph M. Profiti, CFA, a Principal focused on Metals & Mining equity research at Eight Capital
Christopher E. Herald has been Chief Executive Officer of Solitario (XPL) since June 1999
Agnico is the top pick from gold stock analyst Ralph M. Profiti, CFA, a Principal focused on Metals & Mining equity research at Eight Capital, covering Senior North American Industrial Metals and Precious Metals companies and commodities.
His previous experience including gold stock analysis was as a key member of the Global Metals & Mining Equity Research Teams at Credit Suisse and Deutsche Bank, covering North American Industrial Metals & Precious Metals equities in Toronto and New York, as well as Corporate Banking at Royal Bank of Canada.
His perspective on gold stocks in 2023 is enlightening.
“A lot of management teams are thinking, I would probably say the consensus is, another 5% year-over-year inflation on unit mined costs in 2023.
I think that’s something that’s probably going to get flushed out of management commentary when guidance comes out for 2023, with Q4 2022 results.
The other thing is that companies are responding to these inflationary pressures by managing their mine plans more strategically. So, for example, there’s less waste stripping.
There’s more high-grading going on.
These proactive ways of searching for margin are actually going to help the metal price.
Because what it actually does when a company sacrifices quantity and goes for quality is that it has the embedded feature of taking metal out of the market, and that’s actually positive for metal prices.
So I think that there are some proactive moves being done by managements to combat inflation that are actually to their benefit in 2023 and to the benefit of metal prices.
And then the last thing I’ll say is, I think that there’s a common theme emerging that the true nature of value creation in mining — at least over the next three to five years — is going to be through exploration as opposed to M&A.
M&A now has become much more difficult, because not only have valuations declined in terms of multiples contracting, but what you’re also seeing is a divergence of managements willing to sell at such low stock prices.
I think that’s delaying any M&A cycle. And when that happens, I think management teams will focus more on exploration, and that is actually a much better way to create net asset value per share.”
The top gold stock pick from Ralph Profiti is Agnico Eagle (NYSE:AEM).
“My top pick in the gold space is Agnico Eagle (NYSE:AEM), and I like Agnico because of its dominance in terms of its jurisdictional profile.
Agnico operates 12 mines across five regions in four countries — Canada, Australia, Finland, Mexico. My valuation methodology places a premium on a successful track record, on building operational consistency, strong governance practices, and dedicated track records in solid, safe mining jurisdictions, and that’s what Agnico gives you relative to its peers.
In addition, the pro forma Agnico production, which is 3.6 million to 3.8 million ounces a year, that to me is a real sweet spot in the gold mining space, where you’re large enough to attract generalist investors into the shareholder base, but nimble enough that you can create value through exploration, advanced stage development projects, and new discoveries.
I think that Agnico is an enviable position of having great jurisdictions, the ability to move the needle on strategic initiatives, and having a strong balance sheet as well — $2 billion in undrawn credit facilities goes a long way in being able to protect any downside risks that I think the gold market might give us.”
There are gold stocks like Agnico Eagle (NYSE:AEM) and then there are gold stocks like Solitario (NYSE:XPL).
Christopher E. Herald has been a Director of Solitario since August 1992.
He has also served as Chief Executive Officer since June 1999 and President since August 1993.
Previously, Mr. Herald served as a Director of the former Crown Resources since April 1989, as Chief Executive Officer of Crown since June of 1999, President of Crown since November 1990, and was Executive Vice President of Crown from January 1990 to November 1990.
Prior to joining Crown, Mr. Herald was a Senior Geologist with Echo Bay Mines and Anaconda Minerals. He currently serves as non-executive Chairman of Viva Gold Corp. Mr. Herald received an M.S. in Geology from the Colorado School of Mines and a B.S. in Geology from the University of Notre Dame.
His gold stock management experience is elite.
“…About two years ago, after focusing on zinc for a number of years, we decided to go back into the gold space.
And about a year and a half ago, we were presented with this very early-stage project called Golden Crest in South Dakota.
It was a project that didn’t have any drilling on it, it only had a couple hundred surface samples taken, and we looked at it and just really loved what we were looking at there.
We decided to take a flier on it, picked it up, leased this 4,000-acre property from a private company, and that was the start of what I think is one of the most exciting gold plays in North America today, our Golden Crest property.”
The enthusiasm for this gold stock opportunity is infectious.
“It’s in South Dakota, and when we first started mentioning this to our shareholders and the people that may be potential shareholders, they’d say, “What are you doing in South Dakota? Is there gold there?”
The fact of the matter is, South Dakota hosted the single most important underground gold mine ever discovered in the United States, and it was called the Homestake Mine.
It produced 42 million ounces of gold.
At gold’s high, that’s an $80 billion gold deposit that was mined over a 120-year timeframe from the late 1880s. It closed around 2000.
The Homestake mine was phenomenal.
It was owned for almost its entire history by the Homestake Mining Company. And I can tell you, the industry, including ourselves, thought if there was any other gold in the Homestake area, Homestake Mining Company would have found it.
That was our perception, and I’ve talked to a lot of people in the industry and that was their perception.
But when we were presented this new property, it was only about six miles west of the largest underground gold mine in the country.
At first we thought, “Is there really going to be something there?” We started working there, and we started finding gold all over the surface, and the more we looked, the more we found, and the bigger our land position got.
We started with 4,000 acres. A couple months later, we were at 8,000 acres. Six months later, we were at 15,000 acres.
And as we stand today, we’re over 28,000 acres that we control.
And we’re not staking moose pasture, we’re staking areas that have gold on surface.
Our geologic team, including myself — I’m a geologist also — we’ve been looking for gold for 40 years, and I can tell you on this property we’ve found the most gold on surface of any property in the history of our exploration efforts.
It is phenomenal.
We shake our heads at this, because we always assumed that Homestake Mining had found everything, and nothing could be further from the truth.
In fact, if I can give one example, one area that we call Downpour we started sampling about a year ago, and we got some good gold numbers right from surface — and those were right along a Forest Service road.
We went back three times.
We’d get our gold assay results from our first round; we went back and did more sampling.
We got those assay results; we went back and did more. We did it basically four times, and it kept getting bigger.
Finally, we dug trenches, and right now we have five trenches.
They’re right in the middle of a Forest Service road.
I mean, people have been driving over this road for 50 or 60 years.
One of the trenches has 27 meters of 15 grams gold.
If you’re not in the gold industry, 15 grams gold, that’s half an ounce per ton gold.
And the nearest mine to this, the Wharf Mine, which is close to the Homestake Mine, but it’s an open pit mined by Coeur Mining, the average grade that they’re mining there is less than one gram, but we’re finding 15 times that right at surface.
Trench number two had 30 meters of 8.5 grams.
Phenomenal numbers that we had never seen.
And our team has discovered over 5 million ounces of gold on early-stage projects — we’re good at this.
This, by far, is the best project we’ve ever worked on.
We have other trenches not quite as good, but still, for the start of a project, almost unheard of: Nine meters of 2.6 grams, 12 meters of half a gram.
I think we had 12 meters of something like another 15 grams. And we have a series of these types of gold systems scattered over this 28,000-acre property.
For us, I can tell you it is the most exciting property we’ve worked on.”
Get all the detail by reading the entire 3,995 word interview with gold stock CEO Christoher Herald of Solitario (XPL), exclusively in the Wall Street Transcript and more on Agnico Eagle (AEM) in the 2,625 word interview with Ralph M. Profiti, of Eight Capital.
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