A Week of “Tough, Tough News” for Gold and Silver Investors - Weekly Wrap-Up (February 07, 2020)

Man: You're listening to the weekly wrap-up on Sprott Money News.

Craig: Well, happy Friday from Sprott Money News, and sprottmoney.com. It is Friday, February 7, 2020. And it's time for your weekly wrap-up. I'm your host Craig Hemke, and joining us is Eric Sprott himself. Eric, good morning.

Eric: Good morning, Craig. Unfortunately for all of us investors, there are some tough, tough news out there in coronavirus, which I think is...I spend more time looking at that than I do gold stocks these days, which might tell our listeners something. And I certainly suggest that they should be doing that as well. But there's still lots of reasons for optimism in our particular industry, but that's about the only one. So, let's take it from there.

Craig: Let's do. And before we get started, I do want to remind everybody, one of the best things that Sprott Money does all year is our signature sale that takes place every February. We talked about this last week, so we're going to talk about it again this week. It is now week two of the signature sale, which means there's a whole new list of products on sale for you at sprottmoney.com including one of Eric's favorites, the Sprott gold wafer. Remember those from last year, Eric? They are wafer-thin. They are offered at a special price, but you've got to go to sprottmoney.com to check it out. You'll find that and everything else on the deals page at sprottmoney.com. But of course, hey, heck with that, you can just call us 888-861-0775 to learn more about the wafers, and everything else that Sprott Money has to offer.

All right, my friend, there is a lot of news. But we're going to focus on the big picture this week. And the biggest part of that picture is this growing epidemic, becoming a pandemic, and the global economic impact of said virus. What's on your mind, my friend?

Eric: Well, 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 200 cases in the world, there's 31,000 now. That's one hell of a big increase in two weeks time. And I've seen artificial intelligence numbers that the [inaudible 00:02:29] just did, that by March 15th, we could have 2.5 billion cases, and 53 million deaths. It's just an extension of numbers, it's not my prediction. It just takes the weight of growth and moves it forward. And when you're compounding at 20%, and 30%, and 40% a day, believe me, we all know the numbers grow fast, and that looks like what's happening. So, that's our marker here that we have right now. And of course, today, I think there was something like 3,100 new cases and something like 70 deaths.

And of course, the most disappointing one was, there's a whistleblower doctor who sent out on the social media that "We seem to have a strange bug here called coronavirus, whatever." And of course, the Chinese police came in and told him to shut up and sign here, don't ever talk about this again. Well, that poor doctor contracted the disease, he died yesterday. He tried to help but the system was not ready to have people hear the real news.

So, I want to talk about some of the other things that are happening. Well, first of all, let me talk about some of the stupidity that's going on. So, for example, I read an article in Indonesia and say, "Well we brought back 263 people from Wuhan. They're all in isolation. We're not going to test them because they're not showing the signs yet, but we'll test them if they show a sign." And of course, you know, we all know they can take 14 days worth to manifest the signs, but the guy can have it for 14 days. What are these guys reading? These are people in the health business. I'm a chart of accountant reading this stuff and I know better than that. They should be tested.

It's almost like testing the 273 people on the boat in Yokohama, and the first time they got 10, the next day they got 10, yesterday they got 41. Don't put that into your AI and extend how quickly we're going to be there, i.e. a300% gain in cases in one day. And I would like everyone to realize if you're on a cruise line, the last guy off in Yokohama is going to get off 14 days after the last guy's been cleared and who knows what year that'll be. We'll see.

So, don't go on a cruise ship. The other thing...interesting...I'm just giving data points here so people kind of understand the significance in this. Well, first of all, on the cruise ship, that's all human to human. Okay? So, anybody who says it's not human to human, it's bullshit. That's all human to human. In the UK, they had their third case, he came from Singapore, and never was in China. So, again, human to human.

The stress on the supply chain is becoming crazy. There was a article I'm reading about how there could be hundreds of millions of chickens die in China, there's no feed. You know, you've got to feed people and animals for them to survive. u know you've got to feed people, and animals for them to survive. We have Foxconn saying to the supplier of the Apple parts don't show up in that plant for a while until further notice.

And I think you're just going to keep getting these things extending out. Because we're already seeing from the cruise ship, and the reason I take the crusie ship, close quarters, rampant expansion, close quarters, rampant expansion. Okay, don't go to work. That's what the Chinese would be saying to you. In fact, I think I read that they got 400 million people in lockdown now? Something like that. That's a third of the country. And what's the impact going to be for the rest of the world's economies? You know, we buy things. What's going to happen to Amazon with all their Chinese product that won't be delivered? I can go on, and on, and on of the various companies, things, industries that are going to be decimated here.

Now, everybody might say it might be a short time. Sure, it might be a short time and there might be a lot of not well people at the end of it all too. And the total restructuring of the economy that has one. How about paying your debt when you have no income? You know, you can't sell anything but your banker wants his debt payment. I mean, there's all kinds of things that people have to think about. And I just think... There's another one. India has three cases, but 5,400 under investigation.

Craig: Oh, jeez.

Eric: Three. 5,400 under investigation. You tell me if you're a thinking person what percent of those people are going to get sick?

Eric: Oh my gosh.

Eric: And a lot of them are in isolation already, but they're not sick, but they're in isolation. Sure, they are not sick. Anyway, you got to really be on your toes here. I saw a very interesting article which should tell a lot of people what some other people think. Erickson announces they're not going to a telecommunication conference in Barcelona that's taking place this month, this month. They're not going. Well, why aren't they going? It's a low probability of being infected. The government and health officials tell us, I guess Erickson doesn't read it that way. Maybe they have their own artificial intelligence. Who knows? Anyway, I just think it's telling that those kind of decisions are being made already. Because they have people who are can see ahead, çan see what's likely to happen here. That's it on the coronavirus. Unless you have a further question.

Craig: Yeah, I do actually, because we need to relate this I think to I mean, obviously, personal hygiene and health and all that kind of stuff. And you and I both know Chris Martenson and he's doing a terrific job. I mean, he's a Ph.D. in neurotoxicology and neuropathology. So, he knows what he's talking about, and he's doing a great job updating everybody every day. And he talks about just simple precautions like owning N95 face masks, maybe buying yourself some elderberry syrup or gummies, things like that for your immune system, that's stuff everybody can take. But on a big picture of how this really relates to gold and silver is what you're getting at. And we should probably talk about that because people need to think...I mean, yeah, maybe the stock market's going up but maybe that's only because banks are front running an inevitable infusion of massive central bank cash to try to keep the global economic system afloat.

Eric: It's pretty surprising. Well, for me, to think about anything positive coming out of this. Okay? But, but the way you put it, because we have this funny situation where central banks think they can cure everything with money, and [inaudible 00:09:46], I guess they can cure the financial markets with money. Yes, they can. I mean they'd end up owning everything and everyone will become billionaires. But of course, the one area that I think would benefit the most by that if that's what they did, would be precious metals. Because everyone would realize the fallacy of it all as, you know, GDP is down 5%, stock market hits record high. Joe blow sales down 25% stock hits record high. I think they'd get it after a while and realize, you know, where's the best place to be? Well, what is the true safe haven here? So, hopefully, that would help.

Craig: And Eric if you could address too, because you talk about people working in close quarters. We had a couple of questions this week for people wondering about Chinese silver production. They're one of the biggest silver suppliers in the world. They demand a lot of silver. Would you want to work in a mine in China?

Eric: No, I would not want to work in a mine. And I'm just imagining going down in what they call the skip or the cage. You know, where they jam all the miners, and they're all believe me should to shoulder until they get to the bottom of the ramp. And no, hey'd have to stop all that stuff. I mean, that's worse than being on a cruise ship. So, no, it would be very negative. Then again, I mean, who knows? I mean, what about demand. I don't know. It's such a complicated thing to predict because, events are changing rapidly. Rapidly. Like for example, I'm supposed to be speaking to PDAC in a month. Do I think..that, that's up in Toronto, prospectors, developers convention, do you think it's really going to go on? I mean, I'm sort of debating that it would be silly to go there. Of all places to go, that would be the craziest place to go. But you know...so people got to start making those decisions. You know, what do you do with your life? What do you do with your business? What do you do with your employees, your customers, your whatevers? And there's not any good news out there on that front.

Craig: And again, that's a perfect example of the economic slow down, because people don't fly into Toronto for that. People don't stay at hotels for that. Right? I mean, and just think of that...

Eric: Don't go to dinner.

Craig: They don't go to dinner.

Eric: They won't go to sporting events pretty soon.

Craig: Exactly.

Eric: Stadium, close encounters.

Craig: And anybody knows. I mean, if you've been paying attention for the last dozen years, as you said, the central bankers think they can cure anything with cash. So, you know what's coming.

Eric: I like your word cure.

Craig: There you go. Actually I stole it from you. All right, my friend. Anything else on your mind before we get to some of these stocks?

Eric: Well, the only thing, I keep watching these commitment of traders reports, which aren't giving us many signals other than one. I mean, the gold short interest I think is down about 150,000 contracts from 800 to 650. And all of that with the people covering their shorts, they've got to be losing money, which is a rarity here. And I found it interesting today that we had the job number, which was theoretically good. And for a nanosecond, gold was down.And I'm pretty sure the reason was, it was only a nanosecond because everyone knows who cares about today's job reports. It's going to mean nothing. Imagine two weeks from now as we're reporting, you know, 100,000 new people get the coronavirus, we're not going to be worried about any jobs report. So, the Dow didn't do much, the gold didn't do much, the dollar didn't do much because we got more important things to think about.

Craig: That's right. Like, who cares where the December PMI or the fourth-quarter GDP was, you know?

Eric: Yeah. That'll be predictive.

Craig: Yeah. All right. Hey, we're already about almost 14 minutes into this, so I probably better speed us along a little bit. Though I guess if people are staying home all weekend long, what else they got to do but listen to you and I?

Eric: Let's just keep chatting.

Craig: I've got another list of names for you. And again, thank you for submitting names and questions for us. I ask Eric about all of these before we get started. If he doesn't have an opinion, then I don't ask him. So, if you don't hear the name of your company, like Rover Metals, it's because Eric didn't have an opinion on it, but we do get opinions on a couple. People want to know first about a joint venture investment you made into something called the Galena Complex. Can you talk about that?

Eric: Yeah. Well, it's Galena Mine in Idaho that's being run by America Silver. And some time ago, I'm going to guess about two months ago, they made a proposal that I would buy a 25% joint venture in the mine. And because of my sort of belief that silver is so massively undervalued, I went for that. I don't have any reports on how things are going there yet, but as people can appreciate, I buy it because I think silver's going to $50 or a hundred dollars. Okay? So, I'm not worried day-to-day what's happening. I'm worried, you know, well not worried. I'm hopeful of what's going to happen two and three and four years from now.

Craig: I hear you. I find that at TF metals report every day because everybody wants the stocks to go up every single day it seems, and we got to keep our eyes on the big picture. No question about that. Here's a big picture stock that we haven't discussed for a few weeks, and that would be RNC.

Eric: RNC, Royal Nickel, Australia. They seem to be doing much better. I think their projection is something like a hundred thousand ounces this year. Now, I don't really know the market cap rate off hand. But I would suspect that it's probably half of what might be typical of a producer like that. And it looks like they have more opportunity there with the acquisition they had that there might be some interesting places to explore, and find, and develop quickly. We still haven't come up with the sort of big, nugget effect hit in the Beta Hunt Mine. But that can happen at any time. I've got to believe there's going to be some rather big hits that can be quite instrumental in changing the fundamentals for that company very quickly. So, I'm a big owner, I haven't bought it in quite a while, but I like it here.

Craig: I think it's the Pilbara company we talked about often. Well, not often, but several times last year. People asked about De Grey because they had some results that they posted yesterday. And so, I know a lot of people are wondering your opinion on that, but I know you haven't had a chance to look at it yet, so I'll remind you next week that we'll take a look at De Grey next week. How about Eli?

Eric: Eli, yeah. It was just announced that I sold a royalty to them. They're a royalty company. I sold a one-half 1% interest in the Jerritt Canyon royalty to them in return for shares of Eli. And I'm now pushing 30% of that company, for 30% ownership. As most listeners would know, they have a 2% royalty on the [inaudible 00:17:26] property that a Walbridge is exploring. And of course, I get very excited by the prospectivity of Walbridge [inaudible 00:17:63] I should say, and Walbridge. And I think that the market had mispriced the value of those royalties in Eli. And here's the way I look at a royalty. So, for example, if Walbridge had 10 million ounces, they'd produce 500,000 ounces a year, 500,000 ounces a year, 1% gives you 5,000 ounces per your royalty, 2% gives you 10,000 ounces, 10,000 ounces are worth $15 million, which is 20 million Canadian per year of revenue. And that 20 million per year revenue could trade at sort of a multiple of at least 15, so that's 300 million in market cap. And Eli has a market cap of about 80 and...I mean, two weeks ago, it was 60. And that's just for the [inaudible 00:18:32] royalty. And they've got lots of other royalties including, of course, the Jerritt Canyon one that will produce another million bucks a year. So, I think it's been unrecognized, and I think there might be some opportunity there.

Craig: Let's wrap up with Kirkland Lake. We've been talking about this now for a couple of weeks. One, couple things they've been fighting is the stock is down maybe 20%, 25% from its all-time highs a few months ago. You had the dilution due to Detour. You mentioned a couple of weeks ago whether production would slow because of the fires in Australia. And then, the crazy news this week was that there was some mine that was mothballed, that they were thinking about reopening. It was full of some kind of like endangered bat. What else can you add here?

Eric: I wasn't even aware of that.

Craig: That's a hilarious story. It was a mine that has been mothballed. I mean like, you know, I'm picturing it like planked shut, you know, with like wood planks, and they're going to go back in there, and they found a bunch of endangered bats, and the Australian government said they can't do it.

Eric: Oh my God. I wasn't even aware of that. I spent so much time looking at the coronavirus. I'm not obviously staying with my investee companies. So, I'm not sure which particular mine that is in Australia. But I think if I had to try to explain the weakness, first of all, there's a big short campaign that's always gone on in this stock. And you know, they get aggressive from time to time. I think that's part of it. I think the other part might be, now that the merger has gone ahead, those Detour shareholders who voted against the deal, they might've just said, "Hey, I'm just going to sell my position here." So, that could have been a lot of stock, I forget what the number was, but it's in the '80s, so, let's say 15% didn't vote for it. So, that would cause about 10 million shares to come for sale.You know, if they're that disenchanted, they would sell.

I listened to a presentation that Tony Makuch gave out in [inaudible 00:20:31] just a few days ago, about a week ago. And he did emphasize that very, very likely to be significant changes in the dividend. And very, very likely that there'll be a major buyback of the shares program. I mean, this company's going to have a lot of cash flow here with having used shares to buy Detour. Of course, you get all the cash flow, and you didn't pick up any debt in the process because you issued shares. That money is available for, whether it's dividends, or buybacks, or investment and exploration, or investment in some other company, but they'll have a lot of cash flow. There was a report written just today actually, recommending that, you know, "Okay, we've gone low enough." The technical indicators suggest it should turn around here. We're going to have a good earnings report. I think it's coming out on, I think, the 19th of February. I'm not 100% certain of that, but it should be a pretty good number, and it might be the item that turns it around for Kirkland here.

Craig: And I still think big picture. I mean, I don't think they're going out of business, so, something that might, I don't know, buy the dip I suppose is what I keep telling myself at least. All right, my friend, we're about ready to wrap up. Anything else on your mind before we go?

Eric: No. My mind is now empty. Thank you.

Craig: All right, fair enough. And hey, what should be on everyone's mind, there's a segue for you, it's tax season, nowthat we are into February. And just one more reminder, we've got just a few spots left for the upcoming Sprott Registered Investments Lunch and Learn coming up on the 18th of February in Toronto. The Sprott team is partnering with Quest Trade to share with you how you can add precious metals to your registered investments. Plus, we're going to also talk about current opportunities in gold, silver, everything else. Book your spot by emailing us at submissions@sprottmoney.com, of course, there's that number again, just give us a call. 888-861-0775. Eric, go get yourself some elderberries if you don't have them already. And we'll talk again next week.

Eric: I have all of those things except elderberries. I'm Loaded up with vitamin C, I'm loaded up with vitamin D3, and I suggest everyone else do the same, and get some elderberry, except I couldn't find it.

Craig: You know like the little gummies that like your grandkids eat, you know?

Eric: Yeah.

Craig: That's what they taste like. I'd eat a hand-ful.

Eric: I have those. I have them here somewhere.

Craig: Oh, they're delicious.

Eric: I can tell you that right now, I'm speaking through my mask. Okay, man. You have a good weekend.

Craig: Thanks for your time, Eric. And from all of us at Sprott Money News, and sprottmoney.com, thank you for listening. We'll talk to you again next Friday.