Randy Reifel: Positioned for bitcoin recoil
Randy Reifel could have decided to have taken it easy after discovering Goldcorp’s El Sauzal gold mine in Mexico and the Marlin deposit in Guatemala. Instead, his gut feeling told him to head back to the hills of Mexico with his trusted team of geologists and wait for the next cycle.
The gold industry has been in a freeze, as major setbacks in flagship industry projects led investors to ditch gold equities for exchange traded gold funds and latterly cryptocurrencies as a store of value, Reifel told InvestorIntel. The lack of new gold mine projects will change the supply and demand fundamentals of the market, resulting in higher cash flows that will eventually bring capital full-cycle back into equities, he said.
Reifel, a Goldcorp director, will be waiting for the turnaround in the Sierra Madre hills of northwest Mexico. It is there that Reifel is leading an exploration effort to develop resources at Metates, what he describes as Mexico’s largest gold and silver deposit. Metates, the main project of his TSX-V traded Chesapeake Gold Corp. (TSXV: CKG | OTCQX: CHPGF), is a large-scale and low-grade deposit and probably requires a higher gold price, he said. A panic sell-off in bitcoin might trigger that.
“When it starts to unravel, and I’m not saying we’re going to self-destruct, but I do think that it will turn some money to gold,” Reifel said. “There’s a lot of speculative money out there.”
Gold industry reserves are declining faster than they are being replaced, and investors in gold mining equities don’t want management teams to go ahead with big projects, Reifel said. Investor apathy is the direct consequence of projects that have come up against major social and environmental blips such as Barrick Gold’s Pascua Lama project and Newmont’s Conga project in Peru. The billions of dollars of write-downs in those projects is still in the near-term memory of investors, he said.
The new paradigm in the gold industry teaming up to execute projects that are hard to find, Reifel said. But some “pretty healthy cash flows” as a consequence of low supply will bring projects back into the limelight, he said. His comments were supported by the Financial Times’s influential Lex column, which predicted on Jan. 8 that gold will outperform in 2018 as a cheaper dollar attracts buyers from China and India.
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Reifel said Metates is one of three to four projects in the Americas that are capable of producing more than 500,000 ounces of gold a year. Others include Barrick and Nova Gold’s Donlin project in Alaska, and the KSM deposit in British Columbia. Metates contains 18.5 million ounces of gold reserves, 526 million ounces of silver and 4.2 billion pounds of zinc.
“If I’m right the big thing these seniors are looking are big greenfield discoveries,” Reifel said.
The Mexican project resembles Barrick and Goldcorp’s Pueblo Viejo project in the Dominican Republic, which despite low gold grades is one of the best operations in the portfolios of those two producers, Reifel said. Chesapeake will drill the near the site this year to provide more details to extend the ore body after some promising discoveries, he said.
Even without additional reserves, Chesapeake is on target to produce at cash costs of $490 an ounce, net of zinc credits. The project benefits from its proximity to a natural gas pipeline in Mexico providing cheap power, Reifel said.
Matt Craze has covered commodity markets for more than 20 years, working as a research at CRU International, and for over 10 years as a ... <Read more about Matt Craze>