Spring Is in the Air

Disclaimer: This is not investment advice, nor is it a recommendation to buy or sell shares in the company/companies mentioned.

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The information contained herein is accurate to the best of the author’s knowledge, but the material and interpretations contained herein should be independently verified by any party using this information as part of any research, editorial, or decision making process. Any views expressed here represent the author’s opinion only, and as such readers should do their own research and come to their own conclusions if they are using the opinions contained herein as part of any larger due diligence process. The author may have long or short positions in the companies mentioned and may be buying or selling in the market depending on which way the wind is blowing at any given moment. Opinions are subject to change without notice. Prospective resources, predictions, comparisons, financial projections, and extrapolated metrics are, by their nature, subjective and interpretation dependent. The topics covered are highly speculative and involve a high degree of uncertainty and risk. Speculative companies can and do go to zero. By using this site, you agree that the author(s) and Hydra Capital is/are not responsible for any damages incurred by the use of the presented materials. Anyone reading these blog posts should know that they are the author’s thoughts and opinions, which are not to be confused with or construed as research reports.

Disclosure: The following represents my opinions only. I am long AOT, AYA, BIG, CDR, CGC, CRE, CVV, FPC, GOT, K, KRR, LBC, OGC, OSK, PEAK, NGD, NSE, RDU, RPX, RUP, TAO, TLG, TNZ, VLE (image credit to Kouji Tsuru on Unsplash)

If there’s one sector that is the story of the month, it has to be gold. Unless you’ve been living in a cave, you’ll know that gold is currently trading at an all-time high after obliterating resistance around the $2080 level. Generally speaking — and for quite some time — central banks have been buying gold, ETFs have been selling gold, and gold stocks have been grossly underperforming the metal itself. Belief in the gold breakout appears to be muted and, after so many prior head-fakes, my sense is that the market has yet to buy into the idea that gold is anything but a curiosity that is owned by “gold bugs” and old guys. Most investors have little or no exposure to gold and have been caught flat-footed by the strength of the price move, but their concentration in the top market performers (e.g., Nvidia) means that not participating in gold hasn’t hurt their performance one bit. At this stage, most investors out there don’t even know what the tickers of relevance are in the gold sector, let alone anything about the individual names and valuations, so it’s still early days. Meanwhile, bitcoin is also making new highs as I type this. Hmmmm. A quick look at the DXY shows that that U.S. dollar has rolled over recently as the chorus calling for Fed rate cuts, combined with what looks to be an unending upwards spiral in U.S. debt levels, sets the scene for a rally in things that are priced in U.S. dollars, like commodities, and arguably bitcoin.

General investor exposure to commodities and gold remains low — which is always nice to see when something breaks out — and I don’t think that many investors were positioned for this move. Thinking back to late 2020/early 2021, when energy started moving up from the pandemic lows, it took a long time for folks to really buy into the sector, but when they did, boy did they pile in. Granted, my crystal ball isn’t any better than the next guy’s, but here’s hoping that this is a similar situation — where disbelief slowly fades and the gold sector has a long-awaited day in the sun. I do take some comfort in the the fact that even though a lot of gold stocks have rallied nicely off their recent lows, many are still trading at historically attractive P/NAV multiples, free cash flow yields, and cash flow multiples (all on price decks lower than where gold is today). While I agree that some the charts might be/seem overbought in the short term, look at the longer term charts and consider that gold has never been this high. Sometimes stepping back a little is important to get better perspective. Heck, U.S. mega-gold player Newmont is still barely off its 5-year low, so no signs of froth there…

Meanwhile, everyone (including me) is watching for a move through the $4.00/pound level in copper before they get too excited, but with copper at $3.90-ish, I’ve started to dabble a little. India’s economy is rocking, China may yet pull out some old-fashioned stimulus, and copper supply-demand fundamentals remain healthy; especially if the “energy transition” train keeps rolling. A weaker U.S. dollar is generally good for commodities as a whole — and copper is always front and centre in the sector — so it shouldn’t be ignored at a time like this, but a 4-handle would bolster my confidence a lot.

To make sweeping generalizations about a few other things: 1) oil seems just fine while oil stocks are generally cheap relative to just about any other sector, 2) natural gas stocks are doing much better than the underlying commodity as investors latch to the idea that U.S. and Canadian natural gas prices will be buoyed by LNG demand later this year, 3) uranium is seeing some profit-taking, but the structural supply-demand picture remains bullish, 4) lithium is still in the doghouse and might get a bounce before what could be a nasty tax-loss selling season later this year unless things really turn around (a lot of lithium money has evaporated over the last 6-9 months), 5) nickel seems stuck in a rut due to new Indonesian supply, 6) zinc is moving with copper, and 7) silver is riding shotgun with gold, with many “silver bugs” believing that silver will outperform gold if the precious metals train is indeed leaving the station.

As someone who spends most of his time invested in commodities, I try not to complicate things too much. A look at a long-term chart of the TSX Venture index makes me see just how far it has to go if this is the start of a broadly synchronous commodity move — a couple more weeks of action like we’ve been having will see the Venture index chart make a “golden cross” (where the 50-day moving average crosses above the 200-day moving average) which could foretell the beginning of the next real leg up in Commodity Land. For now, colour me as “cautiously optimistic”, although the very fact that I’m typing this article could be taken as an indicator that things might need to consolidate a bit before moving higher. Prior to the current nascent move, money has hardly been falling from the sky in the commodity stocks for quite a while now, so I’m willing to believe that a broad-based commodity move at this point could have some legs to it. I’m certainly feeling the most optimistic that I have for quite some time, so my apologies if I’ve jinxed everything by writing this down. As usual, I’ll comment on some old names and a few new ones below, while generally remaining patient with a “be right and sit tight” attitude.

Tenaz Energy (TNZ.TO, last at $3.62)

Everyone knows that I’m a broken record when it comes to Tenaz. The company’s disciplined M&A strategy virtually guarantees that TNZ will move up the ranks in terms of market cap and investor interest levels — and energy prices have been stable enough for long enough that the climate seems right for deal-making. When I used to work on the buy-side, I would dream of seeing a company with A+ management in the smallest vehicle I could find. With TNZ’s share count at less than 27 million shares and a market cap of less than $100 million, led by a team used to managing companies with market caps in the “billions”, I think I’ve found just the ticket — all I have to do is wait.

Tag Oil (TAO.V, last at $0.475)

After a wobble, TAO has moved up 40% since I commented on its operational delays about two months ago. Since that time, the company announced that it successfully drilled through (and ran casing over) the overlying Abu Roash E section and was starting the horizontal section of the well within the targeted Abu Roash F formation. By the time all is said and done, TAO (and the market) will have learned a lot from the BED4-T100 well, as it is the company’s first horizontal well into the ARF oil play. Once drilling, completion, and testing are wrapped up, I suspect that TAO will send its current rig away and come back with a better Swiss Army knife for opening the ARF oilcan. I’d expect test results in early April on the BED4-T100 well and I will be focussed on things like “productivity per horizontal metre” and “productivity per frac stage” as those are the things that will let me compare the result to similar plays in other jurisdictions. Echelon Capital Markets launched coverage on TAO at the end of February with a $1.10 target price and a “speculative buy” rating, based on a 1,000 bopd IP rate and a 20-well development case. I think that’s as good a place as any to start, but TAO management has mentioned in prior presentations that they believe they could ultimately have 60-80+ locations in the area evaluated by RPS Energy, so I view the Echelon report as conservative. Overall, I’d like to see TAO to drill two more ARF wells in 2024 and with quick timelines to cash flow, additional dilution should be minimal from here on out. Success in the ARF on the Badr concession could see TAO secure more acreage in Egypt, which is hungry for investment these days, so here’s hoping.

New Stratus Energy (NSE.V, last at $0.63)

I had the chance to meet with The Most Interesting Man Alive (aka Jose Francisco Arata) last week during the PDAC convention and it was a real pleasure to catch up with him. Overall, my impression is that the current Venezuelan deal is a good starter kit/trial balloon for NSE and could open up additional potential deals in the country in due course. It sounds like NSE expects to add projects in one or two additional jurisdictions in the not-too-distant future and is generally being groomed as “the next Latin American energy champion”. Time will tell. At this stage, NSE is lightly followed, so as additional projects come into the company, I think there will be time for the market to warm up to the story. As it stands today, NSE is a bit of a call option on what Mr. Arata and his team are able to assemble by tapping their extensive connections in the region.

Condor Energies (CDR.TO, last at $2.28)

Condor has been flying higher for the first two-and-a-half months of this year thanks to the successful closing of its gas field management contract in Uzbekistan and progress on its LNG initiatives in Kazakhstan. The company is keeping the terms of its Uzbek deal quiet for now, but it assumed operatorship of 8 gas fields on March 1st and aims to increase production there using simple production optimization technologies. I’ll be watching for Q1 financials in May to see what the first month revenues look like there and the Q2 financials this summer should be even more telling. In Kazakhstan, the company was awarded a natural gas allocation from the government that will supply its modular LNG roll-out in the country. The basic premise in Kazakhstan is that diesel is expensive and natural gas is cheap, so there’s a natural incentive for industrial users to convert from diesel to natural gas if they can. To that end, Condor is targeting locomotives, long-haul trucks, mining fleets, marine vessels, busses, and agricultural machinery as end users for its LNG. Condor will buy the natural gas from the Kazakh government at local prices, condense the gas, and supply it to users at a cost that is cheaper than diesel. This story is too weird for most, but Condor is a central Asian specialist and I think it’s worth following given its niche in an area of increasing economic activity and importance. I don’t have a price target in mind yet given that things are still pretty fresh, but my sense is that it’s still early days on this one.

Valeura Energy (VLE.TO, last at $3.78)

On an EV/CF basis, VLE remains as one of the cheapest international names that I follow. The market continues to have a hard time believing that VLE is as cheap as it looks, but the company’s recent reserves report shows that the initial premise of field-life extension through near-field/infield drilling and reserves growth seems to be holding up. Some folks don’t like the fact that VLE’s PDP NPV is negative, but the 1P and 2P reserves look healthy enough. One thing that I don’t know yet is how much future development capital is assumed for the 1P and 2P reserves cases, so I’ll keep an eye out for that when the reserves report is filed. What I do know is that the acquired assets have already allowed VLE to fully pay off its debt and accumulate US$150 million in cash as of the end of 2023. Not too shabby. VLE pegs its YE2023 2P after-tax NPV10 at around C$7.50 per share and the stock trades at about half of that price, which seems reasonable in the context of the sector valuations. VLE is the poster child for the kind of equity value creation that can happen when the right asset finds the right home, and I think of it often when I think about my TNZ position — especially when I consider that TNZ has roughly one-quarter the number of outstanding shares, giving it even more per-share torque.

Hercules Silver (BIG.V, last at $0.81)

No change here. Spring is rapidly approaching, so BIG will probably start talking about its upcoming drill targets in the not-too-distant future. This is a copper exploration story worth watching… or at least that’s the read-through from Barrick’s $23 million investment at $1.10/share in November of last year. The mineralizing system is undoubtedly large here. Now BIG is going to be drilling for grade — and it should make for a very interesting 2024 for this story. The stock has drifted on lack of news and catalysts, but that’ll be the case until it isn’t, so stay tuned.

Critical Elements (CRE.TO, last at $0.66)

In a word… BOOOOOOOO! Like the Leafs, CRE still can’t get it done. I’m not sure what happens here, but I like the project and can’t help but think that someone dropped the ball here along the way given how good the numbers look on this project. I have a tiny position that I don’t even look at because it depresses me too much to think of what could’ve been, but I refuse to sell it because I know that as soon as I do, something is bound to happen with it. I can’t decide who dropped the ball more here… the Quebec permitting bureaucracy taking its sweet time, or management possibly getting “too cute” before getting an off-taker tied in to the project. I’m not even sure what lesson I’ve learned here, and CRE may yet have more to teach me, but on this day, I just wish I’d never heard of it. That’s probably a good sign.

Libero Copper (LBC.V, last at $0.65)

Libero caught my eye one day in January as a 2.5c stock that was doing a 1.5c financing and a 1 for 10 rollback of its ~175 million share count. It traded up to 3.5-4c in the following weeks which was quite unusual for something about to be rolled back and financed at a big discount to where it was trading. Then, on February 15th, came the key piece of information; Frank Giustra had bought 19.2% of the company on a partially diluted basis in the 1.5c financing (15c post-rollback). Sixteen hours later, a second financing was announced at 25c — it was sold before it was even announced. Hmmmm. From those two events, it was pretty clear to me that Mr. Giustra has a plan for LBC, even if I didn’t know what it was. Four directors resigned and were replaced by a 25-year geologist that has overlap with Frank in West Red Lake Gold Mines. Once the financings settle, LBC will have 48 million shares outstanding (and 31 million warrants) for a market cap of $29 million as of Friday’s close (with ~$6mm in cash). So why care about LBC? Well, back in April 2022, the company drilled over 1200 metres of 0.58% copper-equivalent (this is a copper-molybdenum porphyry) from surface including 595 metres of 0.77% CuEq starting at a depth of 7 metres at its Mocoa project in Colombia. The discovery wasn’t new… an inferred resource of over 600 million tonnes of 0.45% CuEq has already been identified, but subsequent work by LBC has shown that that the known Mocoa deposit is part of a larger cluster of deposits with multiple additional untested targets that also outcrop at surface. In short, Mocoa has billion-tonne-potential, which is what you want to see if you ever want to get taken seriously by the big industry players. I’m new to LBC, but it would appear that there was some local opposition to the project, at least in part due to the fact that the project was being modelled as an open pit, but LBC seems to be leaning towards an underground block-cave mine now and there have been some favourable changes at the local government level. Mix in the fact that Mr. Giustra has plenty of experience and contacts in Colombia and I think this starts to look like a very interesting speculation. Until the two aforementioned financings come free-trading in June-to-July of this year the total float for LBC is just 17.5 million shares, which could make for some interesting trading. Given that LBC already has a massive porphyry on its hands, and is looking to make it even bigger, I think that the ~$30 million cost of entry starts looking pretty attractive as a speculator relative to other known stories in the sector. It’s not a huge position for me, but if it goes, it could really go, especially if copper can get through $4 with a tailwind. Even from these levels, I think this could 5-10+ bag with a little time and a little interest. My bet here is that Mr. Giustra’s presence makes my odds a little better. We’ll see.

Sun Peak Metals (PEAK.V, last at $0.50)

This is a weird one. Sun Peak is run by Greg Davis, formerly of Nevsun and Sunridge… both of which were in Eritrea, which most people can’t put on a map. For some background, Nevsun’s Bisha VMS discovery was taken into production and ultimately sold to Zijin Mining for $1.86 billion in 2019 and Sunridge’s 60% interest in the Asmara project was sold to a different Chinese company a few years prior for around $100 million. After having senior management positions at both Nevsun and Sunridge, now Mr. Davis is in the CEO role at Sun Peak. PEAK’s Shire project has been on hold for three years, after fighting in the Tigray region of Ethiopia ground progress there to a halt. With the Tigray region back in peacetime, Sun Peak says that they are gearing up for drilling later this year. The reason I’m interested is that Sun Peak’s targets really, really rhyme with what Nevsun had at Bisha… large gossanous outcrops with coincident electromagnetic, geochemical, and gravity anomalies which are highly suggestive of the presence of VMS deposits. This is way up there on the “political risk” curve, but these targets are the kind that can generate interest even if they’re in what is perceived as a frontier/risky region. PEAK has around 88 million shares outstanding and a market cap of $44 million, so this speculation doesn’t come free, but there is a fairly devoted audience waiting for results from this project, so if PEAK is successful with the drill bit, broader attention should follow. This has been on ice for three years, but soon enough it’ll be time to drill it, so I want to be paying attention when it happens. I own a little stock, at a price a little lower than here, but this is one that I like as an exploration “punt” that could end up looking more like a touchdown if PEAK comes up with the goods.

Atex Resources (ATX.V, last at $1.27)

This is getting long, so I’ll keep ATX short. Atex is a Pierre Lassonde-backed Chilean copper porphyry discovery that could have billion-tonne potential. Its most recent hole, ATXD16A, suggests that the higher-grade early porphyry (EP) phase of the deposit may be more extensive/continuous than previously thought, with holes ATXD26 and ATXD17B (both pending) testing an area that would reinforce the interpretation of a NNW-trending EP corridor. Given Mr. Lassonde’s involvement and the credibility that it brings, I have a little ATX on the books as I watch for a copper breakout through $4. When it comes to copper, there aren’t a lot of quality investment targets out there, so I think that money will find ATX pretty quickly if copper comes back into market focus. Dare to dream.


I said my piece on gold above, so I’ll make this simple with some names and some bullet points. The names are in no particular order, but I flag them because I think they are all interesting, cheap, or both:

Kinross Gold (K.TO, last at $7.25): The cheapest of the big gold producers. Constantly rumoured as a takeout target. This is a go-to beta gold name.

Falco Resources (FPC.V, last at $0.28) & Troilus Gold (TLG.TO, last at $0.55): Falco and Troilus consistently screen as some of the cheapest ounces out there, and both projects are advanced to the point where they are not just pipe dreams. Troilus should have an updated economic study soon and its ~11 million ounce total (brownfield) resource should attract attention if the gold move is for real. Both FPC and TLG have mineable grades and could be of interest to larger players who don’t mind things that are boring and predictable. Both are in Quebec.

Oceanagold (OGC.TO, last a $2.75): It’s cheap on the comp sheets, so I own a little.

New Gold (NGD.TO, last at $2.03): Also cheap on the comp sheets. Kind if reminds me of the “Baytex Energy” of gold stocks. Lots of torque to a rising gold price.

Aya Gold and Silver (AYA.TO, last at $10.32): Morocco. Silver. Huge resource and high grade. How huge? Stick around and find out as a resource estimate is due any time now. Widely recognized as a premier silver story.

Goliath Resources (GOT.V, last at $0.80): Goliath has produced some amazing hits, but gets little respect for them. The company also needs money. I think that once this gets a financing out of the way, it could have a nice run if it releases the kind of hits it has been getting into a permissive gold tape.

Ascot Resources, (AOT.TO, last at $0.68): Never heard of it? I’m not surprised. You might be surprised to know that this will be Canada’s next gold producer though, with a first gold pour over the next month or two. AOT is cheap relative to its small-cap producer/developer peers and has good backing. The stock acts well, which is always nice. Start-up risks come with the territory here, but AOT is arguably strategic in the Golden Triangle as one of the actually-built projects.

Karora Resources (KRR.TO, last at $4.75): A well-run small-cap gold producer trading at a modest valuation with low political risk. What else can a guy want in a rising gold tape?

Osisko Mining (OSK.TO, last at $2.79): High grade underground ounces in Quebec. OSK owns 50% of the project through a JV with Goldfields and the project is financed through to production. This is nearly 8 million ounces of high-grade gold (8-11 g/t) and it’s open to depth. It’s not excessively cheap but the good ones never are.

Rupert Resources (RUP.TO, last at $3.60): Finland. 4 million ounces of high-grade open pittable gold (2.2 g/t) that any company would love to have. RUP is a clear take-out target in a rising gold tape.

Red Pine Exploration (RPX.V, last at $0.17): It’s small now, but geos like to compare RPX’s potential at the Wawa Gold Project to the Island Gold Mine of Alamos. Alamos seems to like it too, as it is the company’s largest shareholder, owning 19.4% of the company. RPX has recently found itself without a CEO, so I’m bargain hunting here.

Canadian Gold Corp (CGC.V, last at $0.14): 40% owned by Rob McEwan, this is a microcap with an old high-grade gold asset (the Tartan Mine near Flin Flon, Manitoba) that could expand to depth the way that a lot of good high-grade deposits do. It’s early days and the company is lightly capitalized, so I’d expect another financing followed by more expansion drilling to depth. At 14c, you get what you pay for, but in a strong gold tape, I think that a name like this could move up pretty easily.

Radius Gold (RDU.V, last at $0.12): While Tropico may not have worked out in early January, RDU is going to start drilling Plata Verde in Mexico (silver) and they continue to poke around in Guatemala in an area with loads of high-grade gold in boulders at surface. RDU is tiny, but a real hit on either of these projects could send the stock flying. It’s a cheapie with a chance.


I have nothing to add on uranium today except for flagging little CanAlaska Uranium…

CanAlaska Uranium (CVV.V, last at $0.75)

CVV had a truly impressive, albeit deep, hit of 16.8m of 13.75% eU3O8 recently on its West McArthur JV with Cameco, where CVV owns an 83.35% interest. That is quite a hole folks, and it won’t be the last, so CVV is officially on the map of junior explorers with deposits of interest. The results are based on gamma probe readings, hence the “e”U3O8 qualifier, but chemical assays will come back in 6-8 weeks. In the meantime, CVV is sure to drill more around that hole, so stay tuned. You don’t get grades like that unless the mineralizing system was long-lived and typically things that are long-lived have some scale to them. Hmmmm.

That’s more than enough to think about and it’s getting late, so I’ll leave it here. I know that I throw a lot of things into the mix at times like these — that’s because I think that when it’s “on” it doesn’t hurt to have a deep stable of names to draw on for ideas. Given that it feels like spring might be coming a little early this year to the commodity sector, stay sharp, read lots, and good luck out there. At this stage, if there’s one thing that will really embolden me, it’ll be seeing a golden cross on the TSX Venture index in conjunction with a move above the 640 level. If we see that, commodity investors will probably already feeling pretty darn good and they may just be getting going… dare to dream.

Happy hunting.