What to Watch as Precious Metals Head Into a Volatile Week - Weekly Wrap-Up (January 24, 2020)

Craig: Hello again from "Sprott Money News" at sprottmoney.com. It's Friday, the 24th of January 2020. It's time for your weekly wrap-up. I'm your host Craig Hemke, and joining us is the frequent flyer himself, Eric Sprott. Eric, happy Friday.

Eric: Hey, Craig, happy to be back here. But, you know, when you go back to work, there's always a lot of catching up to do, and it's been one busy week, I got to tell you.

Craig: No doubt about that, and I'm sure there's some stuff we've got to talk about in that regard. And it's also busy, my friend, because it's your favorite time of year, and mine, tax season. Oh, my goodness.

Eric: Oh, I love that.

Craig: So, anyway, your friends at Sprott Money will be holding a precious metals RRSP lunch and learn in Downtown Toronto on Tuesday, February the 18th. That's, what, about three weeks away? Tune in next week to learn more, or, of course, you can visit sprottmoney.com/events for more details. Space will be limited. So, if you're interested in attending, please RSVP today by emailing us at submissions@sprottmoney.com. And we'll keep talking about it until that thing is full. You'll hear more about it next week too. Eric, got a lot to talk about this morning. Metals. Mostly flat on the week though, there sure is a lot going on. What's on your mind?

Eric: Well, first off, it's funny as you were kind of making a pitch for Sprott Money...I think it was last week you talked about the dragons, the silver dragons, half a kilo. I bought 10 of them yesterday. I like big coins, you know. I prefer big coins if they're gold rather than silver, but nonetheless, I bought them. So, what's going on? Well, first of all, the thing we all have to watch and be wary of is the coronavirus, okay? And I want to tell our listeners a few things about the coronavirus.

The only good news about the coronavirus, which will strike some people as me saying this is good news, is it would appear that the people who die were already vulnerable then. For the most part, a lot of them are very old, okay? That's the history so far, which means that younger people and healthy people are more likely to survive. That's the good news, okay?

Here is the bad news. It can be in a person's system for seven days without anybody knowing about it. You can meet a lot of people in seven days. You don't necessarily have a fever. So, 25% of the people that passed away didn't have a fever. So, that gets scary when you think of checking at airports and stuff like that. The growth rate is twice as fast as SARS. And just so that people know, with the 50% growth rate, and let's say we might get 1,000 cases right now, which we're very close to that, when we talk in 2 weeks' time, there'll be close to 1 million cases, 1 million. And we've got 40 million people in lockdown. That's like 0.6% of the population is in lockdown. That's like every Canadian, that's like 10% of America. Like, it's not little. And it just looks like it's out of control. It's in all these countries already.

Anyway, that's enough on... Oh, the reason I'm mentioning this, one, people should be aware of it for their own self-help, but two, I mean, if you ever get...by the way, and it has the same strength as the Spanish flu, apparently. This is just stuff I read. Spanish flu killed 500 million people, by the way, back in the 1918 or something. Which, by the way, that would've been a lot of the population back in those days. I don't even know if there would've been 2 billion people. It would've wiped 25% of the population. I mention it more that you have to be aware that this will change economic things. Like, people are making different decisions today than they were making a week ago already, okay? So, God forbid that it just explodes here because then everyone in the world would be making different decisions. Okay, that's coronavirus.

I want to talk about a news item I read today that Yelp, which provides services to business, said that in the year just ended that business was down 1.3%, not for them, for the business world in the United States. And it was down 1.4% in the fourth quarter, and it's doing about the same this quarter. And, of course, this is like having your finger on the pulse, right? They deal with all of these businesses day in and day out, and they see what's going on. And, you know, I've always been somewhat skeptical of the data that we get and how wonderful it is, and, you know, sort of unbelievable it is, whether, you know, there's ridiculous inflation numbers and the GDP numbers. And, I mean, if you ever got the inflation numbers right, the GDP numbers would change dramatically, so...

Anyway. I saw a thing where Japan's exports were down 6% in December, so that continues. I guess the open interest might almost tic to a new high there overnight. Set up over 800,000 contracts again in gold, which means that as gold was rising yesterday, they were forced to settle into it, okay? Which, I love seeing that. Because we've all now watched palladium, and you, as anybody in the public domain, have addressed this, you know, it's the fact that there's this physical shortage and the guys can't control the price on the COMEX or the LBMA anymore. Did you tell me some story about some palladium that went over to London? Can you tell me that? What happened?

Craig: Yeah. A friend of ours, David Jensen, kind of made himself into the world's palladium expert as far as I can tell.

Eric: Absolutely, love his work. Yep.

Craig: Because he's been following it now for a couple of years, as have I. And he's got really good contacts in London with some of the banks. After really no changes at all, as long as I've been watching this now for a couple of years, the palladium stocks at the COMEX in New York had been relatively unchanged. There's barely any palladium there, 50,000, 60,000 ounces to support that whole, entire exchange. Anyway, all of a sudden, out of the blue, this week, about 18,000, 19,000 ounces were withdrawn from JP Morgan's vault. And David reported that that immediately headed over to London to try to ease some of the physical stress there.

Eric: Yeah. That's like a third of all the inventory...

Craig: Yeah. Yeah, exactly.

Eric: ...within the COMEX.

Craig: There's now 78 digital ounces based off of the open interest in COMEX palladium, 78 digital ounces for every 1 physical ounce registered and eligible in the bowl.

Eric: Right, right. And one of the funny things is when I look at the spread of the palladium price, the bid-ask, it's $200.

Craig: Yeah, how about that?

Eric: I can tell you, that tells you how little the guy wants to sell it, right? Two-hundred-dollar spread between the bid and the ask? Anyway, we all hope that the palladium shortage and what's happened on the commodity markets will transcend itself into platinum, silver, and gold. And, of course, we all know from our work on silver and gold that there's these humongous short positions that we can see on the COMEX. And God knows what there is in the LBMA, it could even be bigger. So, they pretend to trade all sorts of ounces every day. Why they trade them, I don't know. Because none of us are trading it. Anyway. So, palladium could be quite instructive here going forward for the other metals.

Craig: A lot of questions, Eric, about those other metals, platinum included. Just anything you might say to anyone who wants to buy some? I mean, it's hard to...I know you've been looking at palladium miners. Are there ETFs that people can look at?

Eric: Well, there are ETFs, and the only ETF I know about...I know there's others, but we have ETFs, Sprott has a platinum and palladium ETF, which you know the physical stuff's there, okay? That's for sure.

Craig: Right.

Eric: The other ones, I don't know, because I've never really looked at them, and I don't profess to be a student of the palladium market, but I'm trying to get there, okay? I've been very busy this week. I probably purchased five interests in different palladium companies. And pretty well, every palladium company, when you produce palladium, you produce platinum too. It's the nature of...they come together in the Earth's crust. So, I'm kind of hoping that what might happen to palladium is more likely to happen to platinum as well. Like, the markets are so small, I think both markets are like 6 million to 8 million ounces are produced each year, some small number like that. They're not gonna take much for things to change dramatically there.

Craig: Right. Before we get to some of those miners, Eric, I want to kind of ask you about your opinion in general. We're here getting now at late January. We had a great rally in the shares beginning in about the middle of October, had about a 20% rally in the HUI and the GDX. And now though, this year, even though gold has trended higher, silver's flat, a lot of the shares are down, and that's frustrating a lot of people. You have any thoughts on that?

Eric: Yes. I want to thank the market for not marking the shares up. I appreciate that as a guy who's very active in buying things. Because given time, given the historical measurements, we know these stocks are not gonna stay here, you know? We're trading at a record low. Well, how ridiculous is that?

You see all these people in the world recommending gold these days, you see the price of gold acting well these days. You know, it's just a matter of time before this thing takes off. And, of course, some of those indices, they do have a lot of bigger companies in them. And those bigger companies have always been the poorest performers, always. Like, you get your performance out of exploration stocks, smaller producers or midsized producers. And, you know, we have seen a lot of action in some of those, okay? Even though the HUI doesn't show up. But there's been lots of action in smaller companies. So, that's what I'd say. Rather than look at the generalized indexes that have the bigger companies in them, just focus in on...well, how about the junior silver index, right? Hasn't that gone sort of ballistic here this year?

Craig: Yeah.

Eric: Anyway, that's where you want to be putting your money, and use the opportunities. And, you know, while we're at it, one of the things I should mention, as I just generically look at the palladium price, I sit and say, "You know what? The present value of a guy with a palladium deposit just went up 500%." I can almost say that categorically it's gone up 500%. The margin he'd make at $2,500 versus when it was at $1,500 is incredibly larger. So, that's why I almost blindly buy these junior explorers who have palladium and platinum because they've had them for a long time, just nobody gave a damn. Well, now we give a damn.

Craig: Yeah, exactly. I do want to ask you, I've got a number of questions for you this week. Anything else on your mind before we get to them?

Eric: Well, I got to talk about the Wallbridge news release. And I would say...I've just been looking at it. At first, it wasn't flashy at all because there were no big [inaudible 00:11:54]. But I'll just tell you right off the bat, I get very, very excited looking at what they're trying to tell us. And what they're trying to tell us is they have very, very wide zones of gold that are striking almost east to west. And before, it used to be...you'd see a little red line and it was narrow, you know, like maybe five meters. Now, they're showing these zones that could be, you know, 50 and 100-meter wide. Well, you know, when I started doing the math on...oh, boy, we got this strike...

Oh, and by the way, one of the reasons they're finding these zones is as they step back to drill deeper in the Tabasco zone, of course, they're moving the drill further back. Well, bang, they hit another zone that they didn't even know about. And if you look at the maps, these guys, almost 900 meters from where they last drilled, they hit another zone 800 meters away. Well, does that imply that from that 800-meter go back to where we are, then we could have a whole bunch of zones in there? Yes, we could. And let's not start multiplying, you know...you start multiplying 500 times 500 times 500, you come up with 300 million tons, and you could end up with 10 million ounces at a gram a ton. And this thing looks a lot bigger.

The other thing I should say about it is we are gonna have some good holes coming up here in the lower Tabasco, I'm pretty certain of that. I mean, it just looks great. And so, now they're saying, "Well, we've got this potential open pit, we've got potential underground bulk mining, and, of course, we've got the high grade." So, I think it just looks very, very special. Let's say they came out next week and flashed some high-grade down on the lower Tabasco, bang, away we go.

Craig: All right. I've got a list of quite...names have been sent in, Eric. We'll try to get to as many of these as we can. Again, just to remind listeners, we thank you for your submissions. You send them to us at that submissions@sprottmoney.com email address. If you don't hear your name mentioned, it's because I've already asked Eric in advance, and he said he didn't have an opinion. But he does have an opinion on some of these. Let's start with two of those palladium companies that I think you bought this week. One called Generation Mining, the other one called Palladium One.

Eric: Yeah. Generation Mining, I just bought it this week. I'm basically buying any palladium company, "Five-hundred percent increase in that. Okay, I'll take it. Is the stock up...no, it's not up 500%. Oh, it's up 20%. I think I'll try that. Okay. Leave me the other 480% to me. Thank you very much." So, Generation Mining falls into that category. Palladium One was another one I bought. I think there was one called Central Canada Palladium.

Craig: Canadian Palladium Resources.

Eric: Yeah, okay, Canadian Palladium...you're so fast and furious, I don't even remember the names. Yeah. Well, same thing, you know. And the funny thing is that these people have had these resources for a long time. It's just that the dynamic is now their economic. We've discussed this many times before. You know, you take the gold price from $1,000 to $1,500, oh my God, everything comes back on the playing field as economic. So, you got to be moving.

Craig: Back to the...I guess we'll call it Wallbridge, and Detour, and Kirkland Lake. Had a question about the mill that Detour has, and if it has enough capacity for more throughput from either their own material, or Kirkland Lake's, or anybody else?

Eric: Sure. Well, mills can almost always be increased in size, okay? You've got to get a permit though. So, for example, in the case of Detour, they are allowed to process 75,000 tons a day, not a ton more, okay? They've already made application to go to 90,000 tons, which just implies a 20% increase in production. I'm sure that, you know, should the whole Detour trend of the Sunday Lake and Deformation Zone that Wallbridge has and Balmoral's on, if it came that there was going to be some significant discoveries there, that I would guess that between Detour/Kirkland, they would get in the game and it wouldn't be that difficult to increase the size of the mill, no. It's kind of wide open.

Craig: All right. The next one then is something...I think we talked about this back in December on that Ask The Expert segment, a company called Kerr Mines.

Eric: Sure. Yeah. Well, they got the copper stone deposit in... it's in Arizona. I think it's Arizona. It's right on the Arizona-California border. I think it's in Arizona. I just was reading a presentation of theirs. They want to do a further drill program here to prove up more resources. When I looked at the drill program from this last year, I thought, "Kind of mediocre results." I mean, they made it bigger, for sure, but there was nothing splashy about it. I'm an owner, I may participate if they do another fundraising. I haven't made that decision yet.

But almost all of these things, you know, if the price of gold wants to keep going up, "Okay, here we are. Bring them back on the table as an economic deposit." So, it's one of those things that the... Oh yeah, I looked at that one, and I said, "Oh, I wonder what the price of this was back in 2011," which was when we had the big price of gold. And the price of the shares was...I think it was $7 with a known ore body, and a mill, and underground workings, and probably equipment, and stuff like that. So, "Okay. Well, that kind of intrigues me." It intrigued me.

Craig: Fair enough.

Eric: I think most of these things will go back to their old highs again.

Craig: And one last one here. And this kind of gets back to that same Fosterville area. We talked last week about Kalamazoo and the recent investment you put there. How confident are you that that geology is similar to everything else that's up there?

Eric: Well, you know I'm a great geologist, right?

Craig: Right.

Eric: Colorblind. You don't have any metals? You know that there's like 50,000 different metals, apparently. I start reading these geologic reports and my head's just spinning around. I totally am relying on Quinton Hennigh who said to me, "Eric, it looks like an extension of Fosterville." Not specifically an extension of the mine Fosterville, but extension of the geology in the area and so on, okay? So, I'm merely speculating on that. You know, I'm a speculator. Fosterville treated me well and continues to treat me well. You know, I sent Quinton down to look at Fosterville for me. He came back with his glowing report, so, man, I stepped it up. So, I rely on Quinton, he's been great at things like that.

Craig: Fair enough. Hey, before we wrap up, Eric mentioned buying some of those dragon bars last week. We still have some of those. It is Chinese New Year. Everything with the coronavirus, it doesn't stop the fact that it is Chinese New Year on the calendar. And we do have a special product this week for everybody listening to the "Weekly Wrap-Up." We have 100-ounce silver bars, Eric. This is right at your wheelhouse. Hey, listen, they'll even cut you a deal at your own company. One-hundred-ounce PAMP Suisse silver bars, $1.45 Canadian or $1.10 U.S. over Sprott. That's not a bad deal, my friend. And who knows, you know, maybe if you ask nice, they'll cut even you an even better deal. But for everybody else, $1.10 U.S. over Sprott.

It's a great deal. Take advantage by going to sprottmoney.com. Check out the deals page, or, of course, you can always just call them, (888) 861-0775. Eric, we got a busy week next week with the Fed, FOMC next week. We got all this other stuff going on. I look forward to talking to you again next Friday.

Eric: You know, it's funny, there's so much going on in the world, the work you got to do every morning just to stay abreast of things, let alone news releases that are complicated and things like that. Oh, boy. That coronavirus, I mean, I'll be spending two hours a day on that every day, so...

Craig: Yeah, yeah. Let's just hope that we've got some better news by next Friday, that's for sure.

Eric: Yes, sir.

Craig: Thank you. Eric. Have a great week.

Eric: Have a good one. Okay.

Craig: Yeah, you have a good weekend too. And from all of us here at "Sprott Money News," sprottmoney.com, thanks for listening. We'll talk to you again next Friday.