Month: December 2020

Did the Federal Reserve just usher in the next phase of the U.S. dollar’s decline?

On Wednesday, the central bank recommitted to leaving its benchmark interest rate near zero for the foreseeable future.

Fed officials also vowed to keep pumping cash into financial markets.

Following Fed chairman Jerome Powell’s remarks, the wavering U.S. Dollar Index turned down – hitting a fresh new low for the year. Gold gained modestly on the day while silver got a bigger boost to close solidly above $25/oz, promptly heading to $26/oz the day following.

Precious metals markets have been basing out over the past several weeks. They are struggling to attract safe-haven demand amid record runs in stocks and Bitcoin.

How sustainable the bull market in equities will be heading into 2021 remains to be seen. Investors are pricing in a strong vaccine-driven economic recovery aided by monetary and fiscal stimulus – all with little to no inflation consequence.

The Fed vowed in its policy statement yesterday to continue with $120 billion in monthly purchases of U.S. Treasuries and government-backed securities “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”

Policymakers’ reference to “price stability goals” is a farce. Their actual goals entail pushing price levels up at a considerably higher pace than has been seen in recent years.

The average American knows intuitively from their own experiences that inflation is a bigger problem than officials acknowledge. “Price stability” is Fedspeak for jacking up healthcare, housing, and other costs of living.

The recent NPR article “Paycheck-To-Paycheck Nation: Why Even Americans With Higher Income Struggle With Bills” highlights some of the financial struggles facing the middle class.

The accompanying graph shows just how much average wages have lagged behind major household expenses:

Of course, households whose wealth is heavily invested in the stock market have been able to keep up with rising living costs. Surging stock valuations are just another symptom of surging money supply figures (inflation).

The Dow Jones Industrials trading at a lofty 30,000 also reflects extreme optimism among investors.

The Fed is helping to fuel hopes for a “Goldilocks” scenario to take shape next year. The central bank now forecasts economic growth next year to come in at 4.2% (versus a previous forecast of 4%). It projects the unemployment rate will drop to 5% in 2021 and inflation will remain officially below target at 1.8%.

What could go wrong? Plenty.

The Fed’s inflation forecasts are based on a faulty gauge of “core” price levels to begin with – one that understates real-world costs for most households. Even if the Fed continues to report inflation being below 2%, other indicators may tell a different story.

In the event the economy does recover strongly as the coronavirus fades away by the spring, a lot of pent up, stimulus-enhanced demand could trigger a surge in commodity prices. That could hurt business profitability and ultimately translate into rising consumer costs.

What has kept inflation at bay relatively speaking this year is that millions of Americans are literally hunkering down, causing economic activity and money velocity to slow.

Meanwhile, the feedstock for future inflation – money supply itself – is going up at a frantic pace.

From stimulus checks to Wall Street bailouts made possible by a ballooning Fed balance sheet, never before have so many trillions of dollars been injected into the economy.

An estimated 20% of all dollars that have ever been created in America’s history came into existence (out of nothing) this year.

What will happen when businesses and consumers see a green light to spend and invest after all the COVID restrictions are lifted nationwide? A huge supply of dollars currently sitting idle could suddenly start chasing a more limited pool of raw materials and finished products.

A reigniting of inflation fears would be a huge catalyst for the next major upleg in precious metals markets.

That could be a few months away, however.

In the meantime, gold and silver are coiling up and presenting favorable buying opportunities that may not last for long.

Metals markets can move well in advance of any inflation problem becoming apparent to stock market investors or the financial media. That’s why it’s prudent to be invested in hard money before it becomes trendier – and more expensive – to hold.

Source: Streetwise Reports   12/16/2020

Shares of Premier Gold Mines traded higher after the company reported that it has entered into a definitive agreement to be acquired by Equinox Gold Corp. in an all-stock transaction valued at CA$611.7 million (US$479.9 million).

Prior to the open of U.S. markets today, Canadian mining firm Equinox Gold Corp. (EQX:TSX; EQX:NYSE.A) and exploration, development and production company Premier Gold Mines Ltd. (PG:TSX, PIRGF:OTCPK) announced they have entered into a definitive agreement for Equinox Gold to acquire all of Premier Gold Mines’ outstanding shares in an all-stock transaction.

The companies indicated that under the terms of the agreement, in a simultaneous transaction “Premier will spin-out to its shareholders shares of a newly created U.S.-focused gold production and development company to be called i-80 Gold Corp. that will own the South-Arturo and McCoy-Cove properties and will complete Premier’s previously announced acquisition of the Getchell Project, all in Nevada.”

According to a Reuters report, the all-stock deal is estimated to be valued at CA$611.7 million (US$479.9 million) and equates to about CA$2.57 per share for Premier Gold Mines’ shares, which are listed on the Toronto Stock Exchange.

The firms outlined that “Equinox Gold will retain Premier’s interest in the world-class Hardrock Project in Ontario, the Mercedes Mine in Mexico and the Hasaga and Rahill-Bonanza properties in Red Lake, Ont.”

The companies advised that following the closing of the transaction, Premier’s existing shareholders will own 16% of Equinox Gold Corp. shares and 70% of the newly created i-80 Gold company. Similarly, current Equinox Gold shareholders will own approximately 84% of Equinox and 30% of the i-80 Gold spinout company.

The companies mentioned that the purchase is a “friendly” transaction and touched on some of the highlights in the merger. The firms said the purchase allows Equinox Gold to acquire a 50% interest in the permitted, development-ready, multi-million-ounce Hardrock Project through a joint venture between Equinox Gold and Orion Mine Finance. The report stated that the Hardrock Project has 5.54 million ounces of gold of Proven and Probable Mineral Reserves grading 1.27 g/t Au and has produced 414 Koz of gold annually over the project’s first five years.

The firms said that the structure of the deal allows Premier’s existing shareholders to maintain their exposure to Premier’s mining assets while gaining exposure to a much larger, diversified gold producer in Equinox which has seven operating gold mines with another one in construction.

For Equinox Gold, it offers new opportunities with the addition of the producing Mercedes Mine in Sonora, Mexico, which will add around 50 Koz of gold per year initially to Equinox’s current total estimated production of 700 Koz in FY/21. The addition of the 30% interest in i-80 Gold will also serve to provide Equinox with exposure to a new high-growth U.S.-focused gold company.

The firms stated that when the transaction is complete, Premier shareholders will receive 0.1967 of an Equinox Gold shares for each Premier share held on the Toronto Stock Exchange and 0.4 of a share of the new i-80 Gold company for each Premier share held.

Equinox Gold’s Chairman Ross Beaty commented, “The addition of a top-tier, low-risk mining jurisdiction in Ontario, Canada, creates a lower risk profile, with greater asset and country diversification. Hardrock will be an excellent, low-cost, long-life gold mine with significant exploration upside, further enhancing our existing peer-leading growth profile without stretching our financial capacity. The Mercedes Mine also brings an immediate increase to our production and cash flow, and our investment in i-80 Gold brings us significant real value and optionality with exposure to several high-potential US gold assets. This transaction creates value for both Equinox Gold and Premier Gold shareholders, and further solidifies Equinox Gold’s position as the premier Americas-focused gold producer.”

Christian Milau, CEO of Equinox Gold, added, “Combining a 50% interest in the permitted, development-ready Hardrock Project with our strong balance sheet and operating cash flow provides a clear path to production for Hardrock that I believe will unlock substantial value for both Equinox Gold and Premier Gold shareholders. We look forward to developing Hardrock with Orion as our partner, integrating the Mercedes Mine into our portfolio of producing gold mines, and being a substantial and supportive shareholder of i-80 Gold.”

Premier Gold Mines’ CEO Ewan Downie remarked, “This transaction brings increased value and optionality to our shareholders from meaningful ownership in two companies: a diversified intermediate gold producer with a portfolio of high-quality assets, and ownership in an exciting new Nevada-focused gold company. Importantly, our shareholders will maintain exposure to the Hardrock Project, which we believe is the most attractive advanced-staged development project in North America, and which will be developed by a proven management team that shares our commitment to creating long-term sustainable value.”

The companies advised that i-80 Gold will focus on Nevada gold production and development properties including the South Arturo joint venture with Nevada Gold Mines, the McCoy Cove Property and the Getchell Project. The firms noted that Premier Gold Mines’ CEO Ewan Downie will lead i-80 Gold and stated that i80 Gold will be pursuing a planned public equity listing prior to or concurrent with the transactions closing.

The report indicated that the directors of both Equinox Gold and Premier have already unanimously approved the transaction, and that Premier’s Board of Directors recommends that its shareholders vote to approve the transaction. The transaction is expected to close in Q1/21 subject to court and Premier shareholder approval along with customary closing conditions and regulatory and stock exchange approvals.

Equinox Gold is based Vancouver, British Columbia, and operates seven producing gold mines and is presently engaged in building an eighth site. The firm operates in the U.S., Mexico and Brazil, and stated that it is on course to achieve its goal of producing greater that 1,000,000 ounces of gold annually combined at its properties.

Premier is a gold explorer, developer and producer headquartered in Thunder Bay, Ontario, Canada. The company has a pipeline of precious metals projects in the U.S., Canada and Mexico.

Premier Gold Mines has a market capitalization of around $598.2 million with approximately 237.4 million shares outstanding. PIRGF shares opened 9% higher today at $2.1561 (+$0.1804, +9.13%) over yesterday’s $1.9757 closing price. The stock has traded today between $2.1561 and $2.4163 per share and is presently trading at $2.35 (+$0.39, +19.90%).

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Disclosure:
1) Stephen Hytha compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
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5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Premier Gold Mines and Equinox Gold, companies mentioned in this article.

( Companies Mentioned: EQX:TSX; EQX:NYSE.A,
PG:TSX,
)

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