Written By Neil Maedel
Gold bullion is in a bull market principally because it provides a highly fungible store of wealth with no counter party risk.
Consequently, it is an ideal hedge against growing political, systemic and currency risks. In reaction to these risks, Central banks bought 658 tons of gold in 2019, the highest volume since the original run on gold first reached crisis levels in 1968. Currently some of the world’s most respected and successful money managers, including Ray Dalio of Bridge Water, the world’s largest hedge fund, consider gold-focused investments a key component of investor portfolios.
Historically, negative interest rates have been accompanied by a rising gold price.
At US $255 trillion the world has never been so awash in debt and the growth of this debt pile shows no sign of stopping. As this debt has increased the ability of major economies to tolerate higher interest rates has decreased. The US is a recent example as after raising the Fed Funds rate from almost zero to only 2.4% last April, concerns that the economic growth was stalling forced the Federal Reserve to reduce rates to their current 1.58% and most recently 1% as the COVIN-19 crisis became more apparent. In comparison last January the US Consumer Price Index rose by 2.5%, making real interest rates negative.
The US may be among the least effected by China’s crisis in terms of what it exports there. Chinese imports have, however, had a major deflationary impact on the US economy over the past two decades. The ongoing Trump instigated supply shock is accelerated by COVIN-19. That is US Tariffs made China’s goods more expensive. COVIN-19 has made them at least temporarily unobtainable just as supply chain disruptions also impair US manufacturing. When products become scarce prices generally rise which is inflationary. At the same time there remains an as significant deflationary impact as people stay at home, businesses close and tourism and hospitality sectors go into a deep freeze. Not since the 1970s has the world experienced simultaneously both major demand and supply shocks.
At the same time the world is experiencing labor unrest and both socialist and labor-friendly legislation while governments’ move to accelerate deficit spending. Already Hong Kong has announced helicopter money with a payment of 10,000 Hong Kong dollars to all citizens above the age of 18 years. In Chile Protests continue to rage over social injustices and entrenched inequality. Germany’s Finance Minister Olaf Scholz is proposing to suspend the country’s constitutional limits so that the German Federal Government can rescue the country’s more than 2500 struggling cities and towns. Around the world fiscal stimulus is increasingly advocated as a means of staving off economic collapse. As COVIN-19 spreads it will provide the moral cover for both mountains of government spending and the Central bank bond buying needed to finance it. Already massive global debts prevent rate increases to slow inflation. As a consequence, negative interest rates are not going away. This slow-motion train wreck of a global debt bubble, labor militancy, government prolificacy, supply shortages and central bank helicopter money makes multi-decade gold bull market appear all but inevitable.
During the 1970s the rise in gold’s price turbo charged the share price trajectories of established gold producers globally. Among the most profitable for investors, however, where miners whose lower grade gold deposits suddenly became exceptionally profitable, as gold’s price rose from $35 in 1971 to $850 by the decade’s end. Sonoro’s strategy is to acquire, define and develop gold deposits with grades similar to lower grade deposits in the region which though already profitably producing gold, appear likely to experience a 70’s-like expansion in their profit margins, as gold prices increase.
5 reasons why we can be confident Sonoro is likely to experience significant upward share price increases together with and asset and revenue growth
1. Planned transition to gold production and generating revenues creates an exceptional investor friendly opportunity. During a gold bull market one of the most ideal combinations of risk and reward can occur when a exploration company graduates to become a cash flow producing miner – a transition from a high-risk speculation to a significantly lower risk, self-financing growth story, and with it a corresponding significant upward revaluation by the market. The potential increase is demonstrated by comparing Sonoro’s current US $5.2 million share market capitalization and the potential revenues from its planned pilot operation at Cerro Caliche. From an investor’s perspective, providing a mine is to be built in a safe, mining-friendly jurisdiction, (In Sonoro’s case more than 30 gold mines have operated for decades without interruption in Sonora state), establishing the development risks and viability is relatively straightforward. It consists principally of evaluating both management’s ability to execute, together with independent engineering and metallurgical reports, the mine development plan, and related economic modeling as they are generated.
2. Cerro Caliche project early indications: potential for exceptional profitability and growth in house studies using twice the costs reported by the area’s low-grade oxide gold deposit indicate exceptional profit margins are possible from mining the Cerro Caliche’s initial 43-101 compliant gold resource.
3. Management has a multi-decade track record of developing mines. Our management (which owns 29.79% of Sonoro’s shares) has collectively discovered, developed or operated multiple gold, diamond, phosphate, tin and copper mines. The track records of Chairman John Darch and VP of Operations Jorge Diaz are but two examples which illustrate that Sonoro has the necessary key management in place with which to develop gold production and grow the company. Previously John Darch’s Crew Development operated and developed a handful of major projects including Greenland’s first gold mine, seven mines in South Africa, and a copper mine in Zambia’s copper belt. He also founded Asia Pacific which discovered and defined one of the world’s richest potash deposits. John Darch retired from mining in 2006 to co-found and develop Doi Chaang Coffee, and in the process transformed an impoverished Thai mountain village into a thriving international coffee producer. In 2018 he returned to the gold sector to become Sonoro’s chairman. Jorge Diaz is a mining engineer with a multi-decade history of managing the development of gold mines in Northern Mexico. Some of the mines where he directed their development, construction and operation include La Colorada project, the Cieneguita heap leach project, the Mulatos Mine development and El Cairo (El Castillo Mine).
4. We have contracted two of the region’s most reputable mine development groups to complete critical independent mine development work Mine design, resource modeling, metallurgical, and other mine development work has been completed by Geo Digital Imaging de Mexico and Ingenieria Y Servisios Mineros – two highly reputable mine development groups which also contract to Canadian, Mexican and US miners such as Agnico Eagle, Argonaut Gold, Fresnillo PLC, Alio Gold and Alamos Gold.
5. Four Chinese EPC Companies technical departments have approved Cerro Caliche project as discussions regarding project debt finance and EPC work advance Four Chinese Engineering Procurement and Construction companies are in competition to provide final detailed engineering, equipment procurement, and construction services together with debt finance for the Cerro Caliche development. All four companies’ technical departments have reviewed Sonoro’s engineering, geological, and metallurgical work and economic modeling and have approved the project. The COVIN-19 virus has delayed the advancement of these discussions. However, one EPC company has arranged for a development team to work from their respective residences, in order to prepare a detailed development and project finance proposal for Sonoro. Sonoro’s strategy is to create a competitive process and select the most attractive turnkey development and debt finance package offered with the intent of minimizing both development risk and share dilution by developing the project with debt finance supplied by the EPC company.
Sonoro Metals (TSX.V SMO) Current Focus
Sonoro Metal’s Corp’s. focus is the development of pilot production of gold and silver at its Cerro Caliche project in mining centric Sonoro state, Mexico where, once mining is underway, the Cerro Caliche’s order of magnitude mine design enables the project to undergo a substantial expansion.