Categories:
Precious Metals
Topics:
General Precious Metals
Central Banks Are Trapped
Central Banks are trapped and the scenario I’ve been waiting years to see play out is now materializing.
The speculator and investor in me is excited because the volatility that’s approaching will provide some incredible opportunities to make a lot of money.
The human in me cringes because the volatility that we will experience globally will have real-world consequences for many, many people. Consequences that will include defaults, bankruptcies, recessions, and if history is any guide…. war.
It was a busy week on the global stage so lets get right to it.
Central Banks are Trapped
Earlier in the week I noted that although the Fed was likely to leave rates unchanged — for now — that the real action would come from Japan. The Bank of Japan surprised most analysts and investors on Thursday by leaving monetary policy unchanged.
Conventional wisdom indicated Japan would take additional measures to halt currency appreciation in the world's third-largest economy. This would support domestic exporters and encourage wage growth.
The inaction was unexpected because Japan’s latest attempt to ignite inflation and weaken the Yen, through adopting a policy of negative interest rates, has failed miserably. The dollar has fallen nearly 10% against it since the January policy decision.
Allianz Chief Economic Adviser Mohamed El-Erian may have put it best in an interview with CNBC: "The shocker is whatever they do, they get it wrong. They ended up doing too much last time, and they suffered a currency appreciation, and they did nothing this time, and they got the same outcome.”
How did markets react? Gold continued to rally, hitting its highest price since January of 2015. Silver had its biggest monthly gain since August 2013, palladium reached its highest price since July of 2015 and oil is at new 2016 highs.
The moves were largely driven by the reaction in the currency markets. The Yen hit an 18-month high versus the dollar and had its biggest weekly gain since 2008. Welcome to the new normal.
I’ve been very vocal that central banks and their policies will continue to be the drivers — in both directions — of currencies and the metals prices, which ultimately become the main driver for the next leg up or down in the junior space.
I’ll be diving into how I see that playing out, and why, in more detail in the first issue of Resource Stock Digest Premium.
The latest rally in the metals space has been impressive. The rally in the juniors has been spectacular. It’s ignited a little greed, which always gives birth to the next round of fear.
The launching of Resource Stock Digest Premium at this juncture is very deliberate. I believe the events I see unfolding in the next few weeks, and months, will be among the most important in years for those of us who invest and speculate in the resource sector. Exciting times indeed.
The Week in Juniors
Columbus Gold (TSX: CGT)(OTC: CBGDF)
On April 29, Columbus Gold reported results for the first ten 2016 drill holes from its 100%-owned Eastside gold project in Nevada. Nevada has several interesting active drill programs — Gold Standard and Pilot among them — during a time where few companies are actually putting the truth machine to work.
Highlights from the release include:
- ES-96 with 35.1 m of 4.1 g/t gold (including 19.8 m of 6.91 g/t gold and 97.3 g/t silver)
- ES-90 with 13.4 m of 4.06 g/t gold (including 1.38 m of 34.9 g/t gold and 213 g/t silver)
- ES-91 with 19.7 m of 1.74 g/t gold
- ES-89 with 39.2 m of 0.69 g/t gold
- ES-94 with 59.5 m of 0.47 g/t gold
The headliner, hole ES-96, starts at a depth of 199.7 meters and ends at 234.7 meters and includes 19.8 meters of 6.91 g/t Au and 97.3 g/t Ag from a depth of 201.2 meters to 221 meters.
So low grade so far, with continuity in the higher-grade holes that has been an issue, but it’s good to see them drilling.
Columbus Gold is a gold exploration and development company operating in French Guiana and Nevada.
Its Montagne d'Or gold deposit in French Guiana hosts an NI-43-101 in-pit gold resource of 3.9 million ounces Indicated and 1.1 million ounces Inferred (83.2 million tonnes @ 1.45 g/t gold, and 22.4 million tonnes @ 1.55 g/t gold, respectively, at a 0.4 g/t cut-off).
Columbus has an option agreement with Nordgold, which is funding all work, and can earn a 50.01% interest in the Paul Isnard Project by spending a minimum of US$30 million and completing a bankable feasibility study by March 2017.
Miranda Gold (TSX-V: MAD)(OTC: MRDDF)
On April 27, Prospect-generator Miranda Gold, and funding partner Prism Resources, announced a planned drill program for the Cerro Oro Project in Colombia.
Prism is the funding partner and Miranda is the operator in the joint venture. Four to five angle holes totaling 1,000m are planned. Drilling is anticipated to begin before the end of May 2016.
Miranda is one of those project-generators whose market cap was decimated during the latest downturn. Miranda has approximately 100.9 million fully-diluted shares outstanding and shares trade at approximately C$0.10 for a fully-diluted market cap of approximately C$10 million.
Over 27 million warrants and options are priced between C$0.22 and C$0.375, substantially higher than the current price. The company has approximately C$2 million in cash, properties in Nevada, Alaska, and of course Colombia.
I’ve always advised caution of jurisdiction risk in parts of Colombia. Alaska and Nevada are of course excellent mining jurisdictions. With a couple of joint ventures, one production joint venture, and a little over C$2 million in the bank, Miranda is a company I’ll be watching.
Reservoir Minerals (TSX-V: RMC)(OTC: RVRLF)
On April 24, Nevsun Resources announced it had agreed to buy Reservoir Minerals for approximately C$365 million in cash and stock. Reservoir trades today near the C$9.30 per share level. Quite a bit higher than the C$0.39 from once upon a time.
Congratulations to the Reservoir team. The combination of a world-class discovery and execution by Reservoir has allowed shareholders the type of gains that are the reason we invest in this risky sector.
Lundin Mining said on March 3 that it agreed to buy part of Freeport's stake in the Timok project for up to $262.5 million.
The proposed transaction was, however, subject to a right of first offer that Reservoir had, which put Reservoir first in line to purchase the Freeport stake.
With $135 million of financial backing from Nevsun, Reservoir is now able to exercise that right, overriding the deal with Lundin. The new deal will result in Reservoir owning 100% of the Timok project's upper zone and 60.4% of the lower zone.
Reservoir will also become the operator of the project, taking over from Freeport.
Reservoir is a great example of how advantageous the project-generator model can be with a little bit of luck and great execution.
There will be others, and I anticipate further M&A from project-generators that have excellent assets and upside exploration potential.
Uranium
Cameco (TSX:CCO)(NYSE:CCJ)
The focus at Resource Stock Digest Premium is heavily tilted towards early-stage exploration and development companies in the precious metals space and, more specifically, the gold space.
However, I feel uranium will continue to develop favorable supply-demand fundamentals over the next year or two that will provide the kind of opportunity I feel the precious metals space provides us now — or will after "the last fake rally” fizzles and retraces.
So when I see news like the release from Cameco on April 21 it bears mentioning.
On April 21, Cameco announced that it was suspending production at its Rabbit Lake operation in northern Saskatchewan and that production was being curtailed at Cameco Resources' U.S. operations by deferring well-field development. The changes are expected to result in a reduction of about 500 jobs at Rabbit Lake and about 85 at the U.S. operations, including employees and long-term contractors.
This follows the weakness in uranium prices, which fell from about US$70 per pound at the time of the Fukushima Daiichi disaster in 2011 to an 11-year low of about US$25 this week.
Japanese reactor restarts have been slower than almost anyone anticipated. Of the country’s 54 nuclear power plants, only three have come back online since the disaster.
The layoffs are unfortunate... but these type of cuts and a reigning-in of oversupply will set the stage for the next uranium bull market.
In the meantime there are several names in the uranium space that seem undervalued, even by today's market. I’ll be bringing those to you soon.
And now, for a new segment called...
“I call BS”
Seabridge Gold (TEX: SEA)(NYSE: SA)
What do you do when you have a low-grade asset and your stock is trading at 52-week highs? You raise money of course. Less than a year ago Seabridge traded at C$4.34. Just a few weeks back shares reached a 52-week high of C$19.93.
The glaciers and rivers and salmon are all still issues for its flagship KSM project.
Majors have been drilling it since 1961 and have said no to developing it. The capex is in the billions because it needs power, roads, a $600 million tunnel and my favorite, $46 million (according to its 2012 feasibility study) for avalanche control.
Did I mention it sits up high on a remote mountain? As an added bonus the proposed mine sits just upstream from Misty Fjords National Monument, in my old stomping grounds, Alaska. Does Alaska still have earthquakes? Don’t mind the little things.
But I digress. This will never be built, but that didn't stop the stock from reaching 52-week highs and a syndicate of underwriters led by Canaccord Genuity, National Bank Financial, and Paradigm Capital, from writing checks to the tune of C$7.83 million.
The company was generous enough to grant the underwriters an over-allotment option for an additional C$870,000, which of course was exercised, bringing the total to C$8.7 million.
Seabridge now commands approximately a $1 billion market cap, a little less in U.S. dollars, but either way, I call BS.
There’s several other developments I’m watching... but this is getting long for a weekly missive so I’ll save some for the first issue of Resource Stock Digest Premium, which will be available soon.
To your wealth,
Gerardo Del Real
Editor, Resource Stock Digest Premium