Given persistent pandemic-induced inflation, central banks’ predilection for controlling it through quantitative easing (QE), and elevated geopolitical tensions across the world, including rising worries about U.S. dollar weaponization, the case for investing in gold, especially through junior exploration stocks, is the strongest it has been since the 2008 Great Financial Crisis.
The crisis in 08′ cut the S&P 500 by 48 per cent in just over six months, following irresponsibly lax borrowing practices in the sub-prime mortgage market, which led the U.S. Federal Reserve to purchase billions in treasuries and mortgage-backed securities under QE, lower interest rates to between 0 and 0.25 per cent, and drag the global market down in conjunction with the devaluation of the world’s reserve currency. These moves dampened cash and bond yields, while seeming to foretell further losses in stocks, driving investors to preserve their capital in gold and propel the price per ounce from US$800 in 2008 to US$1,800 by 2012.
With interest rates at record lows, investors rediscovered their appetite for higher-risk assets, sending stocks on a decade-long bull market – even as rates began to creep up again in 2016 – tempering the gold price down to a new floor of US$1,200.
That floor is where gold remained until the bear market of 2018 and the COVID pandemic, which hit the stock market in February-March 2020, rekindled investors’ sense that more value destruction was in store, propelling gold to multiple record highs over US$2,000 per ounce from 2020 to date. The metal, backed by millennia of history as a source of value, is positioned to break these highs because of numerous ongoing catalysts:
- Persistent pandemic-induced inflation, which stands at 3.4 per cent in Canada, 70 per cent higher than the Bank of Canada’s 2 per cent target, significantly increasing the strength of gold’s US$1,800-US$2,000 floor since 2020, especially as hawkish monetary policy continues to induce a global economic slowdown and reignite a flight to safety
- The prospect of near-term U.S. rate cuts toward a soft landing adding upward pressure on the gold price because of less attractive bond and cash yields, and potentially a devaluation of the U.S. dollar, which is traditionally very good for gold.
- Consistent Central bank gold purchases of 337 tonnes in Q3 2023, up by 120 per cent quarter-over-quarter, following a record 1,083 tonnes in 2022, the highest since 1968, as these institutions look to limit the devaluation of their fiat currencies because of inflation and the accumulation of trillions in bonds during QE. Bond prices have slumped considerably with rising rates, with BMO’s Canadian Aggregate Bond Index ETF down by over 20 per cent from its 2020 high.
- Fear of further U.S. dollar weaponization, mostly recently highlighted by the U.S. freezing US$600 billion in Russian reserves in response to its invasion of Ukraine.
- The risks to economic growth posed by tensions between the U.S. and China, Russia and the Middle East, the latter three keen on dethroning the U.S.’s stronghold over global commerce.
With the tenuous macroeconomic climate pointing to a higher gold price from here, investors in junior gold stocks are being gifted with a generational opportunity for returns exponentially beyond those of owning the physical metal because of the massive leverage these stocks have to incremental price gains in gold bullion. For example, it’s not uncommon for junior gold stocks to see price gains in excess of 200 to 300 per cent vs the bullion price gain. It’s precisely this quality, combined with the current macro malaise, that have driven investors toward safe assets like gold and to shift away en masse from junior gold stocks, regardless of asset and operational quality or gold’s all-time highs. This dynamic has pummeled certain model miners into deep discount territory, making them well worth your full due diligence process.
A prime position in British Columbia’s emerging Spences Bridge Gold Belt
A highly-prospective junior stock to start with is Westhaven Gold (TSXV:WHN), whose only C$28 million market cap and 75 per cent drawdown since 2019 borders on the irrational, given that it has made a very high-grade gold discovery on its Shovelnose project just off a major highway close to necessary infrastructure and cities. The company has already published a preliminary economic assessment on Shovelnose – which is located in British Columbia’s (B.C.) Spences Bridge Gold Belt, one of Canada’s newest gold districts – showing a high-margin, low-cost gold project with several additional discoveries not yet incorporated into the plan. In addition, Westhaven holds three other high-potential projects on Spences Bridge, offering investors a tangible path to outsized long-term returns.
The portfolio’s demonstrated quality and tier-1 mining jurisdiction have attracted high profile stakeholders, including Franco Nevada and Osisko Gold Royalties, significantly de-risking the projects for prospective retail investors.
The Shovelnose gold project
Westhaven’s flagship Shovelnose project, which it has been exploring for over a decade, features a high-grade discovery only 75 km from the center of the Fraser and Thompson Rivers gold rush, as well as demonstrated potential to yield a multi-million-ounce gold deposit.
The 17,623 ha project is highly prospective for epithermal gold mineralization, as is common throughout Spences Bridge; resides near the Coquihalla Highway, only 30 km south of Merritt, B.C.; and can be explored year-round with close access to power, rail and large producing mines – including Teck Resources’ over 100,000-tonne-per-year Highland Valley copper mine, New Gold’s 1.2-million-ounce New Afton mine, and Hudbay’s value-accretive Copper Mountain mine – all of which translates into lower operating costs.
Westhaven has drilled 465 diamond drill holes across 161,597 m and spent over C$40 million on Shovelnose exploration since acquiring the project in 2011. This work is highlighted by the initial discovery in 2018 yielding 17.70 m of 24.50 g/t gold and 107.92 g/t silver, and 46.90 m of 8.95 g/t gold and 65.47 g/t silver, from a significant gold-bearing vein system known as the South zone. The junior gold stock followed up these results with:
- 12.66 m of 39.31 g/t gold and 133.11 g/t silver at the South zone in 2019.
- The highest-grade intercept in Shovelnose’s history at the FMN zone in 2022, yielding 23.03 m of 37.24 g/t gold and 209.52 g/t silver, including 1.12 m of 294 g/t gold and 2,110 g/t silver.
- 6.20 m of 73.51 g/t gold and 92.37 g/t silver within 12 m of 39.42 g/t gold and 51.81 g/t silver from surface at the Franz zone in January 2023.
South zone
The July 2023 PEA on the South Zone is highlighted by wide, steeply dipping mineralized vein domains, continuity over hundreds of metres of strike length, and a high-margin, low-cost mining model to produce commercially saleable gold/silver doré.
The PEA’s results, which suppose a base case of US$1,800 gold and US$22 silver, indicate “a significant property value with serious economic benefits and provide an excellent cornerstone from which to build upon,” according to Gareth Thomas, Westhaven’s president and chief executive officer. Highlights include:
- Pre-tax internal rate of return (IRR) of 41.4 per cent, with an after-tax IRR of 32.3 per cent.
- All-in sustaining costs (AISC) of C$989/oz. (US$752/oz.) gold equivalent (AuEq), generating a healthy margin of US$1,048 per AuEq ounce.
- A pre-tax net present value (NPV6 per cent) of C$359 million, with an after-tax NPV of US$222 million.
- Total payable metals of 534,000 oz. gold and 2,715,000 oz. silver.
- Average annual production of 56,100 oz. gold and 284,200 oz. silver.
- A production rate of 1,000 tonnes per day.
- Metallurgical recoveries of 91.5 per cent gold and 92.9 per cent silver.
- Expected total revenue of US$961.5 million from gold and US$59.7 million from silver.
- Payback period from start of production of 2.4 years pre-tax and 2.6 years after tax.
- Under C$400 million in pre-production (C$149.6 million) and life-of-mine capital costs (C$247 million), including a 20 per cent contingency.
- A 9.5-year mine life, including the ability to expand processing to accommodate satellite discoveries, which we’ll discuss below.
Far from resting on its laurels, Westhaven has also been hard at work delineating gold and silver-rich targets beyond the South zone, as most recently highlighted by the highest-grade intercept ever off the Zone One trend, which hosts the Franz, FMN, Alpine, MIK and South zones over more than 4 km of strike yielding up to 857 gram-metres of gold (slide 10).
Franz
Westhaven discovered the Franz zone in 2020 with initial surface sampling up to 51.1 g/t gold from outcrop. Subsequent drilling returned bonanza grades, including the aforementioned 12 m of 39.42 g/t gold and 51.81 g/t silver, within a 165 m-long vein system.
Further sampling in 2023 led to more high grades up to 191 g/t gold and 226 g/t silver, while percussion and core drilling in 2023 yielded 24.95 m of 14.66 g/t gold and 35.5 g/t silver, with the distribution of gold values leading management to believe that mineralization continues beyond current exploration and warrants further investigation.
FMN
Westhaven executed a fall 2023 drilling program at FMN to better define Vein Zone 1 in a little-drilled area to the southeast, as well as test for localized ore shoots akin to the bonanza shoots intersected toward FMN’s northwest in 2022.
Management’s recent reinterpretation of 2023 drilling (holes SN23-392 to 394 and 398), in conjunction with 2022 results, leads the team to surmise that FMN may house a subparallel northwest-trending splay or parallel vein structure to Vein Zone 1 some 50-80 m to the southwest, which was overshot during initial drilling. The new vein zone boasts a strike length of 300 m and remains open to the southeast, with 2023 drilling suggesting that portions of it may be more mineralized than Vein Zone 1 in FMN’s southeast.
MIK
Drilling in 2023 at MIK produced the aforementioned highest-grade intercept off the Zone One trend, yielding 3.68 m of 17.61 g/t gold and 31.49 g/t silver in SN23-360, which is part of a step-out group delineating a near-surface veinlet zone up to 30 m wide. The zone runs for a strike length of 180 m and remains open to the north and south. Follow-up drilling in 2024 will focus on step-outs to the south, where mineralization is strengthening.
Alpine
Drilling at the Alpine zone substantiates the presence of near-surface gold mineralization. Two drill holes in 2023, SN23-371 (0.30 g/t gold over 125.53 m) and SN23-372 returned significant gold grades and confirm the area’s bulk-tonnage gold potential.
2024 drilling
Westhaven will drill test multiple targets in 2024, including FMN, MIK and Franz, as well as additional prospects Line 6, Romeo, Hydrothermal Breccia 2 and Hydrothermal
Breccia 5, with eyes on a resource update by year end. Thomas expressed confidence in his team’s ability to “significantly increase the property’s mineral resource base” in a July 2023 news release.
Shovelnose’s clear upside, backed by a robust exploration dataset, is enough to warrant investor interest at Westhaven’s depressed stock price, but shareholders stand to benefit even further through exposure to the junior gold stock’s three high-grade early-stage gold projects.
The Skoonka Creek gold project
Westhaven sweetens its value proposition with Skoonka Creek, a property that substantiates its potential for epithermal gold mineralization with strong historical gold intersections (12.80 m of 20.20 g/t gold and 3.31 m of 26.80 g/t gold) between 2005 to 2007, and an abundance of prospects across 1.6 km in strike length, including JJ, Zebra, Discovery, Deadwood, Ember and Backburn, the last four of which define the Deadwood-Backburn trend (DBT), a 3,000 m structural corridor rich with gold-in-soil geochemical anomalies.
The property is a four-hour drive from Vancouver, only 15 km from the Trans Canada Highway and the Canadian Pacific Railway Line, and only 12 km northeast of Lytton, B.C.
JJ zone
Inaugural exploration at the JJ zone reported in 2022 yielded a highlight of 5.66 m of 6.83 g/t gold and 4.60 g/t silver, including 2.77 m of 12.35 g/t gold and 7.75 g/t silver, with ample room for expansion in untested areas.
“The 2022 drilling at Skoonka Creek confirmed the bonanza gold grades previously encountered in historic drilling at the JJ target,” Peter Fischl, Westhaven’s exploration manager, stated in a January 2023 news release. He went on to add that “new intersections of quartz veining and gold mineralization at JJ west, combined with those at JJ, suggest the presence of an epithermal system extending over a strike length of 1.6 km.”
The Skoonka North project
Westhaven’ next value-accretive property is Skoonka North, a trio of contiguous mineral claims covering 6,167 ha that produced the highest gold silt sample ever on Spences Bridge – 1,720 ppb gold – in addition to standout samples of 992 ppb gold, 783 ppb gold and 594 ppb gold. The property is located less than 1 km from the community of Spences Bridge and only a 4.5-hour drive from Vancouver.
The main anomaly benefits from rock and soil assays up to 2 g/t gold and 701 ppb silver, respectively, while trenching delineated a 55 m-long veining zone up to 1.44 g/t gold. A third target is comprised of geochemical anomalies yielding soils up to 41.9 ppb gold and an anomalous silt sample of 89.6 ppb gold.
The Skoonka North claims have seen little in the way of exploration work, with no drilling completed to date. A magnetics survey in 2018 delineated strong northeast-trending magnetic high and low linear anomalies, with follow-up sampling in fall 2023 adding 313 soil samples, 19 stream silts, 83 rock samples, and the identification of numerous new areas of interest. In 2024, Westhaven will conduct additional mapping, prospecting, sampling and geophysical programs with eyes on bringing the drill bit into the equation.
The Prospect Valley gold project
The last, but not least, among Westhaven’s high-upside assets is the 10,927-ha Prospect Valley gold property, where sampling and drilling since the 2016 acquisition has delineated six gold-quartz vein showings indicative of an intrusion related low-sulphidation epithermal gold system, including Bonanza Valley, South Discovery, North Discovery, the Northeast Extension zone (NEZ), and NIC, in addition to five other secondary exploration targets.
Prospect is located about 30 km west of Merritt and is both road accessible and in close proximity to highways, which may prove crucial on the path to shareholder value, as management believes the Bonanza target, Discovery zones and Northeast Extension may be related to a multi-kilometre-scale fault system extending across the property.
Bonanza Valley
The Bonanza Valley target features quartz vein and breccia float up to a historical 43.3 g/t gold, with gold scattered over a 1.5 square km area straddling the Bonanza Creek valley, though no bedrock source has been found to date.
Ground magnetic data collected from the Bonanza Zone in 2023, along with a LiDAR survey and surface rock samples, confirmed historical reports of high-grade quartz veins and quartz breccia float with assays of up to 3.21 g/t gold.
Management with proven mining experience
A junior gold stock doesn’t accumulate such a rich and untapped portfolio without leadership well-versed in the minutiae of mineral discoveries, whose incentives, to the tune of 24 per cent insider ownership, are squarely aligned with shareholders.
Grenville Thomas, Westhaven’s advisor and outgoing chairman, is a member of the Canadian Mining Hall of Fame and has been working in the mining industry for over 50 years, including as chairman, president and director of Aber Resources. His lengthy record of discoveries is highlighted by the Diavik mine (now a Rio Tinto asset) and the Thor Lake rare metals deposit in the Northwest Territories.
Eira Thomas, the incoming chairwoman and long-time Westhaven shareholder, has built an over 30 year mining career, including leading the US$520 million sale of Kaminak Gold to Goldcorp in 2016. Other notable accomplishments across her distinguished career include:
- 14 years at Aber Diamond (now Dominion Diamond), including as vice president exploration and director
- Founding Stornoway Diamond, serving as its first chief executive officer and executive chairman, where she led the acquisition of the Renard diamond deposit, which eventually became Quebec’s first diamond mine
- Founding Lucara Diamond in 2007 and serving as chief executive officer between 2018 and 2023.
- Serving as a director of Suncor Energy for 17 years
Thomas’ son, Gareth, co-founded Westhaven and serves as chief executive officer, bringing over 20 years of mineral exploration experience to the table across project management, business development and property acquisitions.
Eira and Gareth Thomas’ leadership is complemented by proven experts in their fields, each with decorated histories that contribute to long-term value creation by de-risking ongoing development, including:
- Exploration manager Peter Fischl, whose 30 years of Canadian and international exploration experience focus on epithermal gold deposits
- Director Victor A. Tanaka, and his over 45 years of experience as a geologist and exploration manager with junior and senior mining companies, including roles in numerous mineral discoveries in Saskatchewan and Canada’s Arctic
- Independent director Paul Mcrae, whose 40-year career in mining project and construction management, including stints at De Beers and Lundin Mining, will serve Westhaven well as it moves Shovelnose toward a construction decision
Guided by mining veterans with about two centuries of expertise between them, and a track record of over 10 years of value-accretive exploration, it screams of market inefficiency how WHN shares have fallen by 85 per cent since their all-time-high of C$1.38 in 2018, shortly after making the initial Shovelnose discovery.
A multi-bagger opportunity
The concept of a multi-bagger investment is unfortunately overused and has lost some of its luster, but junior stocks like Westhaven Gold boast the assets and expertise to reimbue it with meaning.
“At C$0.19 per share, and only a C$28 million market cap, Westhaven shareholders gain ownership in the high-grade discovery at Shovelnose, which already has a high-margin, low-cost PEA, plus the discoveries on the property to be integrated into the resource update, in addition to three other properties with potential for high-grade gold along the emerging Spences River Gold Belt,” Sean Thompson, Westhaven’s vice president corporate development & investor relations, stated in a recent interview with Stockhouse.
Westhaven’s properties also reside in a safe jurisdiction governed by a strong rule of law, where mining has enriched local communities dating back to the mid 1800s. This type of industry-friendly environment, contrasted with First Quantum Minerals’ travails in Panama, makes long-term holding periods viable and M&A more attractive as a) 2024 drilling brings wider market awareness to Westhaven having only scratched the surface of its total resource base, and b) major miners look to shore up dwindling resources amid a consistently strong gold price.
Taylor Combaluzier, P.Geo., a mining analyst at Red Cloud Securities, agrees that there is considerable discovery potential on the table, offering a target price of C$1.30 per share, or a 6.5x return from the closing price on Jan. 29, 2024.
There will doubtlessly be volatility ahead, as is common in the junior mining space, but Westhaven Gold is as perfect a pitch as an active investor could hope to receive. There is nothing left to do, but to swing.
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