“Fun Friday” as Excitement Hits Precious Metals Market

Man: You're listening to the "Weekly Wrap-Up," on Sprott Money News.

Craig: Greetings once again from Sprott Money News at sprottmoney.com. It's Friday, July the 10th, 2020. And it's time for your "Weekly Wrap-up," as usual. I'm your host, Craig Hemke, and as usual, joining us is Eric Sprott himself. Eric, how are you today?

Eric: Hey, Craig. Great. A lot going on, lots to talk about.

Craig: Yeah, I would say so. To that end, we always invite questions every week, and you can send them to us at submissions, the word submissions, @sprottmoney.com. And while you're there, obviously check out the inventory that we have. Some of the best deals on precious metals and storage can be found at sprottmoney.com. However, if you want to send us names, you can do it through our email system, submissions@email.com. But we get so many, as you might imagine with everything going on in the precious metals markets. We try really hard to go through them.

Eric and I review every single request, as we've been doing for about the last 20 minutes. But Eric, of course, only focuses on the requests that he feels knowledgeable enough to answer. So please know if you send us a name, we do look at it. And we've got a list of 8 or 10 that we're going to get to later today. Well, we try. And again, while you're at Sprott Money, please check out the inventory, lots of Royal Canadian Mint Maples, both silver and gold. You can also call us, (888) 861-0775. Eric, it's been an excellent week.

As we speak, Gold's up about $24 on the week. Silver is up 86 cents, blasting through not only an important technical level at $18.50 but also $19. I'm sure you've had fun watching this week. What are your thoughts?

Eric: Well, it's been, it has been a lot of fun, and you could see the technical setup and you can see [inaudible 00:01:58] things in the physical market which suggested this all should happen. But, of course, it's never a straight line up. We had a big correction in silver, for example, yesterday, and most of these corrections that we have in gold and silver intraday, always seem to be answered with the prices going back up. Which kind of makes me wonder, "Why did these guys do this?" I mean, it's almost like it's a death wish here because the short position keeps going up on the COMEX.

I don't know what a guy gains by having silver go down, you know, from $19 to $18.40 during yesterday's trading only to have it end up close at, whatever $18.70. But I do speculate that the guys who are short are so, in such a difficult situation trying to unwind the short, that I think they would knock it down a fair amount, just to try to run some stops. You know, some guy's seeing it trading at $19, guy's got a stop at $18.75. They run the stop, then the guy, now he's got a market order to sell, and the commercials buy it. And I think that's really what's going on in the market. Because at the end of the day, when I look at the open interest, it goes up all the time.

So nobody is getting off their positions here. And as you've discussed with, on many sites, including your own, I mean, the deliveries are overwhelming on the COMEX. The ETF demand is crazy. As an example, silver added to 8.3 million ounces yesterday to the SLV, just the SLV. And we mine 2.5 million ounces a day. Well, how can you put 8 million ounces into the SLV when you mine 2.5 million a day? And this is not the only day. We've had days of 10 million ounces. So underneath everything, you see things coming together that all suggest we're going to have a physical tightness.

And the physical tightness is because people are reacting to COVID, the spread of the disease, the potential leveling off of the economy, the folly of the Fed trying to support all assets. And between the Fed and the Treasury, they're trying to make sure everyone has money, but I think the problem is bigger than them. And I think there's many, many people that realize that gold is the place to go, and are not just saying it, they're doing it.

Craig: Yeah. I know you or me or anybody listening wants to get complacent and think, "Well, this is easy." I mean, we've got to keep watching this every day. However, that underlying trend, Eric. I mean, the Fed just continuing having to buy assets. I mean, they've said, they said again this week, I mean, it was unlimited. They'll do whatever they have to do. Clarida, I have never pronounced his name good. Powell's second in charge said just that. Again, no limit, infinite, limitless, we'll do whatever.

You know, there's no straight-up economic recovery. We're going to be battling this for, you know, a couple of years more at least, and then trying to recover after that. So we gotta stay on top of it. But boy, sure seems like a lot of these trends will continue to work in our favor.

Eric: And, you know, it's interesting. I've had two technical analysts who I have a high respect for. One is Michael Oliver, who writes and gives interviews to King World News. And the other one's Chris Vermeulen from Technical Traders. And I've always said that Chris has suggested the target for silver $27-$31 this year. Michael Oliver had a King World News interview where he suggested also that silver was likely to go to the high 20s soon.

There was an article by a fellow who goes by, on Seeking Alpha, guy who goes by the name Austrolib, who writes very good material. And he came out and suggested that, you know, silver's obviously breaking out here. The last time it had this kind of breakout, it went up by 10 times. And he's postulating that we bottomed at $11, we go to $110. Do I think that's impossible? Not at all. With the kind of demand that we see for physical silver, and the short position of the banks who are short something like 350 million ounces of silver? Wow. Who knows where we can go? But we're going to go a long way.

Craig: Somebody actually wrote in this week, Eric, wondering if gold and silver futures traded on the COMEX had the same limits that we all got familiar with with the S&P futures back in March. Yeah, there are limits up and limits down. They're big, $3 and $5, something like that, but you never know.

Eric: Yeah, I haven't ever experienced, I don't think, a limit change in silver, but I'm looking forward to it, Craig.

Craig: Yes, I think we all are. And again, once the CME turned the COMEX into a delivery vehicle, it was never intended to be that way, but after the breakdown they had in late March with those EFPs that you and I have been talking about for the last several years, just the insane, absurd volume of allegedly exchange for physical contracts. Once that broke down, to reestablish legitimacy to that exchange, they turned it into a physical delivery vehicle. That was the harbinger of things to come. Eric, what else is on your mind as we look around the world, global economy, precious metals, everything else this week?

Eric: Well, I think the only other thing I'd like to talk about in terms of evaluations of things is the value of metal in the ground. You know, the gold price six months ago was, maybe, yeah, let's say six months ago, was $1,300, and was kind of locked there for a long time. Probably the going forward gold price was $1,250. Today, we're at $1,810. The difference in value of an ounce in the ground today is very, very dramatic because of the extra $500-$600. It's very dramatic, and the market's not adapting to it.

I keep reading in some of these chat lines, "Oh, yeah, they pay $30 for an ounce of silver in the ground, or they pay $60." Hey man, the price of gold wasn't $1,800. It was $1200. You gotta change that by a factor of probably three, what you should be paying for gold in the ground. And furthermore, gold in the ground for a low-grade producer, a low-grade producer whose margins now are dramatically higher, that's where most of the leverage is, and that's kind of where I've spent most of my focus here recently, is looking for those large tonnage opportunities, low grade, seemingly CapEx-constrained, where the price of gold is going up, and we're going to solve that CapEx problem, and of course, have tremendous operating results.

Craig: Well, we've got a few of those we need to talk about that people have written in and asked about. I want to start though with the majors, because we've been talking for a couple weeks, Eric, about, you know, this kind of trough in the news cycle of a major miner. Because you know, what else do they have to report between earnings a lot of times? They're just digging gold out of the ground. And so it kind of troughs and bottoms out halfway between earnings reports, which was 1st of May to the next report's gonna be the 1st of August, and so prices and interest kind of bottomed out there in the middle of June or so.

We had our first little hint of this from Kirkland Lake this week. And that's where I'm going. Kirkland Lake announcing production numbers, but also stating that their average price was $1,720. I think we could see that on the chart, but, again, that's another 8% higher than it was in the first quarter.

Eric: All profit. That's, other things being equal. It's all profit. And it was interesting that Kirkland did react. I mean, it was $52 about 2 weeks ago the Canadian. And it's now $63. Of course, I think the reason that it was under some pressure is because there was no guidance. Nobody knew what they were going to produce. So finally, when they come out and say, "Oh, we produced..." I think the number was 339,000 ounces in the quarter, there's this great sigh of relief that the COVID-19 didn't have a dramatic negative effect as some people would have feared.

So the stock's come back nicely. They had a good cash balance after having bought back some shares and paid a big tax bill in Australia of 120 million bucks in the quarter. But their cash balance did go up, and they look like they're in good shape and the stock could go a lot higher, needless to say.

Craig: Yeah, anybody that's a junior or amateur technical analyst should pull up a daily chart of that thing and see what jumps off the page at you. Along with Kirkland, somebody wrote in this week, said there's some type of class action lawsuit against them. Anything you can share there?

Eric: Yeah. Well, it's a legal firm I think out of New York that said when they bought Detour Gold that somehow they misinformed the market and the stock went down because they changed from being a high margin business to a low margin business in Detour. Which, by the way, at $1,800, it won't be low-margin, okay? In fact, it'll be the opposite. And in fact, the margins probably improved by 50% since they bought it. So I think it's totally frivolous. You know how the lawyers are whenever stock goes down. They start up a lawsuit. So I don't think it's going to have any effect on the stock price. It's just, in my mind, a totally frivolous lawsuit.

Craig: Alrighty. Okay, can I hit you with some names? You ready to roll?

Eric: Let's go.

Craig: There's a couple here that we haven't spoken of for a couple of weeks. One, you mentioned a couple of months ago, and started to look really good right after you mentioned it. It was Gran Colombia. Any thoughts there?

Eric: Yeah. Well, they should have very good earnings. Well, we know their production I think through May. We don't know their quarterly production. That hasn't come out yet. But with the price going up, everything should be pretty good from a Gran Colombia Mines point of view. I've been a little disappointed with their Caldas subsidiary, which they had about 70% of, which did a stream with Wheaton Precious Metals. And I think most people know how I hate streams. And they're also doing a gold note, and I think people realize how much I hate gold notes. But other than that, I love [inaudible 00:13:05]. Just kidding, okay? Like, I don't like those decisions. I don't like the decisions. It never had much value in terms of the valuation of Gran Columbia in the stock market. I don't like getting rid of the future early.

Craig: Other than that, how was the play, Mrs. Lincoln?

Eric: Yeah, right. I still own it. Yeah.

Craig: Okay, you're still in it. Okay. Here's one from... I just remember this from months ago and I recall it's kind of a penny stock. MacDonald Mines.

Eric: Yeah. MacDonald Mines, they have a [inaudible 00:13:41] called the Scadding Deposit. They're drilling it and they hit some tremendous results and then some mediocre results and tremendous results and mediocre results. And I noticed overnight they just raised $4 million to do some more drilling there. I think we're kind of on standby to see if they can link this all together, because there's been some great hits. But we don't seem to have the continuity yet that would make us stand up and, you know, scream that everyone has to buy it. So we're not quite there yet. I do own it, but I need a little more evidence that the ore body's going to come around.

Craig: All right. Friday, May the 8th, you told us about Freegold Ventures. It's been a rather interesting couple of months.

Eric: Yes it has. And there was an announcement last night that they're doing, raising 30 million, of which I'm going to participate for up to 20. And they can raise it up, they can raise the whole issue up to, I think it's 34.5 million. We'll see. Maybe they've even announced something in the meantime that I haven't seen. I really like Freegold Ventures, and I like it for some reasons that are a little off the wall. The most important one is that one, it started off at 6.5 million ounces of low-grade gold. And as I mentioned, somewhere along the line, they drilled that up with 37,000 meters of drilling.

And just so you know, Walbridge hopes to do 100,000 meters of drilling this year. They don't have 6.5 million yet. Although, I'm sure they will, but I'm doing a comparison here, that you can find 6.5 million ounces with 37,000 meters of drilling. Boy, that was sure easy to find. And I hope that with all this money that Freegold has that they'll do two things. One, continue to drill the high-grade gold that got everyone excited. And drill for more low-grade, because low-grade that has high margins is very, very valuable today.

Craig: There you go.

Eric: And, you know, if you can imagine that the gold would be worth, you know, 50 bucks in the ground and they got 10 million, that's $500 million USD. I mean, that's $650 CAD. I think the market cap of the company is 250 or 300. So that would present a lot of upside, and we still got the high-grade drilling to happen here. So I'm quite excited to buy Freegold.

Craig: You mentioned Walbridge there. And you talk about market cap. A lot of, several folks writing, say, "Hey, what's the deal?" Did they kind of reach kind of a, I don't know, an equilibrium market cap when it got near a billion, and now they're just kind of churning along? What are your thoughts there?

Eric: Well, it's interesting. I actually sent a text to the CEO, and I said, because he'd done some presentation that I'd watched, I said, "Well, that was wonderful watching the presentation." And luckily he only had three problems, market cap, market cap, and market cap. And, of course, the reason I said it. And he knows exact, too, and I said LOL after it, okay. Because when you have a billion-dollar market cap, you have to keep feeding the machine, okay? And if you haven't had any results in two months, things start to wane. The interest kind of drifts away.

And so you gotta keep proving that not only is your market cap worth a billion, but it could be worth 2 billion or 3 billion. So you gotta come up with some serious additions to the information base to get you there. In the interview, they mentioned that they're going to be drilling at some of the Balmoral properties. They've got two drills right there. Of course, they're continuing now to drill aggressively on the Fenelon property. So I think we could see a lot of really good there. I think it'd be really exciting if the Balmoral properties came up with something. It's such a telltale sign that perhaps the whole camp has huge opportunities here. And they have most of the camp now for almost 75 kilometers.

So, I mean, I still own every share I've ever owned in the company. We just need news, and we haven't had any news in a while. So we're keeping our fingers crossed that we'll get some releases here that will tell the market that it's worth more than the billion-dollar market cap it's trading at.

Craig: It's not dissimilar to what I mentioned earlier about this kind of cycle, peak to trough, in news, in earnings of the majors. You know, everybody kind of forgets about them halfway through, and drifts away from them. And now everybody's drifting back in with another great week of outperformance in the GDX. All right, just a couple more. I know you've got a couple too on your list, but I did have several people asking this week, what the heck happened with Tudor and Teuton? They went straight down one day and then straight back up the next.

Eric: I don't know why they did that that day, but in the meantime, Tudor, I think yesterday morning, announced a major drill hole that had, oh boy, something like 894 feet of 0.85 gold. It was the longest, highest-grade intersection that they've had yet up at Treaty Creek. I did spend some time speaking to people at the company, not the geologists, but people at the company. I just asked them, you know, what's happening up there. And the most interesting thing is that on this Treaty Creek property, where they're drilling the Goldstorm right now, they have something called SP2 that they are also in the process of drilling, where they think it could be equally as big as the Goldstorm Zone, hoping that it will be equally as big as the GoldStorm Zone. And as you know, the Goldstorm Zone, with its 850 meters of strike, 800 meters of depth, 600 meters of width, you can come up with many tens of millions of ounces if you want to just multiply those numbers out and put in the grade and the specific gravity and things like that. Of course, I've talked before, but, you know, maybe they get out as many as 30 million ounces. And I know it could be bigger than that.

And imagine having another structure to drill here that is exhibiting all of the signs of Goldstorm. So we'll stand by in that one, but I like Tudor here. I would be a buyer of Tudor here. I just filed and I went over 20%, so I can't buy for a couple of days but I may very well be back in there next week.

Craig: When you call up someplace and they say, "Hey, there's somebody named Sprott on the phone. Anybody want to talk to him?" I can imagine the reaction. What that must be like on the other end. All right. I know you've got a couple more that you wanted to mention, so, roll.

Eric: Yeah, I gotta talk about Vizsla, symbol VZLA. VZLA in Canada. They came up with a huge, huge intersection of silver and gold. Anybody can read the news release. They did a stock issue last night, yesterday. I participated for 10 million. They got lots of veins to drill in this particular property but it's early, early days, but it was stunning. What else do I... I can talk about Steppe Gold because I put $15 million into Steppe Gold. I sort of stepped out of my realm of interest, because this, [inaudible 00:21:18] is in Mongolia, of which I know very little about Mongolia, except one thing I know about Steppe, it looks like they were cash flowing their market cap based on the June quarter results. And maybe it was trading at 0.66 of its market cap, based on what maybe they'll do next year.

And at first, I ignored it. Then I thought, "Eric, it's trading at 0.66 of its market cap. You can't ignore this. Don't be so goddamn lazy. Phone the company up and just see what's going on. Okay?" Mongolia or not Mongolia. So I did, and now I have an investment there. Jaguar Mines had a very good production report and they ended up putting $18 million in the bank in the quarter, which was very, very impressive. I think that's covers everything off that I really wanted to talk about. It's great opportunities in the gold and silver mining sector here. And, of course, it could be stunning in silver if silver does what I think the physical tightness suggests it should do. So, lots to look forward to.

Craig: Certainly is. And I always look forward to these conversations every Friday. Again, before we wrap up, I mean, there's no better time that I can recall, really in the last several years. If you've been watching this stuff, if you don't have any physical precious metal, it is your hedge against the monetary madness from these central banks, and it's just going to continue. So if you need some physical gold, physical silver, if you need a place to store it, Sprott Money needs to be on your list of places to check every single time you're in the market.

Again, sprottmoney.com and, of course, call us (888) 861-0775. Lots of friendly staff to talk you through the process. My friend, what a fun Friday we're having, and very interesting to see where we go next week. I look forward to talking to you next Friday.

Eric: I will look forward to it too. There is a lot of excitement in the market. I think there'll be a lot more excitement. So we'll stay tuned.

Craig: Let's do it. Alrighty. Have a great weekend. And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening. Have a great weekend. And we'll talk to you next Friday.