NetworkNewsWire Editorial Coverage: In times of financial crisis, there’s no safer investment than gold.
Gold’s historic reputation as a safe haven asset will be a boon for mining companies as the global economy witnesses the plunging valuation of currency. Kingman Minerals Ltd. (TSX.V: KGS) (KGS Profile) has been preparing operations on a historic mine site in Arizona, benefiting from the cost efficiencies of revitalizing an already established exploration site. Coer Mining Inc. (NYSE: CDE) has recently reopened operations in Mexico as the country’s government relaxed pandemic restrictions. Kinross Gold Corporation (NYSE: KGC) is hoping to benefit not only from renewed investor interest in gold but also from the mineral’s applications in medical testing. Hecla Mining Company (NYSE: HL) has been expanding from silver into gold and has renewed operations in Quebec as precious metals mining was designated a vital economic activity. Agnico Eagle Mines (NYSE: AEM) has also recommenced work in Quebec after a shutdown that will affect many mining companies’ output, but the company will still produce over a million ounces of gold this year.
The Renewed Value of Gold
Gold has long been one of the most stable assets for investors, a safety net in an arena of economic risk. With the world facing a global health crisis in the form of COVID-19, and the prospect of a deep and extended recession looming in its wake, the precious metal is seeing renewed attention from investors. Bank of America recently raised its 18-month gold-price target to $3,000 an ounce, while others believe that gold is on the cusp of a new decade long bull market that will push the price well past $5,000 an ounce. Little wonder there’s such strong interest in gold companies such as Kingman Minerals Ltd. (TSX.V: KGS).
While gold initially had a small retracement at the onset of the current crisis, it was just part of a pattern historically seen in every period of economic turmoil—one from which gold always returns, and one that has done nothing to undermine the asset’s worth as a safe investment in a crisis. Gold has a number of advantages – it holds its value better than stocks, is more liquid than bonds, and as the original measure of wealth, it has retained its position of value while other alternatives have risen and fallen. While it doesn’t have the spectacular returns some stocks do during boom times, it has always been a good hedge against a crisis and a reliable option in times of trouble.
Gold’s sturdy staying power and vast upside potential has sparked keen interest in Kingman Minerals, which intends to very profitably extract new gold from old mining sites. Gold always has intrinsic value, whether for use in jewelry, electronics, or as an investment, and that value tends to climb relative to other investments during financially difficult times. Even before the COVID-19 crisis took full hold, commentators were predicting that gold would beat the market this year, and when gold rises in value, the mining companies typically see a corresponding rise in demand.
National banks are frantically print money to cover the costs of the COVID-19 crisis and in all likelihood will devalue those currencies and any assets directly tied to them. If history is any guide, the intrinsic value of gold should soar and only be impacted to the upside during the devaluation process. This puts gold in an incredibly advantageous position over the next few years and presents a compelling opportunity.
Digging in the Right Place
That companies need to dig for gold in the right place might sound like a statement of the obvious, but it’s actually a complicated proposition. Profitable mining involves identifying accessible, financially viable deposits within mining friendly jurisdictions, and on sites that are accessible for the transportation of equipment, staff, and the gold once it is extracted. Kingman’s Mohave project checks all these boxes and poses promising potential for the company.
Located in Mohave County, Arizona, the Mohave Project benefits from being located in a mining friendly jurisdiction. This support makes it easier for mining companies to work within the state.
Kingman has chosen ground for its work that is known to contain valuable deposits and that is accessible enough to support a new mining operation. Located 35 miles outside the town of Kingman, from which the company takes its name, the Mohave site has direct road access from Historic Route 66 and Antares Road. This will allow supplies and resources to easily be brought onto the site as mining operations are established and expanded.
Water supplies on site will keep down costs for this part of the operation, while the proximity of a town ensures that there is support for staff coming in. But perhaps the greatest asset of the Mohave Project is one that might surprise the inexperienced minerals sector enthusiast – the ground had already been mined.
Returning to Past Sites
Part of Kingman’s strategy is the return to an old mining claim – the 167-hectare Rosebud Mine.
Discovered in the 1880s and mostly mined in the 1920s and 1930s, the Rosebud Mine is a critical part of the Mohave Project. Previously worked mines are increasingly being exploited by modern mining companies as proven sites of minerals. Reactivating existing sites with new mining techniques offers the potential for easy picking and bigger profits.
Though the most accessible resources have usually been extracted from these sites, the land still holds the promise of untapped discovery. Modern mining techniques ensure that previously difficult-to-extract lodes can be accessed safely and cost effectively. This technique has been applied to extract newly valuable battery minerals such as cobalt from old copper mines and to revive abandoned precious metals sites. Kingman will be tapping into wealth that previous generations of miners left behind.
Those previous generations are one of the great advantages of renewed digging on old claims. Records from their work help to direct new operations, providing evidence for metal deposits. At the Rosebud Mine, records from the original digging era have been combined with surveys from the 1980s to calculate the likely wealth on the site – an estimated 664,000 ounces of gold and 2,600,000 ounces of silver.
Equipped with old records, Kingman has set about new sampling work on the site. While old records are helpful, they can’t be relied on for modern operations, so companies like Kingman test to confirm the existence of predicted or previously recorded deposits. Two rounds of underground reconnaissance and testing, combined with historic data, will allow Kingman to provide new estimates of the value of the site in the next few months.
The presence of historic mining workings makes it easier to exploit deposits once they are confirmed. With workings that stretch 2,500 feet underground, the Rosebud Mine’s historic conditions allow for a significant decrease in the costs of mining gold—increasing the potential profits of a valuable and sought-after commodity.
Mining Across America
Another company that will be hoping to benefit from a gold boom is Coer Mining Inc. (NYSE: CDE). With sites in Canada, Mexico, and the U.S., Coer has an established mining presence across North America. The focus of its operations is on gold, with two operations dedicated to this and two more extracting both gold and silver. A fifth site, in British Columbia, provides zinc and lead alongside silver. While the current crisis has had an impact on some of Coer’s operations, it has recently restarted mining at its Palmarejo complex in Chihuahua, after the Mexican government designated precious metals mining as an essential activity.
Kinross Gold Corporation (NYSE: KGC) also focuses on gold in extraction operations, which last year produced precious metals equivalent to 2.5 million ounces of gold. While the company has operations in Russia and West Africa, more than half of its production takes place in the Americas. The company has taken extensive steps to tackle the challenge of COVID-19, to maintain the safety of its workers as well as its business continuity. It has also drawn attention to one of the more overlooked uses of gold in the current crisis – that its plays a vital part in virus testing kits. If these tests are widely used, then the value of gold could further increase.
Idaho-based silver producer Hecla Mining Company (NYSE: HL) has been expanding its gold production and now looks set to benefit from the increased focus on this metal. At the end of 2019, the company was already seeing increased production of both silver and gold, along with lower debt and growing cash balances. Like many other companies, it has seen some disruption to its work as governments responded to COVID-19. And like Coer, Hecla is now benefiting from the vital role that mining plays in maintaining the economy, as the government of Quebec allowed its Casa Berardi operation to restart in mid-April. While many businesses are still struggling to find their niche in lockdown, the fundamental necessity of producing raw resources is leading to a return to work in the mining sector, even in countries where rigorous restrictions are in place.
A senior Canadian gold mining company, Agnico Eagle Mines (NYSE: AEM) also has operations in Mexico and Finland as well as exploration work underway in the U.S. and Sweden. Its policy of not making forward gold sales gives shareholders full exposure to gold prices, and it has provided a cash dividend every year since 1983 through a strategy of low-risk, high-quality operations. Like Hecla, it was quickly able to recommence operations in Quebec after restrictions hit. The company has been direct with investors in detailing the likely impact of COVID-19 on production, but it still expects to produce 1.63-1.73 million ounces of gold in 2020, and a widespread reduction in production could elevate prices.
With a renewed interest in gold and companies making effective use of old sites to cost-effectively extract the metal, the market looks good even in a time of crisis.
For more information on Kingman Minerals, please visit Kingman Minerals Ltd. (TSX.V: KGS).
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