(Kitco News) - Known as a fan favorite, the Expert Series brings together well-known investors and Kitco regulars to find out where they will be putting their money in 2018.
This year, in a new twist to the feature Kitco News has asked some of the most influential mining sector newsletter writers how they would invest $100K in the mining sector.
While the mining sector has struggled to maintain momentum, 2017 has been anything but boring with new assets like cryptocurrencies making waves in financial markets. What does 2018 have in store? Check out what the mining experts have to say!
The man who predicted the collapse of GM, Fannie, and Freddie says the next big bankruptcy is going to catch everyone by surprise. Learn more here.
Experts: Brent Cook & Joe Mazumdar
Claim to Fame: creator and co-editor of Exploration Insights
1. How would you invest $100k in the mining sector in 2018?
We will continue to invest in junior mining companies whose upside potential is underpinned by exploration success. Given the a dearth of quality, high margin projects held by major and mid-tier producers, our focus will be on early stage exploration projects seeking these projects. This is especially true in the gold sector where the gold price is range bound with a strong resistance level at US$1,300 per ounce and marginal resources are the norm. Given the poor financing environment for non-cash flowing junior explorers, we will have a certain portion of our portfolio invested in active prospect generators that are signing deals with major producers who are ‘running to stand still’ with respect to their reserve and production growth opportunities.
Our commodity focus will be on precious metals such as gold and silver, base metals such as copper and zinc, and battery metals such as lithium. Assets in mining friendly jurisdictions, with progressive tax and royalty structures that allow companies to generate a return that is commensurate with the risks they absorb, will also be an important investment criteria.
2. What will affect gold most in 2018?
Given the current global geopolitical environment, the number of potential scenarios for 2018 are almost infinite. In our view the extended bull market run is long in the tooth and we suspect that the underlying risks pose the potential for several black swan events that could very well come to the forefront in 2018. Higher interest rates are coming; however, the number of rate hikes are the question and some are already baked into the current gold price, so any changes to the forecast is critical. The consensus forecast is for three rate hikes in the New Year but a new head of the Federal Reserve will be appointed, so we are not sure what impact this will have.
The reforms in the US tax code and low interest rates have supported the US equity markets suggesting that greed eclipses fear at this stage. This is reflected in the low volatility rates (VIX<10) and high valuations of very risky speculations across the board. The lack of fear has curtailed the demand for safe haven assets. In 2017, the surge in cryptocurrencies such as Bitcoin, which was up ~19x to a mid-December peak, has hived off some of the safe haven and ‘store of value’ demand from gold.
Gold prices have been supported predominantly by investment demand, specifically ETFs, over the past year hence any changes on this source of demand would have a significant near term impact on it. Although inflows have slowed, they remained net positive in 2017. Any combination of additional interest rate hikes than forecast, strong equity markets, and a continued expansion of investor interest in cryptocurrencies would be negative for gold in 2018.
3. What do you see as 3 top mining companies for 2018? Why?
Our choices for top companies in 2018 are all involved in exploration or prospect generating and provide exposure to gold, silver, copper, zinc, and lithium.
Advantage Lithium (AAL.V)- An explorer in the ‘Lithium Triangle’ of northwest Argentina in a joint venture with Orocobre (ORL.T, ORE.ASX)—the only lithium producer in the Salar de Olaroz-Cauchari. AAL’s property package straddles a lithium development play operated by a joint venture between a major producer, Sociedad Quimica y Minera SA (SQM.NYSE), and Lithium Americas (LAC.T).
Tinka Resources (TK.V)- The zinc explorer achieved its goal of expanding the Ayawilca resource through the discovery of South Ayawilca in 2017, and both the market (+265% year to date at Nov 11, 2017 peak) and the industry (Winner of the 2017 Mining Journal Explorer of the Year Award) have recognized its efforts. The company delineated a high grade zinc resource containing 5.6 billion pounds grading 7.3% zinc equivalent at its wholly-owned Ayawilca project in a prolific belt of central Peru in November 2017, and continues to drill to infill and expand the resource outline and quantify the potential of its land package. We have owned Tinka since PDAC 2017 and continue to recommend the stock due to the paucity of high quality zinc projects in mining friendly jurisdictions.
Evrim Resources (EVM.V)- This Americas focused prospect generator has recently signed significant project earn-ins for different projects, including a copper porphyry in eastern British Columbia (Axe project) with a major copper producer, Antofagasta Minerals (ANTO.LSE). EVM is taking full advantage of the lack of grassroots exploration projects generated by major precious and base metal producers and has planned a grand total of 24,000 to 34,000 meters of drilling for 2018; therefore, plenty of newsflow to come. It also has five active joint ventures and a regional exploration alliance in its assets.
4. What 3 investments would you avoid in 2018? Why?
We will most likely avoid adding uranium producers, leveraged gold plays, and primary cobalt explorers to our portfolio in 2018.
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