The Perfect Storm
The GDX has surged 30% in the past six weeks, while the shares of little-known mine developer Sonoro Gold (SGO.V; SMOFF.OTC) have nearly doubled.
One prominent analyst just gave Sonoro a $2 share price target (and that assumes gold does not rise any further).
If gold rockets higher, Sonoro Gold could deliver massive profits…and make that $2 target just the beginning.
In 1991, a series of natural conditions occurred simultaneously to produce a hurricane so intense, America’s national weather service labelled it “The Perfect Storm.”
The storm and the Andrea Gail, a ship that it sank, become the subject of a book and movie by the same name.
Now we see the approach of a perfect storm of the financial kind, as a series of events appear set to occur simultaneously.
Inflation is accelerating as everything from microchip shortages to a lack of farm labor combine with massive increases in America’s money supply and government deficit spending.
The U.S. dollar has begun a multi-year bear market and as one fire is put out in Israel-Gaza, another much larger one — China versus the U.S. — threatens to ignite over Taiwan and the South China Sea.
A commodities super cycle is clearly underway; gold has broken out and is up $200 in the past six weeks.
Each of these events is reinforcing the profound effect of the other. And for those investors that are prepared, its impact has the potential to be exceptionally rewarding.
Ideally Positioned To Deliver Huge Gains
Sonoro Gold (SGO.V; SMOFF.OTC) is one way investors may prosper as these events unfold.
Sonoro expects to begin producing gold at its Cerro Caliche gold deposit as early as the first quarter of next year.
In short, the company’s transformation from a highly successful explorer to the ranks of high-growth gold producers is imminent.
The securing of project debt, followed by construction of its planned 15,000 tonne-per-day heap leach mining operation, is only months away. Building the mine is expected to take only around five months.
Bottom line: The timing for investors could not be better, as Sonoro looks set to start gold production just as gold is beginning a renewed and powerful move.
Consider that building a mine at the Cerro Caliche was originally conceived and assessed as likely viable when gold was less than $1,500.
...And that nearby mines with similar deposits, such as Argonaut Gold’s San Agustin Mine, are making record profits with half the gold grades Sonoro expects to mine. It is more than reasonable to expect the Cerro Caliche mine to be highly profitable too.
Simply put, Sonoro Gold offers investors a relatively low-risk opportunity to leverage the gold bull market — and the company’s recent share price rise gives some indication of this potential.
Consider that during the past two months gold is up 12%...while during the same period Sonoro’s shares have gained by 87.5%.
Sonoro Offers Leverage To Rising Gold Prices
Making the transition from explorer to developer, and ultimately gold producer, does not require a rising gold price to produce exceptional profits. But when gold does rise at the same time, it can multiply the profit potential.
Imaru Casanova at gold giant VanEck Investment Management estimates that an 11% increase in the gold price can translate into a 30% or more increase in cash flow for gold producers.
But small cap producers usually trade at three or four times cash flow. Given this, the leverage possibilities of a company like Sonoro Gold are obvious.
A Team That Knows How To Create Shareholder Wealth
The team that leads Sonoro has made fortunes for investors.
Take Sonoro’s VP of Exploration Mel Herdrick. Over his multi-decade career, he’s discovered no less than six major gold and copper deposits.
Hendrick’s work to develop the La Colorada and San Antonio deposits led to the takeover of Pediment Gold at almost 10 times its 2009 share price.
Sonoro’s VP of Operations, Jorge Diaz, is one of the original Glamis Gold Mine developers.
Glamis first started producing gold with its Picacho mine, a much smaller heap leach mine than what Sonoro is developing.
However, Glamis used the income wisely to acquire and develop mines...fueling an astounding growth rate...and was eventually taken over by Goldcorp for $8.6 billion.
Most recently, Diaz led the development of another major mining success — the giant Mulatos Mine, which has already produced more than two million ounces of gold.
On the heels of developing Mulatos, Diaz expects the Cerro Caliche to be his next major success, a tall order considering what he has already accomplished, and great news for Sonoro shareholders.
Big Upside With Relatively Little Risk
Sonoro’s team is set to hit the ground running following the delivery of its preliminary economic assessment (PEA) this July.
It is already in discussions regarding project finance, expects to start construction by September and, by early next year, be in production. Each of these milestones add to the likelihood of outsized shareholder profits.
Glamis Gold is a classic example of what going into production can mean to a company’s share price.
Despite its original mine’s small size (only 24,000 oz./year), its shares soared from C$0.80 to C$5.00 when it started production.
And after K92 Mining acquired a mothballed mine in Papua New Guinea from Barrick in 2016, until it started production it was basically an orphan. Its shares traded — when they traded, which was not very often — at around C$0.40.
K92’s shares currently trade around C$8.40, and it is one of the Toronto Stock Exchange’s best performers.
This is the kind of potential presented by Sonoro.
As Major Catalysts Approach, Time May Be Running Out
Sonoro has already completed a considerable amount of work to fast track Cerro Caliche’s development and is predicting exceptional economics.
As analysts crunch the data to compare Cerro Caliche to similar deposits in the area, the project’s exceptional potential is becoming increasingly apparent.
Sonoro’s recent record trading volume and rocketing share price may indicate that sophisticated investors have done their own calculations and concluded they should not risk paying a substantially higher price by waiting until Sonoro releases a PEA.
...The timing is critical, because things are now moving quickly: In the next two months, Sonoro will likely announce results from metallurgical studies, release an updated 43-101 resource estimate and issue that PEA, which will disclose economic parameters such as IRR, operating costs, cash flow and c…
After the resource estimate and PEA, the next catalysts will be the closing of the debt financing, the start of mine construction, and then the start of gold production in the first quarter of 2022.
A Future Takeover Target?
It is early days but, given the difficulty of finding mineable gold deposits and then putting them into production, the number of smaller gold producers is shrinking rapidly as larger companies buy them for their gold reserves.
Given that Sonoro management expects a material increase in Cerro Caliche’s existing 201,000-ounce resource, Sonoro is becoming increasingly attractive.
Management paused drilling in April when it estimated it had outlined enough gold to supply a 15,000- to 20,000-tonne-per-day operation for at least five years.
Two of Sonoro’s neighbors, Alio Gold and Premier Gold Mines, were taken over by larger gold producers during the past year. And going back further, Argonaut Gold acquired Mel Herdrick’s Pediment Gold.
As this trend continues, companies like Sonoro are likely to increase in value until they are eventually acquired.
Will it be bought out at a big premium like Herdrick’s Pediment Gold or will it grow first like Glamis Gold? Either way, it will be exciting!