Craig: Well, greetings, watch again from Sprott Money News, sprottmoney.com. it's Friday, June the 7th, 2019. This is your weekly wrap up. I'm your host Craig Hemke and joining us as usual on this really fun Friday morning is Eric Sprott himself. Eric, good morning.
Eric: Hey Craig. It's a been a great, great, great week and I find it so ironic that you and I have to do Q&A here when there's so much going on in the gold market and the precious metals market generally. But let's try to do both.
Craig: I hope everybody settles in for a long weekly wrap-up because you and I are going to be here for a little longer than usual. And you're right, we had an amazing response to what we announced last week that we would be accepting questions and trying to answer as many as we can. So thanks to all the Sprott Money customers who sent in their questions. I mean there's more than we can answer. I've tried to combine few. We'll get to as many as we possibly can, maybe roll a few over to next week. But thank you, everybody, for writing in. We really appreciate it. But let's just dive right in, Eric. It has been a very interesting week following onto the big run last week. Gold's up about $40, silver's up about 40 cents. The payroll numbers in the U.S. today were lousy with downward revisions. The pressure is increasing on the Fed with an inverted yield curve. It certainly seems as if a lot of the things we've been talking about all year are coming to fruition and this year is unfolding a lot like it did back in 2010.
Eric: Yeah. And you know, I want to start off by going back to last week's comment when I said, you know, I saw this guy do this technical write-up, where he said, you know, it looks like it's just going to rally hard here. And which I was surprised at the time. This was about 10 business days ago, or 8 business days ago, something like that. But there we are, boom, boom, boom, every day gold's been up, and including today now if it kind of holds in here with the lousy jobs numbers. But I want to remind people that what his targets were, $1,450 was the measured target. He said he thought it would go beyond the measured target and go to $1,650. I cannot overemphasize what a $1,650 price will do to the precious metal stocks. I can almost guarantee you they'll all be up 100%. Not all of them, but like a lot of them will be up 100% in that kind of an environment. So sharpen your pencils, figure out what you should do and try to be active here, okay. And that's not to say it goes up in a straight line, but it sure looks good.
And one other thing I want to talk about before we get into the Q&A is a term that I ran across this morning. The annotation of it was ELB. I go wow, what the hell is ELB? And of course, it's a Fed-speak term. It means effective lower bound, and effective lower bound means zero interest rates. And the discussion at the Chicago Fed meeting was, well, we've seen an example of interest rates going to 0 in Japan for 30 years and nothing happened, nothing happened. What are we going to do? What are we, the Fed, going to do if we get to the ELB and there's no reaction?
And of course what it implies is you need a massive, aggressive move by the Fed into markets to make things rally. And of course, the whole process of going into markets and buying stocks, like the Japanese Central Bank does, buying bonds, making it go up, and having zero interest rates take people to gold. We can now see why $1,650 is not unreasonable. That gentleman's extended target was $2,100 to, I think, $2,400 and if it gets to $2,100 to $2,400, then has a D, decline, the E wave target is $5,000. You can see it. If this is what central banks are going to do, just print huge amounts of money. They're debasing the currency and it will just take a little marginal improvement in gold demand for the price to react violently. So stay the course.
Craig: Yeah, Eric, I think that's the best advice you'd give anybody at this point. And again, to note that it's not straight up. You know, we're going to be fought by the banks every step of the way. You know, it's always going to be two steps forward and one step back. But you and I have discussed this, this year is finally that launching point where the tide goes out and the central bankers are exposed, you know, that they've been running this confidence scheme for the last 9 or 10 years and now people are waking back up, you know, to where they were in 2010 and 2011 and going to hold on just a minute, what is going on here?
Eric: And the fact that the Fed realizes that monetary stimulus only lasts so long, okay? And the minute it starts wearing off, of course stock markets start falling. And of course, that's the one thing they don't want to have happen is the stock market falling. So they're going to be forced to come back in. Otherwise, everyone's going to know exactly what they did wrong. And of course, whatever the answer is will be wrong as well, but it would just delay the ultimate.
Craig: Yeah. Eric, one last thing before we get to the Q&A. I know you're fundamentally based in your analysis. Are there any price levels you're watching though? Like on my side, I'm watching $1,360 in gold because we haven't had a weekly close above $1,360 since March of 2013. And so something above there would, I think, get a lot of people's attention. Are there levels that you watch too, like in silver too?
Eric: Yeah, let's deal with gold here because it's been the leader and it's the one I'm sort of focusing to see whether it's going to lead silver, which it will, of course. But I would say the downtrend line from I don't even know when it was back in '16 or whatever, the downtrend line, I think probably gets pierced at like $1,352 or $1,353, something like that. To get to a new closing high, $1,360 is the number of you mentioned, and of course, to hit an interim market high, I think we got to...did we get to $1,370 or $1,365, something like that? So those are all kind of key numbers. I would have thought that the $1,353 you know, breaking the down-sloping wedge might bring a lot of technical guys in, but definitely, a weekly close over $1,360 might seal the deal.
Craig: Well, that gives us something to root for. And with the FOMC planning to meet again, week after next, we're talking June 18th and June the 19th, a lot of focus is going to be on that, and I know you and I'll be talking about it next week. For this week though, we probably better get to some of these questions that had been sent in. Again, thank you to everybody for sending them in, and I've got quite a list, and Eric, I'm just going to lay them on you, but guess what? You get to take the first two off. The reason I say that is because I can answer the first two. How about that? So one of them is actually to me. It's not the "Weekly Wrap-up with Craig Hemke," but nonetheless. The first one had to deal with, basically, if I were to summarize it, why don't the silver mining companies get together and withhold supply and force the banker's hand? I've asked Keith Neumeyer that before and he's very quick to point out that the government would never allow that because you'd basically be forming a cartel and that would never be allowed. I would imagine you would probably see it that way too.
Eric: Yeah. What we need is we need a foreign cartel where the government you're referring to has no say in it. It's kind of like an OPEC thing, right? And one of the problems is there aren't many really large producers, but there were some, you know, Pinioles and I think it's KMPG in Russia, and a few other companies like that got together, they could probably do something about it. But you know what, I think we have to let the market take care of itself here and we might be very close to that happening anyway. So somewhat academic.
Craig: The next question someone had was about the actual debt to GDP ratio in the U.S. because they see numbers of 100% and 75%. I think the 75% comes from kind of system apologists who are trying to find a way to spin it in a certain direction. I'll just give you the actual numbers for the person that wrote this in. The U.S., as they compute it, total debt is $22 trillion or so. The dollar value of GDP in 2018 was $19.4 trillion. That gives you a jet debt to GDP ratio of 113%. Now you can play with the numbers and come up with something else but that's the easiest way to do it. Okay so then, Eric, onto the questions that I'm going to run past you now. Had several questions about something called Bonterra Resources. Do you have anything to say about that?
Eric: Well, I'm an owner of Bonterra and was an owner of Metanor. So in the merger, I think we have over 10%. They recently brought out a 43 101 where I think reserves and resources were pushing $2 million. I don't know whether it was just over, just a little under of, I think it was pretty good grade ore too. It was like 8 grams and 9 grams. Metanor or Bonterra has a mill, the old Metanor Mill. So it could get into production in a hurry. And I'll tell you that one of the things I look for it today now that we've seen this rally as companies that are in production, where of course the price increase manifests itself in the reported numbers very, very quickly. So Bonterra could be one of those because I think they could start that mill up on pretty short notice. So I like it. I don't know whether...I haven't looked at the quote recently, but I would imagine it's put in a bit of a rally here since gold went up. But that's the kind of company where, you know, with, let's say, a $200 increase in the price of gold, the earnings outlook just went up by 100%. So that would certainly fill the bill for what we're looking for.
Craig: Yeah. All right, next one. Someone wondering about the short and long-term outlooks for Sokoman's Moosehead project.
Eric: Yeah. Okay. Well, the stock's done poorly. I mean it's cut itself in half. I think of it as a 15-cent stock and I think it's at 8 or something. I thought the results were pretty good. The market doesn't seem to want to pay for those things. I've always believed there are forces at work in the junior miners that work against stock prices going up. Those guys might find themselves in a bit of a jam here if things just start generally going up because money wants to go back into the area. And I like the fact that the belt that it's in encompasses the Marathon Gold Deposit of Leprechaun, which is a very...it's a low-grade, large low-grade, but they're starting to hit some high grade. So I think the logic of why they could have a significant deposit geologically all comes together because of the trend that it's on. So I'm quite hopeful that they'll continue to hit some pretty big intersections and it could carry for quite a distance.
Craig: I don't know much about that, but after the week we'd had, I'm definitely going to be knocking back a few Mooseheads this afternoon.
Eric: Good for you.
Craig: All right, we're going to get back to just kind of...I want to go back to Bonterra real quick just to elaborate a little further on the relationship between yourself, Kirkland Lake, Osisko Mining in relation to Bonterra.
Eric: Osisko. Yeah, yeah, Yup. Osisko's in the windfall camp, which Bonterra is on the Windfall camp. And Osisko had some stunning drill results, but they're very deep, but there's stunning. They're kind of almost Fosterville like. And Kirkland owns a piece of Osisko, Kirkland owns a piece of Bonterra. Kirkland has expressed an interest in the Windfall area. I'm not suggesting that the time for Kirkland to step up their interest is now, I'm not suggesting that, but you know it would be on the radar screen at all times, particularly with them having so much cash almost sitting idly around. And they could do it probably by buying Osisko because that's the guy with the...I think their reserves are something like 2.5 million ounces, something like that, maybe six or seven grams. So I think something will happen in the area,that would be my guess, that somebody will come in and consolidate it. Whether it's Kirkland, whether it's Osisko buying Bonterra. I would think that somebody will do something there because it makes sense to have all the ore bodies under one roof.
Craig: And down the list, there was something about asking for your opinion about this Windfall Lake. Can we go in-depth on the results there?
Eric: Sure. Well, I like what they've done but they're finding some very significant, well-endowed gold areas, but as I said, deep. I'm not a student of Osisko's drilling results and one of the reasons is they probably got like 300,000 meters of drilling results and I am not the person who can take the time to figure out how it all comes together. So I don't know. I mean that's up to some geologist who wants to spend weeks and weeks and weeks studying every intersection, but it certainly looks like they could have a very major deposit. I think it's going to be a camp. I think, you know when you put Mentanor, Bonterra, and Windfall together, we're probably already talking five million ounces here. So that's a very good start and the drilling just goes on at pace. So I think Windfall's going to be a significant gold camp.
Craig: All right. I've got a list here now have several company-specific questions. We might just plow through them just with your quick thoughts on each one. How about that?
Eric: Yup, Yup. Yup.
Craig: All right. Let's see, someone to know about Auryn resources, you know anything there?
Eric: Is this the one in Finland?
Craig: No, they have a project in Peru.
Eric: Yeah, okay. I'm not an owner of Auryn ore in Peru, so I don't have any comment on that.
Craig: All right. How about Exelon Resources?
Eric: Exelon, yes, I'm a very large owner. They've had a litany of problems, whether they converted the mind from a wet mine to a dry mine and it almost got so dry because they couldn't deal with things. They've now recently had issues with the treatment charges they have to pay. I gather they've gone from like $30 a ton to $200 a ton, which of course just kills margins. But it is, I believe, the highest grade silver equivalent mine that's operating in the world. So if silver wants to put on a move here...that's the beauty of someone who's kind of just breaking even and all of a sudden you're not just breaking even, you're making a lot of money. So I haven't bought any recently, but then again, silver's been a little stubborn in its move, which could change very quickly here, right? I mean, you could see once silver goes to $15, I mean it could be at $16 in a heartbeat. So that would bring some buying back into all these silver names.
I have not been a participant in silver names recently. Thinking gold is a leader here first. And of course, when I say recently, I can change in a week too, you know. Next week you might say, "Well, what have you been doing?" I've been doing nothing but buying silver stocks this week. You know, because silver's going to $15 or some darn thing, but all these stocks are going to improve dramatically from here in my opinion.
Craig: You made a great point last week about high-cost producers and how their earnings can go from $1 to $2, right, if you go from $1,200 to $1,300 and what great leverage that gives you. Do you think Keith's company, First Majestic Silver, would you consider them a high-cost silver producer?
Eric: No, I wouldn't consider them high cost. No. I think they're moderate cost, so they're not as leveraged as some other ones. Like, he's running a very good ship there and he's had decent margins certainly at the mine level. So no, I wouldn't consider him a high cost. He wouldn't be as levered as some other ones. I mean the other ones that would be levered, I mean these are companies in the garbage dump. I can't even think of the names right now. I mean, there's a lot of them around that, you know, got silver deposits where they can't get funding to develop them and/or guys that are just about ready to file bankruptcy or something, those are the ones that'll go up the most.
Craig: All right. How comparable is Walbridge today to where Kirkland Lake was in 2015?
Eric: Well, I would say not because 2015 I would say it's not comparable. In 2015, we kind of knew that Fosterville was definitively going to make a major contribution to Kirkland Lake, okay. We knew that pretty definitively. We've had some great [inaudible 00:18:03] results at Walbridge. I mean, you know, it's just a company I love. I love the fact they got this high-grade ore body that keeps getting bigger and, you know, even that ore buddy could be a 1 million or 2 million ounce high-grade ore body. We still have more drilling to do to prove it. We're showing good continuity, but it takes time. I mean, I could change on a dime here. For example, there's other holes to be released here in what we call a low-grade area, area 51. I mean, if they came out with a 200-meter hole of 1.5 grams, wow. Would I say that analogy of Kirkland in 2015 works? Yes, I would say that. So if you saw a 200-meter hole, 1.5 grams, particularly there's one at either end of this thing about 700 meters apart, man, you know we're onto something big. So we have to stand by, and I hope that changes in the next week too.
Craig: Do you know anything about Golden Predator Mining?
Eric: Yes. I'm an owner of Golden Predator Mining. I haven't been a buyer of it recently. The rep in, I guess, Nunavut. They have a subtitle, I think the Four Aces Property. They've had some great results. It's orphaned. It would come back. I mean, it'll come back in the playing field if gold and silver want to go...I mean the all lease stocks are sold out. They're trading at values that are unheard of vis-à-vis the gold price. Unheard of vis-à-vis the gold price. No one gives them any credit for surviving, let alone prospering. So I mean, I like it. I own it. I've never sold any, or maybe I sold some once at $1.75, I think it's probably down, I don't even know what it is, 50 cents or something, but they'll all rally. If this thing is good, if gold's for real, they'll all go.
Craig: All right. Three more quick companies, and then a few broad topic questions. DeGrey is one we used to talk about. What do you think now?
Eric: Yea, DeGrey Mining. As we've discussed before, the Pilbara has not provided us the results that we all might have hoped for, I'm going to say two years ago now. When we started off with these huge high grades coming out of Comet Wells and then it's sort of been muted response so far that, you know, we're not even getting a gram a ton. But I'll tell you one thing, a gram a ton or half a gram a ton could be very valuable soon. I just bought us a company who I think had a 500-meter drill hole of like 0.6 of a gram. I'm just buying it on a punt. It's called Tudor [SP] Reserves. I'm just buying it on a punt because, you know, if gold goes to $2,000, wow.
Craig: Yeah, that'll work.
Eric: You watch the Pilbara come back to life, you know. You could do it on half a gram when the stuff's on surface like that. So that would be the one thing that would bail all of those...you know. DeGrey also has orogenic gold deposit on a sheer structure which might be pushing a million ounces. So the one problem they have is they've got a big payment coming up they've got to make to pay some loan off, I think, and they haven't solved that dilemma yet in terms of where they're going to get the money. This rally in gold might help them solve that problem. You know, that somebody might be prepared to put up the money for something like that in this environment. So they still got some work there to do.
Craig: And one last company question. You're still excited about Royal Nickel RNX?
Eric: Well, you know, as I said before, I didn't like the fact about the $50 million mill and they put themselves in hawk again. I mean hawk and then you're going to have to pay these very difficult interest rates if you don't have your own money. They've announced a second, well, Father's Day-like but very modest discovery and it's like, I think it was like five or seven meters from the Father's Day Vein but it was only 1,000 ounces. Okay. The Father's Day Vein, I think, was 35,000 ounces or 32,000 and this is 1,000 far, so there's a big difference, okay. But the fact that it's nearby and it manifests itself is one of the reasons that I have the position I have in the company that I'm pretty certain they can find other Father's Day Veins-type structures.
Plus, they have the low-grade gold that they're mining. I just think that, you know, not doing much mining right now and sort of having to report the results their having to report and then having to deal with the issue of borrowing money in a mill that I don't think they can really fill, you know, the market might wait a little. It's reacted quite nicely this week on the second Father's Day discovery, I guess we'll call it. But I might mention that it's a modest discovery so far, but maybe they found out other things. When I look at what the stock's done recently, it feels to me like they might've found more than 1,000 ounces, but we don't know it yet.
Craig: As I look down the list, I found two more. Mavericks Metals and Alexandria Minerals, either of those two?
Eric: Okay. I don't have any comment on the Alexandria. I know it's been involved in all sorts of changes in management, things like that. I think I own a very small piece of it, but I don't know well enough to comment. Mavericks has the royalty on the Beta Hunt Mine. I think there was just a big change in the ownership there where Goldfield sold 19.9%. And my friend, Tom Stanley with Resolute, I think bought a big piece of that. And he's a very, very smart investor. So I haven't...I don't own it. I've looked at it because they had the RNC option, or royalty, but I don't own it, but I'm sure if Tom's in there, maybe I should be looking harder.
Craig: Okay. Here's a fun one. As you know, Canada currently has zero gold. That's real bank level. The question simply is, what are our central bankers thinking? Do they not understand the reality of holding devaluing U.S. treasuries, and is this a sign of a bottom?
Eric: Well, you know, it's almost like they're locked out because of the absolute stupidity of selling gold at the low. They caught the low in the gold price around $250. Absolute stupidity for central banker. Okay. Not that central bankers are that smart. People give them a lot of credit for things, okay. And of course, the one thing we all love about the Fed is they're still irresponsible that they keep things together, but there's a price to pay in the end, okay. And of course, the fact that they sold our gold at those prices, now it's whatever, six times higher, five times higher is enough of a statement about how silly it was. And you know, they're probably...you know, for them to admit that they should buy it today even though we have new central bankers buying gold every month now, new ones, you'd think we might finally come about and maybe they should be dealing with the ELB and what it means in terms of printing and buying and supporting and whatever and devaluing your currency. So` I would think they'd be well advised to buy gold here, but I don't think they shall.
Craig: Yeah, they're probably not listening to you or me or anybody else. But, you know, what can you do? All right, here's a fun one. This person says they hear a lot about the supply deficit in silver that's been going on for years...I know Steve Saint Angelo has been writing about that extensively...and how they actual physical supply's very tight. Are there any ways of measuring that in terms of how much silver is actually available and how much additional demand would really pressure the market?
Eric: I don't know that there is. I mean I used to spend a lot of time looking at silver. I finally realized, you know, it doesn't matter what the supply-demand is, it matters what happens in the COMEX until physical demand matters, until. And you know, I'm always waiting for it. Well, when is that day when you can finally see that the whites of their eyes and you know that they don't have the physical silver? I don't know that we're there yet. And of course, one of the encroaching problems is JP Morgan has a big supply of silver, and I can't hardly imagine that we're on their team, if you know what I mean. Now and what they're going to do with it, I don't know. I mean, if they're going to be on team central bank, which they probably are, I don't think it's going to work for us. I think it'll work against us.
But yeah, I mean, you could have a tightness in silver so fast. I mean, if a big hedge fund came and said, "I want to own some of this stuff," it would be over for silver. I mean, you could buy...you know, maybe there's a billion ounces around, it costs you $15 billion. Like what's the big deal? You know, I said Ray Dalio, how about Ray Dalio puts as much money in silver as he put in gold? It would turn it around immediately. So anyway, it could happen anytime.
Craig: I think that'd be a pretty easy profit for him. But something tells me he probably we get the word real quick that he wasn't supposed to do that.
Eric: Well, and not only that but he buys the GLD to own gold, which I find ridiculous. But anyway.
Craig: All right. Just a couple left. This person admits they haven't bought any physical metal yet. He's also worried about holding stocks in street name at his broker-dealer. Do you have any opinion on that on getting certificates, that kind of thing. And then how is Sprott Money holding metal? Is Sprott Money more secure than holding something in a Canadian bank?
Eric: Well, we have our money as the gold and silver deposited through the auspices of the Royal Canadian Mint. So we have a government institution, a not-levered government institution that holds our gold. When you were at a bank, you had a levered institution. And just so that we all remember back in '08, Citi Group traded at a dollar. Fannie Mae was at a dollar. Freddie Mac was at a dollar. GM was at a dollar. They were broke and they had to get bailed out. So that can happen to banks. It's not going to happen to the Royal Canadian Mint.
Craig: All right, Eric. And then, just last two. How has the last eight years, and really it's been more like six, impacted your long-term view for gold and silver? And then do you have just a really simple price target for the end of the year for both?
Eric: Okay. Well, first of all, I've always looked at the data and suggested that gold and silver are massively undervalued. And you see what happens on the COMEX. Okay? I mean, it's just so obvious. When some guy comes in and sells $2 billion worth of gold and drives it down $15, okay, I can guarantee you that guy was not trying to maximize the price that he was getting for his gold. Okay. He was trying to minimize the price he was getting for his gold for an ultimate goal of getting a bunch of others to follow and drive the price down. So it's been very, very frustrating since '11 to see all the shenanigans that have gone on in the gold and silver markets, maybe even more so silver than gold, and yet, you know...and, of course, I base this on, look, I was there in '00 when gold was $250 and I was a buyer and, you know, I rode it all the way up to '11 when it went to $1,900 and I owned all the stocks and, you know, it was a huge, huge payday.
And I've always believed that we will have another payday like that. In fact, I was reading an article about what happened to gold in between '70 and '80. And, as you know, they stopped converting the dollars to gold, the treasury did, and the gold price then, I think was $35 and it went to $800 and there was mention of a stock, that was trading at 7 cents that went to $380. And the guy was making...in the '80s most gold stocks traded between $50 and $100. Most. So I kind of hope that we come back to that. And there is, of course, a price to pay for patience, but there's a reward for patience and maybe this reward will be realized this year. I hope so. And now that I understand what the Fed's likely to do because it's going to play right into the hand of a lower dollar and a higher gold price. So make sure you don't miss the train.
Craig: All right, last question. I saved this one for last because I thought this was interesting. And it's just simply is, "Eric, if you could have anything in the world, what would that be?" And it doesn't have to be a tangible, you know, material thing.
Eric: Okay. How about a long, happy life?
Craig: Yeah, that's right.
Eric: In fact, I learned the secret to great wealth when I was in India and I went to the Oberoi Hotel and Mr. Oberoi owned it and he had a huge network of hotels. And of course it was a description of Mr. Oberoi and he lived to be 105 and I thought, you know what, you make it to 105, you had a lot of compounding in front of you.
Craig: That's true.
Eric: You know, you probably got two more compounds than the average guy or five more than the average guy. So, and of course, at the end, it's the compounding effect of winners that's significant. You know, let's say I bought gold at $250 and maybe there'll be a day when it goes up 25 bucks or 50 bucks, well, you know what, that's 1% and 2% on your investment, your original investment that day. Maybe it goes up $100, now you make 4% on your original investment that day. And it's the compounding effect of having a winner that just keeps going. But you got to be able to enjoy your life as you're getting there. Okay.
Craig: Right. That's right. All right. Thank you for all that, Eric, and thank you again for everybody writing in. And just to let everybody know, I mean, we have a whole team at Sprott Money dedicated to answering your questions about precious metals, precious metals investing, storage, all that stuff. So if you have any interest in precious metals, any additional questions we didn't get to today, the team at Sprott Money would love to chat with you. Just simply give us a call, 888-861-0775. Of course, if you're looking for great deals on owning physical precious metal, you can go to sprottmoney.com and check out all the great opportunities we have there as well. Precious metal should be an investment for everyone to consider, especially with the way the markets are going right now. Eric, thank you. It's going to be a very interesting day. It's going to be a very interesting week next, and a very interesting month with this FOMC meeting pending. I look forward to talking to you next Friday.
Eric: I will most assuredly look forward to that as well.
Craig: And from all of us here at Sprott Money News, and sprottmoney.com, thank you for listening. Have a great weekend.