Gilded Explorers: Trillium Gold Mines

Fraught Times Puts Gild on Microcap Gold Mining Companies

To say that we are living in fraught and volatile times might be an understatement. Here we are barely half-way through the year 2020 and we’ve endured the first few months of an ongoing global pandemic and weeks of widespread civil unrest in major U.S. cities. A new invasive species with the diabolical moniker of “murder hornet” has arrived on our west coast, portending a gruesome death for anyone getting in their way and destruction of our native honeybee populations. And the Yellowstone supervolcano has turned active and expected to erupt sometime during the coming year, with lava flows in all directions expected to reach as far as Las Vegas, Tulsa, Toronto, and Toledo.

OK, so that last point isn’t true, but it has been that kind of year and recent seismic activity in the Yellowstone region has spurred quite a few tabloid stories about the big Yellowstone blow up. Little doubt that we’ll start hearing warnings about the “big one” in California before the year is up.

Among the craziness, we experienced a pandemic-panic-driven big crash in world markets that saw everything, including typically safe investments such as gold, plunge off the proverbial cliff in March. This was followed by what, given the current state of the world, seems to be an especially rapid—though choppy—recovery, with market indices, many equities, and most sectors recovering from most of their March losses, with some again near or at their all-time highs. This includes gold, along with gold mining and exploration companies, both those in the big leagues and what are known as the juniors (microcaps and small caps).

Frankly, we’re a bit surprised by how closely gold and gold-related equities have been trading almost in lockstep with other equities. As a safe haven, gold never should have plunged in concert with the overall market, and, in such fraught and volatile time, should be a bastion of strength. Given the economic threat posed by the ongoing pandemic and civil unrest, not to mention excessive governmental printing of money (the U.S. alone having increased the supply of American dollars by about 25 percent in the past year), we believe more and more people are turning to gold for safe investing. The current high prices for gold and shares in gold-related companies reflects this and we believe that this is just the start of a big, multi-year move higher.

Consider that the current stock market boom is being driven largely by government stimulus. The effects and power of that stimulus will eventually wane and all that money-out-of-thin-air printed by the government will likely stir up the dreaded inflationary threat demon. As that becomes more and more of a concern, investors will undoubtedly turn more and more attention to safe havens like gold. We’ve certainly turned our attention in that direction and see the most potential in the junior players of gold mining and exploration—that is the smaller microcap and small cap companies that tend to garner less investor attention and thus are more likely to be undervalued.

Why Not Just Buy Gold?

Sure, you could take on gold as a “solid” investment by purchasing gold bars and coins and plenty of people certainly did just that as the severity of the pandemic grew more apparent. However, purchasing gold bullion now will cost a premium. Not only are bullion supplies down due to excessive buying, but, like most industrial production, recent gold refining production has been curtailed due to the pandemic. And, then, after you’ve paid top-dollar prices and commissions, you’ll need to safely secure your investment. What’re you going to do, bury it in the backyard?

Turning to the stock market, you could purchase gold futures, but they are pretty much trading in lockstep with the price of gold. Likely a safe play and one that will definitely pay out when the overall stock market goes south again, but why not maximize the payout by purchasing real futures? That is the future potential held by mining companies in the proven and yet-to-be discovered reserves they own underground. Not only do such companies generate more money with any inevitable increase in the ore price, but also with any increase in what they pull out of the ground every day.

History as a Guide

For an example of how such companies fare during fraught economic times, let’s consider how gold mining and exploration companies fared in the wake of the 2008 global financial crisis and resultant worldwide economic recession. Small cap Wheaton Precious Metals Corp. (NYSE: WPM), which was trading at around US$3 at the end of 2008, hit a high of US$47.60 during this recession-inspired gold rush, a gain of 1,536%. Royal Gold (NYSE: RGLD) saw its share price gain almost 350%, while Newmont Corp. (NYSE: NEM) realized a 237% gain during this gold rush period.

Naturally, the price of these equities waned with the end of that recessionary period, but they are again at or near those previous highs. And, as previously mentioned, we are just in the early stages of our current worldwide economic situation. No matter what other market sectors and equities do, we believe there will be a continuing “flight-to-safety” demand for gold and gold-related equities.

The TSX Venture Composite index’s performance in the wake of the 2008 global financial crisis also warrants a closer look. With a heavy weighting in gold mining, which tracked to some extent the rally in gold and decline in the U.S. dollar, the index soared almost 250% between March 2009 and April 2011, making it the best performing index in the world during that time frame.

While the index has significantly underperformed since April 2011, losing about 75% of its peak value since then, it has climbed more than 70% from the recent lows recorded in mid-March and been a top performing index in North America. While these are impressive gains, the TSX Venture, at a current price of around C$577 is still below its 2008 lows of C$766, and down more than a whopping 465% from its all-time 2007 high of C$3,265.92.

What gives here, you ask? Why isn’t the index more closely following gold, which has almost returned to its all-time high despite the strength in the U.S. dollar? Well other than some short-lived peaks, gold and gold mining in general has been in a bear market since late 2012. Gold only started its climb out of bear market territory in late 2018, a climb that accelerated early this year. Mining and exploration companies tend to lag their commodity in pricing, as investors want to see consecutive quarters of strong profits before making a commitment. Given the length of the recent gold bear market, it may take a couple of such quarters to bring about a true bull market in the sector.

Newer Index Showing Strength

That said, money is obviously flowing into the sector as evidenced by the S&P/TSX Venture Metals & Mining Index, up more than 80% since its mid-March lows. Initiated in February 2018, the Venture Metals & Mining index doesn’t have much in the way of historic price trends and could easily break its all-time high within a week or so. Trading at a recent $37-$39 range, if this index were to track the TSX Venture index on a theoretical return to its all-time high, its comparable share price would near $210.

Think Small to Gain Big

With our focus on microcap and small cap stocks, an exchange traded fund (ETF) that tracks “junior” smaller cap mining firms provide what may be the best overall perspective of lesser known firms in the sector. The Junior Gold Miners ETF Vaneck (NYSE Arca: GDXJ) shows smaller companies experiencing the similar bear market conditions as the larger players, though with a longer-term descent. As with the recent activity with the other two indexes, GDXJ’s share price initially plummeted due to pandemic panic, but just as quickly recovered, though—unlike with TSX Venture—with new multi-year highs. Like the TSX Venture, GDXJ, with a current share price of around US$47 has a long way to go to reach its previous all-time high of around $166, set in April 2011.

GDXJ’s pricing suggests that speculators are putting their money into smaller companies just as readily as they are with the larger companies. Basically, it’s all just a play on gold with the expectation that the indexes and ETF will follow gold’s expected trajectory based on the current state of the world.

Seek Even Greater Potential Returns from the Company Itself

A rising tide may lift all boats, but with smaller individual companies it’s not as much about the price of gold, but how much they find and eventually, extract. The price of gold can certainly make or break a newer, smaller-scale mining and exploration company, but the company’s success is more dependent upon how much gold it can find. Naturally, if the price of gold is on the rise, whatever the company finds is going to be that much more valuable. So, when a microcap or small cap mining and exploration company hits a new productive strike or ups proven reserve numbers, it’s like adding gold to the stock price—gold that in and of itself is rising in price during fraught times, further boosting the share price.

The Chinese seem to know this, as they have been actively buying up gold mines around the world, with a particular eye on Canadian junior mining firms. The Zijin Mining Group announced mid-June that it was acquiring Toronto-based Guyana Goldfields for C$323 million, this just a few months after the firm completed the takeover of Canada’s Continental Gold for C$1.3 billion. Meanwhile, Shandong Gold Mining, one of China’s largest gold producers, recently made an offer to purchase Toronto-listed TMAC Resources for around C$230 million.

Large Canadian and American gold mining firms are likely to get in on the M&A action, too. Most large North American companies straightened up their financials during the bear market and analysts suggest that robust balance sheets, ongoing free cash flow, and the rising price of gold will prompt senior mining companies to bolster their development pipelines by gobbling up attractive looking junior companies.

Trillium Gold Sitting on Forgotten Buried Treasure

From a microcap company perspective, we are most excited by the prospects of Trillium Gold Mines Inc. (TSX.V: TGM) (OTC: CNRMF) and suggest it’s a prime candidate worthy of your closer examination. Company strengths we are especially intrigued by include:

Located in Ontario’s Red Lake mining district, Canada’s most productive gold mining area.
Significant historical work has shown gold in every drill hole on their flagship asset, Newman Todd.
Past valuation of Newman Todd asset alone was well over $100M.
Infrastructure in place to support continued exploration and extraction.
Highly experienced leadership and technical team.
Only 20.9 million shares outstanding largely controlled by insiders and close associates
Good political jurisdiction.

Click Here to View The Trillium Gold Mines Research Report

To say that we are intrigued by Trillium Gold is an understatement. Not only is TGM located in one of the best camps in Canada, but we can tell that the folks running the company are far more interested in unearthing a multi-million ounce deposit than they are in cashing out or finding a partner. Trillium Executives, geologists, and outside mining experts believe that Trillium is sitting on forgotten buried treasure. And with virtual control of the vast majority of the company, insiders and their associates seem aligned with their aim of joining the big leagues by turning Trillium into a multi-million ounce gold company.

At this juncture, you’re probably convinced that the gold sector is bursting with potential and that the junior microcap and small cap companies provide the biggest bang-for-buck potential. But, you’re dying to ask, what’s so special about Trillium Gold? What makes it a more attractive buy than any number of dozens of other junior players?

Clues From the Chart

Well, a picture is worth a thousand words. Famed financier and investor Bernard Baruch reportedly said, “show me the charts and I’ll tell you the news.” The recent news certainly looks good and suggests that word about this long-undervalued mining company is starting to get out, putting the company on the radar of savvy mining investors.

Location, Location, Location

Along with a claim near the northern Quebec-Ontario border, Trillium Gold Mines Inc. owns three properties and mineral claims in northern Ontario’s Red Lake district, which is Canada’s top high-grade gold producing region with more than 75 years of continuous production. During this time the region has produced gold at an average rate of two troy ounces per tonne, with more than 30 million ounces recovered since gold was first discovered there in 1925. At one point during those early discovery years, the town of Red Lake’s airport was known as the busiest in the world. The region’s success is most recently illustrated by Great Bear Resources Ltd. (TSX.V: GBR-X) Dixie claim, which has yielded numerous high-grade discoveries along its 22-kilometre length over the past two years, turning a former small cap mining company into a near billion-dollar mid cap.

Trillium Gold’s flagship property is called the Newman Todd Structure (NTS), which is located amidst numerous past producing mines with proven reserves and about 20 kilometres from the Dixie project as the crow flies. Previous drilling before the price of gold declined in 2012 suggests that NTS has more than 20 individual high-grade zones along its current 2.2-kilometre strike length. More than 40% of 50 drill holes identified over 20 grams per tonne (g/t) at a variety of interval lengths. One drill hole returned an amazing 681 g/t over a 0.5-meter length, while another identified 7.43 g/t over a 10-meter length. Past geological mapping, surface sampling also discovered high-grade gold mineralization at the surface, suggesting a high probability of near-surface pockets. Overall, gold has been identified in various amounts in every drill hole and assay conducted since 2005.

Based on historic drilling, the NTS had a valuation of over $100M in 2011. This valuation should hold up in today’s gold market, but could be much more based on underexplored zones on the property as well as suspected parallel veins of existing gold corridors.

Going forward in the near term the company plans to conduct additional drilling and exploration to expand their knowledge about potential reserves. This includes further drilling and testing of promising spots below 350 to 400 metres and linear drilling to expose the presence of suspected parallel ore veins. The company will also conduct more ground magnetic surveys to help delineate structures, rock formations, and confirm targeting, and conduct cross-structure drilling to better identify the full extent of mineralization. Work is expected to ramp up quickly, as site infrastructure is already mostly in place.

And Not Just One “Location, Location, Location!

Trillium Gold has been on an aggressive M&A strategy. They are buying up prospective assets in and around Red Lake. In the past 12 months, they have bought the following:

Leo Property—Located 15 kilometres south of Great Bear’s Dixie project, the property contains an array of characteristics and anomalies indicating the presence of gold. Geochemical sampling in the northeast of the project has identified anomalous gold, and property wide natural faults suggest promising geographic distribution of gold. The company has identified several targets for intensive targeted exploration based on historical work.
Red Lake West—This claim shares similar gold-indicating geological characteristics with other Red Lake producing claims. Historical drilling on the claim returned promising results for base chemicals commonly found with gold.
Shining Tree—While underexplored, this property is located at the intersections of the Larder Lake-Cadillac Break and a major north-south fault running through the property from downtown Timmins in a region which has produced and discovered an estimated 111 million ounces of gold. Recent and historical exploration work on adjacent properties has identified the area as having geological potential for a variety of deposits. The company’s first step for this property would be a desktop study of historical soil, geochemical, drilling geologic mapping, and geophysics in order to strategize for eventual on-the-ground work.

The company acquired these properties to build on the promise of Newman Todd, the demand for Red Lake exposure and the gold bull market we find ourselves in. While these other sites clearly suggest potential, Trillium Gold executives and technicians plan to focus the majority of their resources on retrieving the already known buried treasure at the Newman Todd Structure.

Now on the Radar, but Still Undervalued

A few short months ago Trillium Gold wasn’t even a recognizable blip on any investor’s radar. That is beyond the dozens of insiders and numerous mining experts cognizant of the historic exploration and obvious potential of the Newman Todd Structure. With gold back in favor with the investment world, we have shown that investors are actively seeking out gold mining and exploration companies with proven holdings and potential. This has now made this microcap a small but recognizable blip on investment radar screens. In fact, Trillium’s stock price recently hit new multi-year highs on greater volume trading as the share price gained more than 50% in two short weeks. Even still, at today’s stock price with similar prices in gold, the market cap is approximately 25% of what it was in 2011.

The continued rise in the price of gold should serve to raise the share price higher, but more promising results that expand the scope and potential reserves of Newman Todd, will also drive further increases. Little doubt in our minds, based on the Newman Todd claim alone, that Trillium Gold shares could be on the way to re-visiting all-time highs.

UPDATES via Press Release:

7/15/2020: “It is expected that the Company can begin executing on the proposed exploration program within the next 30 to 45 days.”

7/21/2020: Russell Starr appointed new CEO and President.

7/22/2020: Trillium Gold Mines Inc. is pleased to announce the commencement of the inaugural exploration program on its Leo Property.