Picks in Precious Metals That Will Forge Ahead

Pretium, MAG Silver, Gold Standard and two others can ride out prolonged weakness.

November 7, 2014

H.C. Wainwright & Co.

We believe it is productive to highlight multiple companies that are progressing through the current challenging markets, maintaining strong balance sheets, and sustaining the potentially prolonged weakness in the precious-metals market.

While these firms raised money at valuations some investors deem to be depressed, we highlight that these transactions have allowed the firms to move their operations forward and are not standing still in a survivalist mode. The market dynamic has shifted towards companies that are well capitalized and continue to execute a sound business plan in order to advance their respective projects.

Pretium Resources (ticker: PVG ) [rated at Buy] continues to report high-grade drill results at the Brucejack project [in British Columbia] and is currently on track to secure the environmental assessment certificate in the second quarter of 2015. Pretium intends to follow up with additional underground drilling in the first quarter of 2015 from an access ramp currently under construction at the 1260 level.

MAG Silver ( MVG ) [rated at Buy] is advancing two significant projects within the Mexican Silver Belt. At MAG’s primary property, a joint venture between MAG and Fresnillo [of Mexico], the companies are currently advancing the underground decline towards the high-grade Valdecañas and Juanicipio silver vein discoveries.

Gold Standard Ventures ( GSV ) [rated at Buy] recently delivered an initial resource estimate greater than 1.4 million ounce of gold and continuing with a Phase II program at the Railroad-Pinion project to further delineate the deposit. Gold Standard recently announced an expansion of the drill program to further explore the Pinion North Zone for oxide ore at depth and along strike.

Golden Minerals ( AUMN ) [rated at Buy] released high-grade drilling results from four holes of a drilling program conducted at its Santa Maria property located in Santa Barbara, Chihuahua State, Mexico. We also highlight that the firm restarted mining at its flagship Velardeña property, located in Durango, Mexico, in July of this year.

Comstock Mining ( LODE ) [rated at Buy] reported encouraging third-quarter results, with year-to-date gold and silver pours increasing 15% and 33%, respectively. Further, the company expanded and amended its landmark Storey County Special Use Permit, which allows the firm to expand its mining and processing capabilities, in addition to increasing the land-holdings throughout Storey and Lyon Counties [in Nevada] to almost 8,000 acres.

Thus far in 2014, the prices of gold, silver and platinum have disappointed. We note that a number of forward looking mining companies have been able to successfully raise capital, mainly during the summer, while continuing to execute on their individual and fundamental business plans. We do believe the recent selloff in the precious metals space is overdone and note that any potential recovery in metals prices could present opportunity. Further, given these past raises, there should not be any further dilution, in the near term, for companies positioned to expand their resource portfolios, which they can use to increase future mine plans and strengthen their respective balance sheets.

While the overall momentum for precious metals this year so far has been negative, we do not believe that this trend or disfavor is sustainable over the longer term. A key data point to consider is the size of the Federal Open Market Committee’s (FOMC) own balance sheet which currently stands at over $4.3 trillion. History of finance has no exact precedent on how a central bank would unwind an asset portfolio of this magnitude without encountering a devaluation of the underlying currency. We also note the size of the U.S. federal government’s debt, which currently stands at approximately $17.8 trillion.

It is our belief that the FOMC will not be in a position to raise interest rates to historic norms of 4.0%-5.0% for many years, because doing so would stifle the government’s ability to refinance short-term maturing debt and also meet existing interest payments on the national debt. The only longer-term path out of this quagmire of debt is to systematically devalue the U.S. dollar, which plays into the hands of gold and all precious metals.

Even with a headwind going against precious metals, investors can take advantage of multiple growth equities in the sector that are performing according to plan and have the ability to deliver going forward. We continue to search for individual companies which are efficiently expanding their resource estimates, raising production outlooks and maintaining timelines while containing cost metrics, and importantly, exercising prudent balance-sheet stewardship.

-- Jeffrey Wright

-- Heiko F. Ihle