This AI Company Is the Future of Gold Exploration

Gold mining is one of the very oldest human occupations. The earliest known underground gold mine, in what is now the country of Georgia, dates back at least 5,000 years, when people were just starting to develop written language.

Over the centuries, a number of innovations have emerged that disrupted and forever changed how we explore and mine for gold and other metals. Think dynamite, or the steam engine.

Lately, however, innovation has slowed. Mining companies are in cost-cutting mode, and many producers have favored generating short-term cash flow, often to the detriment of longer-term value. In last year’s “Tracking the Trends” report, Deloitte analysts observed that “miners from 50 years ago would find little has changed if they entered today’s mines, a situation that certainly doesn’t hold true in other industries.”

Consider the earth-shattering change that’s taken place in oil and gas over the past two decades. Fracking and horizontal drilling have completely revolutionized how we extract resources from the ground, making hard-to-reach oil and natural gas accessible for the first time.

No equivalent technology exists in precious metals. Some companies are now using cutting-edge technology like blockchain to improve supply chain efficiency and transparency, but to date there’s no “gold fracking” method. As a result, metal ore grades are decreasing, and large-scale gold discoveries are becoming fewer and farther between.

One company thinks it has the formula to reverse this trend. I think it could be sitting on a gold mine, pun fully intended.

Meet Goldspot Discoveries

“Some people call it ‘peak gold,’ but I tend to think of it more as ‘peak discovery,’” says Denis Laviolette, the brains behind Goldspot Discoveries, a first-of-its-kind quant shop that aims to use artificial intelligence (AI) and machine learning to revolutionize the mineral exploration business.

A geologist by trade, Denis conceived of Goldspot while serving as a mining analyst with investment banking firm Pinetree Capital. His vision, as he described it to me, was to disrupt mineral exploration as profoundly as Amazon disrupted retail and Uber the taxi business.

Central Banks Haven't Bought This Much Gold Since Nixon Was President

“We have more data at our fingertips than ever before, yet new discoveries have been on the decline despite ever increasing exploration spending on data collection,” Denis continues. “We believe Goldpsot can change that. Harnessing a mountain’s worth of historic and current global mining data, AI can identify patterns necessary to fingerprint geophysical, geochemical, lithological and structural traits that correlate to mineralization. Advances in AI, cloud computing, open source algorithms, machine learning and other technologies have made it possible for us to aggregate all this data and accurately target where the best spots to explore are.”

Hence the name Goldspot—though I should point out that Denis considers the Montreal-based company “commodity agnostic,” meaning it collects and aggregates data for all metals, including base metals, not just gold.

Moneyball for Mining

Denis has the record to back up his extraordinary claims. In 2016, Goldspot took second place in the Integra Gold Rush Challenge, a competition with as many as 4,600 worldwide applicants. After consolidating more than 30 years of historical mining and exploration data into a 3D geological model, the company was able to identify several target zones with the highest potential for gold mineralization in Nevada’s Jerritt Canyon district, among several others.

Moneyball

Goldspot’s targeting approach was a complete success. New zones were discovered by AI, validating the company’s models of finding patterns in the data that humans alone couldn’t have seen.

The exercise stands as an example of what can be unlocked when machine learning is applied to geoscience.

“When I first entered the field, geologists were still using pen and paper, and I’m not even that old,” Denis says. “We were paying for all this data, but no one was really doing anything with it.”

 

Denis’ quant approach to discovery reminds me a lot of Billy Beane, the former general manager of the Oakland A’s and subject of the 2003 bestseller and 2011 film Moneyball. Beane was among the first in sports to pick players, many of them overlooked and undervalued, based on quantitative analysis. His strategy worked better than anyone anticipated.

Although the A’s had one of the lowest combined salaries in Major League Baseball—only the Washington Nationals and Tampa Bay Rays had lower salaries—the team finished the 2002 season first in the American League West.

Similarly, Goldspot seeks to help mining companies cut some of the costs and risks associated with discovering high-quality deposits—something it’s managed to do for a number of its clients and partners, including Hochschild Mining, McEwen Mining and Yamana Gold.

And speaking of teams, Denis has assembled an impressive roster of PhDs and experts in geology, physics, data science and other fields.

But Wait, There’s More…

The company, not yet three years old, does more than assist in exploration. It also invests in and acquires royalties from exploration companies, similar to the business model practiced by successful firms such as Franco-Nevada, Wheaton Precious Minerals, Royal Gold and others.>

The difference, though, is that Goldspot has developed an AI-powered screening platform to identify the very best and potentially most profitable investment opportunities.

For this, Goldspot has also received accolades. It was one of only five finalists in Goldcorp’s 2017 #DisruptMining challenge, for “revolutionizing the investment decision model by using the Goldspot Algorithm to stake acreage, acquire projects and royalties, and invest in public vehicles to create a portfolio of assets with the greatest reward to risk ratio.”

I’ll certainly have more to say about Goldspot in the coming weeks. For now, I’m excited to share with you that the company is scheduled to begin trading on the TSX Venture Exchange early next week. The future belongs to those that can mine data and harness the power of AI, and I’m convinced that what Denis and his partners have created fits that bill. Congratulations, and the best of luck to Denis Laviolette and Goldspot Discoveries!

 

Gold Market

This week spot gold closed at $1,314.50 down $3.15 per ounce, or 0.24 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 1.00 percent. The S&P/TSX Venture Index came in off 1.75 percent. The U.S. Trade-Weighted Dollar gained 1.11 percent.

Date Event Survey Actual Prior
Feb-4 Durable Goods Orders 1.5% 0.7% 0.8%
Feb-7 Initial Jobless Claims 221k 234k 253k
Feb-13 CPI YoY 1.5% 1.9%
Feb-14 PPI Final Demand YoY 2.1% 2.5%
Feb-14 Initial Jobless Claims 225k 234k

Strengths

  • The best performing metal this week was palladium, up 3.63 percent as hedge funds boosted the net-long position to the most bullish in five weeks, CFTC data showed for early January. Gold traders and analysts remain bullish on the yellow metal for the 13th straight week, even as gold fell on a stronger dollar and weaker demand from Asia during Lunar New Year, according to the weekly Bloomberg survey. Neutral sentiment was the strongest in four weeks, but bullish respondents say gold will likely recover next week after investors in China return from the holidays. The Bullion Vault gold index, measuring the balance of buyers against sellers of gold, jumped to 52.6 in January, up from 51.8 in December. Bloomberg reports that this is the first increase in the index in six months.
  • The Perth Mint reported strong sales figures last month; 31,189 ounces of gold coins and bars were sold in January, up from 29,186 in December. Silver sales were also up significantly – 828,854 ounces last month versus 692, 971 ounces in December. In a reversal from last week’s selling of gold, Turkey’s central bank gold holdings rose $705 million this week from the prior period, according to official weekly figures from the bank in Ankara.
  • Gold Field’s Granny Smith gold mine in Western Australia is going to install one of the world’s largest renewable energy micro grids powered by solar panels and a battery system, according to a release by the company. Gold Fields has partnered with power company Aggreko to operate the renewable energy system. Managing Director of Aggreko George Whyte says that the system is projected to reduce fuel consumption by 10 to 13 percent, which is the equivalent of removing 2,000 cars from the road.

Weaknesses

  • The worst performing metal this week was platinum, down 2.84 percent, moving inversely to palladium where demand for the metal is outstripping production. Gold is set for its first weekly drop in three weeks after the dollar strengthened and holdings in metal ETFs fell, reports Bloomberg. Precious metals ETFs saw $709 million of outflows, down from $755 million of inflows last week. The yellow metal also saw “thin” trading this week due to Chinese investors being out for the week due to Lunar New Year celebrations.
  • Reuters reports that scrap gold supplies in India may increase this quarter due to a rally in prices leading consumers to sell old trinkets and jewelry. India, the world’s second largest consumer of gold, could see scrap supplies rise above 25 tons in the first quarter, up from 14.1 tons during the same period a year ago.
  • Venezuelan opposition lawmaker Carlos Paparoni said at a press conference this week that the country’s central bank sold 73 tons of gold in 2018 to Turkish and UAE based companies, writes Bloomberg’s Alex Vasquez. The Venezuelan government attempted to move funds from Portuguese accounts to Uruguay this week, but it was blocked due to cooperation by Portugal’s central bank and opposition leaders in Venezuela. In another blow to the troubled nation, the Bank of England is said to have frozen its gold assets worth $1.56 billion, according to Business Insider.

Opportunities

  • Central banks bought 651.1 tons of gold last year, the second highest annual total on record and up 74 percent from the year earlier, according to the World Gold Council. Goldman Sachs predicts that central banks will continue to be big purchasers of gold in 2019 due to elevated geopolitical tensions and less pressure on emerging market currencies. A model the company uses shows that central banks will purchase around 650 tons of the yellow metal this year – the same level as 2018. Many central banks could be purchasing gold on concerns that the U.S. is using the dollar to exert its dominance on the global financial system, writes the New York Times. Azerbaijan’s sovereign wealth fund is looking to nearly double its holdings of gold in 2019 to 100 tons, just after going five years without buying any prior to last year. Executive Director Shahmar Movsumov said in an interview that “we would not want to have something that is not someone else’s credit risk.”
  • Investec Securities compiled a list of their takeaways from the 2019 Mining Indaba roundtable discussion on palladium. They write that the discussion highlighted how the palladium deficit will likely continue even if China slows down, that there is still no substitution for palladium, that future recycling volumes may not be excessively high and that a new supply is still a few years away. Palladium has been strong so far this year and its price has also been higher than that of gold since early January.

  • Bellevue Gold announced a resource upgrade at the Bellevue surrounds project in Australia. The total inferred resources increased by 47 percent to 1.53Moz at 11.8 grams per ton, which is very high-grade. The company also believes that there is significant scope for further expansion. Bloomberg reports that Barrick Gold will be increasing its stake in Reunion Gold to 19.9 percent, up from 15 percent, as the miners form a joint venture to explore, develop and mine certain mineral projects in the Guiana Shield. Mark Bristow, Barrick Gold’s CEO, is very familiar with the geologic environment of these greenstone belts in Guiana Shield, which were once connected to the West African craton where Randgold achieved great success in growing their company.

Threats

  • Bloomberg reports that two months after Venezuela President Nicolas Madura met with President Tayyip Erdogan in Turkey, a mysterious company was formed named Sardes. By November last year when the U.S. imposed sanctions on Venezuelan gold, Sardes had moved $900 million of gold out of the South American nation. This shows that Turkey may no longer be a strong ally to the U.S., as this is not the first time that Turkey has been a work-around for countries facing U.S. sanctions.
  • A growing number of bank analysts are predicting the U.S. dollar will fall soon, however, traders and the market disagree. The dollar has strengthened almost 1 percent since the dovish comments from the Federal Reserve meeting in January and the outlook for the currency is getting stronger based on the options market, writes Bloomberg. Georgette Boele, a currency and commodity strategist at ABN Amro Bank NV, said “those who are negative on the dollar may need to have patience.”
  • UBS Financial Services agreed to pay Virginia’s State Corporation Commission $319,000 to settle charges that a former broker made unsuitable recommendations of gold and precious metals securities to 18 clients, reports Investment News. The state alleged that the client’s held an overconcentration and that the securities were not appropriate to certain client’s goals. Is this regulatory bias against the gold space? Would there be an investigation into having too much Apple stock in a client’s portfolio?

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