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The Greatest Gold Trade Ever

America’s Next 100-Bagger Gold Discovery

One of my favorite movies of all time is The Big Short.

The backdrop, of course, is the 2007-2008 financial crisis.

Like all crises, the financial crisis provided opportunities for those who had the foresight to position early and the liquidity necessary to ride out the volatility.

Enter John Paulson.

Paulson, then a hedge fund titan, placed a large bet against subprime mortgages. The result? He netted nearly $20 billion. What he did next is almost as interesting to me.

In 2020, he decided to take his own money and start a family-focused fund that he would lead.

Fast forward a few years, and the billionaire known for his “Big Short” now has a “A Big Long.”

It’s a world-class gold play with a critical metal kicker right here in the U.S.

And Mr. Paulson has decided to own over 39% of this company, which is positioned perfectly to capture the coming gold bull market and provide him another impressive windfall.

Perpetua Resources (TSX: PPTA) (NASDAQ: PPTA)

Perpetua Resources controls the world-class Stibnite Gold Project located in the historic Stibnite-Yellow Pine mining district in central Idaho.

The company has consolidated ownership of this important past-producing gold district under one owner for the first time in its history.

Perpetua began trading in July 2011 after a combination agreement with Vista Gold, which resulted in the combination of the Hangar Flats, Yellow Pine, and West End deposits, which collectively form the flagship “Stibnite Gold Project."

Panorama looking north. Stibnite Pit (right center), West End Pit (center), and Yellow Pine Pit (left background)

With a multimillion-ounce high-grade open-pit gold resource already defined, important antimony credits, and significant room for further growth, Perpetua’s Stibnite Gold project is one of North America's premier development stories and, in my opinion, the best gold mining project not currently owned by a major producer.

The Stibnite gold project currently boasts 6 million gold ounces across all categories, the potential to produce over 300,000 ounces of gold per year for at least 15 years, and excellent exploration potential.

More on the exploration potential later, but be clear that there is a lot more gold at Stibnite than the 6 million ounces outlined — an important point that will be obvious to potential buyers of the project and one that CEO Laurel Sayer will be able to leverage in any potential negotiation.

In addition, the company has partnered with Ambri to identify opportunities to reduce carbon emissions in operations through renewable energy combined with battery storage. The company has an agreement in place to help supply antinomy and as a result Ambri secured $144M from Reliance Industries, Paulson & Co., Bill Gates and others to accelerate growth and recently announced a tripling of its manufacturing capacity in the U.S.

I had the pleasure of visiting the project several years ago. The size, grade, metallurgy and exploration potential are all world-class.

Management

Perpetua is led by President & CEO Laurel Sayer.

Laurel is based in Boise, Idaho and has served as President and CEO of Perpetua Resources since 2016. Before her appointment as CEO, Ms. Sayer served on the Perpetua Resources Corp. Board for two years.

Prior to her appointment to the Perpetua Resources Board, she worked as the executive director of the Idaho Coalition of Land Trusts (ICLT), which is dedicated to supporting and advancing private land conservation in Idaho. Ms. Sayer also spent more than two decades working on policy matters with Idaho Congressman Mike Simpson and Idaho United States Senator Mike Crapo, with an emphasis on natural resource issues.

Share Structure & Cash Position

As of the latest reporting period the company has approximately 63.1 million shares outstanding — 66.45 million fully diluted — with shares currently trading at C$4.00 per share, giving the company a dirt-cheap market cap of approximately C$264 million.

Major shareholders include the aforementioned John Paulson, who owns 39.2% of outstanding shares and Sun Valley Gold, which recently increased its holding to 9.2% of outstanding shares.

Flagship Stibnite Gold Project

The world-class Stibnite gold project boasts a U.S. gold reserve of 4.8 million ounces of gold with 148 million pounds of antimony (6 million ounces of gold and 206 million pounds of antimony in the M&I categories in the FS) and boasts the lowest quartile all-in sustaining costs in the sector.

Antimony is listed as one of the 50 critical minerals by the U.S. Government and is vital to U.S. national security supporting the transition to a green economy.

The Stibnite gold project is expected to produce enough antimony to meet approximately 35% of U.S. annual demand over the next six years of operations. The U.S. has no domestic antimony production.

The project has a current market cap of only 16% of its $1.9 billion NPV using an $1,850/oz gold price. There is a significant discount being assigned to the boring permitting phase the company has been advancing through and the re-rating from a permit approval will be substantial.

The FS outlined average annual gold production of 465k ounces at AISC of less than $450/oz for the first four years of the project with a payback period of 3 years. Life-of-mine costs come in at an impressive $636/oz. That is one profitable gold mine.

The Stibnite project is located in a past-producing area near the historical town of Stibnite.

Since the late 1920s, gold, silver, antimony, tungsten, and mercury mineralized materials have been mined in the area by both underground and, later, open-pit methods, creating numerous open pits, underground workings, large-scale waste rock dumps, heap leach pads, spent heap leach ore piles, tailings depositories, a mill site, three town sites, an airstrip, and other disturbances, some of which still exist today.

Antimony-tungsten-gold sulphide milling operations ceased in 1952 as a result of lower metal prices following the end of the Korean War, while mercury operations on the Cinnabar claims continued until 1963. Exploration recommenced in 1974, followed by open-pit mining and seasonal on-off heap leaching from 1982 to 1997. Midas Gold, now Perpetua, commenced its exploration activities in 2009.

Restoration Opportunity

While the project area generated substantial economic benefit for nearly 100 years, it also left significant legacy environmental issues. There have been several cleanup efforts in the past by federal, state, and private groups to mitigate the damage, but there remains significant impact from the damage caused by past operators.

Included in the damage left behind are the barriers to fish migration. Mention the words “river” and “fish” in the same sentence as a mining operation to a potential investor/speculator — or analyst, for that matter — and most stop listening to the merits of the project. In this case the restoration plans have actually been a main driver of bipartisan support for the project.

Perpetua has developed a plan to restore much of the site by removing existing barriers to fish migration and re-establishing salmon and steelhead fish passage, removing and reprocessing unconstrained historic tailings, reusing historic spent ore material construction, restoring stream channels, and implementing sediment control projects such as repairing on Blowout Creek, as well as extensive reforestation of the project area.

The bottom line is that without Perpetua coming in and re-establishing the salmon and steelhead fish passage, it won’t happen. Initially the company planned on re-establishing the fish passage at the end of the mine-life. After several discussions with local stakeholders and the possibility that the mine could produce for at least the 12 years outlined in the PFS (15 in the FS) — and possibly many more due to the exploration potential — Perpetua decided to create the fish tunnel during the construction phase to get the fish swimming upstream.

Unlike most projects in the U.S. the Stibnite project is actually on the government’s good side as evidenced by the more than $75 million in Department of Defense awards granted to complete environmental and engineering studies necessary to obtain a Final EIS, Final Record of Decision and other ancillary permits.

Funding allows Perpetua to advance the construction readiness of the Stibnite Gold Project while the company continues through permitting.

Tax Revenues

Taxes that would be paid directly by Perpetua over the life of the project, based on the assumptions in the PFS, are estimated at approximately $329 million in federal corporate income taxes, and $86 million in state corporate income and mine license taxes. Again assuming only a 15-year construction and operating life.

Additional indirect and induced taxes that result from the company’s activities that would be paid by other taxpayers, based on the assumptions in the PFS, are estimated at approximately $177 million in federal taxes (including payroll, excise, income, and corporate), and $131 million in state and local taxes (including property, sales, excise, personal, corporate, and other).

Total direct, indirect, and induced taxes are therefore estimated at $506 million in federal taxes and $218 million in state and local taxes, representing a significant contribution to the economy during the 15-year construction and operating life of the project.

Summary & Buy Recommendation

The FS outlined average annual gold production of 465k ounces at AISC of less than $450/oz for the first four years of the project with a payback period of 3 years. Life-of-mine costs come in at an impressive $636/oz.

There is significant blue-sky potential within the existing deposits — which are all open to expansion — and spread out among multiple exploration targets.

The reserve base is world-class, cash costs are world-class, and the amount of targets at Stibnite is impressive. Everything from small tonnage, high-grade targets like Scout, Garnet, and Upper Midnight to bulk-tonnage prospects like Cinnamid-Ridgetop, Saddle-fern, and Rabbit.

In all there are approximately 40 prospects within a 25-sq. km. area. There is literally more gold at Stibnite than the company knows what to do with.

Some of the brightest minds in the investment world including John Paulson and the folks at Sun Valley agree, and with an emerging new gold bull market, I believe the risk-reward proposition is very favorable for investors who have at least a one-year timeline to allow for the project to get permitted and/or bought out.

Majors need to replace depleting reserves, Stibnite is one of the few projects that has the kind of scale that attracts a major. The exploration upside is world-class and whoever puts this project into production could drill it for decades. Whether a major comes knocking now or later, if the project is sold, it will be sold at a much higher premium to today’s price.

Perpetua should be considered a long-term hold for investors/speculators looking for a leveraged play on a higher gold price.

Shares are up substantially from 52-week lows but for patient investors/speculators still presents an excellent entry point.

It’s been a long road to get to this stage in the permitting process but in the next 6-12 months I believe the company gets across the finish line and sees much, much higher prices.

Let’s get it!

Gerardo Del Real
Editor
,
Junior Resource Monthly