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The Story of the Golden Triangle in British Columbia

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Golden Triangle in British Columbia

The Golden Triangle

In a hidden corner of Northwestern Canada lies some of the world’s most significant mineral potential.

Billions of dollars of undiscovered gold, silver, and copper still sit within an unexplored area that was once remote. However, only now can these world-class deposits be finally tapped.

Skeena Resources has generously helped us to put together the story of the famed Golden Triangle.

The History of the Golden Triangle

Even before Canada was officially a country, the area now known as the Golden Triangle was a hub for prospectors looking to strike it rich.

In 1861, Alexander “Buck” Choquette struck gold at the confluence of the Stikine and Anuk Rivers, kickstarting the Stikine Gold Rush. More than 800 prospectors left Victoria to go to the Stikine in search of gold.

A few short years later, an even more significant rush would occur just to the north in the Cassiar region – it’s where British Columbia’s biggest ever gold nugget, weighing in at 73 ounces, would be found. The Atlin Gold Rush, an offshoot of the world-famous Klondike Gold Rush, would also occur just north of the Triangle.

The First Discoveries

The companies that first worked in the Golden Triangle balanced its richness against the costs of its remote location.

1. Premier Gold Mine
The first big discovery in the Golden Triangle was at the Premier Gold Mine, which started operations in 1918.
The company that first owned it, Premier Gold Mining Company, returned as much as 200% on the stock market between 1921 and 1923. At the time the Christian Science Monitor called it “One of the greatest silver and gold mines in the world.”

2. Snip Mine
Discovered in 1964 by Cominco, the deposit stayed dormant until 1986, when it was drilled in a joint venture with Delaware Resources. Murray Pezim’s Prime Resources bought out Delaware after the stock ran from a dollar to $28 a share.

The high-grade Snip mine produced approximately one million ounces of gold from 1991 until 1999 at an average gold grade of 27.5 g/t.

3. Eskay Creek
In 1988, after a 109 drill holes, tiny exploration companies Stikine Resources and Calpine Resources finally hit the hole they needed at Eskay Creek: 27.2 g/t Au and 30.2 g/t Ag over 208m.

Eskay would go on to become Canada’s highest-grade gold mine and the world’s fifth largest silver producer, with production well in excess of 3 million ounces of gold and 160 million ounces of silver.

Grades:
Gold: 49 g/t
Silver: 2,406 g/t
Lead: 3.2%
Zinc: 5.2%

By the time it was all said and done, the stock price of Stikine Resources would go from $1 to $67, after it was bought by International Corona.

Why did these three rich mines shut down?

Despite the gold in the Triangle being extremely high grade, lower gold prices in the late 90s made the economics challenging. Meanwhile, the lack of infrastructure in this remote area of Canada meant that power, labor, and logistics costs were sky high.

Both of these things have changed today, and activity at the Golden Triangle is now fast and furious.

Gaining Access to the Triangle

The Golden Triangle is a hot area for exploration again. This is for three main reasons: higher gold prices, new infrastructure, and modern discoveries.

Higher gold prices

Average gold price (1999): $279 (Adjusted for inflation: $398)
Average gold price (2016): $1202

Gold prices are more than 3x as high today, even after adjusting for inflation. Combined with the Golden Triangle’s high grades, this becomes even more attractive.

New Infrastructure:

Today, road access to the area is easier than ever, and a new transmission line will dramatically reduce the cost of power for companies operating in the Triangle.

Recent improvements:

  • Completion of a $700 million high-voltage transmission line to the Golden Triangle. The Northwest Transmission Line goes 335km from Terrace to Bob Quinn Lake, and north to the Red Chris mine
  • Paving of the Stewart-Cassiar highway north from Smithers (Hwy 37)
  • Opening of ocean port facilities for export of concentrate in Stewart
  • Completion of a three dam, 277 MW hydroelectric facility located 70km northwest of Stewart

With new infrastructure in tow, the Golden Triangle is now open for business.

Modern Discoveries

The next gold rush at the Golden Triangle has already started.

Just some of the new discoveries in the area include Seabridge’s KSM project, Pretium’s Valley of the Kings deposit, and Imperial Metal’s Red Chris mine.

Yet, despite this track record of new discoveries and mines being built in the area, a British Columbia government report estimates that only 0.0006% of the Golden Triangle has been mined to date.

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Mining

The Impact of COVID-19 Shutdowns on the Gold Supply Chain

Chains are only as strong as their weakest link. The COVID-19 shutdowns affected every link in the gold supply chain, from producers to end-users.

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Global Business

How COVID-19 Shutdowns Impact the Gold Supply Chain

Chains are only as strong as their weakest link—and recent COVID-19 shutdowns have affected every link in the gold supply chain, from producers to end-users.

Increased investor demand for gold coupled with a constrained supply has led to high prices and a bullish market, which has been operating despite these pressures on the supply chain.

Today’s infographic comes to us from Sprott Physical Bullion Trust and it outlines the gold supply chain and the impacts COVID shutdowns have had on the gold market.

The Ripple Effect: Stalling a Supply Chain

Disruptions to the gold supply chain have rippled all the way from the mine to the investor:

  1. Production
    Some gold mines halted production due to the high-risk to COVID-19 exposure, reducing the supply of gold. In many nations, operations had to shut down as a result of COVID-19 based legal restrictions.
  2. Delivery
    Strict travel regulations restricted the shipment of gold and increased the costs of delivery as less air routes were available and medical supplies were prioritized.
  3. Refinery
    Refineries depend on gold production for input. A reduction in incoming gold and the suspension of labor work shortened the supply of refined gold.
  4. Metal Traders
    Towards the other end of the gold supply chain, traders have faced both constrained supply and increased cost of delivery. These increased costs have translated over to end-users.
  5. The End Users
    Higher demand, lower supply, and increased costs have resulted in higher prices for buyers of gold.

Gold: A Safe Haven for Investors

As the virus spread around the world threatening populations and economies, investors turned to safe-haven investments such as gold to hedge against an economic lockdown.

This increase in investor demand affected the four primary financial markets for gold:

  1. Futures Contracts:
    A futures contract is an agreement for the delivery of gold at a fixed price in the future. These contracts are standardized by futures exchanges such as COMEX. During the initial periods of the pandemic, the price of gold futures spiked to reach a high of US$70 above the spot price.
  2. Exchange-Traded Funds (ETFs):
    An ETF is an investment fund traded on stock exchanges. ETFs hold assets such as stocks, bonds, and commodities such as gold. From the beginning of 2020 to June, the amount of gold held by ETFs massively increased, from 83 million oz to 103 million oz. The SPDR Gold Trust is a great example of how the surge in ETF demand for gold has played out—the organization was forced to lease gold from the Bank of England when it couldn’t buy enough from suppliers.
  3. Physical Gold for Commerce and Finance:
    The London Bullion Market Association (LBMA) is a market where gold is physically traded over-the-counter. The LBMA recorded 6,573 transfers of gold amounting to 29.2 million oz ($46.4 billion)—all in March 2020. This was the largest amount of monthly transfers since 1996.
  4. Coins and Small Bars:
    One ounce American Gold Eagle coins serve as a good proxy for the demand for physical gold from retail investors. The COINGEAG Index, which tracks the premium price of 1 oz. Gold Eagles, spiked during the early stages of the lockdown.

Each one of these markets requires access to physical gold. COVID-19 restrictions have disrupted shipping and delivery options, making it harder to access gold. The market for gold has been functioning nonetheless.

So how does gold get to customers during a time of crisis?

Gold’s Journey: From the Ground to the Vault

Gold ore goes through several stages before being ready for the market.

  1. Processing:
    Gold must be released from other minerals to produce a doré bar—a semi-pure alloy of gold that needs further purification to meet investment standards. Doré bars are typically produced at mine sites and transported to refiners.
  2. Refining:
    Refineries are responsible for turning semi-pure gold alloys into refined, pure, gold. In addition to reprocessing doré bars from mines, refiners also recycle gold from scrap materials. Although gold mining is geographically diverse and occurs in all continents except Antarctica, there are only a handful of gold refineries around the world.
  3. Transportation:
    Once it’s refined, gold is transported to financial hubs around the world. There are three main ways gold travels the world, each with their own costs and benefits:

    • Commercial Flights:
      Cheapest of the three options, commercial flights are useful in transporting gold over established passenger routes. However, the volume of gold carried by a commercial flight is typically small and subject to spacing priorities.
    • Cargo Planes:
      At a relatively moderate cost, cargo planes carry medium to large amounts of gold along established trade routes. The space dedicated to cargo determines the cost, with higher volumes leading to higher shipping prices.
    • Chartered Airlines:
      Chartered airlines offer a wider range of travel routes with dedicated shipping space and services tailored to customer demand. However, they charge a high price for these conveniences.

After reaching its destination via air, armored trucks with security personnel move the gold to vaults and customers in financial hubs around the world.

The World’s Biggest Gold Hubs

The U.K.’s bullion banks hold the world’s biggest commercial stockpiles of gold, equal to 10 months of global gold mine output. London is the largest gold hub, with numerous vaults dedicated to gold and other precious metals.

Four of the largest gold refineries in the world are located in Switzerland, making it an important part of the gold supply chain. Hong Kong, Singapore, and Dubai are surprising additions and remain significant traders of gold despite having no mines within their borders.

COVID-19: The Perfect Storm for Gold?

As countries took stringent safety measures such as travel restrictions and border closures, the number of commercial flights dropped exponentially across the world. For the few commercial airlines that still operated, gold was a low-priority cargo as space was dedicated to medical supplies.

This impeded the flow of gold through the supply chain, increasing the cost of delivery and the price of gold. However, thanks to the diverse geography of gold mining, some countries did not halt production—this helped avoid a complete stall in the supply of gold.

The COVID-19 pandemic has created the perfect storm for gold by disrupting the global supply chain while investor demand for gold exploded. Despite heightened delivery risks and disruptions, the gold market has managed to continue operating thus far.

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Mining

How to Avoid Common Mistakes With Mining Stocks (Part 2: Business Plan)

Investing in mining stocks may seem like luck of the draw, but the sector can be de-risked by asking the right questions. Here we look at the business plan.

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The Business Plan

Everyone loves to talk about creating the next great mining business, but are they willing to put that talk into action?

There is real money and real management behind every company—but surprisingly, not every company has a concrete strategy to build a business and create value for shareholders.

Business Plan, or Lack Thereof?

Today’s infographic comes to us from Eclipse Gold Mining and it shows you how to avoid common mistakes when evaluating and investing in mining exploration stocks.

Specifically, we look at five ways that potential investors can detect the presence and viability of a mining company’s business plan.

The Mining Business Plan

Visit Part 1 of “Common Mistakes With Mining Stocks” on Team by clicking here

So, what should investors be looking for, when it comes to examining the business plan of a mining exploration company?

#1: Clear Vision vs. All Hope & Dreams

A company should articulate a clear vision rather just simply following the trends and hoping for the best. A long term vision for a business plan is critical as it will be guiding and reminding stakeholders of the company’s purpose through the thick and thin.

Signs of a Clear Vision:

  • The company is actively reaching out to investors
  • Projects can be profitable at today’s commodity prices
  • Provide detailed timelines of work
  • Funds committed to work

A clear vision in business will give the company a direction to aim for, allowing everyone to work quickly towards objectives.

#2: Sense of Urgency vs. Wait & See

Time is money, especially in mining. Companies need to build value fast to finance at higher share prices so that early shareholders do not get diluted. A company needs to make concrete decisions that drive towards value creation.

Signs of a Sense of Urgency:

  • “Time is now” mentality
  • Decisive actions
  • Sense of purpose
  • Solution-oriented thinking

It is expensive to maintain a company, especially one that does not yet produce income. Expenses add up quickly and that is why management needs to make sure they focus their efforts and money on activities that generate value for shareholders.

#3: Laser Focus vs. Spray & Pray

The mineral exploration business is tough and each project requires the undivided attention of managers. Smart companies maintain incredible focus to de-risk their projects while others spread themselves thin with multiple projects.

    Signs of a Laser Focus:

  • Properties with a focused vision towards production
  • Specialized management experience aligned with the project
  • Aligning management skill sets with each phase of a project

In order to assess whether a company has the right focus you have to see whether the company is aligning its human assets with its physical assets and a goal in mind.

This focus will help to clarify the story for investors.

#4: Tell the Story vs. Hiding Behind the Science

Communication and business acumen are the key to take a project to market. Mining requires massive amounts of geological knowledge, but that is not the investor’s job to handle. They do not want to want to know the subtleties of geochemistry—they just want to know whether they can make money from those rocks.

Companies that hide behind a wall of geological slides may not have not a real story to tell, and they may be pulling investors into funding their own science projects. At the same time, investors need to make sure that the data being presented matches the story being told.

Signs of Telling the Story:

  • Aware of risks, and communicating those risks
  • Clear understanding of local geology
  • Data from drill results back up the story
  • Consistent message

If a company cannot communicate effectively, how are they going to deal with other, more complicated aspects of a mining business plan?

#5: Endgame in Mind vs. Kicking the Can Down the Road

A journey begins with a single step, but without a business plan and commitment, there will never be an end in sight. Quality companies foresee how their project will come together to generate both liquidity and an exit plan for shareholders. There are several clues investors can use to tell if a company is moving towards its goals.

Signs of the Endgame in Mind:

  • List of accomplished goals
  • Clear vision of future goals and exit strategy
  • Plan for liquidity events for shareholder

The goal in investing is to make money. If shareholders are not making money, what is the point? If a company has no plan, it has no hope.

Making the Right Decisions

Understanding the characters that create value for mining companies is the first step, and the second step is assessing whether there is a viable business plan at hand.

While the risks are high, an effective plan is the first step towards reducing risks and providing shareholders with value.

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