Merger and acquisitions (M&A) are an important component of applying an evaluation to gold exploration companies, as they have no revenue and possibly no published resource. What a mining company is willing to pay for perceived ounces of gold or other metals in the ground, provides investors a benchmark for the potential value they could achieve by investing in junior gold exploration companies. This concept also applies when a producing mining company acquires another producing miner but with the added element of generated revenue to add to the valuation.

In 2022, the mining sector had 1,402 M&A deals worth US$75 billion, a decline of 34% in value from 2021. Gold was the largest component of M&A activity, with 444 transactions worth US$39 billion.1 This clearly shows that gold is still one of the hottest commodities and mining companies are actively looking for ways to replenish their depleting sources of gold production, as shown in the examples below.

Great Bear Mining

A standout acquisition of a junior gold exploration company announced in December 2021 and completed in February 2022 was Kinross Gold’s purchase of Great Bear Mining. Kinross paid a 43% premium above the 20-day volume weighted trading price of Great Bear’s shares, acquiring the company for US$1.8 billion. The project is located in Red Lake, Ontario and is comprised of 9,140 hectares. At the time of the acquisition, it did not have a published resource but Kinross would have done its due diligence on drilling results to estimate how many ounces of gold could be in the ground. In February of this year, an initial resource of 5 million ounces (Moz) was published on the Great Bear project which means Kinross paid US$360 per ounce of gold in the ground, this number could be reduced when they publish an updated resource in the future.

Osisko Mining

For comparison’s sake, Osisko Mining has a market capitalization of C$1.62 billion. Their current resources on the Windfall project located in the Abitibi Greenstone Belt, James Bay region of Québec, are 7.4 Moz of gold at an average grade of 11.4 g/t Au, mainly in the indicated and inferred category. The gold grades are in the top 10 globally for projects. A feasibility study on the project published in 2022 using a US$1,600 gold price reveals an after-tax net present value (NPV) of C$1.2 billion, after-tax internal rate of return (IRR) of 34% and a two-year payback. They are expecting to achieve C$257 million average annual after-tax free cash flow per full year of production for $6.2 billion in gross revenue. They have nine drill rigs on site focused on expansion and infill drilling. As of June 2022, when they published their maiden resource, the company had drilled 1,852,861 metres. Could this company be a takeover candidate considering how advanced the project is, the high-grade gold, and the positive economics on the project?

Amex Exploration

This leads to the possibility of another acquisition of a gold exploration company, Amex Exploration. The company has drilled over 375,000 metres on its Perron project located in the Greenstone Belt, Québec and reported assay results showing multiple high-grade gold zones. The project is surrounded by producing gold mines, providing the possibility of trucking the ore to a nearby mill to save capital on building one. Amex Exploration has analyst coverage from five securities firms based in Canada, who estimate the future published resource of Amex could be between 3-5 Moz of gold. Taking the estimate of 4 Moz of gold in the ground, at a current market capitalization of US$157.9 million, this puts a value of US$39/oz on the company, making Amex Exploration an attractive target for a gold mining company in the area. More information can be found on their website

Vanstar Mining

An example of an earn-in type of acquisition is Vanstar Mining’s option agreement with IAMGOLD on the Nelligan Project in Québec. In the terms of the agreement made in 2014, IAMGOLD had the option to earn 80%, initially by spending $4 million on gold exploration over four years to earn 50%. IAMGOLD then took the option to increase their stake to 75% in 2019 when they published an initial 3.2 Moz gold resource by paying Vanstar $225,000 over 3.5 years and delivering a pre-feasibility study by the end of the term. The upside is Vanstar does not have to spend any money to get this project into production. The resource was upgraded in February of this year to 5.6 Moz of gold (1.99 Moz indicated + 3.6 Moz inferred). Based on Vanstar’s 25% interest (1,375,000 oz of gold in the ground) and the current market capitalization of US$16 million, the entire company is valued at only US$11.63 per ounce of gold. To find out more about this undervalued company, check out their website

Yamana Gold

Moving on to one of the bigger transactions in the M&A space, the end of 2022 saw the proposed arrangement with Yamana Gold being acquired by Pan American Silver and the sale of their Canadian assets going to Agnico Eagle. Shareholders of Yamana approved the arrangement on January 31, 2023. Yamana shareholders received US$1.0406 in cash and 0.0376 common shares from Agnico Eagle, and 0.1598 common shares from Pan American. In total, it was a US$4.8 billion takeover of Yamana. The deal was a 23% premium to Yamana’s closing price of US$4.08 on November 3, 2022.

Newcrest Mining

In February of this year, Newcrest Mining announced a non-binding offer from Newmont Corporation to acquire 100% of their shares by issuing 0.380 Newmont shares per Newcrest shares. The combination would result in the combined company being 30% owned by Newcrest and 70% owned by Newmont. The proposal represents a 21% premium to Newcrest’s closing price of US$22.45 per share on February 3, 2023. The proposal has been rejected by the board of Newcrest stating it did not represent sufficient value for their shareholders. It remains to be seen if Newmont will increase its offer or if another suitor will step up to the plate. Stay tuned.

Superior Gold

Acquisitions for smaller market capitalized gold exploration companies are usually offered at higher premiums. An example is Catalysts Metal Ltd.’s offer to acquire Superior Gold for a 62% premium above the closing price of February 22, 2023. Under the terms of the arrangement, common shareholders of Superior will receive 0.3571 shares of Catalyst, the exchange ratio represents the equivalent of C$0.44 per Superior share, which represents an equity value of C$54 million. The transaction is expected to be completed in Q2, 2023. Superior owns the operating Plutonic Gold mine in Western Australia which has a 5.9 Moz resource and 3 Mt per annum processing capacity with annual production of 62,000-65,000 oz of gold. Their reserves and resources were 630,000 oz of contained gold, 1.9 Moz of gold measured and indicated and 3.97 Moz of inferred resources.

Manitou Gold

An even larger 95% premium was paid by Alamos Gold to acquire all the shares of Manitou Gold Inc., based on their respective closing share prices of February 27, 2023. Alamos already owned 19% of Manitou Gold shares. Alamos will issue approximately 1 million shares for a total cost of C$14 million to develop district-scale targeting and exploration for the area surrounding Alamos’ Island Gold mine in Ontario, Canada. Alamos has discovered 4 Moz of high-grade gold through near-mine drilling around the Island Gold mine. Manitou Gold was a strategic low-cost junior gold exploration acquisition for them, tripling their land package along strike on the relatively underexplored Michipicoten Greenstone Belt. Manitou does not have a published resource. Investing in gold bullion, it would take 14 years to get a 95% premium on your investment based on today's gold price.

Sabina Gold & Silver

B2 Gold has offered a 45% premium to the February 10, 2023 closing share price of Sabina Gold and Silver. Under the terms, B2 Gold will issue 0.3867 common shares for each Sabina share held for consideration of C$1.87 per share, implying a total equity value for Sabina of C$1.1 billion. The rationale for acquiring Sabina is they have a fully permitted, construction ready gold project in Nunavut, Canada. A feasibility on the Goose Project shows a 15-year life of mine, producing an average 223,000 oz of gold per year.

This is the first foray into Canada for B2 Gold as their projects are in Africa and the Philippines. A Canadian acquisition for B2 Gold means enhanced operational and geographic diversification of an advanced development asset in a tier-1 mining jurisdiction. Considering the Philippines and certain countries in Africa are ranked some of the most challenging places for mining on a political and socio-economic basis, it is not surprising that B2 Gold has made a move to Canada.

Most Attractive Jurisdiction in the World for Mining Investment

It is essential to look at the best mining jurisdictions in the world as more companies are looking to make acquisitions in more stable and mining friendly areas of the world. The Fraser Institute publishes an annual survey of mining and exploration companies to rank provinces, states and countries on policy factors that may encourage or discourage mining investment. According to their 2021 survey, Western Australia moved to the top of the Investment Attractiveness Index, Saskatchewan came in second, other provinces in Canada in the top 10 were Québec and Alberta. The least attractive countries were Venezuela, Philippines, Zimbabwe, DRC, Mali, Bolivia, Kyrgyzstan and Mongolia. The survey for 2022 has not yet been published.

Invest in Gold in Canada

Canada is an attractive jurisdiction for mining companies to have operations and therefore make project acquisitions. Gold is Canada’s most mined mineral; gold exports in 2021 were valued at $21.3 billion. Canada is the world’s fourth largest producer of gold, producing 220 tonnes in 2022; twice the amount produced in 2012 and an increase of 25% compared to 2020. In 2021, Ontario and Québec produced 70% of the gold mined in Canada. The largest operating gold mine in Canada is the Malartic Mine in Québec.

Consolidation of Gold Exploration and Mining in Québec:

The tax regime in Québec is very favourable for explorers and producing mines. Energy costs are the lowest of any province in the country. Québec has great infrastructure, a workforce with mining and exploration knowledge. The Québec government has instituted Plan Nord to develop the natural resources extraction sector to the north of the 49th parallel. This plan is expected to generate C$80 billion in energy, mining, and forestry investments. Since 2006, private investment in Northern Québec has risen by 15.9% a year, as against only 0.9% for Québec as a whole, mainly as a result of investments made in the mining sector2. In 2021, investment expenditures in the Québec mining sector rose 55% to C$4.2 billion. Exploration and deposit appraisal accounted for C$990 million, of which gold accounted for 71.5%, for a total of C$708 million3. As of 2019, Québec had approximately 30 mines and 158 exploration projects.

Considering the mergers and acquisitions occurring in Québec, this province in Canada has the potential to see a lot more in the future.


  1. Source: Global Data
  2. Source:
  3. Source:

Author: Bonnie Hughes

Due Diligence: Creating Value for Gold Investors

When advancing a potential mining project, there are several independently authored studies that are completed to validate the legitimacy of a mineralized deposit. These studies aim to determine the size of a resource as well as the profitability and probability of taking a project and transitioning it into production. A tremendous amount of due diligence is required by independent contractors when creating these reports, especially when producing a definitive feasibility study.

For the purpose of this article, we will assume we are discussing a gold mining project in Canada, although the process is generally the same for companies regardless of the mineral targeted.

As a project progresses from the initial discovery phase to production, each published report increases confidence of the project advancing towards the eventual construction of a mine site (Figure 1). Initial reports provide a baseline of assumptions and expectations of mineralization. With subsequent reports being designed to confirm or dispel presumptions, reducing the uncertainty or risk of developing a mine.

Despite this, it is near impossible to foresee all the risks of developing a gold mine until production and operations has begun. Although these reports provide quality information to investors so that they may make an informed investment decision based on technical information rather than speculation.

Figure 1: Increased confidence with each additional report

Qualified Person

All reports must be signed off by an independent Qualified Person (QP). The QP is a professional geologist, engineer, or geoscientist, which has completed a corresponding post-secondary educational program and has extensive experience in mineral exploration, mine development, operations, mineral project assessment, or any combination of these (typically 5+ years). Regulations and requirements for QP qualifications may vary from province to province and country to county. The QP must also have experience relevant to the subject of the mineral project and be in good standing with their given professional association. It is the responsibility of the QP to review the report, ensuring that there is no misleading information presented that all given statements are scientifically accurate. Once a QP signs off on a report, they confirm the reports validity and are now responsible for the information provided.

NI 43-101 Resource Estimate

The first report required after the discovery phase is a compliant NI 43-101 resource estimate, which is used in North America or a JORC report used in Australia and Africa.

Mineral resources are arranged into three categories: measured, indicated, and inferred resources of the project. Measured resources are the highest degree of confidence in a resource estimate. Figure 2 below shows the measure of confidence each level of resource provides.

Figure 2: Confidence each level of resource provides

The objective of the technical report is to summarize scientific material and technical information concerning mineral exploration, development, and production activities on a mineral property. Required information in the technical report includes property description and ownership, geology and mineralization, status of exploration, development and operations, mineral resource and mineral reserve estimates, concluding with qualified person’s statements and recommendations. At this stage, there is limited information on economic assumptions or detailed mining and processing activities.

It is at this point in a mine’s lifecycle where many financial investors see a large value proposition in the stock of a gold exploration company. The risk is high, but returns can also be high. For more information, check our blog on JUNIOR MINING COMPANY LIFE CYCLE

To reach an eventual resource calculation the gold exploration company must first drill the mineralized zone within specified spacing requirements (which vary depending on the ore body size and the commodity) to provide the QP with sufficient data on the proportions and orientation of the gold mineralization. Once a resource estimate has been filed, investors tend to correlate the value of the company’s shares by the project’s determined ounces in the ground, its jurisdiction and access to infrastructure and skilled labour. For example, investors may value a company with a 1-million-ounce NI 43-101 compliant gold resource in Quebec, Canada at a higher premium than a 1-million-ounce gold project in a politically unstable country or a project located in a very remote area simply because the risk factor is higher.

Gold exploration companies are also keen to demonstrate that their deposits may have sizeable amounts of mineralization that has yet to be discovered. Implying that the mineralized zone is still open to be further discovered at depth or along strike. This concept means there is a prospective opportunity that the resource estimate may grow as drilling continues, therefore providing immense potential for the value of the asset to steadily increase or a ‘blue sky’ opportunity for the gold investor.

For example, Amex Exploration is completing 300,000m of drilling prior to filing their first NI 43-101. Once this initial report is filed, they may opt to start economic studies and/or continue with additional drilling, increasing the size of the resource estimate as well as the level of confidence. Once more advanced economic studies commence, the categorization of the deposit moves from ‘resources’ into the ‘reserves’ categories. Meaning there has been sufficient research and modelling given towards the mine-ability of the ore body from a both a technical and economic perspective.

Technical Studies

The table below gives a general overview of what to expect from mining studies. The cost percentages are given as an approximate guideline.

It is often seen that companies will exceed their capex (capital expenditure) even after the definitive feasibility study. Therefore, a monetary contingency is required in the event of budget overruns, although, even despite proper planning, certain factors may arise that were not considered. An example of this may include projects located in extremely remote areas, which may lack water, power, and road access to the mine. This lack of infrastructure may have a compounding effect, plaguing the project with extensive complications and increased capital costs. Additionally, there may be unpredictable risks with politically unstable countries as governmental regulation may slow or halt a project entirely.

Rule of thumb confidence intervals for technical studies (at assumed 90% confidence)

Scoping Study or Preliminary Economic Assessment (PEA)

A preliminary report determines key project risks, further pre-development efforts required and whether to proceed forward with the project depending on the initial analysis of factors. This report is a preliminary assessment and does not provide an accurate/in-depth assessment of the economic viability of a project.

The report includes:

This study determines whether the identified resources can support a viable mining project. The report is accurate by approximately 15-30%. This report begins to give initial measure of the economic viability of a project which will justify proceeding towards the creation of a definitive feasibility study (DFS). If the resulting report is positive, the project would require additional funding with the eventual expansion of the drilling program. The closer a project trends towards the completion of a definitive feasibility study (DFS) there is a higher potential to attract strategic partners or a buyer of the company/asset. As a project begins to gather more attention from the public and large-scale mining companies, the gold company will begin to have less difficulties securing project funding from investors and lenders.

Key components of the prefeasibility study include:

After-tax internal rate of return (IRR) %, and net present value (NPV) based on the current price of gold, additional calculations may be included made using a lower/higher price of gold dependent sensitivity rates.

Definitive Feasibility Study (DFS)

This is an in-depth, comprehensive report that considers many elements, including but not limited to: detailed engineering work, infrastructure requirements, mining methods, recovery methods, market studies, environmental studies, permitting, social and community impact, as well as reclamation costs.

From this report, a risk profile is established and mitigation strategies are developed to further reduce uncertainty.

The key objectives of the study:

Demonstrate with reasonable confidence that the project can be constructed and operated in a technically sound and economically viable manner.

Provide a basis for detailed design and construction.

Enable the raising of finance for the project from banks or other sources.

Bankable Feasibility Study (BFS)

This report is produced in the hope of securing project financing from banks, debt providers, strategic investors, etc. With these capital investments being used to construct the gold mine’s infrastructure and start production. The project financiers will also conduct their own due diligence with their experts before providing any capital and this can take several months.

In the past few years, major producers have not been spending capital to replace their declining reserves due to a downturn in the commodity markets. Therefore, they must look elsewhere for ore to feed their depleting mills, often turning their attention to exploration companies that have already completed the work necessary to prove the economic viability of a project. This means the potential for mergers and acquisitions may be high in the current commodity cycle. A recent example is QMX Gold which was acquired on January 21, 2021 by Eldorado Gold for approximately C$132 million, the consideration represented a 39.5% premium to the previous day’s share price.

When to invest in gold

Through these studies, the exploration companies define the ore body and demonstrate the viability. As the risk factors lower, investors with different risk profiles enter at the different stages of the resource definition. It is up to the individual to decide their risk/return tolerance and at what point they want to invest in gold exploration companies.

The Russian Invasion of Ukraine February 2022

The price of gold rose dramatically, as the invasion caused serious worldwide concern, gold became a safe haven (risk-on) for investors and countries (Figure 1). Russia’s invasion of the Ukraine has been one of the biggest geo-political risks since World War II. The price of gold achieved a new high of US$2,039 in March 2022.

Recent peace talks between Russia and the Ukraine caused a slight reversal in the risk-on trade of buying gold but where could the price ultimately end up? For the moment, there is no resolution, so it is worthwhile to review the history of past conflicts and economic uncertainty to see if there is a possible conclusion as to what direction the gold price is heading.

Figure 1

Russo-Ukrainian War February 2014

It is not the first time Russia has invaded the Ukraine, so it is worth a review of what happened to the gold price in the previous situation. The revolution of Dignity also known as the Maidan Revolution was a result of large-scale protests against the Ukrainian President Viktor Yanukovych’s decision not to join the EU and instead forge closer ties with Russia. Ultimately, the president and the Ukrainian government were overthrown. The capital of Kyiv came under control of the protesters and an interim government was formed. The overthrown president asked Russia to intervene which resulted in the annexation of Crimea and started the Donbas War.

The gold chart for the year of 2014 showed a rise in the gold price as the conflict escalated (Figure 2) and subsequently fell to a level which was lower than the start of the year as a ceasefire (Minsk Protocol) was signed in September 2014. The current situation with Russia is under different circumstances so we cannot assume a resolution will lead to a weakness in the gold price.

Figure 2

2008-2009 Global Financial Crisis

The financial crisis was one of the worst since the Great Depression. The US gross domestic product fell 4.3% from peak to trough, the unemployment rate more than doubled from less than 5% to 10%. The first indication that the US economy was not all that it seemed, was when Lehman Brothers on September 15, 2008, declared bankruptcy. The following day the US government announced the bailout of AIG Insurance to the tune of US$85 billion. In December 2008, the Case-Shiller home price index reported its largest drop in history. The burst of the housing bubble was the main cause of the crisis at this time, it had a knock-on effect causing massive mortgage defaults by consumers which in turn caused lending institutions to go into bankruptcy. There was also a massive decline in the value of mortgage-backed securities due to sub-prime lending. This led to an interbank credit freeze causing a lack of liquidity in the system, as banks did not want to provide loans. The crisis caused an upward trajectory in the gold price, where it achieved a new high of $1896.50 in 2011 (Figure 3). It could be said the bursting of the housing bubble created a bubble in the gold price, which deflated with a much less dramatic effect on the economy then the financial crisis.

Figure 3

Gold Achieves a New High In 2011 and Does Not Surpass It Again Until 2022

The increase in the price of gold was rooted in the world economic collapse of 2009. The peak in 2011 (Figure 3) was a result of quantitative easing by world central banks and unprecedently low global interest rates which meant real rates were negative so holding cash in the bank resulted in the loss of purchasing power, a negative return. In addition to the economic uncertainty, there was unrest in the Middle East causing concerns the price of oil would rise. There was the Fukushima nuclear disaster in Japan in March 2011, caused by a Tsunami which rattled the markets and questioned Japan’s ability to recover from the disaster.

In Q1 of 2013 the start of the decline in the gold price was triggered by Cyprus, suggesting it would sell half a billion of its gold reserves to fulfil its €10 billion EU/IMF bailout. By the end of 2013 the Cyprus central bank said it would not sell its gold reserves to cover the bailout.

Another contributor was the announced reduction in Quantitative Easing (QE) also known as Fed Tapering, where governments reduce buying bonds from financial companies and pension funds to lower interest rates for consumers and businesses, this meant a slight rise in interest rates but at this time inflation was not a factor which is an important consideration when looking at real versus nominal interest rates to be addressed later.

QE is still in use today by many governments due to the Covid situation. The US Federal Reserve has doubled its balance sheet of long term-securities since the start of the pandemic from $4.31 trillion to $8.87 trillion. This injects more fiat money into the system which gold bugs say justifies a doubling in the gold price from its current level. If it were only that simple.

Global Pandemic Covid 19

The Corona Virus or COVID 19 is a pandemic not seen since the Spanish Flu in 1918. The world was not prepared to deal with the pressures on the human population and healthcare which initially resulted in a lot of confusion and chaos. It was unknown as to what the worldwide effects would be. The decision to shut down social venues and workplaces from March 2020 to the end of 2021, negatively affected global economies. The five-year gold chart below (Figure 4) reveals gold was range bound between $1200-$1300 in the two years prior to the pandemic. As the pandemic continued the gold price progressed forward to a new all-time high of $2074.88, thanks in part to QE. As restrictions were lifted the gold price moved to a low of $1683.95 in March of 2021. The pandemic has not ended so it is unknown as to what the future holds for the gold price in relation to the pandemic.

Figure 4

Dow Jones Industrial Average

By the end of 2013 the Dow Jones Index reached a record high and had increased 26% over the year, (Figure 5) making equities more attractive to investors than gold. After the 2008-2009 financial crisis, investors were feeling more confident about the economy as quantitative easing pumped a lot of liquidity into the system. As an example, one could borrow at low rates and invest in the market to achieve higher returns than the rate of borrowing. Could this be another bubble as interest rates rise, only time will tell.

Figure 5

The trajectory of the Dow Jones Index has continued since 2013 (Figure 6) which contributed to the decline in the gold price from that time (Figure 3) until the start of the pandemic in 2019, where there was a pull-back in stocks due to the uncertainty surrounding COVID. Rising equities was not the only contributing factor to the decline in the gold price but it was influential.

Figure 6

Real vs Nominal Interest Rates and the 10-Year US Treasury Bond

Another major contributor to the movement in gold prices is the yield on the 10-year US Treasury bond. Gold is not affected by interest rates but the real interest rate, which is the difference between nominal interest rate and the actual or expected inflation rate. Gold is negatively correlated to the inflation adjusted 10-year US treasury yield (10-year constant maturity rate minus 10-year expected inflation rate) as is evidenced in the chart (Figure 7). When the 10-year bond yield fell dramatically in 2009 due to the economic crisis and the reaction by governments to stimulate the economy through quantitative easing and low interest rates, the gold price accelerated. As the 10-year bond yield started to rise in 2013 the price of gold declined. In 2019 due to the global pandemic, governments reinstated economic stimulus measures, such as quantitative easing which caused yields to drop in line with interest rates and the gold price started to rise.

10-year bond yields are on the rise in 2022 due to inflation pressures caused by sanctions instituted by certain countries on Russia. The sanctions in Russia have caused a rise in commodity prices and supply challenges which have contributed to an increase in global inflation. Central banks have reacted with an increase in interest rates as a counterbalance to inflation. In this case a rise in inflation could result in support of the gold price. Something to consider: The low price of gold in 2003 is indicative of a low inflation rate of 2.28% in the U.S. the 2022 rate of inflation in the U.S. is 7.9% a new 40 year high.

Figure 7

Russia’s Foreign Reserves

Due to the current geo-political tensions affecting the gold price caused by Russia, it is worth noting the country’s foreign reserves and gold holdings. Near the end of March 2022 Russia’s central bank set a fixed rate for buying gold from local banks. One can only conclude that Russia is looking to back their currency by gold which could make the Ruble more stable and stronger. Below see the top 10 countries with the highest gold reserves (Figure 8). Russia is fifth on the list and holds over 5000 tonnes less than the US, therefore they have a lot of gold to buy if they want to surpass the US in terms of holdings. Interesting to note that gold only makes up 22% of their foreign reserves.

Due to sanctions against Russia the country does not have access to their money held in overseas banks, this may change their future foreign reserve strategy to hold more gold bullion within Russia, their buying would add support to the gold price. Other countries who could be subject to sanctions may look at what has occurred with Russia and increase their gold holdings as well. It is also worth looking at the top six countries where Russia has allocated their foreign reserves and their ability to access them due to sanctions (Figure 9).

Figure 8

Figure 9


A dramatic rise in the gold price happens during geo-political and economic uncertainty. A slow steady rise in the gold is price is preferable as it would occur in an environment which is globally geo-politically and economically more stable.
Investing in gold is not for the expectation of double digit returns year over year. From January 4, 2011 to January 4th 2022 holding gold would have returned 39.94% for an annual return of 3.99%. The yield on the US 10-year treasury bond as of March 30, 2022, is 2.35%. An investor could potentially achieve a triple digit return on a gold exploration company when it has made a discovery, albeit at higher risk. Gold mining companies are making good profits at the current gold price and would continue to do so at a $1300 gold price. Investing in a gold mining company could offer higher returns then bonds and bullion with some risk but less so then an exploration company but at the forfeit of triple digit returns.

The purpose of holding gold as part of an investment portfolio, is to maintain purchasing power in times of inflation or devaluation of a currency. Review the previous comment of the low gold price, 2003 gold price of $363.83 is indicative of a low inflation rate of 2.28% in the U.S. the 2022 rate of inflation in the U.S. is 7.9% a new 40 year high. This rate of inflation is indicative of most countries if not higher.

When Russia invaded Ukraine, the Russian Ruble declined dramatically against the US dollar and other currencies. Russians flocked to buy bullion and coins to protect their savings as the Ruble collapsed; this shows the perception of gold when the fiat money of a country goes into free fall. It solidifies gold’s position as a counterbalance to legal tender issued by a country, that is not backed by anything of value except the government.

Bonnie Hughes
Freelance Writer

Mineral exploration and discovery are often the most exciting time of a mining company’s life cycle. It is the period when discoveries of minerals, like gold, are being made and companies can overnight become a huge success with their peers as well as shareholders. An example of a junior gold mining company that has made a significant gold discovery in Quebec and whose shareholders have been rewarded by a serious lift in its share price is TSX.V-AMX or OTCQX - AMXEF. They have also been recognized by their peers and have been nominated for Discovery of the Year in Quebec.

To make these discoveries, junior mining companies raise capital to fund exploration programs which range in size and scope depending on the budget, location, availability of skilled labour, permitting, etc.  Using our example, Amex Exploration has been able to raise $46M for further exploration and to make additional high grade gold discoveries. Being located right outside a town with skilled labour and ample infrastructure they can take advantage of low exploration cost and get the most bang for their buck.


Given it is such an exciting time in the life of a mining company, many investors focus exclusively on investing in junior mining exploration companies and here is why!

The share price of a company that makes a mineral (gold) discovery can provide more than a 100% return on investment. As the size of the discovery grows so can the return on investment.

The Lassonde Curve is considered to be a realistic depiction of the stages of a junior mining company as it correlates to its stock price. In the case of Amex Exploration, the Company is still in the discovery and exploration phase meaning ample upside should remain in the stock.

Exploration compensates an investor for the risk taken due to the fact that the company is not generating cash flow, by providing the potential for a much greater return on money invested. Going from initial discovery to building a sizeable resource deposit is stage 1.  Stage 1 also provides the investor with the best leverage to the price of the commodity, especially gold.


For the balance of this blog, we will assume we are discussing a junior gold mining company, although the process is true of virtually all commodities. When a company stakes a claim to explore a property, it is usually because they believe there is the possibility of finding gold mineralization. The belief of a gold discovery can be due to historical data as well as proximity to producing gold mines or discoveries. There is an old mining adage which goes like this “the best way to find a new mine is to look in the shadow of a headframe.”


Prior to drilling, a junior mining company establishes a plan of where to drill, especially when no previous work has ever been done on a property. There are many tools that junior mining companies use to discover gold. These tools include modern geophysical surveys, 3D modelling, and good old fashion “boots on the ground”: conducting soil sampling, chip sampling and trenching.

Essentially, it is data gathering and modelling and it is required to ensure maximum chances to make a gold discovery. The market capitalization of a company at this phase is usually at its lowest point and it is where the highest risk takers will invest.


Once all the surface work is completed, it is time for drilling for a new gold discovery or confirming that the historical work on the property is accurate. Drill core is split and logged and sent to the lab for assay. As assay results are released and they prove to be interesting, an investor can begin to see a rise in the share price, sometimes dramatically if the results show high grade gold or gold broadly disseminated over large widths.

Establishing A Gold Resource

The next objective in the exploration cycle is to establish an initial resource to prove the size and average grade of the deposit.  A gold resource would be a concentration of gold in a defined area,  with a  grade and quantity that one could reasonably expect to mine. There are various stages of confidence when it comes to a resource which is displayed in the image below. The levels of confidence are obtained by closer drill spacing.


Stage 2 and 3 are all about defining the economic viability of building a mine through various economic studies (Preliminary Economic Assessment, Pre-Feasibility Study and Feasibility Study). These demonstrate with increased certainty at each level that there is enough of the mineral (gold) in the ground to develop an economic mine. Many factors influence the economics of a potential gold mine including the current price of gold and presumed price in the future, the location and jurisdiction of the gold project, access to infrastructure and skilled labour, community acceptance, the environmental impact, etc. It is during  this stage that some speculative investors begin to sell their shares and new investors with less risk tolerance buy shares.

The table below shows the various economic studies. The Feasibility Study is the most detailed and advanced of the studies and is  usually required prior to launching project financing and construction.

Environmental Impact Assessment

Depending on the jurisdiction, the company will also have to do an Environmental Impact Assessment. It is a comprehensive report detailing how the mine will affect the environment (land, water air) and human health impacts, both beneficial and adverse. It will also look at returning the land back to its original state before the mine was constructed, this is called reclamation. A construction permit for building the mine cannot be granted without an EIA.


Once all the studies and project financing are completed, the Company enters stages 4 and 5. As a gold company gets closer to pouring its first bar of gold, the stock price begins to appreciate in anticipation of earnings and profitability. At this point, the junior mining company has graduated to gold producer. Speculation and risk both transition as the stock begins to trade in line with its financials and quarterly production projections. Share price appreciation can take place throughout the life cycle of a junior mining company, but the first major rise stock price comes in the initial discovery phase. It is what keeps speculative investor coming back for more.

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