As someone that has a healthy portfolio weighting in Calibre Mining, I am obviously biased, but feel that they did use their solid financial strength as a mid-tier producer to make an accretive acquisition while the development stage companies with a higher cost of capital and challenges raising it are trading at silly valuations.

>> Really, it is shocking that more mid-tier gold and silver producers are not out scooping up all the good developers at fire-sale prices right now.

As far as the risk of Nicaragua, yes, it has always been a factor and is why companies like Calibre and Mako have been trading at a significant discount to their peers, based on their production profiles and attractive margins… so that is already well factored in and people are making too big of a deal about it. Yes, the US sanctioned Nicaragua last year, but they’ve done that a dozen times before and with relation to commodities and it’s not interrupted business for foreign Canadian companies operating successfully within country. It would take a sanction from Canada, which has not happened to create more of a challenge… so that risk is out there… but look at the reward with Calibre as a solid growth-oriented gold producer, that helps mitigate that risk.

We had both companies on to discuss this and there was no material impact to their operations last year or this year, and the way it was presented in the mass media at the time was misleading or flat out disingenuous.

Since that selloff in October of 2022, Calibre went on to rally triple digits and was one of the better performers in the sector and rightly so… the hand-wringing about Nicaragua was way overdone at the time, and Calibre has been slaying it with the drill bit, massively increased their reserves on a percentage basis, brought 2 new mines into production just last year, with more on tap, and CXB has had true grade-driven growth. Many of the areas they’ve been exploring have been building out new resources at much higher grades than their average head-grade, and thus they’ve grown production each year, largely through better grade ore and better recovery rates.

Calibre also has an operating mine and also a solid development project that could more than double production there in Nevada, the #1 best jurisdiction on the planet. I sure didn’t see their exposure to Nevada being discussed by the grumbling Marathon shareholders today warning about jurisdiction risk.

Look there is always a winner and loser in any business combination. Sometimes the acquiring companies overpay and sometimes they get a good deal. That is life and with this current low valuations in all developers, then it’s a buyers market where the big boys can grab projects at fantastic deals.

Nobody likes a “take-under”, but it was no different with Alexco being nabbed for pennies on the dollar by Hecla, or Gold Standard Venture being scooped up on the mega-cheap by Orla Mining. Heck, even the Sabina takeover by B2Gold, wasn’t stellar even at the higher part of a rally, as many long-suffering bag holders didn’t even get made whole or maybe came out with a wash, unless they happened to position at the recent low and ride it up into the takeover. Or how about the absolute slam dunk of a takeover of Anacortes Mining by Steppe Gold that few have even raised an eyebrow about that had them valued at 1/4 an ounce in the ground that Marathon just got. Now that was a “takeunder” and a stellar deal for Steppe Gold.

We’ll see more of these “takeunders” if mid-tier producers are paying attention and put their better valuations to work to scoop up the best development projects out there all trading at ridiculously low valuations. Again, it is shocking we’ve not been seeing more of this kind of thing the last 2 years.

Michael, you just explained why everyone is responsible for the decisions they make in life no matter what others say. Investing is a very tough game add that onto buying mining companies and you are living in a financial swamp, and everyone must decide for themselves is this what I want. DT

Michael, for the record I owned Alexco too since late 2015 and actually made lots of money in it trading for years on the swings up and then reloading on pullbacks and overall had a positive experience in the stock. However, I too was very disappointed with their final chapter trying to get back into production, and continually missing deadlines, pushing back the timeline repeatedly to get back into production, then doing it with a fizzle and without the appropriate stockpiles or stopes open underground to appropriately feed their mill, and then repeatedly needing more capital that expected, and eventually losing the confidence of investors; (which was their downfall). They had PLENTY of time to prepare properly to go back into production and failed to get escape velocity and get off the ground with their mine restart, and were punished accordingly.

It wasn’t share price “down-rigging” from nefarious players with Alexco — it was simply poor execution for a whole period of 1-2 years trying to get into production. People exited the stock in droves when they saw the blood in the water and the need for even more capital raises. That was the point I made then to you, and the exact same point I’d make about Marathon Gold now. Marathon Gold has done a crappy job now for the last 2 years, their shares have cratered from late 2021 into all of 2022 and 2023 up until recently, and their team has had several cost overruns, and ultimately lost the confidence and interest of the street. There was no positive momentum in their stock for a long time now, because they’ve been a sinking ship and most analysts knew it.

People that regularly point to manipulation are just trying to soothe themselves with a narrative that it is some other outside group driving the price down, instead of themselves getting positioned in a story that is unraveling. Look, sometimes it is a fund exiting, but come on…, it is simply terrible performance and selling for years and months before it leading to even more selling recently. That is what happened with Alexco and what happened here with Marathon – a loss of faith, a failure to execute, and selling begetting more selling, as everyone knew they both needed more capital and it would be highly dilutive.

Now, with Alexco, they actually did a fantastic job of exploring and expanding Flame & Moth and Bermingham deposits, and developing the underground incline, and they had many solid rallies on that part of their journey for years leading up to their downfall. So did some of the prior management team of Marathon when they were exploring and derisking Valentine in years past, and had really good runs in the past. However, in the end both companies failed getting into production, and needed to be rescued by a larger more competent operator. Very very few junior teams can make the leap into being producers successfully and it is far more common for a larger operator to watch the floundering during the construction phase or early production years and then come in and put them out of their misery as better experienced and well-capitalized producers.

That is why both Alexco and Marathon’s stocks sold off so hard for the last 6 months of their existence, where selling begot more selling, and why they became an attractive takeover candidate for Hecla, and Calibre – both superior operators with cash flows and histories of building and operating mines.

Yes, Hecla is down as you mentioned, but so is the rest of the sector Michael, so I fail to see your point. Clearly it has been a bear market across the board, and most PM stocks are down substantially. Hecla is not down off it’s highs nearly as bad as other peer producers like Coeur, or First Majestic, or even the largest PM producer Newmont, where those companies are back down near their March 2020 pandemic crash lows. So, you’d still have fared much better with Hecla than many other producers, and why I was happy to have been positioned in HL at the time they rescued AXU and still am happy to hold it presently.

Also, Hecla, unlike Alexco, is a competent operator that’s been around 125 years, and will be producing from Keno Hill for many years to come bringing future value to HL shareholders, as sentiment swings back up in this sector (like it always does). That was the point I made to you then… rather than trying to blame manipulated share prices or crying over spilled milk about the failures of Alexco’s management team, one could still ride up the next wave of the PM cycle with a quality producer by letting their AXU convert over HL. There is no advantage to crying into the wind about all the selling at the end of a company’s journey when their pockets are out and their hand is out asking for more money. Sell it and take your loss, or ride the new operator up in the next cycle. Those are the 2 choices.

I’d make the exact same point here with Marathon’s management team failing repeatedly to execute, driving shareprice down to oblivion, losing investor confidence and momentum, and all in the backdrop of a sector-wide bear market adding to the selling. It doesn’t have to be “price down-rigging” at all, just look at most of the other stocks in the sector getting creamed right along side Marathon leading into September of this year and Beaver Creek. I was there in Beaver Creek, and even the pros and best investors in the sector at that event were selling many of their positions and moving to cash to get yield, waiting for a turn in the sector.

People were selling all kinds of quality stocks in droves, so a large lower-grade bulk tonnage development project in Newfoundland that was having cost overruns was not going to be an exception and Marathon got sold too. There was not a compelling reason for Marathon to buck that trend, but eventually at extreme oversold technical levels, any stock can bounce. Management assured folks in late September conference season that they didn’t need to raise, but could if they wanted to with a stream, and that they weren’t looking for a “takeunder” offer. (Clearly we now have the rest of the story).

Keep in mind that based on what they knew at the time, in late October investors were simply buying the oversold dip in Marathon (once gold finally bottomed and the PMs reversed up strongly). Gold had gone down into the $1820’s and then had a strong reversal of fortunes blasting back up to $1900 and then the mid $1950’s and $1960’s from late October into early November, and Marathon’s stocks rose in tandem with the yellow metal. It wasn’t a game being played by funds, MOZ was simply tracking the bottoming in PMs and then the raise back higher again over the last 3+ weeks.

The reality was Marathon was in and had been in financial duress trying to get Valentine built and needed a lot more capital to finish building the mine and was having the same kind of cost overruns we saw at Argonaut’s Magino, or IamGold’s Cote’, or Ascot’s Premier mine in the Golden Triangle. Look at what happened to all 3 of those companies stock charts when they announced cost overruns during the construction phase of their big mines. Why would Marathon fare any differently?

The management team at Marathon just took the easy way out of being acquired by a more competent mid-tier producer with cashflows and better cost of capital. Also consider that management scooped up their $5 million change of control golden parachute, rather than going back to the market and getting beat up trying to raise money in a terrible capital market environment, which would have diluted the snot out of current shareholders even further. They made the right call to stop the bleeding, and let a more competent team come into the equation, and it leaves investors at present better off than if the pain and dilution had continued (whether they’ll admit that to themselves or not).

As for Calibre, they also had a string of positive news leading in to Beaver Creek, and I met with Darren and Ryan there, and follow their story very closely as a shareholder with a heavier weighting to CXB. Trying to explain away their solid exploration, development, and production execution this year (which was the real reason for the runup in their share price) and label it solely as funds playing games to push them higher, is rubbish in my opinion, and negates the fact that they had a string of good news during that period.

There are funds in all these mid-tier producers and larger developers all the time, and comparatively Calibre has held up way better than most of it’s peers the last 2-3 years during this sector bear market, precisely because they are a quality team, and are executing, doing what they said they would, and hitting milestones regularly. In fact, investors that exited Calibre in October of 2022 during the far overblown US sanctions of Nicaragua, made a massive mistake, as CXB rallied up triple digits after that from Oct of 2022 through the banking crisis in April of 2023, because they continued to have success with exploration, development, and production in both Nicaragua and Nevada — hitting on all cylinders. We’ve covered this successful string of milestones from Calibre on the KE Report show very regularly the last few years, and anyone paying attention to their progress could have been positioned in Calibre and outperformed most of the other gold gold producers as a result. Sadly most fail to seize opportunities when they are presented, choosing instead to follow the herd, ignoring success hiding in plain sight, and not sizing up risk versus returns appropriately.

In the case of this merger transaction this week, the team at Calibre once again, pounced at the right time to make and accretive acquisition. The string of success continues… Additionally, now Calibre also has and equity stake in Marathon as a result of the $40 million capital raise Marathon needed (so even if another bidder comes in with a higher offer then they’ll do well on the equity stake) = brilliant. Also, they have a $17.5 million break fee included in the deal so if some other company comes in and overbids, then they get paid well there to not acquire Marathon. It’s a no lose situation for Calibre based on the terms of the deal. Again, just like when I owned Hecla during the Alexco final implosion and was focused on the future with a competent operator, I feel the same way now about Calibre being the superior proven operator, taking Marathon out of their misery, and structuring a solid deal, with solid terms, at the right time in the cycle to poach a fantastic deal.

Now, this doesn’t insure the rest of the build will go great or on time or even stay on budget, so there is plenty of risk (as their always is in building a new mine of this size). However, Calibre has built a half dozen underground and open-pit mines in just the last few years and optimized the other mines in their stable in Nicaragua and Nevada, so they have a history of competence and execution, and cash flows, instead of being a cash-starved pre-revenue company. I’ll take that risk and bet, and look forward to them building out the rest of Valentine in 2025 and growing from a 275,000 ounce producer into a 500,000 ounce producer by 2026, in a better PM cycle backdrop.

Sold & Stopped Out

Hi DT. Yes, we like Source Rock Royalties and have had Brad on the show a half dozen times now to highlight their growth and deals as a junior Canadian oil & gas royalty company.

Here was the most recent interview we did with them last month:

https://www.kereport.com/2023/10/17/source-rock-royalties-production-growth-recent-acquisition-update-and-increasing-dividends/

Interesting stat from a couple of minutes ago….if I remove Hercules from consideration, all other stocks combined equal + $17. Nothing new in my account. Great algo. (different stocks in different amounts, but remains the same of some up and some down).

Edit: while typing it switched to – $79. Both sides of Zero in play.

The babbling is all yours Rob. To deny t/a is to deny human nature and the mountains of evidence it has produced.