Britain carves out exemption for gold clearing banks from Basel III rule Reuters
Month: July 2021
Gold logs best week in 7 as Delta variant risks loom CNBC
Asia Gold Premiums dip, demand lacklustre across major hubs Reuters
Gold price is watching Fed’s tapering talk with Powell’s testimony on the docket next week Kitco NEWS
Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Precious metals markets are putting in a mixed performance this week as inflation uncertainties drive divergences across other asset classes.
The bond market is rallying strongly in spite of the Fed’s apparent plans to taper its Treasury purchases in months ahead. Bond buyers are betting that inflation won’t be a problem for years to come.
With the 10-year Treasury yield trading below 1.3%, long-term holders of these debt instruments are effectively betting that inflation won’t even be running at the Fed’s 2% objective over the next decade. Either that, or they are satisfied with earning negative real returns.
It’s quite a conundrum for income investors who seek low-risk opportunities to eke out small gains. The Federal Reserve’s twin policies of suppressing rates and stimulating inflation mean that bonds may now offer more risk than reward.
The negative real yield realities of the bond market make holding precious metals relatively more attractive by comparison. Yet even as bond yields plummet, gold and silver markets aren’t getting much of a paper price boost at the moment.
Since last Friday’s close, gold prices are up 1.2% to trade at $1,814 an ounce. Silver checks in at $26.21 per ounce after falling 1.2% for the week. Platinum prices are off a slight 0.4% to come in at $1,113. And finally, palladium is putting in a weekly decline of 0.2% to command $2,842 an ounce.
As the summer doldrums drag on in metals markets, bullish analysts are anticipating that a seasonal low will be put in soon – if it hasn’t already.
Gold and silver prices have been depressed by rising expectations of Fed monetary tightening and falling expectations for inflation.
Minutes from the Federal Reserve’s latest policy meeting released this week reveal officials are wrestling with an inflation conundrum.
On the one hand, they expect recent upward pressure on consumer prices to abate. On the other, some FOMC members are concerned that skyrocketing housing costs in many parts of the country represent a gathering danger.
These more hawkish policymakers want the Federal Reserve to begin tapering back its purchases of mortgage-backed securities sooner rather than later.
Average U.S. home prices are up 13% over the past year, stoking fears of another Fed-fueled housing bubble. Meanwhile, the Fed continues to downplay and understate real-world price inflation. Its so-called “core” inflation metric substitutes rents for house prices and excludes food and energy costs entirely.
Even CNBC’s Tyler Mathisen is now calling out the Fed’s “core” inflation con game.
Tyler Mathisen – CNBC: That the Federal Reserve and market participants are underestimating inflation risk… it seems like in these headlines that they are acknowledging that they underestimated the inflation risk. And by the way, just as a personal aside, I’m always sort of tickled/troubled by the idea that we throw out from the measure of core inflation, food, volatile food and gas prices. I can’t imagine what’s more core to the American experience than eating and driving.
Jack Ablin – Cresset: So, clearly they want to err on the side of too much stimulus, too much inflation, knowing that they can circle back and tamp it down later. That said, I think there are two pieces that we need to focus on, that really are sticky, not just the food and energy side that you talk about, but also labor costs, which really are starting to tick up now and housing prices.
Ylan Mui – CNBC: The Fed Minutes show that the participants do not believe that substantial, further progress had yet been made. However, there was a discussion about how to taper it and whether MBS, whether those mortgage backed securities should be sold off first or perhaps more rapidly than treasuries because as the Minutes say, there was concern about valuation pressures in housing markets.
Fed watchers are now looking for the central bank to begin tapering its asset purchases toward the end of the year or in early 2022. They also see rate hikes by 2023 or possibly as soon as next year depending on the economic picture that emerges.
That picture can change dramatically from current expectations. It’s entirely possible that the Fed will be forced by rising inflation pressures to hike much more rapidly than anyone now forecasts. It’s also possible that market gyrations and a skyrocketing supply of new Treasury debt will force central bankers to abandon taper talk before any tapering even takes place.
The one thing the Fed will almost certainly succeed at doing is keeping the inflation rate – including even the sham “core” rate it reports – elevated above nominal interest rates. In other words, negative real interest rates aren’t going away.
As a consequences, risk-averse investors will continue to the face the same conundrum of where to go for safety. Bonds and savings instruments that yield significantly less than inflation offer the security of guaranteed real losses.
Perhaps for some, taking steady and predictable losses of purchasing power is preferable to risking larger losses in more volatile asset classes.
Yet it is possible to survive and even come out ahead in an environment of low rates and relatively high inflation. The thing about beating inflation is that it won’t always be a smooth ride. One week your favorite assets might spike on inflationary inflows. The next week, liquidity might rotate out of those assets and into others.
Broad diversification is an obvious way to dampen down volatility. Academic studies have shown that an investment portfolio with a modest allocation to physical precious metals performs better on a risk-adjusted basis than one containing only financial assets.
There have been and will be days when both stock and bond markets lose value while gold gains. And if years of stagflation similar to what occurred in the late 1970s are in store, then precious metals markets could be set to deliver years of outperformance.
Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a weekend everybody.
Categories
Gold: Bear or Bull Market?
Source: Michael Ballanger for Streetwise Reports 07/08/2021
In honor of Independence Day, sector expert Michael Ballanger celebrates the American “tribe,” and also reflects on a potential precious metals bear market.
I write this weekly missive on the evening of the day in which Americans celebrate their independence from British colonial rule, an event that happened in 1776, but was quickly mimicked by most other British colonies, the most notable being Canada in 1867 (after defeating the Americans in the War of 1812), and then India in 1947 (after seeking it in 1857, a full ten years before Canada actually snatched it from the British in 1867).
There is an important untold irony in the foreigner’s impression of Americans, and it cannot be told by any journalist or online blogger or self-professed pundit that has never lived among the American “tribe.” I have lived among this tribe and I can tell you that the DNA that pulses through Yankee veins is unlike anything you will encounter anywhere else on the planet. Ergo, I am able to opinionize my emotions from personal experience and intimate interactions from a sample size far greater than some Dutch blogger or English megalomaniac hiding out in Peru.
Having been educated in Saint Louis, Missouri, and having spent four wonderful years under the tutelage of the Jesuits, for which I am eternally grateful (and owing), what you all do not know is that I entered the USA filled with preconceived notions of what to expect from “America,” thanks to a Canadian educational system that allowed teachers to use their lecterns as political pulpits. By the time I graduated from high school, the leftist propaganda spewed out in Canadian schools had crept, through a type of informational osmosis, into the forefront my personal bias vault, such that when the old Air Canada DC10 landed at Lambert Field in late August 1971, I was sure I would be in a battle zone of John Wayne lookalikes and Sylvester Stallone wannabes. In short, I expected the humanity’s worst.
As I reflect back to the four years of Jesuit teachings and American (Midwest) life, I can tell you with absolute sincerity and abject certainly that the Hollywood image of the American “tribe,” depicted in varying degrees of bellicosity and ferocity, is nothing like what I encountered back in the Stagflation ’70s. Perhaps if my sample size was a U.S. military base or a police academy, I might change my antiquated viewpoint. Alas, it is derived from neither.
In the late 1990s, during a period of intense media coverage over sexual misconduct by members of the Catholic Church, I was interviewed by a member of a fledgling global cable news outfit as to the allegations of sexual abuse in the Jesuit priesthood. I went “on the record” in detailing the “close intimate relationship” I enjoyed with three of the priests in respect of my “personal education.” At that point, the reporter shouted to her recording crew, “We got a live one!”, at which point the throng descended upon us. As the incendiary 1970s recording lights blistered me, I proudly described that I had just received my diploma from Saint Louis University (SLU), with the only reason being that septuagenarian math teacher Father Andrews (who was a hockey fan) took me aside and tutored me in the basics of algebra and trigonometry, the foundations of which I had missed while playing Junior in Saint Catharine’s en route to a Memorial Cup showdown against Guy Lafleur and the mighty Quebec Remparts.
I later explained that, after a painful breakup with a girlfriend, a young Jesuit “bother” (Brother Pius) sat with me in the rectory and talked as we did shots of tequila until I passed out in the wee hours, only to awake with a blanket over me and a credit note for free breakfast in the priests’ private commissary the next morning. No skullduggery, no silly business, nothing other than good-hearted concern for duty that might (and should) be seen for what it was: righteousness.
The preceding paragraphs have nothing to do with money or investing; they were written because of a fondness I have carried for a country whose citizens are anything but the stereotypes depicted in films, television and print media. At the risk of an overly broad generalization, the friendships I made and still have to this day, nearly fifty years after returning to the Great White North, are with good souls, dedicated to a strong common ethic not always rooted in causes but frequently rooted in community and family. The American friends with whom I have competed, battled, laughed and loved deserve to have a glass raised in honor of the anniversary of their independence from authoritarian rule and gunboat diplomacy, with the latter being of utmost importance in the year 2021.
Over the weekend, I pored through what must have been twenty-five “commentaries,” with opinions on gold and silver, for the express purpose of getting the pulse of sentiment as we plod through the ennui of summer markets. While there was nothing definitive in the overall degree of either bullishness or bearishness, I can tell you that, for the first time in what feels like years, there are murmurings of “bear market” suddenly creeping into the gold/silver narrative—which in itself is good. We have rarely seen bearish precious metals commentary in recent months, which is typical of the early stages of most downturns.
But since we are a few short weeks away from the Aug. 7, 2020, peak, at the intra-day futures of $2,115.00 per ounce, the painful truth is that a one-year downtrend absent new highs is more “bear” than “bull.” In fact, I would never have shorted gold at US$1,909/oz via the GLD July $175 puts in early June if I had been convinced that gold was still in a primary bull trend.
The chart shown above is from the December 2015 start of the big bull move off the lows at US$1,045, and it is obvious that the August 2020–March 2021 drop threw gold into bear market status by the 20%-plus magnitude of the pullback. However, there was zero commentary in either the blogosphere or twitterverse of the possibility of gold being in a bear market because, after all, have you seen the money printing going on out there?
The reality of the current action in gold is that it needs to do a lot of work in the sub-$2,089 range to restore the uptrend. Further to that, gold cannot break the secondary uptrend that sits right at the recent June low at US$1,750, and if it does, the bear will have emerged unchallenged, with US$1,300 in its crosshairs.
Near-term, the 100-dma line at USD $1,792 is experiencing an upside probe and as I have been telling subscribers since early June, when support is broken, it then becomes resistance and since the false breakout above the 100-dma back in early May, prices have to get back above it and stay above it for at least a two-day period in order to give us hope.
I went long the junior miner ETF (GDXJ:US) calls last Tuesday, and a few of the JNUG:US under US$80, which marks the first stab at the bigger gold miners since March of 2020. The 100-dma (daily moving average) for the GDXJ sits around US$49.50, so I will be eying that resistance as well, to determine whether to take a “scalp trade” or whether to add.
Make no mistake; the jury is still out. But unlike other rallies, I am somewhat emboldened as we are rapidly approaching the month when seasonality kicks in. I sold every top since mid-2020 by ignoring the perma-bull/conspiracy theory/#silversqueeze nonsense that permeates the space, and I urge everyone to do the same. There is a time to pound tables and there is a time to be quiet and until I get setups like I did in March and August 2020, I remain a silent bull, but will shift to neutral if the 100-dma test fails this week. I assure you I will metamorphose into a table-pounding bear if we break US$1,750.
As for silver, it has scaled the US$26.50 price cap that was in force for the last month, and the 100-dma at US$26.13, which has acted like a magnet for most of 2021. Silver cannot claim victory unless gold gets into gear, so the way to play it is by letting gold’s action tell you what the precious metals complex is going to do and then—and only then—move to silver if the coast appears clear, to gain the added leverage it affords when the group runs.
I watched an excellent podcast by Getchell Gold Corp. (GTCH:CSE; GGLDF:OTCQB) last week (click here) outlining the 2021 drill program at Fondaway Canyon in Nevada. Getchell remains my largest holding for a number of reasons, but in the current environment, the number one reason is that it is not enslaved by the gold price direction but rather “event driven,” with “undervaluation” (based on value-per-ounce comparables for the jurisdiction) key to risk assessment.
One last anecdote for my American friends: In the summer of 1987, I was vacationing in Portugal and wound up at a quaint little hotel in Albufeira. After slinging the bags into the room, I ventured down to the pool, where I noticed a large number of very pale-skinned sunbathers taking in the southern European sunshine as the afternoon wore on. After ordering a couple of mojitos, I turned to a young couple, raised my glass, and said “Felicidades!” (“Cheers!” in Portuguese). They frowned and turned their backs on me. I repeated it a second time, at which point the man turned to me and said in a very thick English accent, “If you do not mind, sir, we are trying to sleep,” huffing snootily as he punctuated our conversation. This went on for another hour and at least two dozen more couples, as the growing impact of the mojitos further liberated my friendly personality, but definitely unlocked the troublemaker in me with a venomous vengeance. Within an hour, I was doing my Portuguese impression of Dr. Hunter S. Thompson, moving from chaise lounge to chaise lounge trying in vain to elicit a response—any response—from the overly subdued/sedated group of English travellers.
After meeting complete and total failure in my role as “Canadian Ambassador of Happiness,” I ventured down to the lobby, where to my absolute delight, a tour bus full of very loud tourists arrived, complete with Hawaiian shirts, Polaroid cameras, and John Deere tractor hats. Not missing a beat, I found about a dozen of the biggest, loudest, and most inebriated of the group and marched them down to the pool. Arriving with the din and clamour of a Notre Dame marching band, I got up on one of tables, bouncing up and down, and proceeded to inform the silent sunbathers with the following bulletin: “Hey everyone! The Yanks are here!” The sound of the indignant silence could be cut with a knife. You see, no party in a foreign land is complete without a busload of Texans. God bless ’em.
Originally published Sunday, July 4, 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) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Getchell Gold. My company has a financial relationship with the following companies referred to in this article: Getchell Gold. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Getchell Gold. Please click here for more information.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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 Getchell Gold, a company mentioned in this article.
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.
( Companies Mentioned: GTCH:CSE; GGLDF:OTCQB,
)
Source: Streetwise Reports 07/08/2021
Quebec Precious Metals Corporation (QPM) has set the resource bar at 2 million ounces. QPM management believes that’s the minimum threshold necessary to attract the interest of major gold producers. The initial resource estimate at Sakami, set to hit the market late in 2021, will tell the tale.
Successful companies set goals and reach them. For Quebec Precious Metals Corporation (QPM:TSX.V), the next goal is 2 million ounces (2 Moz).
As part of that goal, the junior gold explorer is drilling 14,000 meters into La Pointe and La Pointe Extension, growing gold deposits within its 100%-owned Sakami gold project in Québec’s Eeyou Istchee James Bay territory, about 600 km north of Val d’Or, Que.
QPM’s summer drill results, in combination with results from previous drilling, will be used to build an initial NI 43-101-compliant mineral resource estimate for Sakami.
Assay results from its 14,000-meter summer drill program should start to reach the market in September, with the preparation of a resource estimate to follow.
“Our goal is two million ounces. That’s the threshold. You need to have a deposit of sufficient size and quality to be attractive for a company to come in and develop it,” says QPM’s CEO, Norman Champigny.
In early June, QPM announced that two holes from winter drilling on the La Pointe Extension intersected mineralization over reasonably wide intervals. Hole PT-21-177 hit 1.83 grams gold per tonne (1.83 g/t gold) over 58.6 meters, including 2.40 g/t gold over 30.9 meters.
About 200 meters northeast, drill hole PT-21-182 assayed 2.15 g/t gold over 42.2 meters, including a sweet spot grading 5.17 g/t gold over 14.5 meters. The mineralization remains open at depth.
In total, three holes from the winter program reported intervals greater than 10 g/t gold over at least 1 meter.
The company is doing some preliminary metallurgical testing on samples taken from the La Pointe Extension.
“The results have been quite encouraging using conventional techniques. You should expect those results to be released over the next few months,” says Champigny.
The La Pointe Extension deposit was discovered in April 2020. The junior explorer was drilling step-out holes about 2 km southwest of the La Pointe deposit when it hit 80.1 meters of 1.15 g/t gold, including 2.21 g/t gold over 25 meters.
At the time Champigny called it “the most significant development on the project since the creation of the company.”
QPM was formed in June 2018 when Canada Strategic Metals merged with Matamec Explorations. The goal was to form a pure gold exploration company.
“The focus is gold. The focus is James Bay. It’s to find a mine there,” says Champigny.
Infrastructure in northern Québec is well established: paved roads, powerlines that distribute cheap electricity across eastern North America, three separate agreements with the Cree First Nation that outline the framework for business relationships, 37.5 cents of every hard cash exploration dollar spent comes back to QPM in the form of a tax credit, and an online geological database that has logged historical core from projects across the province (the database was used to build an exploration program that led to the discovery of the vast Malartic open-pit gold mine).
QPM decided to focus on Quebec’s Eeyou Istchee James Bay territory largely because several large gold discoveries have been made there over the previous 15 years or so, not the least of which was Newmont Corp.’s (NMC-TSX; NMC-NYSE) Éléonore underground gold mine.
Éléonore was discovered by Virginia Gold Mines in 2004 and the plucky junior drilled more than 200 holes on the project before Goldcorp paid US$425 million for it in 2006. Éléonore reached commercial production in 2014 and will produce about 246,000 ounces of gold this year and similar amounts are projected for many years to come.
QPM added to its Sakami gold holdings in the James Bay area by acquiring several gold properties from Sphinx Resources (SFX-TSX.V), including its 50% stake in the Cheechoo-Éléonore Trend project, as well as the remaining 50% held by Sirios Resources (SOI-TSX.V). QPM now holds 1,093 sq. km in the area.
Goldcorp, before it was acquired by Newmont in January 2019, hopped on board in 2018 with C$3.7 million for a stake in the freshly minted QPM. Newmont has since participated in further financings and owns about 13%.
Québec-government backed Caisse de dépôt et placement du Québec bought in at the same time, at the same terms as Goldcorp. It and other Québec institutions own about 12%. QPM management owns about 6%.
“We’ve been trying to increase our ownership. We’ve been active in the market and participated in every financing, ” says QPM President Jean-François Meilleur. “We are aligned with shareholders and committed to develop the company, all the shares we own were acquired through the market or private placement; there was no free lunch.”
Meilleur, who came to the company from a financial background, says the company has a solid capital structure with about 82 million shares outstanding and no warrants. QPM’s current drill program is fully funded, and the company has around C$4 million in the bank.
The junior plans to fund further exploration and most of its mineral resource estimate work by selling non-core assets.
When Canada Strategic Metals merged with Matamec it owned a 20% interest in the La Loutre graphite project, 120 km northwest of Montreal (since sold), as well as stakes in other projects. Matamec, meanwhile, had two gold projects not far from Newmont’s Hoyle Pond gold mine near Timmins, Ont.
Matamec held still more projects, including the Vulcain nickel project (since optioned to Fjordland Exploration (FEX:TSX.V) for $50,000 and 1 million shares) and a 68% interest in the advanced-stage Kipawa rare earth elements joint venture.
Champigny believes QPM’s 68% stake in Kipawa is worth between C$8 and C$10 million. He says the sale should be complete by the end of the summer.
QPM is also seeking buyers for its gold property in Ontario. All proceeds will be funneled directly to exploration. Management knows it needs to keep drilling to unlock shareholder value.
“The gold mineralized structure is 13 km long and we keep coming up with large gold-bearing thicknesses in drill holes. So that’s very encouraging. We have the tail of something even bigger, we don’t know what, but tour plan is to keep drilling to find out how many millions of ounces this deposit can hold,” says Meilleur.
Add another goal to the list.
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Disclosure:
1) Brian Sylvester 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. His company has a financial relationship with the following companies referred to in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Quebec Precious Metals Corporation. Please click here for more information. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) The interview 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.
4) 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 Quebec Precious Metals Corporation, a company mentioned in this article.
( Companies Mentioned: QPM:TSX.V,
)
Source: Streetwise Reports 07/08/2021
Ralph Aldis, portfolio manager at U.S. Global Investors, explains why he believes we are not in a full-fledged gold market yet and discusses where he believes investors can find opportunities.
Streetwise Reports: Ralph, you manage the U.S. Global Investors Gold and Precious Metals Fund (USERX) and the World Precious Minerals Fund (UNWPX), and the Gold and Precious Metals Fund (USERX) just received a 5 Star Morningstar rating for the 10-year and Overall time periods. You must watch the macro trends quite closely. What trends do you see that would be of interest to our readers?
Ralph Aldis: The biggest trend that everybody has been talking about is inflation; that is a real concern. The Federal Reserve is talking about it being transitory. A lot of Street analysts are saying the same thing. Then we have people on the other side of the fence saying, no, it’s not going to be that way. Labor’s demand for higher wages is the issue and this is going to be a challenge for companies. It’s a dynamic scenario and it will be difficult to know how all of that is going to play out, but I think that the key thing in this whole inflation argument is how well labor can make gains in cost-of-living adjustments. If wage gains persist, I think you will see inflation possibly continuing to move. But I do not see runaway inflation in the cards.
SWR: What kind of precious metals shares will outperform the others over, let’s say, the next six months to a year—seniors, royalty companies, developers, juniors? Where do you expect the big moves?
RA: It could play out like how the prior year did in the sense that the market has lost all its momentum with 2021. The senior gold producers typically get the bid up first when this market starts to move. The royalty companies seem to do well early too but whenever gold faces headwinds they tend to be more stable.
I don’t know if I would say we’ve had a real gold market yet. Last year was nice, but we saw what happened in the beginning of this year: some stocks gave up 60%, 70% of what they gained last year with the pull back in gold. It hasn’t looked like a market until just recently where the inflation issue has been coming more to the forefront and getting the stocks lifted back up. But I think it’s going to be similar to the prior year where the seniors moved first.
The exploration companies seem to be getting big bids right now on positive drill results. The one thing that has been missing in this whole group—seniors, royalties, developers and juniors—is the midtier ones have not really gotten much of a bid. Look at Roxgold Inc. that got taken out by Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE). They’re both mid-tiers, but it seemed like nobody really cared. That’s where I think a lot of the opportunity is, companies can buy these midtier ones. Maybe it’s a one- or two-mine producer or maybe it’s an exploration and development company, but the seniors can buy them cheaper than they can probably create that same asset themselves.
I think consolidation is still going to be an opportunity as we go through this period. I think the seniors are going to move first and then the juniors, and then we’ll have to see if this market becomes deep. Then we’ll get full participation.
SWR: Do you anticipate mergers and acquisitions (M&A) heating up in the mining space? If so, what companies could be takeover targets?
RA: Yes. I do see corporate activity picking up, likely at a measured pace as management teams have shown more discipline. I don’t necessarily own companies just as takeover targets, but, as I said, with a lot of these companies, you couldn’t build them for the price that you could pay for them currently. That’s how l feel the valuations are now. One company that probably will be in play is K92 Mining Inc. (KNT:TSX.V). I think it is on the cusp of a significant resource expansion and with its free cash flow it has marked impressive returns on invested capital. The mine is in Papua New Guinea, but Papua New Guinea is not a bad place if you’re paying taxes. That’s the issue. Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) really wasn’t, from what I understand with regards to Porgera; however under new stewardship Mark Bristow has now rectified the issue. I think K92 is doing the right thing socially to have the political support in the country. That’s an easy one.
As for an exploration play, Chalice Mining Ltd. (CHN:ASX; CGMLF:OTCQB) has had a great discovery. Nobody knows how big this is going to be. I would say that that’s one deposit that is in a nice location, 60 km or so outside of Perth in Australia. You have perhaps a world-class ore body there that is in a really nice location to be able to develop. I think that one is really positioned. It may take some time for more exploration, but I think it would have people certainly watching it.
Now, as far as other companies that are potential takeouts, Arizona Metals Corp. (AMC:TSX.V; AZMCF:OTCQX) has a copper-zinc-gold deposit in Arizona. Exxon Mobil Corp. (XOM:NYSE) was evaluating the deposit in the early 1970s. Along with the drilling program, Exxon completed significant underground workings and calculated an internal resource. But the issue when Exxon was looking at it was there was a lot of zinc there and they couldn’t process the zinc metallurgically, so Exxon walked away. Now you can separate that gold from that zinc metallurgically. The value of the resource that Exxon had calculated—again it’s not NI 43-101 compliant—showed substantial opportunity. If you look at some of the other exploration work Arizona Metals has done outside the resource area, there’s probably a lot more that can be unearthed in terms of opportunities for the company. Being that it is in Arizona, in the U.S., it might be something that people want to look a little bit closer at. Copper is certainly in demand for clean energy. It has a small footprint, too, so it could be good.
Additionally, E79 Resources Corp. (ESNR:CSE; ESVNF:OTCQB) recently put out its drill results that hit some very good holes. This is similar to the Fosterville mine in Australia. E79’s stock went from $0.37 to $1.26, a 240% move, in one day. That shows you the market does have an appetite to pay for good exploration results, and the market is not waiting.
What I find interesting is you can have good exploration results that are game-changing for the company such that I and other people are ready to buy it, but the seniors seem to be more cautious about how they’re going to use their balance sheet. That’s been my disappointment when I look at this whole M&A sector, that the seniors shut the window for a year or so, shed assets and made some investments in some of the exploration companies, but we just really haven’t seen the consolidation that I think needs to play out. It may take a couple more years. We may need a real gold market for that to sort out.
SWR: Do you have specific companies that you would recommend investors take a look at?
RA: There’s one that is one of my biggest holdings; it’s in the battery space, but it’s somewhat unique. It’s Nano One Materials Corp. (NANO:TSX). It has patented proprietary technology for cathodes for batteries. What’s unique about the company is it has created a cathode that has an internal crystalline structure, versus amorphous, which accounts for their performance margin. The biggest thing, in simple terms, is it can generate a higher voltage, about 25% higher than your typical cell. That is a huge advantage for either distance or being able to pack more power into a smaller space with these batteries.
Nano One has agreements in Europe and has agreements with battery players in Asia that it is working with. It’s all in the development and testing stage right now. It also has an agreement with a major international North American car manufacturer—it’s either Ford, GM or Chrysler—that’s evaluating one of its cathodes right now. If any of those companies decides to use Nano One’s technology for the batteries, that will be a big deal for the company. It has a C$417 million market cap, but what happens to a company like that when a big major says, hey, we like your technology?
A couple of weeks ago Nano One announced an agreement with Johnson Matthey Plc (JMAT:GBX; JMPLF:OTCMKTS). That gets it in the door with all the European supply chains for manufacturing on the batteries. Johnson Matthey is almost a 200-year-old company and is very well known in material sciences. Nano One is in the same room with all the top players. I think it’s a possibility that it will get a commercial license out of this technology, and that will be a game-changer for it. I would say it might be my biggest opportunity at the moment.
If I was going to go down the list, the next one would probably be K92 as far as potential for something to happen there in the coming year. That’s where I think we could certainly have some good things happen.
Silver Viper Minerals Corp. (VIPR:TSX.V; VIPRF:OTCQB) is a silver-gold exploration company operating in Mexico. In March it released some impressive drill intercepts within the El Rubi structure of the La Virginia project. They cut 252 g/t Au and 3,917 g/t Ag over 1 meter, while their discovery hole was 13.3 meters at 3.16 g/t gold and 228 g/t silver.
Another company I have devoted significant resources to is Ivanhoe Mines Ltd. CL A (IVN:TSX; IVPAF:OTCQX), which has mines it is developing in the DRC and South Africa. The copper assets in the DRC are currently going through their initial startup of mineral processing. The company is selling at a very discounted valuation relative to its peers. Yes, there is political risk, but with the mineral endowment and the grades of the copper ores at Kamoa-Kakula, the zinc at Kipushi and the platinum group metals in South Africa, the stock is too cheap to ignore.
SWR: Which companies have been the top performers in your funds?
RA: Year to date, Arizona Metals is up close to 400% so far this year. It’s been a great win, but it does seem like there is some more to go, perhaps. That’s been one of our best performers year to date.
Gossan Resources Ltd. (GSS:TSX.V; GSR:FSE), a very small company with only a $14 million market cap, is up around 200% for the year. There are a number of smaller companies that are above 100% in terms of gains this year, largely on exploration results. These are in the World Precious Minerals Fund, where we have more of the exploration names.
But if I look at the Gold and Precious Metals Fund, where we have mainly producers, there’s only one stock in that group with greater than a 100% gain. That’s Aya Gold and Silver Inc. (AYA:TSX; MYAGF:OTCMKTS). Benoit La Salle, the person who originally was one of the original founders of SEMAFO, is heading up Aya Gold. It has mainly silver in Morocco. I think he has a great opportunity that he has been able to surface there, and I think he’s the right man to develop it with his francophone experience working in West Africa. The point I would make is in this midtier universe I only see one stock that’s up greater than 100% and that is Aya at +170%. The next highest performer plateaus at 32%. You’re not seeing the big gains in the midtier space. That’s what I’m hoping will change. If we start to see some consolidation at the midtier level, that will probably be a signal that we’re in a real market.
SWR: Any parting thoughts for our readers?
RA: I don’t think we’re in a full-fledged gold market yet, but it certainly could be coming. If you look at the macro picture and where we seem to be going in the world, there’s a significant chance we’re going to be going higher on the gold price in the coming years here.
SWR: Thanks for your insights, Ralph.
Ralph Aldis, CFA, portfolio manager of U.S. Global Investors, is responsible for analyzing gold and precious metals stocks for the World Precious Minerals Fund (UNWPX) & the Gold and Precious Metals Fund (USERX) and for managing the Global Resources Fund (PSPFX). Aldis serves as co-portfolio manager for the rest of U.S. Global Investors’ mutual funds and two ETFs. In 2016, he was named Best Americas-Based Fund Manager by the Mining Journal. In 2011, 2015, 2018 and most recently in 2020, Aldis was named a U.S. Metals and Mining “TopGun” by Brendan Wood International. Aldis received a master’s degree in energy and mineral resources from the University of Texas at Austin in 1988 and a Bachelor of Science in Geology, cum laude, in 1981, from Stephen F. Austin University. Aldis is a member of the CFA Society of San Antonio.
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Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: Silver Viper Minerals. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Ralph Aldis: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: N/A. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: N/A. My company has a financial relationship with the following companies mentioned in this interview: N/A. Funds controlled by U.S. Global Investors hold securities of the following companies mentioned in this article: Fortuna Silver Mines, Roxgold, K92 Mining, Barrick Gold, Chalice Mining Ltd., Arizona Metals Corp, Nano One Materials, Johnson Matthew Plc, Silver Viper Minerals Corp., Ivanhoe Mines Ltd, Gossan Resources Ltd., Aya Gold and Silver. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) The interview 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 Fortuna Silver and Barrick Gold, companies mentioned in this article.
( Companies Mentioned: AMC:TSX.V; AZMCF:OTCQX,
AYA:TSX; MYAGF:OTCMKTS,
CHN:ASX; CGMLF:OTCQB,
ESNR:CSE; ESVNF:OTCQB,
GSS:TSX.V; GSR:FSE,
IVN:TSX; IVPAF:OTCQX,
KNT:TSX.V,
NANO:TSX,
VIPR:TSX.V; VIPRF:OTCQB,
)
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