Sophisticated Asian investors are hunting for gold on the Toronto Stock Exchange.
While their North American counterparts continue to sit on the sidelines, value-conscious Chinese, Japanese, and Korean investors are actively searching for listed Canadian gold mining companies that are selling at 52-week lows or below book value--with a clear preference for firms with the potential to significantly expand margins and earnings.
The Asian investors believe that there is opportunity in every great crisis; and the gold mining industry's dramatic downturn--a surprising result of the global financial meltdown--is no exception to the rule, in their view.
They see a physical gold shortage, which, coupled with recent actions by governments and central banks that are inherently inflationary, should lead to higher gold (and silver) prices. Asian analysts and investors assert (a) that China, despite mounting economic slowdown concerns, still maintains near double-digit annual growth rates, and (b) that demand for precious metals as a store of value and base metals for the production of goods and infrastructure is likely to remain strong.
All of which explains why Asian institutional and institutional-class individual investors are said to be specifically interested in Mexico, a country with a mining history that spans almost 500 years. Mexico is not only one of the world's largest metal producers; it is a major mineral exploration area. Mexico's vast mineral riches extend from Sonora to Oaxaca, principally in the rugged Sierra Madre mountains--the Mother Range--a region immortalized in B. Tavern's 1927 novel, The Treasure of the Sierra Madre and John Huston's classic, 1948 feature film adaptation of the book, which starred Humphrey Bogart (one of the first films ever to be shot on location).
The Sierra Madres are a magnet for miners, including several Canadian startups and juniors who have acquired and reopened existing mines and quickly generated cash flow for developmental drilling to expand reserves. Applying modern engineering, geological modeling, and drilling techniques, the Canadians have shown that the best place to find gold is at a gold mine.
Dual-listed Gammon Gold (TSX: GAM, NYSE: GRS) is a case study. In eight years, the company went from initial discovery to Mexico's largest gold producer. The company's once high-flying stock has been badly battered; but Gammon's Mexican focus and proven and potential gold reserves differentiate it from other mid-tier mining companies.
Interestingly, two former Gammon executives--Colin Sutherland, who, as CFO, was instrumental in growing the company's market capitalization from $300 million to more than $2 billion, and Bradley Langille, who co-founded the company with its chairman, Fred George--have joined forces to build a junior mining company, Nayarit Gold (TSXV: NYG). Sutherland is CEO of Nayarit Gold (named for the state of Nayarit, home of the company's concessions). Langille is the company's strategic adviser.
Nayarit Gold controls more than 102,000-hectares of mining concessions--collectively called the Orion Project--in the Sierra Madre Occidental, the range that extends from Arizona in the United States down into western Mexico (west of the Sierra Madre Oriental). The Orion Project includes a series of old high-grade silver and gold mines, all of which lie in an east-west vein system.
The company believes the vein system may be an unrecognized silver-gold district bonanza, similar to other silver-gold bonanza epithermal vein districts of western Mexico, such as the Tayoltita District. Such systems can extend for considerable distances and up to 1,000 meters in depth.
Bonanza is a key word. Though somewhat subjective, it is a term used to describe deposits from which large quantities of precious metals have been recovered from relatively small, high-grade ore bodies. Gold prospectors have sought and mined bonanzas throughout history.
Early results from Nayarit Gold's Phase I drilling program are pointing to bonanza potential; and Phase II drilling has begun, following a $10 million financing led by Bank of Montreal.