Month: April 2021

Source: Gecko Research for Streetwise Reports   04/20/2021

Gecko Research explains why it has invested in Sierra Madre Gold and Silver, which began trading on the TSX Venture Exchange in Canada April 19 under the ticker symbol SM.

We are extremely pleased to present Sierra Madre Gold and Silver Ltd. (SM:TSX.V) as our core holding in the precious metals space. And the opportunity that presents itself here is a rare one these days, and we’ll explain why.

Many new juniors that go public today have paid a hefty price for their project as they have bought it from a major/mid-tier when gold is trading around $1,700–1,900/oz, which sets the price, of course.

Sierra Madre purchased the Tepic Project a few years ago when gold was completely out of favor around $1,200/oz. That makes a world of difference.

We will be making several comparisons to another fantastic holding of ours, Prime Mining (PRYM.V). We’ve struggled with this internally, because Sierra Madre is its own deal, just as Prime is its own deal. But with so many similarities between the two, it makes things easier for us to paint the picture and for you as a reader to better understand the Sierra Madre story.

Management

We want to start here because although other things are very important too, people are in many cases the most important ingredient, even more so when investing in a junior mining company.

The “main” founder of Sierra Madre is Alex Langer, part of the younger generation of mining executives that we will hear lots of in the future as well. Despite his young age of 38, Alex has many years in the industry under his belt and started out in his early days with Canaccord as an investment advisor, but then moved on to the corporate side.

In his earlier days, Alex helped raise funds for well-known silver names like Endeavour Silver, Fortuna Silver and Great Panther, to name a few.

Alex’s most recent endeavors have been as co-founder of both Millennial Lithium (ML.V) and Prime Mining (PRYM.V). As it happens, a common denominator in both those deals have been Andrew Bowering, also a co-founder of PRYM and ML. Andy is currently part of the Sierra Madre Advisory Board as well as a shareholder.

There is more common ground as the “head geologist” in both Sierra Madre and Prime is none other than Greg Liller. In his career, he played a key role in the discovery and development of more than 11 Moz Au and 600 Moz Ag combined reserves and resources.

Greg Liller shares the geological work with another seasoned and extremely well-respected gentleman by the name of Greg Smith. Prior to joining Sierra Madre, Greg was the CEO and VP Exploration for Calibre Mining (cxb.to).

Overall, this management team impress us. The combined experience of these gentlemen is in our mind at a different level compared to most new junior mining companies we have looked at.

The team of founders and management has plenty of skin in the game, owning just over 37% of the company. And it’s not all cheap founders’ shares either; members of this team have participated in every financing, including the IPO.

When assessing a junior management, what you want to see are two main parts: experience and skin in the game.

There are too many examples of so-called “lifestyle-companies” in this industry and it still amazes us how retail investors never seem to grasp the importance of this.

If you are able to identify a team like this, half the battle is won, that’s how important it is to bet on the right jockey.

Prime’s Los Reyes

Let’s circle back to Prime Mining. When Prime initially got listed, their objective was to define a new resource and swiftly move the Los Reyes to production with a low capex. As readers of this newsletter very well knows, Prime quickly realized that they had found a hidden gem, much larger than any previous operator had discovered. Both Greg Liller and Andy Bowering were instrumental in what we’d like to call a “new discovery.”

Sierra Madre’s Tepic Project

The Tepic project is a high-grade, near-surface project. Silver is the predominant metal (2/3) with gold as a by-product (1/3). The historical 43-101 resource is roughly 10 million ounces of silver equivalent resources grading just shy of 200g/t AgEq. In metal value, and perhaps easier for readers to get a handle on, that would be roughly a 3 g/t AuEq resource sitting at surface.

Some of you might remember Capital Gold which had a Mexican open pit gold mine, very profitable, with a head grade just below 0.5 g/t Au. Put that half a gram in context with Tepic’s 3 g/t AuEq and you can imagine the potential. There’s obviously more to that equation, but the point we’re making here—Tepic is a very high-grade open pit project.

The Tepic Project has more than 31km (!) of drill core still sitting in the core shed, providing a huge amount of data and knowledge about the project. An updated resource could very well be announced later this year. With the work that has been ongoing constantly in the past many months, we not only expect a larger resource, but we’re assuming this should also provide lots of news flow in the near future.

Tepic has a short path to production with a very modest capex, and when Tepic was in the hands of the previous operator, a large mid-tier silver producer tried to buy the project.

So, what does it mean for a project like Tepic to have had a cash offer from a larger silver producer? It means that a group of very smart people have gone through a very thorough and tedious due diligence process that led them to a conclusion that Tepic is a mine in the making.

This validates the high quality of Tepic and it gives us great comfort that this project is now in the hands of very experienced and competent people. We can only assume their objective were to put Tepic into production.

Which raises several questions: Will Sierra Madre become a near-term silver producer? Will the project be up for sale once again? CEO Alex Langer will for obvious reasons be very busy this spring, but we will try to schedule an interview shortly, in order to get a better handle on Sierra Madre’s plan for Tepic.

What we do know is that Tepic is drill-ready with 67 holes currently being permitted and ready to go. The infrastructure is excellent and a paved highway takes you to the front gate of Tepic.

Share Structure & Capital Raised

First of all, let’s get the “disclaimer” out of the way. Gecko Investor Group (GIG), with its high-net-worth investors, invested in Sierra Madre at the 50 cent IPO round. We also invested in the round before that at 15 cents.

The interest in Sierra Madre, even while private, was huge. We know this because, just like everyone else, we got cut back significantly. Despite the large cutbacks, Sierra Madre raised C$15 million in its IPO, which makes it one of the best capitalized new juniors to the market.

Despite the large raise, the share structure is really tight and lean, only ~64 million shares outstanding. Management and insiders own almost 40% of the company. Add to that a large number of institutional shareholders, including several international gold funds.

Institutional Shareholders

Institutions rarely come in early in a junior mining deal, but they do occur. If Robert Friedland or the Lundin family put together a new deal, you know that will attract institutional investors. There are a few more examples, but the groups that can attract these types of investors so early in the game can probably be counted on five fingers, that’s how rare it is.

Sierra Madre doesn’t have one or two institutional investors as shareholders when the company lists on Monday, Sierra Madre has no less than TEN (!) institutional investors, which makes it very unique in that sense.

According to the corporate presentation, institutions hold 7.4% of the shares. On average, that makes their holding of Sierra Madre less than 1% each, which we suspect is far from enough to move the needle for any of them. This is great for Sierra Madre and it also puts the company in a very strong position as these institutions will want to add to their position.

Why is institutional interest so important and what could it mean for a small company going forward? As long as Sierra Madre delivers good results and create value for shareholders, these institutions will (usually) want, at a minimum, to maintain their percentage ownership in the company. In this case and on the back of how little these +10 institutions currently own, we have a feeling that they would like to increase their ownership in Sierra Madre. Therefore, we make the assumption that the next financing is more or less guaranteed. Not many junior mining companies can compare, and for us as retail shareholders, this limits our downside.

Our Conclusion & Summary

We are in a bull market for precious metals and by the look of things, the timing for this new listing could prove to be impeccable as gold and silver show signs of breaking out of an 8-month long consolidation.

Out of the gate, Sierra Madre has a $32 million market cap with $15 million in the bank, giving them an enterprise value of a mere $17 million. We don’t want to try to guess where the stock will trade going forward, but with the institutional backing, the quality of asset and management and the large cash position, we suspect that Sierra Madre fairly quickly will trade in the dollars rather than in the cents.

Sierra Madre is our BIG BET in this precious metal bull market and it will be our CORE SILVER holding going forward. We will probably be adding to our position.

Webinar on Wednesday, April 21st

Sierra Madre’s IR firm, Adelaide Capital, is hosting a webinar at 11am (EST) on Wednesday April 21. To register, use this link.

Team Gecko Research

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4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
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 Sierra Madre and Fortuna Silver, companies mentioned in this article.

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Source: Michael Ballanger for Streetwise Reports   04/20/2021

Sector expert Michael Ballanger describes how he is protecting his portfolio as political and financial fortunes begin to change.

To you from failing hands we throw
The torch; be yours to hold it high.
—from the poem “In Flanders Field;” 1915

I have a confession to make: I am reaching the end of my personal level of nonviolent tolerance when being forced to listen to non-elected “authorities” standing in front of TV cameras reading their “prepared notes” from teleprompters without the vaguest clue as to what they are talking about.

Worse still are the elected “representatives of the citizenry” of any country, state or province, standing in that very same spot ordering the populace to “stay indoors” while warning that the police have been instructed to issue citations (or arrest) those in violation of an order that has never been enacted into law.

Whether they are politicians or bankers or bureaucratic buffoons of questionable agenda, all of them should be gagged and bound and carted off to a facility of incarceration with zero chance of release back into the “general population.” They all represent an ever-increasing threat to not only my sanity but also, and more importantly, to my personal liberty.

I reside in a country whose citizens are known the world over for their civility. Canadians are usually a pretty laid-back group, rarely voicing complaint or even irritation over day-to-day inconveniences such as long lines at the beer store or wearing silly masks designed to prevent the spread of viruses. The other day I forgot my mask when entering the local post office and when this battle axe of a postal clerk screamed that I should “Get a mask or leave the store immediately,” I calmly turned to her and said: “I have a medical condition that prevents me from wearing one.” Her face, which had been contorted like one of the witches in Shakespeare’s “Macbeth,” slowly began, in agonizing graduality, to return to its normal state of “scowl” as she searched frantically for a suitably authoritarian comeback. Failing miserably, she harrumphed her way back behind the counter and mailed my package with nary a word said.

This is what happens to a populace that would normally not raise one blood pressure degree even if a bomb went off in the town square. People whose conduct over forty decades has been exemplary (if not docile) have been transformed into shrieking hydras of distrust and condemnation. Furthermore, everybody has become a “COVID Cop,” with fingers pointed and cell phones aimed at any and all possible transgressors, quick to report anyone who is even mildly tilted in the direction of lifestyle normality and historical routine.

The arrival of the global pandemic in the first quarter of 2020 marked a watershed of sorts in the machinations of the banco-political cartel that controls Western society. Since then, there has been a subtle shift in the emphasis of policy initiatives in both Canada and the U.S., but it is also being felt in Australia and New Zealand, and to a lesser degree in Europe. With mass shootings in the U.S. totaling forty-five in the month of March alone, there has arisen a growing dread by those in charge that the “have-nots” who dominate the American population base have finally decided that they no longer wish to be the personal doormats for the Hampton crowd and, only as can happen in the States, guns are as good a means of protest and “policy adjustment” as speeches or elections.

For the last three decades, the banco-political cartel followed the old “Trickle Down” economic policy, which states that if you look after the rich through tax cuts and credits, their excess cash will “trickle down” to the lower classes as jobs are created, and wealth will be redistributed naturally and organically throughout the population, thus allowing everybody a legitimate shot at the realization of “The American Dream” The problem with that lies in the outcome of such a policy, which saw the entire manufacturing sector of the U.S. economy completely gutted by globalization, and forced families into DINK (double income no kids) lifestyles mainly in service industries that required college degrees and penalized the high school-only graduates that used to stock the automotive and textile sectors for decades.

So, after the dotcom meltdown in 2001, the central bankers and the politicians embarked on a manic bubble-blowing extravaganza in an effort to recapture the heady days of 1990s prosperity and balanced budgets brought to bear during the Bill Clinton lovefest (at which he was particularly adept). Before you could say “quantitative easing,” the world had a Wall Street-engineered “Great Financial Crisis” that resulted in the “Great Financial Bailout” (by the taxpayers of the banks). This, in turn, led to record budget deficits and a Federal Reserve balance sheet floating in the stratosphere, while the top 1% of wage earners in the U.S. (and abroad) are sitting with the greatest percentage of financial and real estate assets in history.

All this while Joe Six-pack waits for his “stimmy check,” having given up on finding a job because McDonald’s had installed robotic burger-flipping machines all in the name of “enhanced productivity.”

However, as the elites beg citizens to take a needle so the germs they “think” are causing the illnesses cannot be spread, and as the global economy (sans Canada) opens up and returns to normality, I am seeing signs that, at first glance, were subtle but have become more recently a blatant shift in the tone and texture of policy initiatives. Whereas the 2009-2021 period was dominated by ensuring the survival and prosperity of the elite class through monetary policy, this new paradigm, arriving with mass shootings and growing social unrest, represents the passing of the torch from the central banks that control the “price” of money to the politicians that control fiscal policy and therefore the “allocation” of money.

From Greenspan to Powell, and including all of the sock puppets in between, there has been a fifty-year campaign to keep the wealth “where it belongs” (in the hands of the wealthy). But now that the doormats are no longer quietly allowing shoes to be wiped on their backs, the onus of civil order has been passed (“with failing hands the torch: be yours to hold it high”) to the government bodies whose job it is to ensure that these bearers of pitchforks (and torches of their own) are mollified back into behavioral complacency through fiscal largesse that can only be provided by government.

What this means for me as an investor is that no longer will the Fed’s moves be linked to the current rate of inflation, but rather to the average rate of inflation. What this means is that they will stay “accommodative” even if inflation rates hit 5–6%, because those are “average,” not “current.”

It also appears to me that with the Biden Administration’s stimulus packages (which include infrastructure) are designed to target wages, because the best way to reduce these mass shootings and accelerating public demonstrations is to throw money in the form of jobs at the problem.

With the average portfolio manager having thrived over three decades of Fed-orchestrated disinflation, where a 40% position in long bonds represented an insurance policy for the equity holdings, this new paradigm has removed that insurance, because fiscal policy targeting accelerating wage growth virtually guarantees that the “average inflation rate” is going to overshoot the level at which portfolios start to implode. Not only will stock portfolios implode, think about the highly-leveraged holders of government bonds, where a 50-basis-point jump in yields vaporizes the equity. Then consider the interest cost to the government that happens when yields rise, although it will be “de minimis” only because the Fed will eventually own all of the government debt anyway.

What this means to me is that I must construct a portfolio that will be able to successfully navigate a financial landscape that no longer promotes disinflation, but one which actively and aggressively promotes wage inflation at the expense of price inflation. When the carnival barker that runs the U.S. Fed tells you, while commenting on recent consumer price increases, that “our best view is that the effect on inflation will be neither particularly large nor persistent,” he is contradicting himself from the outset, because price increases at the consumer level are “inflation.” What astounds me is the callousness with which JayPo dismisses “maintaining price stability,” one of the two primary mandates of the Fed and the reason for its very existence.

Portfolios that I own are overweight gold and silver, and more recently copper and uranium, as I attempt to not only adjust for this gargantuan shift in policy but also profit as entire generations of portfolio managers and wealth advisors clamor to take advantage of actively promoted fiscal and monetary policies that invite inflation rates not seen in over forty years. This assumes that increased volatility is in the cards, but also increased uncertainty. What is certain is that bonds, both sovereign and corporate, are not where you want your wealth to be stored.

As the torch of banco-political policy is passed “from failing hands,” it is important to know “to whom” it is being passed. Once you have that figured out, we must all remember the immortal words of the late U.S. President Ronald Reagan : “As government expands, liberty contracts.”

Smart man, the Gipper was.

Originally published on Saturday, April 17, 2021.

Follow Michael Ballanger on Twitter @MiningJunkie. He is the Editor and Publisher of The GGM Advisory Service and can be contacted at miningjunkie216@outlook.com for subscription information.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

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Disclosure:
1) Statements and opinions expressed are the opinions of Michael Ballanger and not of Streetwise Reports or its officers. Michael Ballanger is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. Michael Ballanger was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) 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.

Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.