Drilling and cash the key to picking the next junior gold explorer break out

In early September, 2021 I wrote an article on the merits of potentially investing in gold, more specifically the gold miners, as they had been underperforming the underlying commodity price. Did the trade work out? It depends on when you bought and if/when you sold. Frankly, I’m not overly concerned because I’m not an investment advisor and I’m not qualified to provide anyone with investment recommendations. I’m simply trying to present ideas to readers that they can evaluate on their own and decide if it’s a good idea for them in the context of their risk/reward profile. With that said, I will take another stab at trying to make a case for the potential to invest in junior gold explorers in the context of the current market.

As I noted in the first article, I’m not a gold bug, I’m just an investor. I have no vested interest in talking up gold or any of the underlying equities. However, because I write about a lot of junior mining stocks, many of them being gold explorers or at least companies having some precious metal exposure, I’ve noticed of late that a lot of them are trading at or near 52-week lows. This got me wondering if there was a legit reason for this or if the junior sector was simply getting crushed by a massive “risk-off” trade. Of note, I’m specifically looking at explorers this time around, not producers. Producers have been facing their own set of challenges with rapidly increasing costs, like Equinox Gold Corp. (TSX: EQX | AMEX: EQX) or geopolitical risks like Kinross Gold Corp. (TSX: K | NYSE: KGC). Check out how Equinox performed at the end of April when they guided much higher with their AISC (all in sustaining cost) than the market was expecting. And they aren’t alone in this issue, so I figured I’d stick to the segment of the market that is purely driven by drilling results and optimism around gold prices.

As for the price of gold, if I had a dollar for every “expert” on the business news channels over the last 6 months that got the call on gold prices correct, I wouldn’t have very much money right now. Back in September I simply stated that the price of gold looked OK but not outstanding. A 1-year chart had support levels at $1,770 and $1,675 with upside to potentially test $2,000 but if the price rallied back above $1,850 for a couple of days I would change my tune. Gold got down to $1,740 in late September, made a “head fake” break out above $1,850 for 2 weeks in November, retested $1,775 in December then went on a great run up to $2,000 in March. I could argue I was right, and someone could just as easily argue I was wrong. Timing is everything and everything changes with time.

Fast forward 8 months and not much has changed from a technical perspective. I still see support around $1,750 with an upside to $2,050 but it would have to trade above $1,910 for me to get excited right now, which seems to be an interesting resistance level, as well it would get you above the 200 day moving average. Of note, it appears that gold is pretty safe to sell if the RSI (relative strength index at the top of the chart) gets above 70 and potentially a buy when the RSI touches 30.

Source: Stockcharts.com

What I didn’t do last time, but will endeavor to undertake this time, is some macro comments on why gold the commodity may be poised to finally break out. Generally speaking, gold tends to have a negative correlation to the US Dollar, which recently hit all time highs relative to virtually every major currency. The US Dollar is overbought and appears to be starting to roll over. This could result in some bullish sentiment returning to gold. Another macro observation is that gold seemed to be fighting for investing interest with the crypto universe. Cryptocurrencies were being billed as the new gold. At least for the time being, that doesn’t seem to be the case as crypto investors appear to be running for the exits. Will gold benefit from this? We may never know but it likely doesn’t hurt gold’s popularity. Lastly, gold is sometimes considered an inflation hedge and if you’ve put gas in your car or been grocery shopping you know inflation is taking its toll. Right now funds flow appears to be chasing oil stocks as the inflation hedge but once portfolio managers hit a certain threshold of oil exposure they will look elsewhere. Perhaps that could be a tailwind for gold, but this is the factor I have the least confidence in.

So what does it all mean? Putting a bunch of mixed and random thoughts together has led me to believe that junior gold mining explorers may be getting unduly punished right now by a market full of uncertainty bordering on fear. However, the opportunity is not broad based. You want to look at companies with cash to fund future drilling because if they don’t have the money right now, you don’t want to be out raising capital at 52-week lows. Preferably you want to find companies with active drilling underway so you don’t have to wait too long for news to come along but having cash is the #1 priority.

Here are a couple of ideas in no particular order, including Troilus Gold Corp. (TSX: TLG | OTCQX: CHXMF) and Westward Gold Inc. (CSE: WG | OTCQB: WGLIF), that meet the criteria of cashed up and drilling like mad.

Will Sokoman Minerals be Eric Sprott’s next Newfoundland gold success story?

Every once in a while I find myself scanning through a company’s website or press releases and then I have to pause for a moment and go back and re-read something. Instead of the usual content you expect to see, something jumps off the page and you have to make sure you read it correctly and that your eyes weren’t playing tricks on you. Today’s junior mining stock had me doing this a couple of times for several different reasons. The company is unusual (in a good way) and not simply because Eric Sprott beneficially owns 25% of the outstanding shares (even more if warrants are exercised). It also had nothing to do with its location, Newfoundland & Labrador, although that’s why I was looking at it in the first place as I just happen to enjoy reading and writing about this special part of Canada.

The first thing that jumped off the page for me was “Approximately 48,000 metres remain to be completed in the current 100,000 m drill program”. For a junior miner anywhere, that is a giant volume of drilling, which also means there has to be plenty of cash around as well. How about a treasure stocked with C$13 million? Seems like enough to undertake such an enormous exploration program and as the Company states “sufficient funds to undertake all the exploration activities planned for 2022”. The last thing that stood out was the number of projects being actively explored – 5. Most junior mining companies don’t have more than 2 or 3 properties to pursue, often only 1, and even more rare is the resources to be working on all these projects over the next 3-6 months.

Needless to say, I was hooked. I had to find out more about Sokoman Minerals Corp. (TSXV: SIC | OTCQB: SICNF), and let me tell, there is a lot more to learn. The Company’s primary focus is its portfolio of gold projects; flagship Moosehead Gold Project, Crippleback Lake (optioned to Trans Canada Gold Corp.) and East Alder (optioned to Canterra Minerals Corporation) along the Central Newfoundland Gold Belt, and the district-scale Fleur de Lys project in north-central Newfoundland. The Company also recently entered into a strategic alliance with Benton Resources Inc. (TSXV: BEX) through three, large-scale, joint-venture properties including Grey River, Golden Hope and Kepenkeck in Newfoundland. Sokoman controls, independently and through the Benton alliance, over 150,000 hectares (>6,000 claims – 1500 sq. km), making it one of the largest landholders in Newfoundland, in Canada’s newest and rapidly-emerging gold districts. The Company also retains an interest in an early-stage antimony/gold project (Startrek) in Newfoundland, optioned to White Metal Resources Inc., and in Labrador, the Company has a 100% interest in the Iron Horse (Fe) project which has Direct Shipping Ore (DSO) potential.

I’m still trying to figure out what metal or minerals Newfoundland & Labrador doesn’t have as it seems the region has an abundance of everything. Along those lines, the Golden Hope JV with Benton made the first high-grade lithium discovery in Newfoundland in September, 2021. The first assay results from the drilling program that tested the Kraken pegmatite field returned an average of 0.95% Li2O over 8.40 m with grades as high as 1.76% Li2O. Not bad when you are looking for gold. The Alliance has proposed a C$3 million budget for a summer drill program testing as many of the known pegmatite dykes as possible, with up to 30-40 holes planned. Camp setup and drill mobilization are expected in mid-June.

But as interesting as this is, for today I think will focus on where the bulk of the drilling is being done, and that’s the Moosehead Gold Project where visible gold has been intersected in drilling over a 2 km strike length. From 2018-2021 Sokoman completed ~73,000 m of drilling with ~360 holes, leading to the discovery of 4 significant zones, all of which remain open. Highlights from these zones rival some of the findings from their neighbors to the east, New Found Gold Corp. (TSXV: NFG | AMEX: NFGC) another Eric Sprott backed gold miner in Newfoundland:

Western Trend • MH-18-08 • 1.05 m @ 207.5g/t Au from 8.5 m; and 2.28 m @ 42.36 g/t Au from 33.1 m

Eastern Trend • MH-18-01 • 11.9 m @ 44.96g/t Au, including 5.65 m @ 93.56 g/t Au from 115.2 m

75 Zone • MH-21-23 • 44.8 m @ 17.56g/t Au, including 2.75 m @ 30.59g/t Au from 44.75 m

South Pond • MH-20-12 • 35.0 m of 26.87 g/t Au, including 2.15 m @ 60.59 g/t Au from 47.0 m

Heading into 2022 is where things get really exciting. Results last week, some of the first holes from the 100,000 m 2022 program, expanded the 75 Zone and essentially linked it with the main Eastern Trend/Footwall Splay mineralization (see picture below). In addition, MH-22-418, completed last week (assays pending) intersected the deepest occurrence of visible gold to date on the property at a downhole depth of 352 m.

Source: Sokoman Minerals May 19, 2022 Press Release

It would appear there will be a steady stream of drilling results coming from Sokoman Minerals over the following weeks and months, not only from Moosehead, but Golden Hope and Grey River with JV partner Benton Resources Inc. There is a lot going on at this well funded, junior gold (and now lithium) explorer. With a market cap of C$66 million it’s not hard to imagine plenty of upside when one of your comparables is New Found Gold at a market cap of C$1.2 billion.