People have been chasing gold for centuries. The yellow metal has been a source of wealth for thousands of years and has driven people mad searching for it for just as long. Generations ago people trekked across the North American continent to stake a claim and mine for gold, risking everything along the way. Today’s prospectors may not be uprooting their families and heading out to the wild frontier with pickaxes and pans, but they may be on the hunt for gold mining stocks using their computers and screening tools.
As long as there have been gold mining stocks there have been fly-by-night operations that extracted more value from investors’ pockets than from mines, so much due diligence is needed when evaluating potential mining stocks. A company that has actual prospects and production history is the tiny Canadian company Latin Metals, Inc. (TSXV: LMS) (OTCQB: LMSQF). This company operates in South America, primarily in Argentina and Peru with projects focused on gold, copper, and lithium. Latin Metals is an exploration stage company, which means that it typically partners with large major integrated producers to extract the minerals it finds. The $6 million market cap company has been publicly traded since 2009 and was known as Centenera Mining up until 2019.
Partnerships are of paramount importance to tiny exploration companies like Latin Metals since they provide capital to fund exploration. Latin Metals has agreements with some of the largest and most well-known mining companies like AngloGold (NYSE: AU) and Barrick Gold (NYSE: GOLD). Latin Metals has optioned three projects to AngloGold in Northern Argentina which are expected to generate cash payments of over $2.5 million over the 5-year option period, of which LMS retains a 20-25% interest. With Barrick, the company has two projects in Southern Argentina expected to generate about $1.17 million in cash payments and LMS retains a 15-30% interest. All in all, the company has agreements of $30 million in non-dilutive investment in its projects, as outlined in the latest investor presentation.
With tiny companies in the mining space, investors need all the assurances they can find when evaluating possible positions. One such assurance is shareholder structure since management should ideally have a big ownership stake in the company to align their interests with shareholders. Latin Metals’ management team currently owns 49.6% of the company’s shares, so they certainly have skin in the game. Latin Metals also utilizes third-party companies to validate the feasibility of future properties, which should provide investors an additional degree of comfort, which is important given the sometimes sordid history of gold mining companies.
Diversification is another factor to consider when evaluating possible mining company investments. The market for gold and other precious metals can swing wildly in terms of price, so having operations in base industrial metals can provide an industrial component to a miner’s portfolio. Latin Metals has copper projects, mainly in Peru, in the exploration and production stages. While gold has some industrial uses, it is mainly used in the production of jewelry and for pure investment purposes, especially in times of rising inflation. For industrial use, copper is arguably the most important metal due to its use in wiring, both for plumbing and electrical.
As the world continues to build and develop, copper will be in demand as every new project, commercial, industrial, and residential will need pipes to carry water and electricity. Latin Metals currently has 8 copper mining projects in its portfolio, most of which are in the active exploration phase. Once these projects transition to the partner-ready phase and are optioned, Latin Metals will have an important secondary revenue stream that should give the company a nice balance between precious and base metals.
A small, but important component of the company’s makeup is the Lithium project in Argentina, which is in the partner-ready stage. Lithium is going to play an outsized role in the world’s transition from the internal combustion engine to the electric motor for automobiles. Lithium is the main component in the batteries that power electric vehicles, so the mineral is arguably the new oil. Gasoline-powered cars may have more than a century’s head start on the EV, but the future is unquestionably electric. Whether by consumer preference or government mandate, the bulk of new vehicle manufacturing will shift to electric within the next decade. It’s not just EV-specific companies like Tesla (NASDAQ: TSLA) that will need massive amounts of lithium, but legacy producers such as Ford (NYSE: F) and General Motors (NYSE: GM) as well since they are in the midst of corporate strategy pivots to make electric vehicles the core of their operations.
Latin Metals is tiny and thinly traded, which means investors need to do their due diligence, but the company looks to be set up for future success. The partnership with major mining concerns, a large pipeline of projects, and diversification among gold, copper, and lithium make the company one for investors to put on their watchlists.
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