Gold has always occupied a more prestigious place in our imagination and attracted a far-higher price than silver, so widely seen as a runner-up that it symbolizes second place. (You may have heard silver referred to as “poor man’s gold”; when was the last time you heard gold described as “rich man’s silver”?)
Echelon Capital Markets analyst Gabriel Gonzalez turns that formula on its head. The analyst, now based in Toronto, started his career in Mexico City at Citigroup. He joined Echelon in 2016, specializing in precious metals and mining. He previously worked at Canaccord Genuity and HSBC (covering media and telecommunications at the latter) as well.
The analyst’s addition to Echelon’s “top picks” list from the third quarter of 2022 onward (and the sole addition to the list across all business categories for the quarter) is GoGold Resources Inc. (TSX—GGD). Perhaps ironically, though, his bullishness on the company has more to do with its silver prospects than gold.
“GoGold has among the best resource growth potential profiles in the silver explorer and developer sector with the Los Ricos North project (in Mexico’s Jalisco state),” he explains. “We believe GoGold can add another 100 million ounces of silver-equivalent from 2022 exploration, on top of the 160 million ounces of silver-equivalent it outlined following 2021’s exploration, and the 84 million ounces currently at the Los Ricos South project.”
Although he labels the company a “speculative buy”, he also highlights it as a “top pick”, equivalent to a “best buy”.
Looking to catalysts ahead, Mr. Gonzalez points out, “Reporting of exploration results from Los Ricos North has been delayed by road construction and other infrastructure, as well as assay lab delays, but is expected to resume in the third quarter. Los Ricos North continues to grow into among the largest primarily silver development projects held by a junior.”
The analyst also argues that GoGold’s war chest is well-lined to withstand short-term pressure on silver prices. The company raised $46 million in March through a syndicate of which Echelon was a member.
As of the first quarter’s end, it held US$83 million in cash and equivalents, providing it with an “ample runway to fund ongoing development” at the Los Ricos sites, according to the analyst. GoGold is also generating US$4 million in cash from its Parral tailings processing project in the Mexican state of Chihuahua. (GoGold’s headquarters are in Halifax.)
“The company is better-positioned to weather a downturn in silver or precious metals equities than many other silver explorers and developers, but without giving up significant resource growth potential, which we believe is more compelling than most other (peers),” says Mr. Gonzalez.
Silver miners (and the metal itself) were broadly hammered from April through June. GoGold was no exception. The analyst notes, “Absolute (GoGold) share performance in the second quarter of 2022 was -27.3 per cent compared to -29 per cent for the (benchmark, broad-based) Global X Silver Miners ETF (NYSE/Arca—SIL), and -19 per cent for silver, which we believe was mainly weighed down by sector performance and a quiet quarter on the exploration front. However, in the medium- to-longer term (between six months and two years out), we are constructive on silver given industrial demand from electronics and cleantech applications.”
As of early July, the company traded at 0.55 times Echelon’s NAV (net asset value) estimate of $3.71 per share, based on DCF (discounted cash flow) valuations for Parral (making up 11 per cent of NAV), the Los Ricos South project (in the PEA, or preliminary economic assessment, phase and contributing 26 per cent of NAV) and an in-situ enterprise value-to-ounce valuation for Los Ricos North (rounding out the NAV at 54 per cent). “Given the company’s significant resource and development potential, we believe a premium valuation is justified,” says the analyst.
Mr. Gonzalez also expresses continued optimism with regards to Silver X Mining Corp. (TSX/VEN—AGX), which he expects to deliver an initial PEA outlining production and additional growth potential at its flagship Nueva Recuperada site in Peru. He named Silver X to Echelon’s “top picks” earlier this year, although he considers it a “speculative buy” as well.
The analyst sets a target share price of $4.50 for GoGold and $0.90 for Silver X. Since Echelon’s favourites are growth-focused, almost all fared poorly in the second quarter. However, the brokerage states of its “top picks”, “We find opportunities for investors to continue accumulating positions in high-quality growth companies that stand to benefit from secular growth or upcoming catalysts. We believe this formula offers the potential for long-term outperformance in various market conditions.”
This is an edited version of an article that was originally published for subscribers in the August 5, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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