Regarding today’s markets and gold and silver, on April 15th, Sandeep Jaitly wrote:
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Yahoo-Bloomberg/Joe Richter and Yvonne Yue Li/4-15-2020
“The clamor for retail investors to get hold of precious-metals coins is about to get more urgent. The U.S. Mint said Wednesday it’s temporally halting production at its West Point facility in New York because of the risk to employees from the coronavirus. … The shutdown comes as convulsive swings in financial markets spur a surge in demand among retail investors for precious metals as haven assets. Last month, the Mint said it sold out of American Eagle silver coins, while the gold coins it offers were snapped up in March at the fastest pace in over three years.”
USAGOLD note: We referenced this report in this morning’s DMR and repost it here for those who may have missed it. When we received notice of the stoppage, we were able to secure new inventory of gold American Eagle and Buffaloes, silver American Eagles and 100-ounce silver bars – all in limited numbers and at reasonable premiums. As you may already know, most of our competitors are out of stock on these items. Needless to say, there is no assurance we can continue to secure inventory under these circumstances. If you have an interest please contact us – first-come/first-served.
Take advantage of our many years experience in the gold business.
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Bloomberg/John Authers/4-14-2020
“The stock market, home of optimists everywhere, is doing very well at present. But gold, where pessimists find a home, is doing even better. In dollars, the shiny metal closed on Tuesday at its highest since 2012. The all-time high is in sight, and it has gained more than 60% since its nadir in 2015.”
USAGOLD note: John Authers enlists his considerable analytical skills to explain what gold might be telling us about the economy and the stock market. “A rising gold price,” he says, “is always a disquieting sign.” The charts below show the performances of gold and stocks over the past 12 months and year to date.
Gold past 12 months
Gold year to date
Charts courtesy of TradingView.com
The metals markets are being pulled in multiple directions simultaneously like never before. The global virus-triggered economic freeze has caused industrial demand for all commodities to crater.
At the same time, mining output is also crashing as virus fears force many mines around the world to suspend operations.
What is the “right” equilibrium price for copper, silver, gold, and other metals in an environment of such extreme and unstable supply and demand stresses? The verdict of the market changes – often dramatically – day by day.
In March, hard assets tumbled along with stocks as investors priced in increasingly dire scenarios for the economy. A double-digit contraction in U.S. GDP and double-digit spike in unemployment became inevitable after economic lockdowns spread across the country.
Now hopes are growing for the economy being able to start reopening in May and reverse some of the damage done by the draconian policies prescribed Dr. Fauci and adopted by most state governors.
Still unknowable, however, is how quickly the economy will be able to heal itself… and to what extent demand for raw materials will recover toward pre-virus levels.
The biggest wild card in all this may be the effects of unprecedented fiscal and monetary stimulus.
Already the federal budget deficit is set to explode to an all-time record over $3 trillion (likely closer to $4 trillion) and represent a greater share of the U.S. economy than at any time since World War II. Already the Federal Reserve’s balance sheet has ballooned to $6.1 trillion as central bankers furiously try to prop up everything from mortgages to junk bonds.
All this is leading toward a devaluation of the U.S. dollar. That should naturally make sound money – gold and silver – more valuable in dollar terms.
However, as we saw last month, demand destruction amidst a wrecked economy pull down precious metals prices quite suddenly – if only temporarily. Gold has since rebounded strongly to a new 8-year high while silver is regaining its footing from historically depressed levels.
The Silver Institute had forecasted in early February – back when the economic impact of the virus was thought to be minimal outside of China – that global silver demand would rise by 3% in 2020. The Institute projected supply would nearly keep pace with 2% growth (which would be the first annual increase in five years).
Those forecasts now have to be thrown out the window. Both demand and supply are set to plummet in the near term.
On the plus side, investment demand for silver bullion products spiked last month to levels dealers had never seen before, clearing out inventories of most coins, rounds, and bars.
Bullion buying has receded from the frantic pace seen at the peak of the panic but remains strong. Safe-haven buying could remain a feature of investor psychology for many months ahead until an effective COVID-19 vaccine is widely available – and that figures to be 12-18 months out.
As for mining supply, it’s going to be a long road ahead before mines are fully operational again. Platinum and palladium production is largely offline in South Africa. Mexico’s giant Peñasquito mine, one of the country’s leading sources of gold and silver, suspended operations on Monday.
The silver supply picture is complicated by the fact that few primary silver mines exist. Most silver is produced as a byproduct of mining other metals (copper, lead, zinc, gold).
Base metals producers are shutting down. As Reuters reported, “Copper prices advanced on Tuesday, with London copper touching a four-week high, as more virus-related mining disruptions in key producing countries sparked global supply concerns.”
Given the extreme dynamics setting up in supply, demand, and monetary expansionism, market conditions are likely to remain volatile. We do think we have seen “peak fear” in this cycle – but not the end of uncertainty surrounding the virus and the economic damage it could continue to inflict.
In a best-case scenario, COVID-19’s spread steadily declines into the summer and the economy embarks on a V-shaped recovery. In a worst-case scenario, the virus makes a devastating resurgence in the fall, the economy locks down all over again, and markets descend back into chaos.
If the optimistic outlook prevails, then rising industrial demand for copper, silver, platinum, and palladium can be expected to drive those metals higher. Demand can recover faster than supply, which can’t simply be turned back on like a switch.
If the pessimists prevail, then all bets are off. Rounds of asset deflation will lead to accelerating hyperinflationary monetary responses. Social chaos, martial law, and possibly a postponement of elections could result.
In such a scenario, no investment could be counted on to perform well. But gold, the ultimate money, can always be counted on retain value even during the worst of times.
Source: James Kwantes for Streetwise Reports 04/15/2020
James Kwantes, editor of Resource Opportunities, outlines the potential upside as this project generator moves forward on its property in the Yukon.
Well-run project generators are brick houses in a speculative corner of the market, where the winds of commodity prices and dilution are often house wreckers. Their share prices are typically backstopped by healthy treasuries, royalties and equity stakes, as well as extensive claims holdings. They are businesses, not cash-burning lottery tickets like most junior explorecos.
But for many speculators, that level of diversification is a knock. Those bricks provide stability but weigh down the “rocket ship” when a junior exploration company hits a bona fide high-grade gold discovery. Project generators typically retain only limited exposure to discoveries through royalties or small equity stakes.
The picture changes completely, however, when project generators make a high-grade discovery on a wholly owned project. Azimut Exploration Inc. (AZM:TSX.V) proved it in January, with its Patwon gold discovery at the Elmer property in Quebec. Azimut is Quebec’s largest claims holder, diversified across metals and known for its technical savvy. On Jan. 14, the project generator announced multiple high-grade gold intercepts at the James Bay project, including 12.43 g/t Au over 6 meters and 27.36 g/t Au over 4.7 meters.
The day before the discovery was announced, Azimut shares closed at $0.50 (at a $31 million [$31M] market cap). The stock rocketed to $1.50 the following day, and remains at about that level despite the uncertainty and tough market conditions that persist in the junior mining complex. COVID-19 forced the suspension of Azimut’s follow-up 6,000-meter diamond drill program at Patwon.
Azimut closely resembles another project generator with a wholly owned gold project that will be drilled this summer: Strategic Metals Ltd. (SMD:TSX.V). Strategic, Yukon’s largest claims holder, is cashed-up to drill its Mount Hinton high-grade gold prospect in the Yukon Territory’s Keno Hill district. Strategic plans to spend about $3 million to explore Mount Hinton this season, including up to 6,000 meters of drilling (diamond and rotary air blast [RAB]). The program, of course, is dependent on how the coronavirus pandemic plays out in the coming weeks and months.
Strategic shares currently trade at about $0.35, for a $34M market capitalization. It’s a far cry from the $4.35 level ($381M market cap) that the stock hit in 2011. That share price was propelled by gold’s rise to US$1,900 an ounce—less than $200 an ounce higher than current levels—as well as ATAC Resources Ltd.’s (ATC:TSX.V) high-grade gold discoveries at the Rackla property in Yukon (ATAC is part of the Strategic Exploration Group).
Doug Eaton, Strategic’s CEO and principal of Archer Cathro, the storied Yukon geological consultancy, was in the thick of it during ATAC’s high-grade discoveries.
Strategic Metals CEO Doug Eaton
But the veteran geologist says he’s more excited about Mount Hinton because of the volume of high-grade gold found at surface at such an early stage, during what appears to be a perfect storm for the gold price.
“Mount Hinton is the same kind of setup, but the project is much more readily accessible than Rackla, and it’s earlier stage,” Eaton said. “It’s much more exciting than ATAC was at this stage. We have a chance in there of a major gold discovery under the till or talus.”
Eaton’s comments about Mount Hinton’s possibilities sound like fairly typical Howe Street-style promotion. But a couple of key differences make his observations worth a closer examination:
Rewind: In the summer of 2017, Strategic sold six properties, including Mount Hinton, to a private company called Territory Metals. The terms of the deal hinted that Mount Hinton was no ordinary prospect—in addition to a 2% net smelter return (NSR), the agreement included a 10% NSR on any small-scale high-grade gold production and a $1.5-million milestone payment if Territory identified a one-million-ounce gold-equivalent resource on any of the properties.
Territory’s go-public plans fizzled and Strategic got the property back. Archer Cathro geologists hit the ground hard in summer 2018. They extended a large geochemical soil anomaly and found multiple rock samples with high-grade gold samples that assayed greater than 9 g/t gold.
Last summer, Strategic hit pay dirt with a prospecting program focused on the 3.5×1.5-kilometer, gold-in-soil anomaly. One rock sample came back with a bonanza-grade assay: 2,340 g/t gold and 597 g/t silver. Follow-up prospecting discovered visible gold at this site (the first reported native gold on the property), and subsequent samples containing visible gold were not assayed. Other chip samples also carried high gold and silver values, including:
Map of Mt. Hinton property
The property has not seen much exploration, despite its proximity to Alexco Resource Corp.’s (AXU:NYSE.MKT; AXR:TSX) Keno Hill project—Mount Hinton is just three kilometers south of Alexco’s Bellekeno deposit. That’s largely because of road access difficulties. But the situation has improved dramatically in recent years, thanks to the thriving Granite Creek placer gold camp, located at the base of Mount Hinton. Two placer operators are pulling out multi-ounce gold nuggets and the Granite Creek drainage has become one of Yukon’s hottest gold camps.
Granite Creek placer operations, one of Yukon’s hottest mining camps, with Mount Hinton in the background.
Strategic brought in excavators last year to build a road network on the property, an effort that will continue this year once the snow melts. The planned 6,000-meter drill program is a large one for Strategic, but so is the size of the potential prize. “To find this material at surface is remarkable,” Eaton remarked.
Strategic geologist Steve Israel has now mapped three separate phases of mineralization on the property. More phases mean higher volumes of mineralizing fluids, which can lead to more gold.
With Mount Hinton a potential near-term catalyst, Strategic’s share price—and downside—is backstopped by a healthy treasury of $6.8 million and large equity stakes, as well as its extensive Yukon claims portfolio. Significant equity stakes include:
Mount Hinton showing
With gold moving in the right direction, the Mount Hinton drill program positions Strategic to capture the shareholder value that can result from a high-grade discovery. It’s an outcome Eaton has seen before—and why he kept Mount Hinton in the portfolio when it came back, rather than optioning it.
“We’ve turned down some pretty good offers for Mount Hinton,” he remarked. “That’s because everybody wants 100% of it.”
Gold is on the move as governments around the world fire up currency printing presses to counter the economic effects of COVID-19. That lift has not yet translated to the junior sector, despite gold hitting all-time highs in most major world currencies. Eaton believes the malaise of the past several years is partly a generational phenomenon—younger retail investors simply haven’t experienced the large multi-bagger wins that tend to drive money into the junior space.
“You have a generation of investors who have done well in mining but who are too old,” Eaton said. “The generations of younger investors haven’t benefited the way people who are older did in prior bull markets.” That may be about to change.
A high-grade gold discovery at Mount Hinton could trigger a rush to get into Strategic shares, if the action on Aug. 21, 2019, is any indication. That day, Strategic announced high-grade assays, including the bonanza-grade rock sample. The stock shot from $0.39 to $0.47 on multiples of average volume. It could be just a taste of what’s to come if Strategic drills a high-grade gold discovery at Mount Hinton this summer.
Strategic Metals (SMD: TSX.V, SMDZF: OTC)
Price: $0.35/share
Shares out: 96.6 million (108.85 million fully diluted)
Market cap: $33.8 million
James Kwantes is the editor of Resource Opportunities, a subscriber supported junior mining investment publication. Kwantes has two decades of journalism experience and was the mining reporter at Vancouver Sun, the city’s paper of record.
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Disclosure: I own Strategic Metals shares and Strategic is one of three Resource Opportunities sponsor companies. This article is not intended as financial advice and all investors need to conduct their own due diligence and/or consult an investment advisor.
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( Companies Mentioned: SMD:TSX.V,
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