Gold Investing: Why Inca One’s $18.5 million deal with PPX Mining Corp. demonstrates the growth potential of gold stocks in a bullish gold market

It’s a good time for gold & silver investors. As the dollar continues to struggle the Bank of America’s predictions that gold could hit $3,000 are looking more and more likely. This week gold has been testing the $1,900 mark and looks set to break through. This is fertile ground for gold stocks like Inca One Gold Corp. (TSXV: IO.V, OTC: INCAF, FRA: SU92.F) who can take advantage of price increases to help fuel their business. It is especially good news in light of the company’s recent announcement of a landmark deal with PPX Mining Corp. (TSX.V: PPX.V) that could be worth $18.5 million. 

Why investors with gold stocks benefit doubly from price rises 

A lot of resource and commodities investors opt to invest directly in gold, which on the surface makes sense. As gold prices rise their portfolio increases. The disadvantage of this approach is that investors miss out on the increased growth potential of gold stocks, when compared to holding gold itself. 

The value of a gold stock is essentially the value of its holdings, potential output, and the actual gold it has on hand. This means that small price rises can significantly increase the overall value of the stock overnight. This allows investors to now just benefit from physical gold they hold in their portfolio, but the untapped gold resources in a company’s pocket. To help understand how this phenomenon works let’s take a look at a case study, the recent deal between Inca One Gold Corp. (TSXV: IO.V, OTC: INCAF, FRA: SU92.F)  and PPX Mining Corp. (TSX.V: PPX.V).. 

Why Inca One investors have just struck gold 

Inca One Gold Corp. is a small-cap gold producer with two fully permitted mineral processing facilities in Peru. The company has experienced consistent growth for the past three years and in 2019 processed 24,850 oz (0.94 ton) of gold, which is around 35% of the company’s total capacity. Inca One has run a number of initiatives to help build a strong relationship with artisanal & small scale miners in Peru, as well as with the Peruvian government, but it’s most recent press release reveals the true potential of the company. 

The company has signed a one year ore purchase agreement with a subsidiary of PPX Mining Corp. for 40,000 tonnes of gold-bearing material. This material needs to have a minimum grade of 8 grams of gold per tonne and the contract represents approximately 73% of 2019’s production and 25% of Inca One’s total processing capacity in Peru. This kind of boost in itself is massive, but with gold price increases the potential becomes even bigger. 

Currently the deal should be worth at least $18.5 million for Inca One. This value is set to increase as along with the price of gold. This enables investors and the company to take advantage of a more valuable deal, just by virtue of the fact that the gold involved is worth more. The best part? Inca One has another project that could further enhance the total value of the agreement with PPX Mining.

Inca One’s plans to sell gold direct to investor are a game changer

One of Inca One’s most interesting announcements of late was its intention to sell gold directly to consumers. The company is intending to open its own mint and online gold bullion store to sell the gold it processes directly to investors. This will include special limited edition coins that can only be purchased from their store. 

Why is this important? When you’re dealing with thousands of grams of gold every cent can make a major difference to your bottom line. Gold coin producers are able to take advantage of a significant premium over the prevailing gold spot price. For example the American Gold Eagle has a premium of around $71 over gold price and the Gold Maple Leaf a premium of around $49. 

To put this in context, if an Inca One gold coin has a premium of just $40, the deal with PPX mining could be worth an additional $200,000 regardless of the prevailing price of gold. Additionally this approach will help the company shield itself against large wholesalers attempting to offer sub-par bids. 

A better way to invest in gold 

In troubled times gold is definitely a safe harbor investment but it can be so much more. Gold stocks offer investors a way to hedge against the market whilst taking more advantage of rising gold prices. This is particularly true in the case of companies like Inca One Gold Corp. (TSXV: IO.V, OTC: INCAF, FRA: SU92.F) which are setting themselves up to become major players in the gold sector over the next few years. If investors carefully target innovative gold companies they will not only find ways to protect their portfolio, but also significantly grow it over the next few years.

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(Featured image by Michael Steinberg via Pexels)

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