Investing in Gold: The Significance of Location
Exploration is the cornerstone of the gold mining industry.
This meticulous process involves utilizing geological science to locate mineral deposits, serving as a precursor to mining operations. Geologists begin by analyzing Earth’s data to find clues pointing to the presence of thesought-after minerals.
Minerals typically coalesce with specific rock types, forming what is known as ore. When substantial quantities of ore-bearing rock are concentrated in one locale, it is termed a deposit. To pinpoint these deposits, mining companies often rely on geophysics, which entails studying the Earth’s physical properties, including gravitational, magnetic, and electrical fields.
Geophysicists perform surveys using specialized instruments to measure these fields at the Earth’s surface, to generate detailed subsurface images.
Orogenic gold deposits, with few exceptions, have historically formed in subduction-related tectonic settings within accretionary to collisional orogenic belts from the Archean to Tertiary periods. The origins of these deposits—encompassing metal and fluid sources, fluid pathways, depositional mechanisms, and their timing in relation to regional structural and metamorphic events—remain subjects of ongoing debate and research.
Geologists and engineers employ an array of techniques to identify potential gold deposits and ascertain viable mining locations.
Contrary to the often corporate, real estate-oriented demeanor of many CEOs and management teams in the gold industry, today we highlight a company whose leadership harnesses scientific methods to identify prime geological sites for mining.
By leveraging science, this company effectively locates mineral-rich areas, primarily gold, at minimal costs, demonstrating a sophisticated and strategic approach to exploration and extraction.
Investor demand for gold as a safe haven asset is driving prices to unprecedented heights.
The current price of gold has soared to over USD 2,400, marking a new all-time high. This surge not only benefits gold investors but also augments sales and profits for gold mining companies, capitalizing on the escalating demand for precious metals.
Prospective investors should, however, be cognizant of the uncertain long-term stability of this upward trend in financial markets, which could be influenced by a myriad of factors.
Gold, renowned as a safe-haven metal, attracts investors seeking to hedge against risks such as rising inflation, geopolitical turmoil, and financial crises. These factors can introduce volatility to gold prices, yet they also have the potential to drive prices significantly higher. By mid-2024, gold had rallied over 20%, reaching more than $2,450 an ounce, driven by inflationary pressures and geopolitical concerns. Nevertheless, pricing volatility persists as investors weigh potential recessionary signals against rising interest rates, inflation, and other economic indicators.
Investing in gold stocks offers numerous advantages over holding physical gold, allowing investors to reap the potential rewards of the gold market. Gold companies can potentially deliver higher total returns than physical gold investments by expanding production and reducing costs, thereby growing their profits. Rising earnings can, in turn, propel stock prices faster than the price of gold itself.
Gold’s impressive rally this year was partly fueled by expectations that the Federal Reserve would implement up to three interest rate cuts in 2024 as stubborn inflation began to subside. However, current projections suggest only one rate cut is anticipated for the remainder of the year.
In addition to interest rate influences and geopolitical concerns, data indicates a reluctance among physical gold holders to sell their assets. This general aversion to shorting bullion, despite the substantial rally, underscores gold’s structurally bullish drivers beyond U.S. real yields.
Investing in shares of mining companies offers the combined benefits and risks of exposure to physical gold and income-generating assets. Such investments can insulate portfolios against inflation and reduce risks through diversification. Additionally, gaining exposure through an ETF provides simple and cost-effective access to this complex market.
The Varied Landscape of Gold Mining Companies
Junior Miners
Junior miners are the small-scale gold mining companies, often in the exploratory stage of discovering new gold deposits or establishing new mines before their financing runs dry. Investing in a junior miner can be likened to investing in a tech startup or a small-cap biotech stock: a high-risk, high-reward proposition that is essentially a race against the clock.
Senior Miners
Companies that consistently produce gold are known as senior miners. Their operations are well-established, making them less speculative and less of an “all-or-nothing” gamble compared to junior miners. Instead, senior mining stocks, such as Harmony Gold (HMY) and Kinross Gold (KGC), generally move in tandem with the market price of gold, but with greater volatility, experiencing higher highs and lower lows.
Some senior miners also act as venture capital firms within the gold mining sector, investing in junior miners to support their exploration and development efforts.
The Pros and Cons of Investing in Gold Stocks
Gold stocks occupy a unique niche within the investment universe, distinct both from traditional equities and from physical gold bullion. Their neither-fish-nor-fowl status bestows upon them a unique set of advantages and drawbacks.
Pros of Gold Stocks
Dividend Potential: One of the foremost advantages of gold stocks over physical gold is their capacity to generate dividends. Many gold mining companies distribute dividends to shareholders, offering a tangible return on investment that gold bullion and futures cannot provide.
No Maintenance or Security Costs: Unlike physical gold, gold stocks require no safeguarding. Investors are spared the expenses associated with storing and insuring gold jewelry or coins, which can erode overall returns.
Low Correlation with Major Stock Indexes: The returns on gold stocks are more closely linked to the performance of gold bullion than to the broader stock market. This characteristic renders them an effective hedge against market trends, particularly when indices like the S&P 500 are in decline.
Cons of Gold Stocks
Not Bullion – Some Stock Market Correlation: While gold stocks exhibit behavior more akin to gold than to other equities, they are not entirely immune to market fluctuations. Their performance can still be influenced by broader stock market trends, unlike the more insulated gold bullion.
May Not Retain Value in Severe Crises: Gold bullion has an intrinsic allure, often retained as a medium of barter in times of crisis. In contrast, gold stocks, being more abstract, may not hold easily redeemable value in such scenarios, limiting their utility during extreme disruptions like wars or financial collapses.
Research Complexity: Gold stocks demand rigorous research. Investors must not only monitor the volatile market price of gold but also scrutinize company-specific data such as revenue, earnings, costs, and debt. This dual-layered analysis can be intricate and time-consuming, posing a challenge for even seasoned investors.
In summary, gold stocks offer a compelling blend of benefits and drawbacks, carving out a distinct role in an investment portfolio. While they provide dividend income and avoid the physical costs of holding gold, they also require meticulous research and may not offer the same crisis-proof security as physical gold. Investors should weigh these factors carefully to harness the potential of gold stocks effectively.
Tocvan has secured a highly promising land position at its wholly-owned 2,278-hectare Pilar Gold project, covering 21 square kilometers of prospective area, alongside a 51% stake in an additional 1 square kilometer parcel.
Moreover, the company holds a 100% interest in the Picacho Gold project, situated in the renowned Caborca Trend of northern Sonora, a region known for hosting major gold deposits. The company’s primary focus remains Pilar, located 130 kilometers southeast of Hermosillo, the capital of Sonora.
The Pilar Project is fully accessible by road, requiring a two-hour drive from Hermosillo to Suaqui Grande. Pilar has been the subject of two notable exploration programs: the first from 1996-97 and the second spanning from 2008 to 2018. Both programs included extensive surface exploration and reverse circulation (RC) drilling.
Sonora is a mining-friendly state, offering excellent infrastructure in terms of roads, power, water, a skilled workforce, and readily available mining services and equipment.
Tocvan Ventures: Positioning for Gold Production in Sonora
Tocvan Ventures is positioning itself as a future gold producer in Sonora, Mexico, a region celebrated for its mining prowess. Known for producing one-third of Mexico’s gold and holding the title of the world’s largest silver producer, Sonora is a mining stronghold. Recently, Argonaut Gold and Minera Alamos have further underscored the area’s potential.
Drilling Success at Pilar Gold Project At the Pilar Gold Project, Tocvan has completed nearly 23,000 meters of drilling, delivering standout results. The 2020 drilling campaign uncovered 1.6 grams of gold over 94.6 meters, with a notable interval of 10.8 grams of gold and 38 grams of silver over 9.2 meters. Such results are striking, particularly when an economic open-pit mine can be viable with just half a gram of gold per ton, as evidenced by neighboring Nevada operations. Last year’s standout drill hole reported 0.96 g/t gold over 39.7 meters, with Tocvan’s results frequently exceeding those of established miners like Argonaut and Minera Alamos.
Cost-Effective Exploration and Near-Term Production Outlook
Exploration costs are remarkably low, at approximately CAD $175 per meter. With a timeline of just 2-3 years to production, Tocvan is targeting an output of 50,000 ounces per year over a span of 7-8 years. This production could potentially generate $50 million in annual free cash flow, assuming gold prices remain at $2,000 per ounce.
Mining-Friendly Environment Tocvan benefits from its strategic location in Sonora, where mining infrastructure is robust—featuring roads, water, and energy access. The region also offers a seasoned workforce, essential for scaling production. Moreover, Sonora is recognized as one of Mexico’s most mining-friendly provinces, offering a favorable regulatory environment.
The El Picacho Gold-Silver property, located 140 kilometers north of Hermosillo, spans 24 square kilometers and is interpreted as an orogenic gold system within the Caborca Orogenic Gold Belt. This region is renowned for producing major gold mines such as La Herradura (over 10 million ounces of gold)
The property encompasses five primary zones of mineralization across more than six kilometers of prospective trends. Surface sampling and historic workings have identified high-grade gold and silver values. Despite this, the project has only undergone widely spaced reconnaissance drilling with no follow-up, providing Tocvan with an excellent opportunity for discovering a multi-million-ounce district.
Tocvan has resumed drilling, with results already published as of May 13, revealing 56.4 meters of 1 g/t gold. This result comes from a zone 400 meters away from the main zone, running parallel to it, suggesting the potential for a new area of similar endowment.
With at least another 5,000 meters and 40-50 more holes left in this campaign, there are ample opportunities for further impressive results, especially considering Tocvan’s announcement of discovering the source of all the placer gold in their land package.
Previously, Tocvan’s share price suffered due to a lack of news, but this perceived weakness has now become a strength. The rest of this year promises to be filled with news, including dozens of assay results, further metallurgical work, and a maiden resource estimate by year’s end.
This surge in activity comes at an opportune moment, as junior explorers are starting to garner renewed interest from the market, suggesting that generalist investors may be returning to the space.
Around end of 2024, management aims to release a maiden resource estimate (MRE) for Pilar. While this will provide an intriguing technical report with essential data, it will represent just the tip of the iceberg, covering a mere 2%-3% of the entire land package.
Although management remains tight-lipped about the large company active around Pilar, it is likely one of the major players (shown in the map above)
This strategic timing explains why the company plans to deliver an MRE around year-end, allowing prospective suitors to better evaluate the substantial potential at Pilar.
The longer Tocvan can hold out before finalizing a deal with a strategic partner, the better the transaction terms will be.
It would not be surprising to see one or two of the large companies consolidate the smaller entities in Sonora, positioning Tocvan Ventures
(CSE: TOC) / (OTC: TCVNF) as a prime takeout candidate.
Tocvan Ventures: Key Catalysts and Market Dynamics
For Tocvan Ventures, the outlook is increasingly promising as several factors converge to ignite shareholder interest.
Anticipated Drilling Results First, the market is eagerly awaiting the latest drilling results from the current year’s program, which could further energize investor sentiment the upcoming release of an initial resource estimate is poised to offer a preliminary gauge of the deposit’s scale.
This estimate, informed by extensive drilling, geophysical surveys, and historical data, could attract institutional investors who typically enter the market only at certain resource thresholds. Savvy investors might look to capitalize on the stock now, before these professional investors push the price higher
Consider the scenario where Tocvan successfully brings its original Pilar property online, generating $50 million in annual free cash flow. With such financial strength, they could aggressively advance their other projects—at just $175 per meter in drilling—without diluting shareholder equity further.
Typically, developers see their share floats expand—and shareholder returns diminish—in the pursuit of production. Tocvan, however, is positioned to potentially avoid this pitfall entirely, especially if they can secure bank financing for their initial production run.
Speculation on Strategic Takeovers Looking further ahead, Tocvan Ventures’ Pilar gold project may become a prime acquisition target for nearby operators. The regional geology presents a compelling case for such deals, making it an appealing opportunity for companies already familiar with the local mineral landscape.
Resilient Capital Structure Amid Market Challenges Despite broader market volatility, Tocvan Ventures has demonstrated resilience, with its stock maintaining stability. The company’s tight capital structure, with just 51.2 million shares outstanding, further bolsters its market stability and attractiveness.
As noted earlier, the value of having a seasoned geologist at the helm of Tocvan Ventures cannot be overstated.
The leadership of CEO Brodie Alan Sutherland, P.Geo., brings a wealth of geological expertise and strategic insight crucial for the discovery and development of gold mining locations.
CEO Brodie Alan Sutherland, P.Geo.
Mr. Sutherland, a mineral exploration geologist and junior mining executive based in Calgary, Canada, brings over seventeen years of experience in exploring mineral deposits across more than twenty countries. His career has been marked by a focus on economic geology and the advancement of grassroots mineral exploration projects through to feasibility.
Mr. Sutherland holds a Bachelor of Science in Geology from the University of Alberta and a Certificate in Environmental Management from the University of Calgary. As a founding member of Tocvan Ventures Corp., a publicly traded Canadian company active in Sonora, Mexico, he has been instrumental in assembling a local team of experts to rejuvenate undervalued projects. Since the company’s IPO in March 2019, he has served as President & CEO, steering Tocvan Ventures through its formative years.
Before his tenure at Tocvan Ventures, Mr. Sutherland held significant roles, including Project Manager at HighGold Mining in Alaska from 2018 to 2022 (acquired by Contango in 2024) and at NxGold Ltd. in Nunavut and Western Australia from 2016 to 2018 (founded by NexGen Energy Management in 2016).
His global consulting experience and his executive position as VP Exploration at Hunter Bay Minerals from 2010 to 2012, where he led exploration and discoveries in Suriname and Guyana, further underscore his capability and vision in the field.
Under Mr. Sutherland’s stewardship, Tocvan Ventures is poised to capitalize on the geologic potential of its assets, leveraging his extensive experience and strategic foresight to guide the company towards success.
Tocvan Ventures stands out not only for its strategic positioning but for a combination of attributes that are exceptionally rare for a single company.
Prime Location: Operating within a premier mining jurisdiction, Tocvan benefits from robust local support and extensive expertise.
Affordable Exploration: The company’s exploration costs are strikingly low, at approximately CAD $175 per meter.
Cost-Effective Production: The route to production is highly economical, with estimated expenses around $25 million, supported by modular “plug and play” mills.
Lean Share Structure: Tocvan features a remarkably tight share structure, with only 42 million shares fully diluted over four years.
Significant Resource: Current drilling suggests a conceptual deposit of about 800,000 ounces of AuEq in situ at the Pilar property.
Exploration Upside: Tocvan demonstrates genuine greenfield potential with two unexplored targets—expanded Pilar and Picacho—that are already showing promising early exploration results.
Advanced Metallurgical Work: Metallurgical efforts are well-advanced, including a bulk sampling heap leach test and the successful production of a doré bar.
Timely Production: If all goes according to plan, Tocvan could begin production in just 2-3 years, targeting 50,000 ounces annually over 7-8 years.
High Free Cash Flow Potential: This production could potentially generate $50 million in annual free cash flow at a gold price of $2,000 per ounce.
Successful Precedents: The successful transition to production of neighboring projects provides a convincing model and proof of concept for Tocvan’s vision.
Together, these attributes position Tocvan Ventures as an exceptionally promising player in the mining sector
Tocvan Ventures presents a compelling investment case, not merely due to its project fundamentals but also from a trading perspective. Despite the promise underscored in this overview, the stock has yet to align with gold prices.
However, unlike many of its peers, Tocvan’s low exploration costs have meant it has been able to avoid significant dilution.
Even setting aside the discussed catalysts, the stock may appear undervalued relative to broader commodity trends. Should gold prices continue their ascent and Tocvan’s catalysts unfold as anticipated, the stock could deliver substantial returns to shareholders.
Equally important as evaluating a project’s potential is assessing its valuation. Here, Tocvan stands out as an attractive buy. It is one thing for a company with a solid strategy to command a $100 million market cap, reflecting expectations of success. However, Tocvan’s current market cap of just $25 million indicates that the market has yet to fully recognize the stock’s potential.
This undervaluation positions Tocvan as one of the most compelling risk-reward opportunities available in today’s market.
Considering all these factors, this trade is intriguing for several reasons, but two opportunities stand out: the potential for a significant revenue surge upon meeting the company’s targets, which could see the stock reclaim its 2021 high of $1.50, and the possibility of a strategic takeover, which could drive the price well above $3.00 from a speculative standpoint.
