Artemis: A "Turbo Charged" Junior Miner

11/26/2020 5:00 am EST

Focus: COMMODITIES

Brien Lundin

Executive Editor, Gold Newsletter

Gold, silver and mining stocks were taken out to the woodshed on news that would be best interpreted as long-term bullish, suggests resource sector expert Brien Lundin, editor of Gold Newsletter.

The latest PMI report seemed to be sowing the seeds of the gold market’s next big move, as it reported that, “Service providers indicated a steep rise in input costs midway through the fourth quarter, with rising supplier prices and wage growth pushing the rate of inflation to the fastest on record.”

In other words, the inflationary pressures most have been expecting are already here. But the market is determined to ignore such implications right now, and in fact seems determined to find any excuse to sell gold. Impending options expiries in gold and silver undoubtedly has something to do with this selling pressure.

The good news, however, is that we’re seeing precisely the kind of washout we would look for to mark at least a general bottoming in gold, with momentum indicators now reaching the kinds of lows that have marked the bottoms preceding each of this year’s big price rallies.

So while we’re likely to have another few weeks of corrective action, in my view there’s a greater risk that the bottom will come earlier than later.

Meanwhile, I’ve been talking to lots of company management teams over the past few weeks, and those discussions have resulted in a few interesting opportunities that I feel deserve recommendation now, including Artemis Gold (Vancouver: ARTG).

Artemis Gold is the "spinco" created via the acquisition of Atlantic Gold, and is therefor CEO Steven Dean’s next big deal. As with Atlantic Gold, Dean has this company — and its newly acquired Blackwater Gold project in British Columbia — buttoned down to three decimal places.

The knock against Blackwater has always been its marginal nature. It’s a huge resource, but with skinny grades it was regarded as requiring masterful exploitation to make it work.

So in comes Dean and his team, who have done it before so successfully with Atlantic. And the result was, just a few weeks after announcing the acquisition of Blackwater in June, a revised Pre-Feasibility Study showing an after-tax NPV of C$2.2 billion, an after-tax IRR of 35% and a two-year payback.

Total recovered gold would be 7.45 million ounces at an average grade of 0.75 g/t. That C$2.2 billion NPV projects to a C$20 share price eventually, assuming nothing else changes. But plenty will change, and likely for the better.

For one thing, the resource seems destined to grown considerably. The gold price should also grow, allowing the leverage of a lower-grade mine to kick in. At current gold prices, that NPV grows considerably, more than doubling if it allows the average gold grade to dip to 0.60 g/t.

Unsurprisingly, Dean and his team are also proposing some neat financial engineering and staged development to lower the initial capital costs and turbo-charge profitability. They project their efforts will increase the IRR to 49.7%, for example.

The development of the project over the months to come should mesh well with an expected M&A rush from the majors. So Artemis is a bet on management, a rising gold price and an expected M&A boom.

The fact that Dean and team are involved also lowers the risk, in my view. The current slump in gold is putting Artemis on sale, thus my recommendation now. It’s a buy.

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