The price of paper gold is beginning to catch a bid again this week as Central Banks around the world continue to pump endless liquidity into financial markets. Last week, a two trillion-dollar stimulus bill was passed, and the Federal Reserve continued to conduct unprecedented measures to help combat the economic repercussions of the coronavirus. We published a report yesterday on zerohedge, that showcases the financial pressures we are under and the type of inflationary headwinds that we are approaching.
In saying that, it is of our opinion that mining companies are going to be offering value investors opportunities to outperform the market in the coming year due to fundamentals not being affected due to the coronavirus. If anything, earning power could drastically increase as historically, investors rush to gold in times of economic turbulence, and presently we are looking at potentially a depression in North America.
It was reported yesterday that the United States’ initial jobless claims surged to more than 6.6 million last week, which brings the two-week total up to 10 million. There have been estimates coming from the Federal Reserve that unemployment could reach as high as 30% in the coming months, which would surpass figures of the great depression of the 1930s.
These unprecedented economic times have brought extreme demand to the physical gold industry. Premiums have skyrocketed amongst retailers, with some being cleaned out of all their inventory such as Kitco and Sprott Money.
Gold’s safe-haven bid is on which sets the stage for gold mining companies to shine in 2020.
One of the world’s newest gold producers, Steppe Gold (TSX: STGO), recently announced the commencement of gold production at their 100% owned ATO gold mine in Mongolia. The company currently has 533,000 tons of gold ore at a grade of 2.0g/t gold on the leach pad where leaching has commenced. At an expected gold recovery rate of 70%, Steppe already has 24,000 ounces of leachable gold on the pad. This equates to approximately US$38M of recoverable gold at a gold price of $1,600 per ounce. The company is expected to produce 60,000 ounces of gold this year, with cash costs coming in around $550 per ounce, which showcases a significant margin at present gold prices.
The company is fully financed now and plans to self-fund as it begins its growth strategy as it is planning to release upgraded resource estimates on their deposits in 2020, alongside a feasibility study of producing 150,000 ounces/annum. The company has many catalysts this year and is extremely cheap relative to its peers.
The companies market cap is presently 34 million, and the company should generate $40 million+ of EBITDA this year. This shows on a fundamental basis how cheap this company is. It is worth noting the companies share structure, there is presently 45.6 million shares outstanding, and 45.7 million reserved for issuance as warrants, stock options, and convertible debentures. All options and warrants are priced at $2.00 or above (200%+ premium to current share price). The companies management have substantial insider ownership and have been on-going buyers in the open market over the past year:
On top of the free cash flow that the company will be generating this year, one of the things investors should be excited about here is its growth potential. The company is restarting exploration in Q2/Q3 at the promising ATO – Mungu trend which on a historical basis has had some pretty major discovery holes:
The Mungu – Bayangol – Highland structure represents a 20km mineralized north trending structure containing gold and silver.
But, one of the most overlooked things with Steppe is the potential of its Mungu deposit. The company has set guidance for releasing a resource estimate in the coming quarters for this deposit, but historical drilling has showcased its world-class potential. The first hole by Steppe on Mungu returned 46.0m grading 14.98g/t gold and 82.02 g/t silver. But as the upcoming chart showcases, there has been plenty of gold and silver-rich drill holes with sizeable widths.
Steppe Gold has the potential to be one of the biggest growth stories in the industry to coincide its high margin guidance of 60,000-ounces production this year. The logistics of getting the mine into production are now complete; now, the fun begins. It should be an exciting rest of the year for Steppe.
FULL DISCLOSURE: This is a paid article produced by the Gold Telegraph