Stocks are roaring right now, but it’s going to be the smart investors who always come out on top. I want you to be one of those investors, with real profits, not just worthless paper.
The problem: To stimulate economic recovery from the Covid debacle, central bankers worldwide have aggressively cut interest rates, so low in some cases that real rates are now negative.
This raises the likelihood of inflation.
Then, even as businesses reopen and a sense of normalcy returns geopolitical tensions continue to drive fear and uncertainty.
Fear – Uncertainty – Inflation?
Good for gold? Nah…
GREAT for gold.
So we’ve been taking a hard look at gold stocks… And Inca One Gold Corp has just come on our radar. It’s a Canadian pure-play gold processing company poised for stellar growth in Peru, which is one of the most investor-friendly mining jurisdictions in the world.
We’ll dive into Inca in a minute, and why we think it’s the gold stock for the guys that don’t normally do gold stocks, but first… what makes gold such a profitable play in times like these?
THE CASE FOR GOLD (You Can Skip This If You Already Know)
Gold is the most trusted safe-haven asset in the world.
The yellow metal has played this safe-haven role since ancient times, when it was the currency of choice.
Gold is seen to protect against long term inflation and economic uncertainty.
It doesn’t devalue over time and the gold price is driven more by investor sentiments than by traditional demand and supply forces.
Furthermore, investors now use gold to diversify their portfolios because, historically, the gold price has been largely uncorrelated with equities.
So, as the world settles into what could be a new economic and geopolitical uncertainty, gold stocks are poised to advance.
A Gold Stock For Guys That Don’t ‘Do’ Gold Stocks
These days, the most popular ways to invest in gold are: buying exchange-traded funds (ETFs), buying the stock of a gold mining company, or buying physical gold.
Yet there’s an often-overlooked way that could give you more risk protection than any other gold exposure, aside from physical holdings.
This is to invest in the stock in a pure-play gold ore processing company.
Although investing in gold miners and gold processors are both speculative, processors have lower downside risks because of the following advantages:
- No exploration risks
- No extraction (or mine development) risk
- Lower security of mineral supply risk because they are not dependent on a few suppliers while miners are dependent on a few mines
- Lower financial risk because they don’t have to depend on a few customers while miners often deal with few external millers.
Now, integrated mining giants often dominate the gold mining sectors of most countries.
So, independent gold processors often don’t get the spotlight.
However, in Peru, which is one of the biggest and most active small-scale mining jurisdictions in the world, Inca One Gold has leveraged enabling legislation to establish itself as a dominant, pure-play gold processing company for small-scale miners.
INCA ONE: LEADING PERU’S UPSURGE IN INDEPENDENT GOLD PROCESSING
Peru’s mining industry is key to the country’s economic prospects.
According to Fernando Pickman, Senior Partner at the Lima office of global law firm Dentons, “Mining represents almost 10 percent of GDP and 60 percent of exports of the country.”
Peru has 4 percent of the world’s gold reserves and 18 percent of silver reserves, according to the Ministry of Energy and Mines.
Little wonder the country is Latin America’s biggest gold producer.
Yet, unlike some other countries, Peru pays big attention to small-scale mining, which accounts for an estimated 20 percent of all gold production.
It wasn’t always that way, but in recent years the government took increasingly strong steps to formalize and regulate small-scale and artisanal miners, and then enabled permitted mineral processing plants to serve them.
Now, under Peruvian law, small-scale miners must send their ore to licensed processing facilities.
Leveraging this law and a series of strategic acquisitions that started in 2013, Canadian-based Inca One Gold Corp. emerged Peru’s largest public trading processor of gold ore from legal small-scale miners.
Inca One is now a small-cap, gold producer operating two, fully permitted, gold ore processing facilities in Peru.
The key factors that make Inca One a compelling investment are: Limited Competition, Enabling Legislation, High Growth Potential, Environmental Impact Sensitivity, and Credible Management.
Inca One’s closest competitors in the gold processing space are Minera Laytaruma S.A. and Dynacor.
There is a high barrier to entry for new entrants into small-scale mining processing because of the lengthy and cumbersome process of constructing and permitting a new facility.
Peru’s approval process will likely become more stringent, and regulators are likely to shut out newcomers, preferring to stay with companies like Inca One that are already operational and trusted.
Furthermore, successful new entrants could find it difficult to build strong supplier relationships like those Inca One has forged with thousands of legal small-scale miners in the region.
By law, authorized small-scale miners must send their ore to only government approved toll millers like Inca One.
Being the biggest processor also gives the company a favored status with regulators – the too-big-to-fail syndrome.
HIGH GROWTH AND PROFITABILITY PROSPECTS
Inca One began life in Peru as a pure exploration company, but a successful pivot to toll milling through acquisitions primed the stock for more upside.
In June 2013, Inca One acquired Chala One, its first toll milling facility. Shedding light on the reason for the move, Edward Kelly, president and CEO of the company said, “The toll milling model provides cash flow and growth opportunities regardless of the gold price and regardless of equity market conditions. We intend to aggressively grow Inca One through the acquisition of cash flowing assets.”
Then in December 2013, the company terminated its exploration business and pivoted into a primary gold processing company. “If we want to lower risk and maximize leverage for our shareholders, we must concentrate our efforts in expanding our toll milling business,” Kelly said about the move.
Since pivoting it has made further acquisitions to grow its business and gain a significant share of the market.
So, Inca One’s growth strategy is to use synergistic acquisitions to grow its processing capacity and thus grow revenue.
Since 2015, when it started commercial operations in Peru, it has grown the top line by about 20 percent per annum.
Its plants are currently operating at about 35% of capacity so there’s plenty of room to increase production and sales.
In May 2020, commenting on the company’s growth prospects, Edward Kelly, president and CEO said, “Last year we operated at approximately 150 tonnes per day (tpd) and we produced 25,000 oz (ounces) of gold. We have 300 tpd to fill and we expect to do that over the next 12-24 months which could potentially take us to 75,000 to 80,000 oz.”
Because the company now has all its fixed cost infrastructure in place, increasing production should grow profits exponentially due to economies of scale.
On a sector level, Peru’s small-scale mining sector has grown over 80% since 2001 and is worth over USD1 billion dollars.
Given that Peru has even more silver reserves than gold, and silver processing uses the same processing infrastructure as gold, silver processing could be a growth area in the future.
ENVIRONMENTAL IMPACT SENSITIVITY
Being home to a section of the Amazon Rainforest, the world’s largest tropical rainforest, makes Peru sensitive to environmental scrutiny.
And because small-scale mining activities in Peru had a reputation for widespread environmental damage, Inca One’s processing plants are strategically located in the desert along the Peruvian coast to minimize their environmental impact.
Furthermore, the government continuously monitors the plants to ensure ongoing compliance with environmental safety standards.
CREDIBLE MANAGEMENT TEAM
According to the company, Inca One has assembled an operating team with deep industry knowledge and roots in Peru.
As global concerns about the COVID-19 pandemic recede and countries reopen their economies, high unemployment and rising geopolitical tensions continue to drive uncertainty.
Consequently, investors are moving into gold for its safe-haven status and gold stocks are poised to advance in the near term.
However, you may not be keen on physical gold holdings.
Therefore, consider an investment in Inca One Gold, a Canadian-based gold producer operating two, fully permitted, gold ore processing facilities in Peru.
As the largest gold processor of ore from legal small-scale miners, Inca One commands a significant share of the Peruvian toll milling market.
Its processing facilities currently operate below capacity so there’s ample room to increase production and grow both the top and bottom line.
Inca One Gold Corp. trades in the U.S. (OTCMKTS: INCAF), Germany (Frankfurt:SU9), Canada (TSX.V:IO), and Chile (SSEV:IOCL).
Please read our full disclaimer by clicking here. Statements regarding the Company which are not historical facts are “forward-looking statements” that involve risks and uncertainties. Such information can generally be identified by the use of forwarding-looking wording such as “may”, “expect”, “estimate”, “anticipate”, “intend”, “believe” and “continue” or the negative thereof or similar variations. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements due to factors such as: (i) fluctuation of mineral prices; (ii) a change in market conditions; and (iii) the fact that future operational results may not be accurately predicted based on this limited information to date. Except as required by law, the Company does not intend to update any changes to such statements. Caddy Stocks believes the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included herein should not be unduly relied upon. This article shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state.