Mining investment legend Rick Rule once told me where the next great mining boom would occur. Once geologists realise what’s on offer, ‘They’ll be digging to Hades!’ he said. Today, I’ll pass the secret on to you…eventually.
But first, you need to appreciate why the immense opportunity has presented itself in the first place. Otherwise, you won’t believe me that a Canada’s worth of undiscovered ore sits below abandoned Australian mines.
The story goes a little something like this: Australians are too lazy to dig deep.
Actually, that’s pretty much it. Aussies just haven’t had to dig deep to get at valuable resources. If you go to the Perth Mint, you’ll hear the story of gold nuggets the size of eagles being picked up off the surface of the Earth itself…
OK, technology might’ve had something to do with it. Back when Australia’s gold rushes began, depth was limited by all sorts of economic and technological problems that have been solved since.
This means that we’ve badly neglected to search for deposits at depths below former surface mines or near-surface mines. With some exceptions, of course. Exceptions that prove the point.
As Rick Rule told me with a cheeky smile, ‘It took Canadians to find the Swanzo’. He was referring to ‘the Swan Zone’ — one of the exceptions that proves the point I’m trying to make.
The Fosterville gold mine is an Aussie legend (and so, of course, it’s foreign owned). It got the nickname ‘jewellery box’ for a reason. And it’s Victoria’s top gold producer even today. But its story starts in 1894…
If we skip forward a few years, and a few more, underground mining only began in 2005. Even that was from near-surface deposits.
In 2016, things got more interesting. Canadian mining firm Kirkland Lake Resources acquired the owner of the Fosterville Mine and decided to drill a little deeper, below the existing Fosterville mine. Kirkland Lake’s backers had a hunch…
And they soon found a pair of ore bodies that completely changed the fortunes of the company (and its owners). The more famous of the two zones was called the Swan Zone.
Kirkland’s share price went from less than CA$2.5 to more than CA$50 in four years as it became the lowest-cost gold producer in the world, by some estimates.
That is a story I expect will repeat itself several times in the future. The question is, who is willing to drill below depleted Aussie mines to find out if there are more Swanzos out there?
Another Canadian miner, Fosterville South Exploration [CVE:FSX], responded by surging from 66 Canadian cents to CA$3.50 with three Victorian gold exploration projects, all of which were former gold fields.
Miners say they’re giving a ‘second life’ to former mines. So, they’re raiding the Kingdom of Hades in more ways than one…
Rick Rule suspects these examples were just the beginning. The underlying logic works like this. Australia’s geography has certain similarities to Canada’s. It’s to do with Archean belts — formed before life on Earth.
Geology for Investors makes the point blatantly obvious: ‘Archean age rocks are found at the earth’s surface today in Western Australia, eastern Canada, southern Africa’. Take a peek at gold-producing regions, and things match up rather nicely.
So, the presence of similar geology implies ore bodies are likely to be found in similar forms as in Canada, where deep underground mining is well-developed and successful. That’s why the Canadians are so good at finding them in Australia…
Specifically, former mines that were abandoned once the ore body at the surface was dug up may be enticing exploration opportunities for digging deeper.
That’s why we recently relaunched the flagship publication from back when I first joined Fat Tail Investment Research. In fact, I believe it may have been our first investment newsletter in Australia. A newsletter that helped Australians grab more than their fair share of Australia’s commodity boom in the run-up to 2008. It was called Diggers and Drillers. And it is once more.
But we’re adding something extra into the mix in the New Year.
A service that concentrates on the absolute riskiest, most speculative scale of the mining cycle.
What our exploration geologist James
Cooper calls the ‘Phase One’ explorer
You see, the key challenge of exploration at depth is twofold. First, you need a lot of capital to do it. Second, the success rate is more challenging. If you stub your toe on a nugget, chances are you’re standing on a deposit. But nobody stubs their toe a kilometre below the surface. Not without building a mine first…
This creates opportunities for investors, opportunities usually held tightly to the chests of millionaires. Diversification of projects (to raise the chances of success) and funding are just too important. And so, exploration companies like to list on the stock market to get the badly needed money.
This triggers ‘PHASE ONE’ and puts them on the radar of…a certain somebody. Someone who is not a finance geek, not a fundamental or technical analysis nerd, not a macro prognosticator based on history, but a geologist. Someone who looks at what the companies might actually find.
Because the moment when companies do find something converts them from zero or even negative value to potentially having immense value, this is where the maximum investor gains are on offer. And so that’s where investors should focus if they want to profit from all this.
If you’d like to join said geologist in raiding the Kingdom of Hades with Australian companies, here’s how you can automatically enrol before the official launch of Mining: PHASE ONE next year.
Until next time,
Editor, The Daily Reckoning Australia Weekend