My top stock pick for July is Sonoro Gold, which trades on the TSXV as SGO and on the US OTC under the symbol SMOFF. As you can see from the chart below, it appears to be starting to break out and is doing so after gold took a tumble last month and most other mining stocks got hit too in a correction.
The best way to invest in a sector is to buy the leading stocks of the sector, after the sector has a dip, because on rallies those stocks tend to go up the most. But how do you know what is a leading stock?
Typically the stocks that hold up the best in a sector correction become the big leaders after the correction is over. This is exactly what shares of Sonoro did in June, because in that month, as gold fell from over $1900 an ounce to $1750 an ounce and the GDX gold stock ETF pulled back even harder, shares of Sonoro finished the month near even.
On the bottom of this chart is the SGO/GDX relative strength plot. It compares the price action of Sonoro shares with that of the GDX gold stock ETF. It is in an uptrend to show us that SGO is putting on strong relative strength compared to the GDX. It is such technical chart factors that lead to strong sustainable rallies, because when a stock becomes a sector leader it tends to be one for at least several months, and sometimes even for years.
There are fundamental reasons that explain what is happening. Sonoro Gold is a small cap mining stock with a market cap of around $26 million USD. Many small cap exploration stocks have similar market caps, but Sonoro is an advanced exploration stock with properties actually on track to go into production. The company just has much more going on for it than most of its peers.
Over the past few months, the company also has been executing its plan that it came into 2020 with flawlessly. In January, I made Sonoro Gold my top stock pick for that month. As I wrote then, Sonoro is “poised to become a brand new gold producer before the end of this year. The company plans to develop a heap leach mining operation (HLMO) at its flagship property, the Cerro Caliche gold project, located in mining friendly Mexico, and utilize the generated cash flow to fund further exploration and development of its properties. Sonoro has a highly experienced management team of mining, business and finance professionals with a successful track record in discovery through to resource development and production.”
What also was key for my January view was that buying Sonoro would mean getting ahead of a drill program that it was planning to launch. That drill program has since brought some positive results reported in several press releases by the company and now shareholders can look forward to an updated 43-101 technical report, which could be out in just a few weeks. This could be one reason the stock held up like a rock while other gold stocks fell last month.
In a June press release the company reported, “assay results from the final nine RC drill holes, completing Phase Three of its drilling program at the Cerro Caliche gold project, located in Sonora State, Mexico.” The “results indicate a coalescence of the two zones over a minimum length of 400 meters which may prove to have significant and positive economic implications for the Company’s proposed Heap Leach Mining Operation (HLMO),” states the release.
Here is a map that was inside the press release.
The press release also stated, “Two independent NI 43-101 technical reports, scheduled to be filed in July 2021, will provide valuable information as to whether the identified mineralization is sufficient to support a proposed HLMO with an initial operating capacity of up to 15,000 tons per day (tpd). As previously announced, the Company engaged D.E.N.M. Engineering Ltd. to prepare a Preliminary Economic Assessment (PEA) and Micon International Ltd. to prepare a mineral resource estimate. The mineral resource estimate will include all prior and current exploration data up to April 2021. To date, the Company has drilled and assayed results from over 34,500 meters of drilling, including over 25,000 meters of new drilling since September 2020. When combined with historical data, total exploration at Cerro Caliche totals over 47,500 meters, 433 drill holes and 9,365 surface samples.”
Kenneth MacLeod, Sonoro’s President and CEO added, “We have reached a watershed juncture in the development of Sonoro, as we are now making the transition from an exploration company to our aspirational goal of becoming a gold producer in early 2022. We are grateful for the support of our shareholders over the past three years as we strive to make Cerro Caliche the next mining success story in Mexico.”
NI 43-101 technical reports are milestone events for small cap mining companies. Buying SMOFF shares NOW gets ahead of this coming report. The report has the potential to complete Sonoro’s transformation from being a simple gold exploration company into a new emerging gold producer. There are few stories like this in the mining space right now and I believe that is the likely reason why SGO/SMOFF shares are becoming a sector leader, having held up like a rock while the GDX pulled back hard and the price of gold itself fell over 160 points in a correction, thereby providing a simple risk/reward entry point for new buyers, in my view, because the best time to buy new stocks in a sector is AFTER the sector pulled back.
-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.
