Gold Production Good News for Explorers Like Collective Mining
Annual gold production is expected to have hit an all-time high for full-year production in 2021. While there are many factors that contribute to gold production levels, rising demand from India and China is expected to be a key driver of growth. So far, it looks like the market is moving in that direction as both countries have been increasing their gold reserves in recent years. Investors who want exposure to this trend should consider exploration-specific mining stocks or exchange-traded funds (ETFs) that focus on gold miners.
Gold Production Good News for Explorers Like Collective Mining
Investors hunting for value in the middle of this market might be looking at junior mining companies like Collective Mining (TSXV:CNL), a Canadian-based company exploring its Guayabales and San Antonio properties in Colombia. Collective’s management team was responsible for developing and selling Continental Gold Inc. to Zijin Mining for approximately $2 billion in enterprise value back in March 2020. Now, the team is bringing their expertise to the two high-grade, large-scale gold and copper porphyry projects in Colombia, immediately adjacent to more than 10 M oz of already-discovered gold resource.
The company recently announced further high-grade, polymetallic vein grab sample results from the western side of the grassroots-generated “Olympus” target at the Guayabales project in Colombia.
Highlights included samples of up to:
- 199 g/t Gold
- 745 g/t Silver
- 2.7% Copper
- 18.6% Zinc
- 14.4% Lead
As a result of the positive results from the program so far, the company has decided to prioritize Olympus for drilling in 2022 as part of its large-scale, fully-funded 20,000-metre drilling program. With such an aggressive program, management is clearly confident that it should be able to generate shareholder value at the Guayabales project.
After the company’s RTO and public listing on May 28, 2021, the stock soon rose to $4 as investors gathered information about this new mining company with a project near the famed Marmato gold mine operated by Aris Gold. Value-hunters might see an opportunity at current share price levels, considering the company has begun to release exciting sample results like the ones above, as well as discovery-grade drill results elsewhere.
Demand Keeps Rising
Demand for gold has increased by approximately 17% in 2021 from 2020; this was reflected in increased global production in 2021, bringing new all-time highs for output to many producers. If demand continues, this could be great news for explorers with new projects that could be ripe for takeovers as the majors look for ways to expand their production.
A recent London Metals Report puts this dynamic into context: “The world’s mines will produce 3,368 tonnes of gold this year, down 4.6% from 2019 and the lowest in five years, but high bullion prices should help influence higher production levels and grow output by 8.8% to a record 3,664 tonnes in 2021.”
One of the drivers of output for gold miners has been demand, often coupled with higher prices over the past five years. The market demands more, and miners are exploring the world to find ways to deliver. The challenge then is to find projects and mining stocks to also deliver shareholder returns through these periods.
For investors looking to gain exposure to gold mining stocks or ETFs, this is a great time. While the market has been volatile recently, it’s also one of the few commodities where supply and demand dynamics can decouple – which means prices for gold can go higher even as production increases. The demand from China and India has been key in driving demand for gold in 2021, but gold’s exceptional characteristics have allowed it to thrive in a volatile market.
Gold is one of the best-performing assets in a tough market year, and mining stocks have been doing even better. Some of the biggest producers in the world, including Newmont Corporation, have seen double-digit returns in the past five years as gold prices and production increased.
Gold mining stocks have delivered big returns for investors as production has increased, but they often find themselves running into barriers as they look to expand production. That’s why acquiring junior mining companies that focus on exploration with high-grade discoveries is a critical strategy for these large-cap mining companies.
Gold mining companies continue to see high demand, high prices, and a need for higher production each year. As investors look for value in a heated market, junior mining companies like Collective Mining that look appealing to majors for future acquisitions may hold big returns for investors over the coming years.
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