For 25 years, Professor Richard Conroy has been making the case that there is a world-class gold deposit between Cavan town and Castleblaney, Co Monaghan. Conroy is the Chairperson of Conroy Gold and Natural Resources (CGNR:LN). 

In the first of CGNR’s target areas in Clontibret, there are 517,000 ounces of indicated and inferred gold. CGNR thinks there could be another 8.8 million ounces in total. At today’s prices, 517,000 ounces of gold would be worth €862 million; 8.8 million ounces would be worth €14 billion.

Yet CGNR has been kicking around Aim for more than 20 years without success. What it has are the rights to mine in this area, some promising early tests, and a presentation likening the target to a giant mine in Australia. What it needs is money to get the mine built. 

CGNR first listed in May of 2000, near the height of the mining boom. Its share price peaked at £33 in 2001. Since then, it’s been in a long, drawn-out decline. The stock is down 99.8 per cent from its peak in 2001. €18 million has been spent on the project so far with nothing to show for it.

Yet, hope springs eternal. For the last four years, the company has taken out a booth at the Prospectors and Developers Association of Canada (PDAC) Convention in Toronto. PDAC is one of the world’s biggest conferences for junior miners. This year, CGNR got noticed. Richard Conroy says the booth was busy from “Sunday morning, when it opened, right through to Wednesday midday when it closed”.  

Last week CGNR announced a partnership Anglo Asian Mining PLC, an established miner worth €190 million. Anglo Asian pledged to spend €4 million on developing and testing the gold mine at Clontibret in Monaghan. Anglo Asian had made initial contact with CGNR years before, but decided the time was right to announce a more formal partnership.

Anglo Asian Mining and CGNR have formed a joint venture (JV). Anglo Asian gets 17.5 per cent of the JV for committing to spend €2 million on exploration. It gets another 25 per cent it if spends a further €2 million. 

These investments are focused on preparing and testing the target before actually building the mine. If Anglo Asian gets to the point where the mine is ready to build, it gets 55 per cent of the JV. 

“It’s always struck me as unlikely that gold would be imported into Ireland to be made into these magnificent ornaments.”

Prof Richard Conroy

Why is there interest in CGNR now, after all these years? It’s a lot to do with the gold price. On Monday, it hit an all-time high, surpassing its previous record from 2012.  With gold at $1,900 dollars per ounce, many more mining projects become viable.

CGNR shares are up 240 per cent since the low in March. But much of this rise came before the Anglo Asian deal. CGNR shares have been carried higher by the gold price. The VanEck Vectors Gold Miners ETF, which is made up of producing gold miners, is up 138 per cent since March. And the VanEck Vectors Junior Gold Miners ETF, which is made up of gold explorers rather than producers, is up 117 per cent since March. CGNR has been caught up in the mania for gold stocks.

Why gold is at all-time highs

Why is gold on a tear?

Gold is a funny asset. It produces no cash flows. It just sits there. And it costs money to store. How to value it?

It’s clear enough how to value a stock or bond. Stock and bond prices are derived from the present value of future cash flows. When the prospects for future cash flows change, the price changes.

Gold is different. The best way to think of it is as a store of value. It’s a tool for hanging onto wealth. 

Bonds can be viewed this way, too. They’re a safe way to hold onto money. They won’t grow it much, but they won’t lose much of it either. 

The safest bonds are Treasuries — loans to the US Government. Because they’re so safe, they’re also the bonds with the lowest return. Now they yield just 0.6 per cent. The lower the yields on Treasuries, the less useful they are as a store of value. 

There’s no chance the US Government will default on its debts. It owns the printing presses, after all. It can always create more money to repay creditors. The risk to investors in Treasuries is that inflation goes up, which erodes the real value of money. The more inflation goes up, the worse are Treasuries as a store of value. 

So gold is a store of value. Its biggest competitor as a value-storer is safe assets like Treasuries. And Treasuries are a less effective value-storer the lower are interest rates and the higher are inflation rates.

There’s a single number which combines these interest rates and inflation: the real interest rate. This shows the return on Treasuries minus the expected rate of inflation.

The drawback of gold as a store of value is that it doesn’t generate any income. When real interest rates are high, it doesn’t make sense to use gold as a store of value. But when real interest rates are low — either as a result of falling interest rates, or higher expected inflation — Treasuries’ advantage is nullified. When real interest rates are low, and you’re not foregoing much income from them, why not park your money in gold?

Gold, then, does well when the economic system is sick. When interest rates are low — signifying that there aren’t many good investment opportunities — or when inflation is high, it makes more sense to hold gold. 

It’s a simple theory and it seems to describe reality. You can see the relationship clearly in the following chart. It shows the gold price (light pink) and the yield on Treasury Inflation Protected Securities (TIPS) since 2008 (TIPS are a special type of government bond which pay a return over and above the inflation rate —they’re a good proxy for real interest rates). When real rates go down, gold goes up, and vice versa.

Gold versus TIPS. Source: St Louis FRED

The last gold price peak in 2012 was accompanied by negative real rates. The same goes for the latest peak. The following chart shows the gold price in light pink vs TIPS yields in dark pink in the last 18 months.

Gold versus TIPS since 2019. Source: St Louis FRED

So the gold price is a function of real rates. Which begs the question, what’s driving real rates?

The most important change is that the Fed Chair, Jerome Powell, is committing to keep interest rates low for the foreseeable future — even if there is inflation. Speaking to Congress yesterday, he said he’s “not even thinking about raising interest rates”.

Here’s what “not even thinking about raising interest rates” looks like on a graph. The following chart shows 10-year  Treasuries, and inflation-protected 10-year Treasuries. The difference between the two lines is the market’s forecast of inflation. As Bloomberg’s Joe Wiesenthal has pointed out, the market’s inflation forecast has gone up of late. The market is expecting interest rates to stay low while inflation goes up.

Powell’s tolerance for higher inflation means real rates are lower, which means treasuries are a less useful store of value, which means gold is a relatively more useful store of value, which has pushed the gold price to all time highs, which means Anglo Asian Mining PLC has decided now’s the time to lock-in a partnership with Conroy Gold to investigate that mine in Clontibret, county Monaghan.

A life in mining

Of course, there’s more to gold exploration than speeches by Jerome Powell. Gold exploration is an inherently long-odds, risky industry with lots of companies chasing a small number of potentially huge payoffs. It takes geological skill, lots of money, and lots of luck.

Professor Richard Conroy founded CGNR in 1995. He has a long career in mining and natural resources, both in Ireland and abroad. His biggest success was the discovery of the Galmoy zinc deposit in Co Kilkenny in 1986, which kicked off the Irish zinc industry – now one of the biggest in Europe. In 1992 he was part of a consortium which discovered the giant Pogo gold deposits in Alaska. Later, he served as a Fianna Fáil senator, and as emeritus Professor of Physiology at RCSI. 

Prof Conroy (third from right) with Sean Canney TD (second from right) at the PDAC conference 2019

Conroy became convinced that there were gold deposits in Ireland, in part because of the size and number of Irish Bronze Age gold artefacts. “It’s always struck me as unlikely that gold would be imported into Ireland to be made into these magnificent ornaments”, he says, “or that there would be sufficient gold in streams and so on. So therefore, there must be some bedrock gold in Ireland.”

The Anglo Asian deal is a step towards The Republic of Ireland’s first bedrock gold mine. But there’s a long way to go. Once Anglo Asian has concluded testing in about 18 months time, all going well, the next step would be to apply for planning permission and mining licences. 

Getting planning permission will not be easy. Another proposed mine in the Sperrin Mountains of County Tyrone, by a company called Dalradian, has been held up in planning since 2017. A public inquiry into the mine, announced in June, received more than 40,000 representations. Daradian has been mooted since the 1970s.

Should CGNR’s Clontibret mine get through tests, and the planning process, and the licensing process, there’ll be at least one further year of construction before it starts producing. Construction is forecast to cost somewhere in the region of €40 million. Assuming all goes to plan, the Clontibret mine could be expected to employ between 150 and 200 people, with at least as many spin-off jobs. 

For now though, the focus is on the Anglo Asian tests. The 500,000 ounces at Clontibret are currently indicated and inferred – they’re guesses, in other words. Anglo Asian will test the mine and categorise the gold in terms of measured ounces. Measured ounces are ones that have been independently verified with a high degree of certainty. 

Conroy Gold and Natural Resources will want to get through these steps and get the mine built as soon as possible. Until the mine is built, CGNR is dependent on investor sentiment, and real interest rates, and Jerome Powell, and the gold price.