Investing In The New Resource Bull Market

The market has rewarded Golden Arrow so far in 2016 for the following reasons:

  1. Chinchillas offers near-term production potential with a very affordable initial capex (thanks to synergies with JV partner Silver Standard and its producing Pirquitas asset).
  2. Due to its massive size and relatively low grade, Chinchillas is a classic "optionality play" with significant leverage to the price of silver (which has been the best performing commodity so far in 2016).
  3. Argentina's election of pro-business President Mauricio Macri has opportunistic mining investors streaming into the country.

Golden Arrow's Chinchillas project is a textbook optionality play—a relatively low-grade deposit that contains over 200 million silver-equivalent ounces. One key takeaway is that this is a massive project, particularly when you consider that at least 50% of the land package has yet to be explored. An ultimate resource of 500 million silver-equivalent ounces is optimistic but not impossible.

Golden Arrow is likely to "add another horse to the stable." This acquisition would likely be similar in geology to Antofalla, and the goal would be to discover another Chinchillas-like deposit. The company's deep experience in Argentina will give it a leg up in any negotiations that may take place.

Almadex Minerals Inc. (AMX:TSX.V) (AXDDF) is another company that has taken off, with a 500% year-to-date gain. The company was formed just 12 months ago, when well-respected Almaden Minerals spun out its prospect generation business so the company could focus on Ixtaca. We started buying in Q4/15, when Almadex's market cap was equal to its working capital position. In hindsight, this was a ludicrous proposition considering management's multidecade exploration expertise in Mexico.

In the first half of 2016, the company was relatively quiet on the prospect generation front. Instead, the company's share price was buoyed by positive developments surrounding Almadex's royalty and equity holdings. There were three major developments:

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