Gold Explosion Still Has 'Upside', Says CEO Who Called $5,000 | Joe Ovsenek

Key Concepts

• Gold & Silver Rally: Unprecedented price increases in gold and silver, driven by geopolitical factors and central bank demand.
• Multipolar World: Shift from a unipolar (US-dominated) to a multipolar world order (US & China), impacting currency preferences and driving demand for gold as a safe haven.
• Depletion & M&A: Mining is a depleting industry, necessitating acquisitions (M&A) to replenish reserves, but current market discipline is slowing activity.
• Permitting Risk: A significant hurdle in mining, with lengthy and complex permitting processes impacting project development.
• Metallurgy & Mine Planning: Optimizing metal extraction processes (metallurgy) and developing efficient mine plans are crucial for profitability.
• Central Bank Demand: Increasing gold purchases by central banks are a major driver of the current price rally.
• Commodities Demand: Broad-based demand for metals driven by the green energy transition and technological advancements.

The Current Gold & Silver Environment and Tutor Gold’s Strategy

The interview focuses on the current bullish environment for gold and silver, with the price of gold recently hitting an intraday high of $5,000. Joe Austin, President and CEO of Tutor Gold, discusses the factors driving this rally, his company’s strategy, and the lessons learned from the 2011 gold boom. He emphasizes a significant shift in sentiment compared to a year ago, when money was primarily flowing to major mining companies, but is now beginning to trickle down to smaller firms. He notes his booth at the Vancouver Resource Investment Conference is experiencing significantly higher traffic due to the company’s performance and the overall positive market conditions.

Lessons from 2011 and Current Industry Discipline

Austin highlights mistakes made during the 2011 gold rally, where major and intermediate mining companies engaged in a spending spree, acquiring marginal projects and overextending their share structures through excessive stock issuance. This led to difficulties when gold prices subsequently fell. He contrasts this with the current environment, where companies are prioritizing cash generation and building strong balance sheets, demonstrating greater financial discipline. This difference is crucial for sustainable growth and avoiding the pitfalls of the previous cycle.

Geopolitical Factors and the Demand for Gold

A key argument presented is that the world is transitioning from a unipolar to a multipolar order, specifically a bipolar one between the US and China. This geopolitical shift is driving demand for gold as a safe haven asset, particularly for nations seeking alternatives to the US dollar and US Treasuries. The example of Russia being shut out of financial systems after its invasion of Ukraine is cited as a catalyst for this trend. Austin believes this fundamental change will support continued gold price appreciation. He notes that central bank buying is currently the primary driver of the gold price, with significant purchases from institutions like Tether.

Tutor Gold’s Strategy and Project Details

Tudor Gold’s primary project is the Treaty Creek project in northwest British Columbia’s Golden Triangle. The project boasts a substantial resource: 24.9 million ounces of indicated gold and 4 million ounces of inferred gold at a $50 NSR cut-off. The company is focused on defining and mining the higher-grade portions of the deposit, currently estimated at 5.8 million ounces grading around 2.85 g/t gold with significant copper and silver content at a 175/ton cut-off. They are currently undertaking metallurgical testing and aiming to complete a Preliminary Economic Assessment (PA) this summer.

Austin states their strategy remains unchanged even if gold prices were to correct, focusing on developing a 3 g/t gold underground mine capable of producing over 300,000 ounces annually, with a capex in the $1-1.5 billion range. He emphasizes a desire to build a mine independently, rather than relying on acquisition by a larger producer.

Gold Price Assumptions and Project Economics

When asked about gold price assumptions for prefeasibility studies, Austin indicated a conservative approach, using a two-year trailing average around $3,000 per ounce. He believes this provides a reasonable base case while still allowing for significant upside potential. He firmly states that any company not profitable at $3,000 gold should not be in the mining business. He highlights that increased gold prices translate to higher leverage and profitability for mining operations.

M&A Activity and Investor Sentiment

Austin notes that M&A activity remains subdued compared to 2011, due to the financial discipline of major mining companies. However, he anticipates M&A will eventually pick up as companies need to replenish their reserves. He believes investor capital hasn’t fully flowed into the equities, and junior and developer market caps are lagging behind the spot price. Tudor Gold’s stock price has seen a 50% increase since the start of the year, driven by the rising gold price and positive news regarding their resource estimate.

The Broader Commodities Landscape and Future Outlook

Austin describes a broader trend of increasing demand for metals, driven by the green energy transition and the need for materials in modern technology. He believes that reduced globalization will further emphasize the importance of domestic metal production. He advocates for streamlining the permitting process in Canada, specifically addressing the dual permitting requirements from both the provincial and federal governments. He believes mining is a strong career path for young professionals given the increasing demand for metals.

Notable Quotes

• “If they’re not making money at 3,000 gold, they shouldn’t be in the business.” – Joe Austin, emphasizing profitability.
• “I think we’ve seen it. I think the big thing here is central bank buying is what’s driving the price.” – Joe Austin, on the primary driver of the gold rally.
• “Essentially, if you can’t grow it, you have to mine it.” – Joe Austin, highlighting the fundamental need for metals.

Technical Terms

• NSR (Net Smelter Return): A valuation method used in mining, representing the percentage of the revenue received from the sale of metal concentrates after deducting smelting and refining costs.
• g/t (grams per tonne): A unit of measurement for gold concentration in ore.
• Cut-off Grade: The minimum grade of ore that is economically viable to mine.
• Preliminary Economic Assessment (PA): A preliminary study that evaluates the economic viability of a mining project.
• Feasibility Study: A more detailed study than a PA, used to determine the technical and economic feasibility of a mining project.
• Capex (Capital Expenditure): The funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, equipment, and technology.
• Metallurgy: The science and technology of metals, including their extraction from ores.

Synthesis/Conclusion

The interview paints a bullish picture for gold and silver, driven by geopolitical shifts, central bank demand, and the fundamental need for metals in a changing world. Tutor Gold is strategically positioned to capitalize on this environment with its substantial Treaty Creek project and a focus on disciplined development. The company’s strategy of prioritizing cash generation, focusing on high-grade ore, and aiming for independent mine development sets it apart from past cycles. The key takeaway is that the current gold rally is not simply a speculative bubble, but a response to fundamental changes in the global landscape, making the mining industry a potentially lucrative sector for investors and professionals alike.