To The Moon

Summary

• GoGold Resources Inc. receives a "Hold" rating for its shares.
• The company's production and revenue are improving thanks to higher metal recoveries at the Parral Tailings mine in Chihuahua, Mexico.
• GoGold Resources Inc. targets growth in Jalisco, Mexico with its Los Ricos project.
• The company is making good progress on both fronts, supported by promising prospects for precious metals and copper prices. As stocks correlate with commodity cyclicality should see further price rallies.
• The outlook is rosy for the precious metal as a portfolio hedge against economic slowdown and geopolitical tensions. Copper is also expected to have its prices well supported by demand exceeding supply.

Ravitaliy

A “Hold” rating for shares of GoGold Resources Inc.

GoGold Resources Inc. (OTCQX:GLGDF) (TSX:GGD:CA) is a Canadian silver and gold producer with over 15 years of precious metals mining and exploration experience. The company operates the Parral Tailings mine, located 93 km southwest of Camargo, Chihuahua, Mexico. There, the company produced 375,745 silver equivalent ounces (or SEOs) in Q1 2024 (which for GoGold corresponds to the second fiscal quarter of 2024) at $24.20 in adjusted all-in sustaining costs per silver equivalent ounce (or "AISC/SEO").

How the company is Performing

Although production was still 6.1% lower year-on-year and AISCs/SEO were higher (up 22.5% year-on-year), SEO production improved in calendar Q1 2024 compared to the previous three quarters: To recover more ounces of silver and gold, a SART-zinc circuit technology was recently commissioned at the gold cyanidation plant, resulting in the first quarterly zinc production of 92 tonnes. As operations progress, further positive production results await because the implementation of the technology aims to achieve high recovery rates. Through the SART (or “sulfidation-acidification-recycling-thickening”) process, the metal is precipitated as a commercial concentrate, and the remaining free cyanide is returned to the gold mine cycle.

Source: GoGold Resources Inc. Quarterly Financial and Operating Reports

GoGold was able to sell more ounces of silver equivalent in calendar Q1-2024 compared to the previous year: 374,140 SEOs or 5.2% more than 355,741 SEOs in Q1-2023, and these sales volumes combined with higher commodity prices as " realized silver price” was $23.90/oz., or 11.7% higher year-over-year, has led to revenue of $8.9 million, a growth of 17.5% year-over-year. GoGold achieved a net income of $1.3 million or GAAP EPS of $0.004 in calendar Q1 2024 (or fiscal Q2 2024).

GoGold Resources Inc. Targets Growth in Jalisco, Mexico

The following factors are expected to increase total cash and short-term investments of $80.8 million (as of March 31, 2024) boosting the chances of the Los Ricos Project, GoGold's mineral target in the Mexican state of Jalisco, to establish silver equivalent production. Los Ricos has 186 million ounces of silver equivalent in measured and indicated resources and 87 million ounces of silver equivalent in inferred resources. The assets consist of Los Ricos North and Los Ricos South, and their preliminary economic assessments resulted in a combined total NPV (“Net Present Value”) of $871 million or $2.65 per share, given that there are 328.84 million shares outstanding of GoGold Resources Inc. As long as it remains significantly above the current share price, NPV can provide an additional share price upside catalyst when the precious metal is in an uptrend mode. The Los Ricos South project says an 11-year mine life, 50-50 underground/open pit mining 8 million ounces of silver equivalent per year at AISC of $9.02/oz. The Los Ricos North project says a 13-year mine life, 75% oxide in open pit and 25% from separate sulfide open pit, recovering about 8.8 million ounces of silver equivalent per year at AISC of $9.68/oz. The final feasibility study and mining permit for Los Ricos South in the first half of 2024 will support a construction decision and also pave the way for Los Ricos North. The first power and water infrastructure are expected to be commissioned in late 2024. External capital is needed, but as the company reports, potential lenders seem to be attracted by the prospects of the project, so raising the capital shouldn't be difficult. It is reasonable to expect the project to gain momentum when the Fed finally starts cutting interest rates this year, thus facilitating access to credit.

The Price of the Metals Will Be Crucial

Meanwhile, the SART zinc circuit will generate a monthly cash flow of $500,000, with a quick payback of the initial investment as early as this year, according to the company's plan, and subsequently benefit the company's finances and the advancement of growth projects.

Additionally, in the most likely scenario, silver and gold prices appear to have a positive outlook to develop under current conditions, and by supporting GoGold's outputs, the combination should generate useful cash flows for ongoing operations and growth projects. As a precursor to cash flow, which is fundamental to GoGold's metal projects, higher revenues cannot but act as an effective share price driver on the stock market. However, as a strong determinant of revenue, the increase in metal prices is really crucial, as it was very influential even before the improvements in SEO volume due to the higher metal recovery. Although the past is no guarantee of future results, it is still important because it serves as a basis for future expectations. This is the logic that mostly seems to drive the GoGold stock market as well.

The higher price of the metal improves the profitability profile of the company and gives a greater chance of success to the growth projects. It is no coincidence that a higher price of the metal has been accompanied by strong increases in GoGold's share price in both the US and Canadian markets, leaving the stock significantly revalued by the market.

How Higher Metal Prices Worked with GoGold Resources Inc.

Pushed by investors purchasing physical gold to hedge against the risk of an economic slowdown triggered by the US Federal Reserve (or Fed)'s 'higher-for-longer' policy on interest rates to curb inflation, the gold spot price (XAUUSD:CUR) rose sharply from late February this year. The price of the security increased nearly 14% to the current $2,327.02/oz., up from $2,045.46/oz. on 29 Feb. What drove gold prices up so fast: After gold prices were close to their best monthly gain since October 2023 in late March, it became clearer that it was not really expectations of a first Fed rate cut but fears of a "potential recession scenario" that fueled the metal's rally, as investors worldwide sought the metal as a safe-haven asset, helping it reach a record high of around $2,450/oz in mid-May 2024.

Silver has also performed strongly over the past three months, boosted by artificial intelligence hype as well as expectations of robust industrial demand for energy transition programs, and although not as much as gold, hedging purposes are also driving demand for the gray metal. Among industrial metals that benefited from the energy transition to reduce CO2 emissions, silver gained new momentum and because its price was very cheap compared to gold, it had impressive room to accelerate; Around mid-April, it even reached its highest level since June 2021. Subsequently, “silver jumped to its best settlement in more than 11 years” in mid-May 2024," but according to Fawad Razaqzada, an analyst at City Index, most of its gains were due, as in the case of gold: thus, in addition to inflation and geopolitical tensions among the threats to the economic cycle, for purchases to hedge against a possible slowdown. The troy ounce is up nearly 34% and is currently trading at $30.41/ounce, up from $22.74 on February 29, according to silver spot price action (XAGUSD:CUR).

Backed by the gold and silver price rally, shares of GoGold Resources Inc. under the symbols GLGDF on the US over-the-counter market and GGD:CA on the Toronto Stock Exchange recovered very well from their 52-week intraday low of $0.70/share on February 29 and CA$0.94/share on February 26, respectively. Due to the continued optimistic sentiment towards the precious metal, the stocks continued their upward trend and significantly outperformed the US stock market so far this year. GLGDF shares rose 17.82%, and GGD:CA shares rose 20.30%, while the benchmark for the US stock market of the SPDR® S&P 500 ETF Trust (SPY) went up 11.58%.

Source: Seeking Alpha

The Positive Correlation Between Metal Prices and GoGold Resources

There is a very strong positive correlation between the precious metals and GoGold shares, but this has been the case for several years, as can be seen in the following two charts.

Below the graphic comparing GoGold shares to gold (XAUUSD:CUR) and silver (XAGUSD:CUR) prices over the past five years, two yellow and gray colored curves describe the positive correlation between respectively GoGold shares and gold prices, and between GoGold shares and silver prices. Both curves have almost always been above zero over the past five years. This means that when gold or silver prices rise, GoGold shares are also likely to be influenced by positive market sentiment. This applies regardless of the returns on the securities, which may even differ significantly from each other. A positive correlation has nothing to do with the returns that the securities have achieved over a period of time, but rather indicates the type of relationship in their movements, that is, whether they tend to move in the same or opposite directions. This type of information is very useful because combined with commodity price expectations and how the company's operations are performing, it can help make a more informed investment decision regarding GoGold stock.

Positive correlation last 5 years between GLGDF shares and gold or silver prices:

Source: Seeking Alpha

Positive correlation last 5 years between GGD:CA shares and gold or silver prices:

Source: Seeking Alpha

The Stock Price: Wait for a More Attractive Share Price

At the time of writing, the stock price of GLGDF was $1.19 per share, giving it a market cap of $386.13 million. The stock is trading at high levels relative to recent trends: the stock price is much closer to the upper bound than the lower bound of the 52-week range of $0.70-$1.31/share. Shares are also above all MA Ribbon lines.

Source: Seeking Alpha

The 14-day Relative Strength Indicator (“RSI”) of 56.93 suggests that shares are not overbought yet despite the solid rally in the stock price over the past three months.

At the time of writing, the stock price of GGD:CA was CA$1.60 per share, giving it a market cap of CA$526.14 million. The stock is trading at high levels relative to recent trends: the stock price is much closer to the upper limit than the lower limit of the 52-week range of CA$0.94-CA$1.79/share. Shares are also above any of the MA Ribbon lines.

Source: Seeking Alpha

The 14-day RSI of 54.82 suggests that shares are still far from overbought levels despite the solid share price rally of the past three months.

In the wake of the precious metal's cyclical trend, this stock is well positioned for further phases of strong upside in the coming months, supported by safe-haven demand for gold, higher metal recoveries, and progress on the Los Ricos project.

However, shares are trading high relative to recent trends and are in the upper part of the stock price cycle. Thus, there is still plenty of room for pullbacks, and prices are likely to trade well below current levels due to downward pressure from stubborn inflation, prompting the Fed to delay its first rate cut later this year, likely after September 2024. Higher for longer rates are not seen as positive for either gold or silver because owning the precious metal, which provides no income, comes with the higher opportunity cost of not owning US Treasuries, which instead provide interest income based on fixed rates.

So, the "Hold" rating is given in the sense that one might want to wait for these lower levels to emerge before considering gaining exposure to the bright outlook for gold and silver through GoGold Resources Inc.

The Bright Outlook for Gold and Silver as a Portfolio Hedge

On the prospects of the price of the metals: Personal consumption expenditures price index data for April released on Friday were about as expected -- up 0.3 percent in April and 2.7 percent in the 12 months through March, showing that inflation remains stubborn. With several Fed governors saying it will take months for inflation data to convince them that a rate cut is safe, the "higher-for-longer" stance will continue to slow the economic cycle. There have been further signs of a worsening economy recently: the University of Michigan's consumer sentiment index is at a six-month low, Trading Economics reported on May 28, 2024, as US households expect a bleak economic outlook for the coming year, as well as worsening labor market conditions with rising unemployment, slowing income growth, and persistently high interest. The consumer sector is critical to US economic growth, accounting for nearly 70% of US GDP growth: the latter continues to point to the slowest growth since the contraction in the first half of 2022, with an annualized rate of 1.3% for the first quarter of 2024 (compared to the previous estimate of 1.6%), Trading Economics reported on May 30, 2024.

Headwinds from the deteriorating US economic cycle, as well as geopolitical tensions in the Middle East and between the US and China, will continue to support the prices of the precious metals as investors use them for portfolio hedging. Headwinds from the economic slowdown are therefore another reason to anticipate continued healthy demand for gold, but also silver, for hedging purposes, which UBS Group AG (UBS) Global Wealth Management said this week it also expects, according to Marketwatch. GoGold also mines copper, and given rising demand and worsening supply shortages, the price of the red metal is expected to remain supported over the next up to 12 months, UBS Group AG (UBS) Global Wealth Management also said, according to Marketwatch.

Conclusion

GoGold Resources Inc. is a Canadian silver and gold producer operating the Parral Tailings mine located 93 km southwest of Camargo, Chihuahua, Mexico, which is expected to benefit from increased metal recoveries.

GoGold Resources Inc. is also advancing the Los Ricos project in the Mexican state of Jalisco to establish silver equivalent production; a construction decision is expected in the coming months.

The company is making good progress on both fronts, supported by promising prospects for precious metals and copper prices. Stocks that correlate with commodity cyclicality should see further price rallies.

However, stocks are trading at high price levels as they are forming the upper end of the price cycle, and the RSI suggests there is plenty of room to move lower with looming headwinds from the Fed delaying its first rate cut due to stubborn inflation.

It's difficult to predict when stocks will be attractive, and with the uncertainty affecting expectations about the Fed's interest rate decision, it may be a while before that happens. In the meantime, investors may just want to wait to gain exposure to the next rally in commodity prices through GoGold shares.

In addition, investors must be aware that these stocks have a low count of shares being traded in both markets: Average volume (3 months) of 159,266 for GLGDF and Average volume (3 months) of 778,286 for GGD:CA. Concerning GLGDF, scroll down on this Seeking Alpha page until the "Trading Data" section. Concerning GGD:CA, scroll down on this Seeking Alpha page until the "Trading Data" section.

As a rule of thumb, the number of shares in the portfolio should not exceed a quarter of the average daily number of shares traded if the stock is a low-liquidity one.

Plus, of the shares outstanding (or “S.O.”) of approximately 328.84 million, the amount of 302.38 million shares was the float, and 32.27% of the float was owned by institutions.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.