Fishing for Gold with Eric Sprott - Weekly Wrap-Up (January 17, 2020)

Craig: Well, hello, again, from Sprott Money News and sprottmoney.com. It's Friday, January the 17th, and this is your latest version of the "Weekly Wrap-Up." I'm your host Craig Hemke, and joining me this morning is, again, Canada's favorite fisherman, Eric Sprott. Eric, good morning.

Eric: Hey, Craig. Happy to be here. I'm in northern Argentina fishing for golden dorado in a place called La Zona, which is a very, very special fishing place. And happy to say I bagged a 35-pounder this morning. Of course, I always catch and release just so everybody knows, but I've been having a good time. And I feel a little bit out of touch but happy to share some thoughts on what's going on in the market.

Craig: So let me get this straight. You're catching golden fish?

Eric: Golden dorado. Yes, sir.

Craig: Gold and silver surrounds you, Eric. And it has been a very good week. We have got a lot to talk about, and I want to point out to everybody before we get started a couple of things. With Eric technically on vacation, we have a list of stocks that we're probably not going to be able to get to today, but we'll hold those for next week. Additionally, it is always important to note that Sprott Money, your sponsor of these calls, is a fantastic gold and silver bullion dealer. One of the specials we have in January focuses around the Chinese New Year and the Year of the Rat. Treat your friends, your family, even yourself to some beautifully crafted bullion and collectible coins including the hugely popular one-half kilo Silver Lucky Dragon. I could use one of those. We sold out of those babies last year. So get them while they're hot. You can visit sprottmoney.com or, of course, call 888-861-0775 to see the full product selection for the Chinese New Year. And prices are going higher, Eric. They tried to run down earlier this week, but it's not how you begin the week that matters, it's how you end it. And we look to be finishing strong. What do you think?

Eric: Well, it's been most impressive because after the big selloff, it's the one-day war, you might have thought that people would take...the commercials would take advantage of that, and I think maybe they got it down to $1,536, something in that area. But it's rebounded very, very nicely, trading now around $1,550. I think it could probably go to $1,560 and we'll maybe have a new closing high. I'm not sure what the closing high is, but I think we're kind of close to it any day now. I think the most impressive thing is watching the other metals these days, and I'm specifically thinking of palladium and platinum, rhodium, and the kinds of moves that they're putting on here. And, of course, as you heard, my friend David Jensen has pointed out in the case of palladium, it's now a market even that trades on the COMEX than anybody on the COMEX knows that they don't dare short it because there's a physical shortage of palladium. So what happens to palladium when there's a physical shortage? I've seen at least two days this week including today when it's up around 3% each day. And it looks like platinum is getting in gear here, we're north of a thousand. Silver looks like it's coming to life a little. It's up, I think up 20 cents the last time I looked today, so it's up a solid 1%. So the metals, in terms of the prices, are impressive. As you were talking about Sprott Money, gee, I wish we had an office in Germany because the coin dealers over there have sold out of all gold products because the government, of course, is changing the rule that you can only now buy, I think it's €2,000 worth of gold and not have to provide identification. And it was €10,000. And it could replace pictures of lineups at bullion dealers, and the guys have been basically wiped out of gold products because there's that many people in Germany that would like to purchase it before the rules are changed.

So, we're seeing, and even the...I think I mentioned last week that the Perth Mint's sales in December were crazy, and they did attribute it mostly to the people in Germany who were looking for sources of physical metals. So, that's been a great sign of what can happen. Can you imagine if we were sitting here and we saw people lined up to buy gold and silver in North America? Now, wouldn't that be an interesting headline? And, of course, the more important headline would be, well, there is none. So, I think that there's every opportunity in the world of that happening. We've seen it in palladium. We might be getting close and, in fact, rhodium looks like we're certainly in that situation. So, I don't think we're too far from physical shortages now correcting themselves.

Craig: You mentioned those other metals, Eric, and I think this is important because it doesn't appear that Fed policy is changing this year. The repo crisis isn't going away. Now there's talk of a big massive tax cut which means there's going to be more debt for the Fed to monetize as we go through the year. And now, it appears that we're starting to catch a bid across the commodity sector. You mentioned palladium, platinum moving up to two-year highs. Kind of the rising tide lifts all boats in this case, wouldn't you say?

Eric: Well, it looks that way. And I think that the average investor...maybe I should not use the "average investor," but it might be more the sophisticated investor, including the institutions, realize that everyone's debasing their currency. I mean, whether it's in Japan, or the EU, or now in North America, it's obvious that currencies just are being treated like trash. And there's no better offset to that than owning the physical metals, and I think it's starting to bite here. So, it could get to be quite an exciting year as time goes on.

Craig: Eric, I want to point this out to you, too, before we talk about some of your favorite miners. I had noticed back in October, you know, that's when the Fed started their repo and QE programs, but on October the 15th, the H-U-I, the HUI bottomed at $200 before it moved to $240. That's a move of 20%. Well, October 15th is about the time when the majors began their earnings releases for the third quarter. Well, guess what? Just this week, we had January 15th and those majors have begun reporting earnings again. I would think we're probably set up for a good move if you look at it that way.

Eric: I would hope so. And one of the things that's been true in my life in the gold business, the majors haven't really come through as much as you might have anticipated. It's more likely to happen in the intermediates and juniors. I was just even looking at Barrick's reduction and even the new combined company, the average annual production is at 5.5 million ounces, 5.6 million, something like that. And I think, "Boy, they were producing more than that 10 years ago." And now they've made a merger and they're still only producing 5.5 million. But certainly with the price of gold where it is, the feeling that the prices could go a lot higher, some of these recommendations that we saw. The Bridgewater recommendation that gold...they projected that gold would go north of $2,000. Well, you know, if gold went to $2,000, pretty well any producer in the world would double their earnings. So, you could imagine that you could get a 100% move in that stock price over the next 12 months. So, there's lots of opportunities in the... One thing that I probably should talk about is the open interest keeps going up. We went through 800,000 contracts in gold which came down overnight. But it's almost as though these shorts attract here. They just can't extricate themselves from this position, that there's a steady flow that are willing to take on new contracts. And, of course, every time somebody new comes in to buy a contract, the commercials are almost forced to sell it to them because there really are no sellers other than them. And the open interest keeps rising. I don't know when, you know, somebody at one of those banks, because they're down something like $5 billion or $6 billion, but somebody running the banks are, "All right, guys, I think we better get out of this scene here." And, of course, once one of them turns on the rest of the [inaudible 00:08:50], it could be, all hell could break loose. So, we have that to look forward to as well.

Craig: Absolutely, it's going to be a very interesting year. We've heard that palladium is kind of that canary in a coal mine, or perhaps a palladium magic bullet for lack of physical supply affecting the paper markets. Maybe that is beginning to play out this year. It's certainly interesting to watch. It won't go straight up, that's for sure. But it is certainly working in our favor. Eric, I want to ask you about some news on some of the stocks we often follow. Like, I said, we'll get back to business as usual in getting to some of the listener questions next week. I know you've got a couple of things you want to mention on Kirkland Lake and maybe Jaguar?

Eric: Well, the only news on Kirkland is that the services that come up with recommendations for institutions. ISS and Glass Lewis have both come out and suggested that the shareholders vote in favor of the merger with Detour Gold. So that came out, I think, a couple days ago. So that's good news. I think it's a bit of a toss-up whether it goes through. I'm sure the Kirkland shareholders will vote for it. Whether or not the Detour shareholders will vote for it, I'm not certain because I'm not as close to Detour as I am to Kirkland. And it's fairly concentrated ownership in Detour. So we'll have to wait and see on that one. But as I've already expressed, I would very much want the merger to go forward, and, of course, as this price of gold's gone up here, one of the primary beneficiaries is Detour Gold. And speaking of primary beneficiaries, I was going to talk about two other stocks. One was Jaguar, the other one's called Gran Colombia. And Jaguar, of course, happened to, almost went bankrupt about six months ago. And the major beneficiaries of gold going higher, they do produce sort of [inaudible 00:10:52] announces. I think their projection is or their hope is that they can get to something like...I think the official number is, like, $86 to $94 this year, but hopefully, they'll do a little better than that. And between the price going up by, let's say, $150 year-over-year and the production going up, you can see very significant earnings turnarounds here. So, that could very well, since we, in total, we had a placement of 8 and a half cents trading at 25 cents today. But I think the earnings, again, will look pretty interesting. Same thing with Gran Colombia. They have mines in Colombia. They're actually about a 240,000-ounce-a-year producer. I have this metric that I use that every hundred thousand ounces of production should give you a market cap of about $400 million. Well, that would imply close to a billion dollars market cap. I think the market cap right now is around $300 million. Not Canadian, I'm talking US when I say "a billion" or $400 million per 100,000 ounces, so. And, of course, that's going to hold even more with the price of gold going up. I probably should be using a higher metric now. But both of those, Jaguar and Gran Colombia, probably should have special fourth quarters here, so people should be watching for the releases from those two companies.

Craig: One more thing about Kirkland Lake. If the merger does go through, how soon typically does the Detour production begin lumped in with Kirkland Lake's and you begin to see those numbers combined?

Eric: Well, of course, immediately, right. I mean, we'll see it immediately. I, you know, if it closes, let's say, the end of January, we'll get the first two months...I'm sorry, the second two months of the quarter...and of course, the fact that the price has gone up, one. And two, the fact that Kirkland, which now has, what is it, $800 million of cash on their balance sheet, something like that. The one thing that Detour didn't have, they never had access to easy cash. You know, where if you go out and do some exploration or buy some new equipment, you know, almost get a little frivolous with your money. But Kirkland has that kind of money, and I'm sure they're quite prepared to throw it at the Detour operations and get production turned around here or approved here. Not that it was bad, it's good. But I think throwing some money at that operation will have a pretty quick impact on operations going forward.

Craig: And one last question, Eric. I saw some stuff on my site this week about your involvement and Dr. Hennigh and Novo Resources' involvement in a company called Kalamazoo. Can you talk about that?

Eric: Well, Kalamazoo is listed in Australia. It has a property south of Fosterville, south and a little west of Fosterville. And I think it's maybe about 35 kilometers away, something like that. But it was suggested by Quinton, Dr. Hennigh, that they had an intersection...I'm just going by memory, something like 1.4 meters of, I think it was 150 grams of gold. And it was kind of a Fosterville-like intersection. And, of course, it's in the area. And so, of course, I have a great admiration for Quinton, and he was pointing it out to me and the fact that the company needed, Kalamazoo needed some money [inaudible 00:14:29] and looking forward to a Fosterville kind of like drill result moving forward here.

Craig: Fair enough. All right, my friend, I probably should let you go get back to your fishing trip. Before we go, though, I do want to point out that one of the regular features that we have at Sprott Money is our "Ask The Expert" segment. I know a lot of folks listened to you last month, Eric, when you were the expert back in December. You can find those segments on the sprottmoney.com website. You click on the "Insights" tab in the navigation bar, and it's right there. Something else you'll find is the "Ask The Expert" segment for this month, January. I had the pleasure of visiting a couple of days ago with Gerald Celente, noted trends researcher and analyst, and it was a fascinating conversation. So, go to sprottmoney.com, check the "Insights" tab, scroll down, and you'll find "Ask The Expert," both last month with Eric and this month with Gerald Celente. Eric, get back to work, go catch yourself some dinner.

Eric: Yeah. Well, thanks for the good luck, and maybe I can bring back another big one. Let's hope so.

Craig: Sounds like a winner. All right, thank you. Have a great weekend. Have good luck fishing. And from all of us at Sprott Money News and sprottmoney.com, thank you for listening. We'll talk to you again next Friday.