President’s Letter
During the past year gold has rallied over 25% and delivered strong performance against other asset classes. The gold price usually moves in the opposite direction of the US dollar. Gold’s recent rise is happening despite the strength of the US dollar against major currencies and the headwind of Wall Street testing record levels.
After a prolonged bear market, the bid for gold equities returned with the GDX and GDXJ up 46% and 49% this year. Currently, Chesapeake’s share price has increased 57% in 2020. The global mounting debt, fiscal stimulus and negative yields are amongst the fundamental drivers for the next move in gold’s secular bull market. Financial risk cannot be made to disappear, it can only be shifted to the capital system and inherent currencies.
With the gold price above $1500 per ounce during the past two years, M&A activity has been quiet despite miners generating significant free cash flow. Major impairments, write-downs and the value destruction legacy from the aggressive M&A frenzy of the last gold boom are cautious lessons in the board rooms. Producers have shifted from growth strategies to margin preservation. To attract generalist investors, the producers are demonstrating the profitability of the business and rising dividends leveraged to higher gold prices. Thus far, M&A activity has focused on acquiring producing assets to create
mega-gold companies and larger intermediate producers.
Despite higher gold prices, global exploration budgets have declined almost 30% this year. Industry leaders acknowledge a “serious reserve crisis” is looming for the sector. Production profiles are under pressure which makes M&A inevitable during the next few years. Metates world class reserves of over 18 million ounces of gold, 525 million ounces of silver and 4 billion lbs of zinc places Chesapeake as a potential take-over candidate.
Since the 2016 pre-feasibility study (PFS), alternative proprietary processes have been developed to oxidize sulfide ores. This year Chesapeake has been undertaking metallurgical testwork to determine if a new process can simplify the PFS flowsheet with similar metal recoveries and operating costs. Success contingent, Metates mine plan could realize significantly lower capital costs, scalable production profile and greatly improved project economics.
Chesapeake has a strong balance sheet with $35 million in cash and marketable securities. As always, I thank our shareholders for their support and trust. We look forward to reporting on a new development scenario for Metates with a leading-edge technology. Moreover, strategic opportunities may also arise from new process technologies in the mining industry.
CHESAPEAKE GOLD CORP.
P. Randy Reifel
President
November 9, 2020 |
