Thursday, March 26, 2020

Gold Trade: Refuge in a Time of Crisis

The raging liquidity vortex seriously impacted the gold price, which retreated more than 10% from its recent peak. We note that the price of gold is always vulnerable when sentiment is overextended and it is over-bought based on technical measures such as RSI (relative strength index) and net commercial versus speculative positions. USD strength last week hurt as well. As usual, the trading of gold was likely dominated by margined entities trading "paper" as opposed to physical transactions, usually by a factor of 100:1 or more.

Most importantly, we believe that gold provided what it should during times of crisis, a form of insurance to cash in when liquidity was required. Gold has lousy margin rates for levered funds and is, by default, one of the first assets to be cashed in when leverage is reduced. We are comforted that throughout this "policy payout," it has mimicked its performance in the GFC, during which it was first sold down by holders requiring funds for other purposes and then skyrocketed once liquidity was rebalanced and QE began in earnest. We believe that long-term investors, not subject to margin pressures, will be similarly rewarded by owning gold at this time.

Liquidity concerns also played a prominent role in gold producer equity trading. Gold funds, of which the largest are ETFs, were sold aggressively by margined investors and computer-based traders. The largest gold mining ETFs, the GDX2 and GDXJ,3 were so oversold that they diverged from their closing NAVs by wide margins (see Figure 5). Small- and mid-cap gold stocks lost their bids entirely and fell further from already depressed levels. In our opinion, many now trade under their liquidation values. We remind our clientele that gold producers are enjoying healthy, increasing margins and that their earnings performance should handily outperform other industries in this environment.

Figure 5. Forced Liquidations Causing Dislocation in Gold ETFs

Source: Bloomberg. Data as of 3/18/2020.

Our position on gold is unchanged, which is that it should become a preferred currency and liquidity position for investors, with an essential utility as an insurance policy for more difficult markets to come. Artificially-sponsored negative real rates are already severely damaging purchasing power within portfolios. Permanent government debt "monetization" began in 2019 and will now need to accelerate. In the long term, we are convinced that this process of unabated money printing will eventually spur inflation. Admittedly, it is challenging to see beyond the short-term deflationary event and the government-doctored CPI statistics to the eventual reflationary process. Fortunately, either way, this environment is nirvana for gold as a real asset with purchasing power protection.

Sprott's Business and Strategy

In my opinion, the past two weeks have highlighted the importance of Sprott and our mission to help our clients preserve wealth in uncertain times. We are brave, contrarian and committed to providing our clients with the best investment opportunities in our sector. Nothing has changed in this strategy save for the pricing of the opportunity.

Sprott, as a company, has never been in better health. Our employees are safe and accustomed to working collaboratively from remote locations. Our margins are strong, our assets and client base are growing and we have multiple opportunities for expansion. We are committed to our dividend policy, which provides our shareholders with a healthy yield and to maintaining a strong balance sheet. We liken Sprott to a management company that earns a royalty from our assets under management and as such, we believe our shares are undervalued and are actively repurchasing them for cancellation.

We advise our clients to add to their gold positions over the coming weeks and to use periods of short-term weakness as buying opportunities.

Be safe, this too shall pass and we will get through this challenging period together.

- Source, Peter Grosskopf, CEO Sprott Inc

Monday, March 23, 2020

More Quantitative Easing to be Unleashed, Debt to GDP Now Unsolvable

It has been a very difficult couple of weeks for the precious metals complex, the financial markets and the general population. No doubt that the impacts of the coronavirus outbreak will be shouldered by many over both the short and long terms. Some industries, such as travel and hospitality, will require assistance while others, such as medical and long-term care, will need massive investment. I trust that our collective resilience and determination will prevail and that the vast majority of us will be safe and more grateful than we were before 2020.
Sprott is Well Positioned

Sprott is well positioned for these uncertain times. As our clients and shareholders are aware, our firm has been at the forefront of the notion that systematic risks in the markets have been building for years. We believed that there was bound to be some event that served as a catalyst to a sea-change in the perception and pricing of those risks (see This Tide Will Turn, December 2019).

Our thesis has been underpinned by one central premise: that the $250+ trillion build-up in global debt was serving to unnaturally extend the business cycle and asset prices in the same misguided way as during prior bubbles. And, that the economy was no longer growing enough or large enough to support this massive debt balance. We believe it was already, prior to this crisis, an unsolvable equation that had reached its Minsky Moment (see Figure 1).

Figure 1. Debt to GDP Equation No Longer Solvable

Source: Bloomberg. Data as of 3/18/2020.

Concurrently, central banks have become influenced by their political masters and now serve widely to provide the financing and stimulus required to hold the equation in abeyance. Negative interest rates never made sense to us and neither do seemingly permanent budget deficits after a 10-year bull market. Sadly, the coronavirus pandemic has now provided the pin which has burst the bubble.

Long-Term View Unchanged

From the perspective of Sprott and the positioning of our clients and firm, nothing has changed over the last two weeks. Our clients have co-invested with us in gold and related assets to protect their wealth from the current global reset, a strategy that has historically always paid dividends. We are now several giant steps further into the process of financial repression which is required for the "books to balance".

Clearly, more quantitative easing ("QE") needs to be unleashed, no matter what you call it, in order to provide the liquidity the system desperately requires. Interest rates cannot rise without making the situation much worse, so central banks will do what is necessary to keep a lid on rates. Fiscal stimulus is also on the way because even after 10 years of recovery, the economy is nowhere near strong enough to handle the stresses of a coronavirus slowdown. In summary, more low rates, more printing, more budget deficits. Nothing we weren't expecting, just more severe than we anticipated...

- Source, Peter Grosskopf, CEO of Sprott Asset Management

Friday, March 20, 2020

Eric Sprott: Collapsing Global Markets and it's Impact on Precious Metals

Eric Sprott discusses the collapsing global markets and the impact this having on gold, silver, and the mining shares.

- Source, Sprott Money

Wednesday, March 11, 2020

Novo Agrees to Acquire Significant Stake in New Found Gold Corp.

Novo Resources Corp. (Novo” or the “Company”) (TSX-V: NVO; OTCQX: NSRPF) is pleased to announce that it has subscribed for 15,000,000 common shares of New Found Gold Corp. (“New Found”), a Canadian private exploration company with the largest mineral claim package in the Province of Newfoundland and Labrador. The subscription price will be paid by the issuance of 6,944,444 common shares of Novo (the “Acquisition”). The Acquisition is subject to TSX Venture Exchange approval.

Upon closing of the Acquisition and assuming no further share issuances by New Found or Novo, Novo will own approximately 15.97% of the issued and outstanding shares of New Found and New Found will own approximately 3.73% of the issued and outstanding common shares of Novo. The Acquisition gives Novo a significant stake in yet another promising new gold field and, coupled with the Company’s recent investment in ASX-listed Kalamazoo Resources Limited, further diversifies the Company’s passive exposure to potentially significant discoveries worldwide.

New Found is focused on exploring its wholly-owned Queensway project (the “Queensway Project”) located near the town of Gander, Central Newfoundland. The first hole from its late 2019 drill program (NFGC-19-01) on the Queensway Project intersected 92.86 g/t Au over 19.0 metres including 285.2 g/t Au over 6.0 metres. This intercept is near surface, starting at 96 m down hole depth. The true width of this intercept is estimated to be 70% based on drill core angles and correlation with historic drilling. The information in this paragraph and the next has been provided to Novo by New Found and has not been verified by Novo.

The Queensway Project comprises 85 km of prospective strike length with strong geological indications that much of the property falls within the prospective high-grade epizonal orogenic regime. In addition to the impressive gold intercept encountered in hole NFGC-19-01, historic work has yielded numerous high-grade surface rock chip and float samples along approximately 20km of strike length on the Appleton and JBP fault zones. An historic gold resource is situated approximately two kilometres from hole NFGC-19-01.

The Province of Newfoundland and Labrador is a favorable exploration and mining jurisdiction. The Province recently launched the “Mining the Future 2030” initiative which envisions five new mines, direct employment of a diverse workforce of more than 6,200 people, CAD $4 billion in annual mineral shipments, and CAD $100 million in exploration expenditures by 2030 (please see and bodes well for the future of the Queensway Project.

Eric Sprott, a director of Novo, currently holds 16.79% of the issued and outstanding shares of New Found immediately prior to the Acquisition. As such, New Found is considered a non-arm’s length party to Novo pursuant to TSX Venture Exchange policies.

Pursuant to the terms of the Acquisition, the Company also has the right to appoint a director to the board of directors of New Found at any time for a period of three years from the Acquisition Date provided that the Company holds no less than 10% of New Found’s issued and outstanding shares. The Company has also agreed to certain voting restrictions for a period of three years.

“We at Novo think the Queensway Project represents a very promising new high-grade gold discovery,” commented Dr. Quinton Hennigh, President and Chairman of Novo Resources. “It appears the Queensway Project encompasses an area highly prospective for high-grade epizonal orogenic gold mineralization. We are very pleased to have the opportunity to be part of this exciting discovery and, upon completion of the Acquisition, look forward to supporting New Found as they advance work around hole NFGC-19-01 and the many other high grade showings across the Queensway Project.”

“We are thrilled to welcome Novo as a significant stakeholder in New Found,” commented Collin Kettel, Executive Chairman and Director of New Found. “Following strategic investments in New Found by Eric Sprott and Rob McEwen last year, we are excited to receive further validation of our team’s discovery at the Queensway Project in Newfoundland. We look forward to working with Dr. Quinton Hennigh and the entire Novo team as we continue to advance the Queensway Project.”

- Source, Yahoo Finance

Saturday, March 7, 2020

Eric Sprott, Terry Lynch: Protect Retail Investors, Let Them Make Money

At the Prospectors & Developers Association of Canada convention, the Investing News Network got an update from Terry Lynch and Eric Sprott on the Save Canadian Mining initiative.

Tuesday, March 3, 2020

Coronavirus Concerns, Protests and More

The coronavirus was in focus of day one of PDAC, with resource sector heavyweights like Eric Sprott and Rick Rule providing commentary on its effect on the gold price. 

The Investing News Network also took to the floor (and Twitter) to poll attendees on whether Canada is still attractive as a mining jurisdiction.

- Source, Investing News

Monday, February 24, 2020

What Kind Of Shareholder Appears On The Bonterra Resources Inc.’s Shareholder Register?

If you want to know who really controls Bonterra Resources Inc. (CVE:BTR), then you’ll have to look at the makeup of its share registry. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. I quite like to see at least a little bit of insider ownership. As Charlie Munger said ‘Show me the incentive and I will show you the outcome.

Bonterra Resources is a smaller company with a market capitalization of CA$123m, so it may still be flying under the radar of many institutional investors. In the chart below, we can see that institutions own shares in the company. Let’s take a closer look to see what the different types of shareholder can tell us about Bonterra Resources.

What Does The Institutional Ownership Tell Us About Bonterra Resources?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

Bonterra Resources already has institutions on the share registry. Indeed, they own 21% of the company. This suggests some credibility amongst professional investors. But we can’t rely on that fact alone, since institutions make bad investments sometimes, just like everyone does. When multiple institutions own a stock, there’s always a risk that they are in a ‘crowded trade’. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Bonterra Resources’s historic earnings and revenue, below, but keep in mind there’s always more to the story.

TSXV:BTR Income Statement, February 16th 2020

It would appear that 16% of Bonterra Resources shares are controlled by hedge funds. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. Looking at our data, we can see that the largest shareholder is Wexford Capital LP with 16% of shares outstanding. Kirkland Lake Gold Ltd. is the second largest shareholder with 11% of common stock, followed by Eric Sprott, holding 6.7% of the stock.

On studying the facts and figures more closely, we found that 7 of the top shareholders account for 51% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock’s expected performance. We’re not picking up on any analyst coverage of the stock at the moment, so the company is unlikely to be widely held.

- Source, Simply Wall St.

Saturday, February 22, 2020

Sprott Weekly Wrap Up: A Week of Tough, Tough News for Gold and Silver Investors

“First of all, just to remind the listeners, I think the first time you and I mentioned this was two weeks ago. At that time, there were two hundred cases—in the world. 

There is thirty-one thousand now. That’s one hell of a big increase in two weeks’ time. And I’ve seen artificial intelligence numbers that suggested that by March 15 we could have 2.5 billion cases and 53 million deaths. 

That’s just an extension of numbers, that’s not my prediction.”

- Source, Junior Mining

Wednesday, February 19, 2020

Argo Gold Announces C$1 Million Financing

Toronto, Ontario--(Newsfile Corp. - February 4, 2020) - Argo Gold Inc. (CSE: ARQ) ("Argo Gold" or the "Company") is pleased to announce that it intends to complete a private placement offering of up to 11,200,000 units ("Units") at a price of $0.09 per Unit, for gross proceeds of up to $1,008,000 (the "Offering"). Eric Sprott has indicated his intention to take up all of the Offering.

Each Unit will consist of one common share (a "Common Share") of the Company and one common share purchase warrant (a "Warrant") with each Warrant entitling the holder thereof to purchase a Common Share at an exercise price of $0.12 for a period of thirty-six (36) months following the closing of the Offering. All securities issued under the Offering are subject to a four-month and one day statutory hold period.

The closing of the Offering is anticipated to take place on February 7, 2020. The closing is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the Canadian Securities Exchange.

Sunday, February 16, 2020

Canadian Palladium Closes Non-Brokered Private Placement

Canadian Palladium Resources Inc. (CSE: BULL) (OTCQB: DCNNF) (FSE: DCR1) (formerly 21C Metals Inc.) (the "Company") has closed the non-brokered private placement previously announced on January 20, 2020. The private placement raised gross proceeds of $4,000,403 through the issuance of 33,336,698 units (each, a "Unit") at a price of $0.12 per share. Each Unit consists of one common share and one common share purchase warrant exercisable at a price of $0.18 for a period of 12 months from the date of grant.

Mr. Eric Sprott, through 2176423 Ontario Ltd., a corporation which is beneficially owned by him, acquired 12,500,000 Units for a total consideration of $1,500,000. Following the completion of the private placement, Mr. Sprott beneficially owns and controls 12,500,000 Common Shares and 12,500,000 Warrants of the Company representing approximately 12.6% of the issued and outstanding Common Shares of the Company on a non-diluted basis and approximately 22.2% of the issued and outstanding Common Shares on a partially diluted basis. Prior to the Financing, Mr. Sprott did not beneficially own or control any shares of the Company.

The Units were acquired by Sprott for investment purposes. Mr. Sprott has a long-term view of the investment and may acquire additional securities of Canadian Palladium including on the open market or through private acquisitions or sell securities of Canadian Palladium including on the open market or through private dispositions in the future depending on market conditions, reformulation of plans and/or other relevant factors.

A copy of Sprott's early warning report will appear on Canadian Palladium profile on SEDAR and may also be obtained by calling Mr. Sprott's office at (416) 945-3294 (200 Bay Street, Suite 2600, Royal Bank Plaza, South Tower, Toronto, Ontario M5J 2J2).

The Company has issued 1,314,099 finder's units (the "Finder's Units"), 230,042 finder's warrants (the "Finder's Warrants") and issued $27,605 in cash as finder's fees to eligible agents who arranged for subscriptions of Units under the private placement. Each Finder's Unit consists of one common share and one Finder's Warrant. Each Finder's Warrant entitles the holder thereof to purchase one additional common share at a price of $0.18 for a period of 12 months from the date of issuance.

The Company intends to use the proceeds of the financing to advance its East Bull palladium project and for general working capital.

All of the securities issued under the private placement are subject to a four-month resale restriction and may not be traded until May 29, 2020.

Friday, February 14, 2020

Four Junior Resource Stocks with Big Name Insider Buying

The junior resource stocks we’ve unearthed have received significant insider buying from legendary investor Eric Sprott over the past three months.

Insiders are defined as any person with access to key company information before it is released to the public, or someone who owns more than 10% of a company’s shares. Insiders include individuals such as management, officers, and directors. 

Government bodies require companies to report this information, in a timely manner, giving investors a sense of insider activity within a company. One of the wealthiest investors in the mining sector is Eric Sprott, the billionaire founder of Sprott Inc. The junior resource stocks we have discovered today have received a significant insider investment from Eric Sprott during the past three months.

Amex Exploration Inc. (TSXV:AMX) – $1.50
Gold exploration

Amex Exploration is a Canada-based mining exploration company focused on exploration activities conducted in Canada and Mexico. Its properties include the Perron Property, Normetal Property, Cameron Property, Lac Indicateur property, Eastmain Centre property, Eastmain North Property, Natora Property and Nueva Escondida property. 

The Company’s flagship asset, the Perron Property, consists of approximately 120 mining claims covering an area of over 4,510 hectares in northern Quebec. Amex’s summer drilling program found high-grade gold intersected on the Gratien gold zone at Perron, with results up to 16.48 g/t Au over 14.6 m, including 315.4 g/t Au over 0.5 m and 102.96 g/t Au over 0.7 m. Eric Sprott added 2M shares at $1.00/share last November, bring his total ownership up to 6.7M shares.
Market Cap: $99.6M
30-Day Return: +6.4%
90-Day Return: +50.0%
30-Day Average Trading Volume: 63,540
90-Day Average Trading Volume: 58,030

Benchmark Metals Inc. (TSXV:BNCH) – $0.405
Gold and silver exploration

Benchmark Metals is a mining company focused on exploring and developing its Lawyers Gold and Silver project located in the prolific Golden Triangle of northern British Columbia. The Lawyers Property and formerly producing Cheni Gold and Silver Mine is located 45 km northwest of the Kemess Gold and Copper Mine. 

The Property contains an existing Mineral Resource and hosts at least 16 gold and silver occurrences that were never fully mined, developed or explored. Eric Sprott added 2.3M shares at $0.30/share last December, following 13.3M shares added at $0.30/share in September, bringing his total ownership to 15.6M shares.

Market Cap: $39.1M

30-Day Return: +9.5%
90-Day Return: +12.5%
30-Day Average Trading Volume: 281,900
90-Day Average Trading Volume: 161,090

Discovery Metals Corp. (TSXV:DSV) – $0.65
Silver Mining

Discovery Metals focuses on discovering and advancing high-grade polymetallic deposits in a land package of about 150,000 hectares in the historic mining district in Coahuila State, Mexico. 

The Company’s portfolio consists of three large-scale, drill-ready projects and several earlier-stage prospects. Currently, the land holdings contain numerous historical direct-ship ore workings with several kilometers of underground development, however no modern exploration or drill testing on the properties has occurred before the work of Discovery Metals. 

As well, Discovery is currently exploring one the world’s largest silver resources at its 100% owned 37,000-hectare Cordero Project in Chihuahua State, Mexico. Eric Sprott added 3.3M shares at $0.45/share in December, following 7.8M shares added at $0.45/share in November, bringing his total ownership to 41.3M shares.

Market Cap: $137.5M

30-Day Return: +10.2%
90-Day Return: +31.3%
30-Day Average Trading Volume: 268,160
90-Day Average Trading Volume: 191,070

Dolly Varden Silver engages in the acquisition, development, exploration, and evaluation of mineral properties in Canada. The Company explores for gold, silver, and copper deposits. It holds 100% interests in the Dolly Varden project, covering an area of 8,800 hectares, as well as the Musketeer property located in northwestern British Columbia; and the Big Bulk porphyry copper-gold project located in Canada. Eric Sprott added 5.7M shares at $0.235/share in September, bringing his total ownership to 10.7M shares.

Market Cap: $19.2M

30-Day Return: -28.1%
90-Day Return: -33.8%
30-Day Average Trading Volume: 166,570
90-Day Average Trading Volume: 126,900

Wednesday, February 12, 2020

Could Benchmark Metals Investor Composition Influence the Stock Price?

The big shareholder groups in Benchmark Metals Inc. (CVE:BNCH) have power over the company. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. I quite like to see at least a little bit of insider ownership. As Charlie Munger said ‘Show me the incentive and I will show you the outcome.

Benchmark Metals is a smaller company with a market capitalization of CA$39m, so it may still be flying under the radar of many institutional investors. Our analysis of the ownership of the company, below, shows that institutions are noticeable on the share registry. Let’s delve deeper into each type of owner, to discover more about Benchmark Metals.
What Does The Institutional Ownership Tell Us About Benchmark Metals?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that Benchmark Metals does have institutional investors; and they hold 7.0% of the stock. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It’s therefore worth looking at Benchmark Metals’s earnings history, below. Of course, the future is what really matters.

TSXV:BNCH Income Statement, January 27th 2020

Hedge funds don’t have many shares in Benchmark Metals. Looking at our data, we can see that the largest shareholder is Eric Sprott with 16% of shares outstanding. Sprott Asset Management, LP is the second largest shareholder with 7.0% of common stock, followed by James Greig, holding 2.2% of the stock. James Greig also happens to hold the title of Member of the Board of Directors.

A deeper look at our ownership data shows that the top 8 shareholders collectively hold less than 50% of the register, suggesting a large group of small holders where no one share holder has a majority.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock’s expected performance. Our information suggests that there isn’t any analyst coverage of the stock, so it is probably little known.

- Source, Simply Wall St