This morning market futures are down. Amazon reported earnings after the close on Thursday and dumped. All of the key leadership stocks, FB, AMZN, GOOG, MSFT, and AAPL, have sold on their earnings news this week. The market risks are to the downside for August, as the internals faded going into this week and the leadership stocks sold on their news. The market is set to drift or fade some in the coming weeks. Nothing goes straight up forever and all markets have pauses from time to time.
Gold, for instance, took a hit in early June and spent several weeks going through a stabilization phase, much like it did in March. That process finally came to an end yesterday as gold rallied through its most recent resistance high of $1825 an ounce. The trend is now up and we can expect gold to rally for the weeks to come.
You can see how gold made a double bottom in March. The peak of that stabilization process became a resistance point around $1750. Once that cleared in April gold began to rally. Now $1825 has served as a similar resistance peak for this just broken sideways phase. Traders see when these resistance levels get broke and jump on.
It shows up in scans they run after the close and before the market opens. The thing is buying now still makes for a good entry point, because one can can just put a stop loss order under this week’s low for a clearly defined risk point. It’s a small amount of risk when gold can easily go up to $1925 and up to even $2000.
Gold and silver stocks also began to rally. And my my top stock pick for this month, Sonoro Gold has done well in the past few weeks, despite it being a small cap mining stock; while many gold stocks faded it displayed powerful relative strength as you can see from its chart.
Remember one of my mantras is if you want to beat the stock market averages, then you want to be in the sectors and stocks beating the market. The best stocks to buy are also the ones leading their own sector. The SGO/GDX relative strength plot at the bottom of this chart shows us that SGO has been doing exactly that. It also trades as SMOFF on the US OTC.
Sonoro had more good news this month with more positive drill results, and is set to a release a new updated milestone NI 43-101 technical report. Read these words really carefully, which are in its latest press release:
“Drilling activities on the concession have been paused since May 2021 pending financing and to provide the exploration team sufficient time to ensure all data and assistance was available for the completion of two independent NI 43-101 technical reports, scheduled to be filed by mid-August 2021. As previously announced, the Company engaged Micon International Ltd. to prepare an updated Technical Report and D.E.N.M. Engineering Ltd. to prepare a Preliminary Economic Assessment (PEA).”
Buzz is growing around the stock. The German based goldinvest.de issued a report on the stock this week you can read here. It says:
“Sonoro is expected to announce a detailed economic analysis for its planned Cerro Caliche gold mine in the form of a NI 43-101 PEA in a few weeks. Once that data is known, it usually acts as a catalyst for several important things, starting with mine financing, permitting, hiring contractors, and finally building the mine. Construction time to actual gold production is estimated at 6 months.”
“Sonoro Gold’s market capitalization is CAD 34 million, which is significantly less than the cash flow analysts expect from Cerro Caliche’s mine operations.”
“A rough picture of future production can already be obtained by assuming an average gold content of 0.6 grams per ton and the production rate of 15,000 tons per day targeted by the bottom frame. Arithmetically, 290 ounces of gold per day would then be delivered to the leach pad. Sonoro’s recent metallurgical results indicated a recovery rate of 80%, which, if realized, would yield approximately 230 ounces of gold per day. Based on 340 operating days per year, gold production should be 78,880 ounces per year, with plans for further expansion in subsequent years.”
“Some mines are making money at grades well below Sonoro’s Cerro Caliche. Argonaut Gold, for example, just reported record profits, including revenue from mining at its Castillo Complex heap leach operation, where the average grade is only 0.31 grams of gold per ton, about half the average 0.60 grams of gold per ton that Sonoro is expected to mine.”
“Sonoro’s costs should be comparable to those of the other heap leach mines in the area, which report AISC costs of USD 900 to USD 1,200 per ounce of gold. This assumption sounds plausible because the company’s executives were responsible for developing several of these mines. To be safe, a cost of USD 1,100 per ounce and a gold price of USD 1,800 per ounce of gold can be used to calculate a more conservative cash flow estimate. Assuming annual production of 78,800 ounces of gold and a net margin of USD 700 per ounce, annual cash flow would be USD 55 million or (fully diluted) CAD 0.32 per share or CAD 0.39 per share, well above the current trading price of CAD 0.34 per share. Mine construction costs are expected to be less than USD 20 million. The investment could be recouped within 9 months if successful, which would be a remarkably quick payback period. Typically, payback periods are measured in years, not months.”
“Sonoro expects to close a small debt financing package in August. Construction of the mine is expected to begin in September of this year, while gold production is expected to start in the first quarter of 2022.”
“Going back to the potential cash flow of CAD 0.39 per share: Small-cap gold producers typically trade at 4 times their cash flow, which in this case would equate to a target price of CAD 1.50 per share. To date, only about 25% of Cerro Caliche’s gold mineralization has been drilled. Cerro Caliche’s extensive land package includes 8 former high-grade historic turn-of-the-century gold mines surrounded by 18 zones of shallow oxide gold mineralization. They cover an area totaling about 5 square miles. That leaves a lot of potential for future growth.”
Sonoro has been executing without a glitch and the share price has been advancing. It’s the old buy the rumor sell the news as smart traders get ahead of potential future positive developments.
Yesterday, I did a Youtube video after the open talking about gold and the broad market. I mentioned how Jerome Powell’s new definition of “transitory inflation” is helping to bring buyers into precious metals.
-Mike
Disclosure: Mike Swanson owns shares of Sonoro Gold. Because it is a small cap stock with a market cap of less than $100 million USD he has put himself in a trading blackout on Sonoro Gold and will not buy or sell a share of its stock for at least 30-days from the date of this post (07/06/2021). Wallstreetwindow.com, is owned by Timingwallstreet, Inc., which is being compensated by a third party (Leadgopher LLC DBA Pinnacle Ad Network) to conduct an investor awareness advertising and marketing campaign for Sonoro Gold. This third party paid Timingwallstreet Inc., $12,000 USD to produce and disseminate this and other similar articles and send traffic to them through paid advertising campaigns for 30-days from the date of this post (7/06/2021). This compensation should be viewed as a major conflict with our ability to be unbiased, more specifically: This communication is for entertainment purposes only. Never invest purely based on our communication. For more on trading risks read our policy statement by clicking here.
