Betting On A Gold And Silver Rebound? Consider Almaden For Potentially Outsized Returns
June 13, 2013
Gold and silver, as wells as the stocks that mine these metals have seen historic levels of selling in 2013. The most popular gold and silver ETFs, the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV) are down 19.1% and 27.2% year to date, respectively. The ETFs that track the miners of these metals such as the Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ), are down even further in the last three months compared to the metals they produce, losing 43.1% and 47.1%, respectively, while the Global X Silver Miners ETF (SIL) is down 43.3% year to date. Given this sell-off, I have opined that a buying opportunity has arisen for the long-term investor. At present levels, all of these represent great long-term buys that will do well when gold and silver make their way higher.
In the present article I revisit Almaden Minerals (AAU), one of my favorite speculative gold stocks, which I think could deliver outsized returns if gold and the GLD begins to rebound. The stock has had a major sell-off this year, losing over 50% year to date to trade at a measly $1.45. Given the sell-off and after reviewing its 2012 summary and presentation, recent reserve finds and insider buying, I think the stock will rebound sharply if gold rebounds. I do not believe gold is in a bubble, but simply correcting and being driven down by major hedge fund and central bank activity. With physical demand at all time highs for the limited supply of gold on Earth, AAU is a candidate for a large and fast rebound when gold resumes its run higher.
How Does AAU Operate?
AAU is a mineral and precious metal exploration company working primarily in North America. The company has several highly interesting exploration projects. Most notably AAU has the Tuligitic and El Cobre projects in North America. These properties are largely at early stages of development but they represent significant opportunities for the discovery of large gold, silver, copper, lead and zinc deposits. One such example is at its site at Ixtaca, Mexico where significant discoveries were made in 2010.
I like AAU's two-fold business plan. It is simple. First, AAU wants to find and acquire mineral properties that may contain significant reserves, and second develop them by seeking option agreements with others who can acquire an interest in a project by making payments and exploration expenditures. The risk involved is that paying to acquire properties that may have reserves means they could come up empty. However, this approach led to the discovery of the Ixtaca gold-silver zone on its 100% owned Tuligitic project, in Mexico. This past year the bulk of AAU's efforts have been focused on the ongoing Tuligitic project drill program. Nevertheless new exploration has continued. Using this approach the company has been able to expose its shareholders to discovery and capital gain without the funding and consequent share dilution that would be required if the company were to have developed these projects without a partner. The company intends to expand this business model by more aggressively exploring several of its projects including the Ixtaca Zone.
Tuligitic Property in 2012 and 2013
In 2012, AAU drilled about 53,000 meters of core in 152 separate holes on the Ixtaca Zone of Mexico. In November 2012 resource estimation work was initiated on the 225 holes (81,971 meters drilled) that had already been completed at the time. After this, AAU's ongoing drill program had encountered significant gold-silver intersections outside the main resource area including 134.20 meters of 3.76 grams per ton (g/t) gold equivalents and 18.1 g/t silver. Also in 2012, further preliminary metallurgical studies were initiated and are currently under way for 2013. AAU also started drilling other targets on the Tuligitic property with 5 drill holes on the Tano Zone, located about 2.4 km southwest of the Ixtaca Zone. One drilling endeavor in the Tano zone intersected 7 meters of 0.7 g/t gold. The area in-between the Tano and Ixtaca Zones is covered with barren alteration or volcanic ash deposits, which complicates the process of drilling. In general the Tuligitic project area is partially covered by post mineral volcanic ash deposits, which can hide underlying potential vein zones and associated soil responses. In areas devoid of covering ash, soil sampling has defined several areas of elevated gold and silver values.
In 2013, AAU will continue drilling these soil anomalies on the Tuligitic project. Other target areas AAU wants to explore further include the Casa Azul and Sol Zones. The Casa Azul Zone is located 2.3 km north of the Ixtaca zone. Of 171 sample areas at Casa Azul, gold values ranged from below detection to 620 parts per billion gold and 30.6 g/t silver. A single grab of quartz-carbonate vein float found in the Casa Azul zone returned 2 g/t gold and 37.8 g/t silver. The Sol Zone is located 2.5 km northeast of the Ixtaca zone. Of the 36 sample areas at the Sol zone, gold values ranged from below detection to 130 parts per billion gold and 4.5 g/t silver. These represent significant potential reserves.
El Cobre Property Developments in 2012 and 2013
Toward the end of 2012, AAU secured and transported a drill to its 100% owned El Cobre copper and gold project. AAU began drilling to test Titan 24 (a deep earth imaging tool) high chargeability anomalies that resulted from a survey conducted in 2011 and early 2012. Drilling will recommence when crews return in late January. Past drilling at El Cobre is interpreted to have only tested shallow and largely peripheral portions of the high chargeability zones resulting from the Titan 24 survey. The drill program has been designed to test these anomalies and areas of alteration and mineralization throughout the property.
Last week (May 9th) AAU announced results from the first two holes of the 2013 drill program on the Company's 100% owned El Cobre copper-gold porphyry project, in Mexico. This new drilling was conducted on only one of the four porphyry targets identified over a 12 square km area on the project. AAU reported that they hit 106.00 meters of 0.36 g/t gold and 0.23% Copper at the site. These new results continue to show the potential of the El Cobre project to host an economic copper-gold porphyry deposit.
Other exploration work
AAU also continued its regional exploration programs in 2012, particularly in Eastern Mexico. Currently AAU is acquiring claims in areas where mineralization has been identified as part of this ongoing program. Further AAU completed exploration surface mapping, sampling and geophysical work programs on the Yago, San Pedro, Mezquites and El Chato projects in Mexico. Results are being compiled from these programs and will be reported early this year.
Recent Deal with Tarsis Resources (TARSF.PK)
Announced on March 4, 2013, AAU entered an agreement with TARSF.PK under which TARSF.PK will acquire a 100% interest in the Yago, Gallo de Oro, Mezquites and San Pedro projects, Mexico and the BP and BJS projects, Nevada. TARSF.PK will pay AAU four million common shares of TARSF.PK and grant AAU an undivided 2% net smelter royalty on any production from the projects. In addition, areas of influence will be outlined in Nevada and Mexico, where AAU has developed proprietary exploration concepts. TARSF.PK will then grant AAU a 2% NSR royalty on any property acquired by TARSF.PK within either of the two areas of interest. In addition TARSF.PK will issue 200,000 shares to AAU for each new property acquired within the area of influence at the time of acquisition. TARSF.PK will issue a further 800,000 shares to AAU upon the first disclosure of a mineral resource on each and any of the new properties. Each of the properties located in Mexico feature epithermal style gold-silver alteration and mineralization, and is prospective for both gold and silver deposits. The Nevada properties are prospective for gold as well, which means AAU stands to benefit from this transaction without investing heavily upfront.
From the start of the year through May 1st, there have been 170,300 shares purchased by insiders an none have sold shares of their AAU. In April, Barry Smee a director of the company, purchased 10,000 shares on April 22nd and currently holds 60,000 shares of AAU. On April 18th Dione Bitzer AAU controller and secretary purchased 5,000 shares on April 18 and currently holds 37,200 shares. Finally, from April 3rd-15th, Duane Poliquin the chairman and founder of AAU, purchased 21,700 shares and currently holds 2,226,837 shares or almost 4% of the company.
AAU had major finds in 2012, primarily at the Tuligitic property. In 2013, progress and further development at the site will be made. 2013 work at the El Cobre project is setting AAU up nicely for a massive find at this 100% owned site. Regional development at other projects are also under way, and any good news from these areas will be a tailwind for the stock. Further the deal with TARSF.PK generates some income and could set the company up for future royalties. Although AAU is an exploration stage company, it has had success finding areas with decent gold and silver grades at its properties. Given the huge rapid sell-off in the stock, I think it's a good buy if you believe in a rebound in gold prices. Given the nature of the stock, a leveraged return will be provided if gold is bought up. I believe the stock will run back up in late 2013, especially if AAU keeps reporting successful finds from its drilling endeavors and continues to make wise business decisions such as that with TARSF.PK.
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