TYHEE GOLD CORP

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Message: From My Advisor Group Re Current Status of Gold Sector

Bottom Line: Many gold producers need to address declining production profiles over the medium term. We recommend investors focus on companies that are expected to deliver production growth and those companies with projects that rank well amongst the 34 greenfield and 18 brownfield projects analyzed in this report. M&A may not be a focus now, but will be required longer-term.

Key Points

In our view, companies will be pulled between the current return-focused strategy and an increasing chorus by investors to show growth in a rising price environment. For the time being, most companies are resisting the call to aggressive growth and we see a number of self-help strategies within the precious metal sector evolving over the next couple of years that form the basis of this report.
Brownfield First – Large and to a lesser extent medium and small producers are expected to focus on brownfield opportunities to extend mine lives. However, quality of brownfield opportunities is not always what you think. In the near term, producers may see a mediocre expansion more palatable than stepping into M&A.
Build that Greenfield Project – For those producers fortunate to have greenfield projects, the future looks brighter. However, our analysis shows that not all greenfield projects are equal and we expect investors to gravitate to those companies with higher quality pipelines. Developers with greenfield projects that screen well are potential targets.
Companies facing production declines have a 3 to 4 year window for expanding resource bases before buying becomes a necessity. The problem is that exploration is a long-game and there may not be enough time for self-help strategies. Companies with proven exploration success and those investing in exploration companies will be rewarded.
Contrary to conventional thought, we expect the gold miners to view M&A as a last resort given the obstacles of entrenched management, asset quality and fit. That said, there are still good projects in developer hands that will be acquired.
We would focus on names that appear better positioned to maintain and grow future production, with good quality assets. Large producers AUY and KGC and medium producers BTO, DGC and THO provide investors exposure to medium-term growth. MND is our top pick in the small producer space and we favour developers TMR and DNA.

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