Every veteran precious metals mining investor knows that the best time to invest in junior mining shares is when the sector is out of favor and market valuations are near multi-year lows. Today, the Canadian Venture Composite Index (a good proxy for the junior mining sector) is near its lowest levels in more than two years:
The TSX-V is sitting just above a key layer of support that dates to the pre-pandemic area 2018-2020.
Even though gold is still trading well above 2019 levels, the junior mining sector is as out of favor as it’s ever been with investors. Furthermore, sentiment indicators such as the Hulbert Gold Newsletter Index show that the average gold sector newsletter writer is net short today. Another excellent sentiment gauge, Jake Bernstein’s Daily Sentiment Index, recently showed that sentiment on gold and silver were near the most negative readings since the March 2020 covid market crash.
This means that we have a situation where valuations in the precious metals mining sector are low and investors are pessimistic on the outlook for the sector. It is these periods of low valuations and downbeat investor sentiment that always offer the biggest upside opportunities with the least downside risk. Sentiment is so negative on precious metals that commercial traders in silver futures just moved to a net long position. Commercial traders in precious metals futures markets are producers and very large bullion banks. These types of traders have a natural bias to use futures contracts to hedge their production or clients trading positions.
The last time commercials moved to a net long position in silver futures was in May of 2019 when the silver price was trading below $15/oz:
This is an extremely rare technical BUY signal (only the 3rd time in history that it has occurred) that has a strong track record of closely coinciding with major price lows in gold and silver. In 2019, silver proceeded to rally more than 35% in the subsequent three months after commercial traders moved to a net long position at the end of May 2019.
Today’s precious metals sector backdrop has a lot of similarities to major bottoms/turning points such as January 2016, August 2018, and May 2019 including extremely depressed sector sentiment and relatively low valuations (evidenced by the number of stocks trading at/or near 52-week lows).
Rallies from oversold sentiment extremes in the gold mining sector can be explosive. Similar to what we witnessed in 2016 when the GDXJ rose ~200% from January 2016 to its peak in August 2016:
GDXJ (November 2015 - August 2016)
Today we have one of those situations in which precious metals mining investors are so disgusted that they are even selling off the strongest stocks that have produced the best results in 2022. It's reminiscent of the famous Wall Street adage "When the time comes to buy, you won't want to."
The attractive setup in the gold mining sector today prompted me to find junior gold miners that meet several criteria:
- Strong management teams with a track record of success that are good stewards of shareholder capital.
- A defined resource with plenty of room for growth and new exploration discoveries.
- Multiple projects in a good mining jurisdiction that could generate a new gold camp.
- Enough cash in the treasury that a financing won’t be needed for at least six months.
- Drill program(s) underway, or due to commence within weeks, that could deliver significant bullish catalysts over the coming months.
- Valuation that is well supported by gold in the ground and recent drill results.
This search led me to take a deeper look at Westhaven Gold (TSX-V:WHN, OTC:WTHVF), a company I have owned in the past. I have fond memories of their discovery success with the Shovelnose Project in 2018 and I couldn't ignore the excellent drill results the company announced in April. Drilling in 2022 at the FMN Zone at Westhaven's Shovelnose Gold Project has delivered some of the best gold drill intersections drilled by any company in North America in 2022, including 23.03 meters of 37.24 g/t gold and 209.52 g/t silver in hole SN22-212.
Let's review the Westhaven Gold story and why I think it presents an attractive opportunity for investors today.
More than twenty years ago, one man began digging into historical records to learn more about the Spences Bridge Group, which is a narrow, northwest-trending belt of Early Cretaceous volcanic rocks covering nearly 3,200 square kilometers extending from Princeton to Lillooet. Geologist Ed Balon was working for Almaden Minerals analyzing several stream sediment samples collected in the area as part of a Regional Geochemical Survey when something caught his attention.
In 2004, a sampling team under Balon’s direction uncovered an outcrop of the first high-grade in-situ epithermal vein mineralization in the belt. Balon proceeded to stake the Prospect Valley and Skoonka prospects for Almaden. Almaden then optioned 65% of the Skoonka Project to Strongbow. Strongbow proceeded to conduct the first diamond drilling at Skoonka in 2005, intersecting several highly encouraging high-grade gold intervals including 20.2 g/t gold over 12.8 meters at the JJ Zone.
Exploration at Skoonka went dormant beginning in 2008 as the Global Financial Crisis took hold. A company called Westhaven Ventures acquired the project from Almaden/Strongbow in 2017 and proceeded to complete soil sampling, mapping, and prospecting that year. In addition, ground mag was completed in 2017 and airborne mag in 2018. Due to a combination of factors including the South Zone Discovery in 2018, forest fires, and a natural disaster that wreaked havoc on different areas of the SBGB in 2021 (wiping out the town of Lytton), the Skoonka Project has been untouched since 2018.
That state of dormancy changes this year as Westhaven mobilizes a drill crew to complete roughly 3,000 meters of drilling (10-12 diamond drill holes), beginning later this month. Drilling at Skoonka stands to open up the map across Westhaven’s carefully selected assets in the Spences Bridge Gold Belt:
Skoonka is the closest project to the Fraser River, a river that experienced a placer gold rush beginning in 1857 that eventually saw millions of ounces of gold extracted from the Fraser and nearby streams. In 2011, Westhaven Ventures was founded by Gren Thomas and his son Gareth with a sole focus on assembling the most prospective camp scale property package in the Spences Bridge Gold Belt.
In the fall of 2017, Westhaven was preparing to commence a diamond drill program at the Skoonka Project. However, forest fires across the province caused delays in permitting the project so Westhaven decided to shift its drilling plans to its Shovelnose Project near the town of Merritt, BC. The rest of the story is history. In September 2018, Westhaven drilled two major discovery holes at the South Zone of the Shovelnose Project. Since then, Westhaven has produced a maiden resource estimate for Shovelnose totaling more than 1.1 million ounces with a majority of those ounces in the higher confidence “indicated classification” at an average grade of nearly 2.5 grams/tonne gold.
Earlier in 2022, Westhaven also delivered the best ever gold drill intercept at Shovelnose when it drilled Hole SN22-212 (23.03 meters of 37.24 g/t gold and 214.70 g/t silver) at the FMN Zone. FMN Zone drilling in 2022 is not included in the 1.1 million ounce resource total. In fact, based on results to date, it’s quite likely that FMN can hold an additional 300,000-400,000 ounces of high-grade gold and silver.
Furthermore, many geologists have noted that Shovelnose presents a compelling analog to the multi-million ounce high-grade Pajingo Deposit in Australia.
Pajingo Long Section Map:
Shovelnose Long Section Map:
Pajingo is a vein field (multiple veins similar to Shovelnose) in which there are one or two primary veins (like vein zone 1 or 2 at Shovelnose) that host most of the high-grade ounces of gold. Shovelnose and Pajingo both have high grade zones within the larger vein zone, enveloped by extensive lower grade bulk tonnage zones. Pajingo has produced more than 3,500,000 ounces of gold to date with multiple zones hosting hundreds of thousands of ounces of gold at average grades between 12 to 15 g/t gold.
While Westhaven is still very busy drilling with two diamond drill rigs at Shovelnose, management has decided it’s time to drill the Skoonka Project. So far, British Columbia has been lucky with a relatively light forest fire season and Westhaven has made plans to mobilize a drill rig to Skoonka within the next two weeks. This will be the first drill program at the project since 2007.
Westhaven plans to continue exploring the high-grade gold mineralized vein system at the JJ Zone - the JJ Zone is where Almaden intersected 12.8 meter of ~20 g/t gold in diamond drilling in 2005. In addition, Westhaven will step out to the southwest along the mineralized trend (JJ-Bermuda Trend) to test significant soil geochemical anomalies. At the northern end of the Skoonka Property there is another gold mineralized trend (Deadwood-Backburn Trend) with multiple confirmed gold showings. This season, Westhaven plans to focus on the JJ-Bermuda Trend in order to expand the confirmed strike extent of the gold vein system that was intersected 16-17 years ago.
Drilling success at Skoonka this fall could open up the map for the entire Spences Bridge Gold Belt by making them much more attractive exploration targets. This includes Westhaven’s other gold projects Skoonka North and Prospect Valley.They were strategically selected due to their geographic locations along the belt and prospecting work, which generated multiple gold in soil anomalies that are characteristics of the top of a fertile low sulphidation epithermal system. Drilling during 2006/2007 at Prospect Valley returned multiple impressive gold intercepts including 45.70 meters of 1.57 g/t gold and 61.40 meters of 0.70 g/t gold. Meanwhile, the Skoonka North Project boasts the highest gold silt samples on the entire Spences Bridge Gold Belt with 594 parts per billion (ppb) Au, 383.7 ppb Au, and 131.3 ppb Au. Furthermore, Skoonka North has seen limited exploration work and the project is yet to be drill tested.
It is still early days for gold exploration in the Spences Bridge Gold Belt, and Westhaven has the prime real estate. With drilling ongoing at Shovelnose and drilling set to commence at Skoonka within a few weeks, Westhaven will have a busy winter with plenty of drill results and news flow for investors to digest. With a 1.1 million gold resource at Shovelnose and today’s US$43 million market valuation (~137 million shares outstanding), Westhaven shares offer investors an excellent way to bet on headwinds turning into tailwinds for the gold sector.
From a low of $.095 in January 2018, WHN shares rose more than 1,000% to a peak of $1.42 per share in December 2018. The catalyst for this meteoritic rise was the South Zone Discovery at Shovelnose in Q4 2018. However, it was depressed sentiment and the low valuations WHN was trading at in early 2018 that offered such explosive upside potential once the company reported stellar drill results (including 17.70 meters of 24.50 g/t gold and 107.92 g/t silver in hole SN18-14).
Drilling success at Skoonka this winter could deliver a similar upside move to the one we witnessed and benefited from in 2018.
Disclosure: Author owns WHN.V shares at the time of publishing and may choose to buy or sell at any time without notice. Author has been compensated for marketing services by Westhaven Gold Inc.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.