Exclusive Interview with Dr. Quinton Hennigh: “Explorers are at Historic Lows!”

Swiss Gold Letter interviews Crescat Capital’s Geologic and Technical Director, Quinton Hennigh, PhD. Dr. Hennigh is an internationally-renowned economic geologist with over 25 years of exploration experience.

We discussed the value disconnect in the sector and several junior explorers that could be takeover targets by major mining companies.

Wednesday, February 21, 2024

Gold stocks are down 43% from their August 2020 high.

The breadth and oversold levels of these stocks are at levels not seen since the 2008 and 2015 lows. Precious metals exploration companies have been particularly hard hit. This points towards an imminent strong bull phase.

Since this most difficult sector can also deliver by far the best performances, Swiss Gold Letter reached out to one of the best in the field: Quinton Hennigh PhD, the Geologic and Technical Director of Crescat Capital, the very successful and well-known global macro asset management firm for his best investment ideas. Dr. Hennigh is an internationally-renowned economic geologist with over 25 years of exploration experience, who has rare insights into what distinguishes world class exploration assets from the projects of other junior mining companies.

SGL: Since its inception in August 2020, Crescat Capital’s precious metals master fund, which invests primarily in exploration companies, had the best performance of all gold funds worldwide, compounding yearly at 30.6%. It was up an astonishing 10% just in the last month of 2023.

So, let’s start with a simple question: Why have gold stocks been so weak?

QH: First of all, I have never seen such a difficult market!

We have been down quite a bit since the beginning of this year.

Physical gold has performed quite well thanks to central banks and Asian buying. Unfortunately, North American and European investors have been selling the yellow metal and, even more relentlessly, selling the precious metals equities.

SGL: Why are investors selling safe-haven assets in these turbulent times?

QH: In my view, its simply because of the attraction of other investment asset classes: technology stocks with the bubble in the magnificent 7; bitcoin; and US bonds for their yields.

What is strange here is that if bonds are so attractive, why have they been down recently?

SGL: So what could cause a turn in this market?

QH: This is always difficult to say. What is very clear to me since the sentiment is so bad and

valuations are so depressed is that if we are not at a low now, we should be pretty damn close!

SGL: Can you tell us about valuations?

We have always believed that when an asset class is cheap enough, the timing does not really matter anymore.

If a stock is so undervalued that it will likely go up 5 or 10 times, who cares if one has to wait one, two or three years!

So, how cheap are exploration stocks right now?

QH: If you look at the more advanced exploration plays, which are easier to value, they are trading at a fraction of where they should be.

These companies either have a resource in hand or one that can be easily calculated by industry specialists. Today, these companies are usually trading around one-fifth of where they should be.

Studies from the 1990s up to now show that when big producers acquire an asset, they usually pay, on average, 20% of the price of the metal in the ground.

Let’s take an example.

Snowline Gold ($SDG.V) has at least 10 million ounces of gold. 20% of that value would be US $4 billion. But, Snowline is still trading under US$800 million.

Tier One Gold Assets Will Be Acquired

SGL: As Dan Wilton, CEO of First Mining Gold ($FF.V) (an unbelievably cheap development company), rightly says, “the cupboard is empty”, meaning that producers desperately need to replace their depleting reserves.

So, which smaller companies will be takeover targets?

QH: For an acquisition to be meaningful, a mining company needs to buy an asset that can increase its current production by at least 10-20%.

The largest gold producer, Newmont Mining ($NEM), extracts 5.3 million ounces per year, closely followed by Barrick Gold ($GOLD) with 4 million ounces.

These companies need to acquire tier one gold assets that can produce close to 500,000 ounces per year at a cost in the lower half, or even preferably in the lower quartile of the cost curve.  Barrick Gold defines these assets as having a reserve potential of a minimum 10-year life.

Needless to say, the number of projects of that scale is extremely limited.

These types of discoveries only happen once every five or maybe even ten years.

SGL: Behind Newmont and Barrick, the two industry leaders, who are the major producers and what are they looking for?

QH: The next tier of gold mining companies is Agnico Eagle ($AEM), Kinross ($KGC), Anglo American ($AAL.L) and Gold Fields Limited ($GFI).

These companies need properties that can produce at least 250,000 ounces per year for a minimum of 10 years or preferably 20 years.

They still are growth companies who want to be in the league of top dogs!

Unfortunately, unlike in the 2000 decade, there are fewer and fewer significant gold producers. This is because the bigger companies have been merging. Agnico Eagle bought Kirkland Lake gold, Kinross acquired Great Bear Resources and Anglo-American bought out Corvus Gold in Nevada.

Finally, the smaller producers like Eldorado Gold ($EGO) or B2Gold ($BTG) are looking for new 100,000 ounce producers with at least a 10-year mine life.

Acquisition Targets

SGL: So, which junior explorers will be taken out?

QH: Acquisition is the name of the game and all the stocks I will mention are attractive at current prices.

They all are takeover candidates who have cash as well as significant drill campaigns underway, ensuring solid news flow.

My three favorite tier one gold assets, which will be acquired by the largest producers, are Snowline Gold ($SGD), Newfound Gold Corp. ($NFG), and i-80 Gold Corp. ($IAU).

They all have a respectable valuation but are nowhere near the price that a company like Barrick or a Newmont would have to pay in an acquisition.

SGL: When could these acquisitions happen? There’s still very little M&A activity right now.

QH: It is quite likely that these three very rare, massive quality assets will be taken over within a year.

As the gold bull market asserts itself there will be more acquisitions.

Today, producers are still under pressure to issue hefty dividends to compete with bonds. The mining companies have to overcome the negativity surrounding mining, as well as the very long permitting process.

SGL: In junior gold stocks, the lower the market capitalisation, the wider the undervaluation. Is this also true for exploration stocks?

QH: This is certainly the case. This means more upside, but also more risk. The second tier of exploration companies already have decent valuations, but no resources yet.

Some of these companies have very promising properties that are very attractive for gold producers. Here are four favorites:

Goliath Resources Limited ($GOT.V)

Goliath has had three very successful drill seasons in the prolific Golden Triangle of British Columbia and the company is starting to hit incredibly high-grade material at its Golddigger Property.

This could develop into a 3 or 5 million ounces deposit with strong grades. All this for only $93 million.

Lion One Metals ($LIO.V), which has a 100% owned, high grade alkaline gold project in the Fiji Islands, exhibits all the hallmarks of an Emperor mine look-alike.

This will be a modest-scale gold producer but with one of the highest grades in our sector.

It will be easy for this C$107 million company to prove up one million ounces, but it could very well be 3 up to 5 million ounces.

The recent weakness in the share price presents itself as an opportunity.

Nevada King Gold ($NKG.V)

For a company with a market capitalization of only C$116 million, one can own shares of the only big oxide discovery in Nevada since the 1990s, which could reach 3 million ounces.

The company is Nevada’s third largest mineral claim holder.

Hercules Silver Corp. ($BIG.V)

Here you have a major porphyry discovery in western Idaho, a brand new jurisdiction for this type of geology.

It is still the early days, but Hercules Silver might develop an exceptional, high-grade core.

This is not a gold story, but it could deliver a tier one asset in copper.

This explains is why Barrick Gold recently came in as a joint venture partner, bringing credibility and a lot of cash to the project.

Barrick Gold defines a tier one copper asset as having a reserve potential of greater than 5 million tonnes of contained copper and C1 cash costs per pound in the lower half of the industry cost curve.

Companies with High Exploration Potential 

SGL: where can you find the highest exploration potential for the best share price appreciation?

QH: Altamira Gold ($ALTA.V) is still in the early days, but this type of target looks very big.

Because the metallurgy is excellent, a gold grade of around 1 gram per tonne would be sufficient.

Altamira’s Maria Bonita discovery in Brazil has district potential and could be a new Snowline with multimillion-ounce potential.

Altamira has already defined a 43-101 compliant resource totaling oxide resources of 0.85 million tonnes at 0.92 grammes per ton (indicated) and 1.67 million tonnes a 1.12 grammes per ton (inferred).

Most informed geologists acknowledge that this will be a huge deposit, but the market capitalization fully diluted is still under C$40M.

Sitka Gold Corp ($SIG.CA)

Here is another discovery that has the potential to become the next Snowline.

Sitka Gold is drilling the deeper part of its Blackjack deposit on the Tintina Gold Belt in the


With a fully diluted market capitalization of only C$50 million, drilling success could revalue the company up to C$300 million in a very short time frame.

In short, while these companies are making very good progress, the market has not yet recognized the value of their work. This is a unique opportunity.

SGL: This is a great group of companies!  Thank you for your insight.

Disclaimer: SGL does not provide investment advice and is not a registered investment advisor. Always do your own due diligence before making an investment. Investing in securities, especially junior miners, can be risky and never invest money you cannot afford to lose. SGL cannot guarantee the accuracy of the information in this post. SGL has attempted to present the information fairly, but it or its contributors may own shares of the companies discussed so bias cannot be excluded. SGL and its contributors have no relationship with Crescat Capital or any of the companies discussed in the interview. SGL or its contributors may buy or sell shares at any time.

SGL makes no representations, and specifically disclaims all warranties, express, implied, or statutory, regarding the accuracy, timeliness, or completeness of any material on this website. You should seek the advice of a securities professional regarding any stock transactions. SGL cannot guarantee in any way that it is providing all of the information that may be available. Please do your own due diligence before buying or selling any security.

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