The Need for Precious Metals in Uncertain Times - Weekly Wrap Up (May 1, 2020)

Broadcast: You're listening to "The Weekly Wrap-Up" on Sprott Money News.

Craig: Happy Friday from Sprott Money News at sprottmoney.com. It's May Day, May 1, 2020, and it's time for your Weekly Wrap-Up. I'm your host, Craig Hemke, and joining us on this fine spring morning is Eric Sprott himself. Eric, good morning.

Eric: Hey Craig. Good morning. Thank God we get these months over with, right? Because normally at the end of the month there's all sorts of shenanigans going on, and we've had our fair share of it this week. And hopefully, next week will be a little bit more explicable, what's gonna go on in the precious metals.

Craig: Yeah. Yeah. Let's hope so. And, you know, maybe this month things will get somewhat back to normal, we'll start finding some metal again here at Sprott Money. They're a little bit starting to trickle in, and we're starting to get the quarantine restrictions eased as well. However, the biggest concern right now for us at Sprott Money is shipping orders, safely and securely. The U.S. Postal Service guarantee has been temporarily suspended for all shipments, meaning they're no longer insuring the shipment of your precious metals or requiring your signature at the door. And so without these measures, there's nothing to protect anyone from lost or stolen orders. So please rest assured that any order you have pending with us will be shipped as soon as courier protocols are lifted. And hopefully, we'll all get back to normal as soon as possible. But what is normal, my friend? I know you've been watching the developments in the world economy and in the virus all week. What have you seen?

Eric: Well, you know, that's a very good way of starting it off, Craig, what's normal. Because we get such conflicting views of...and data. I should say data, not views, of what's going on. And I would say that the biggest positive is, we keep getting these studies where...I think there was a study done in New York City with antibodies that showed that, like, 14% to 21% of the people tested in certain places already had the virus. Which is to say that the denominator we're using to calculate the morbidity is way understated, as the morbidity might be a lot less than we expect. I'm kinda falling into that camp. Two, I think the statistics are also tilted because, unfortunately, the people most vulnerable, the ones in the nursing homes and who are conflicted already, I mean, their resistance is, unfortunately, not significant. And there's been a lot of deaths in that particular category which, I think, kind of, overstated the death rate. I would say, however, on the negative side, some of these aftereffects which are now being discussed, where people can test positive, then they test negative, and then they test positive again, like 45 days later. The fact that there can be other organs affected. You know, we heard early on about sudden heart attacks and things like that. We've heard about long-term damage to lungs. So there's a lot that we don't know about the ultimate long-term effects of the virus. The one thing we do know is that the actions that the governments in the world have taken, have put us in a depression. And we have to decide what is going to be the human cost of a depression, versus the human cost which is man-made, versus the human cost of the disease? I don't know the answer, but I tend to be leaning to, you know, I think we've taken it too far here, that we have to find ways of starting to unravel the complete closure of the economy. So I'm hoping that we can find some way to bring people back to work. And, perhaps, with social distancing and masks and so on, that there won't be nearly the spread that there otherwise would have been, had we just had total non-compliance with anything.

Craig: Eric, it leads to a...I guess one of the questions we had this week, which is about keeping money in the banks. I mean these measures that are gonna be taken by the central banks are only going to continue and deepen. They're gonna continue to print and print and try to keep this plate spinning. That was the question. I mean, would you personally be concerned about money you have in a Canadian or U.S. bank?

Eric: Well, I have already many times in my life been concerned about money in the bank. I was concerned in 2000 about having money in the bank. I was concerned in the great financial crisis when, effectively, most financial institutions were bankrupt. I was concerned about having money in the bank. And I'm concerned about having money in a bank today. We have no idea what's going on behind the scenes, as I even read, you know, the Fed's statement from this week. And then the comments that the ECB make. And the ECB was even more ridiculous. I mean, all they did was help banks. I mean, it was just all about the banks. And why is everything about the banks? Because they're in bad shape. They're levered, they got all these bad loans. Most industries, probably 80% of the industries, are suffering, you know, grievously here. How are they gonna survive, I have no idea. So, yeah, I think they're worried about the banks and we, as individuals, should be worried about the banks. I can assure you, already within the last six months, I had money in the banks, and, you know, I don't want that money in the bank. I'm gonna go buy some silver, which I did. And, of course, I don't leave it in the banking system either. I want it out of the banking system, so I think it's a very good question.

I should mention that, Craig, that something else that I, as a sort of an extension of COVID. You know, we're watching these earnings reports and we saw both Apple and Amazon report last night, the stocks reacted very negatively to what's going on. And we're not even in the bad quarter. The bad quarter's this quarter. What's gonna happen? And, of course, Amazon came out and said, "Well we might need to spend $4 billion this quarter to prepare our company for COVID-19. And it would appear that they are one of the companies that really wasn't that prepared for COVID-19, just from anecdotal things we hear. And, of course, it'll wipe out their second quarter. And a lot of people might have imagined, "Oh well, I'd love to be Amazon because it's all online and we can make all this money." And, of course, meanwhile, now they're finding out that because they have all these people working, they too have a problem. So there are gonna be no earnings there for a stock that, you know, is so elevated it's a joke. Apple's earnings, the dollar earnings were down year over year. Their cash went from $207 billion to $192 in the quarter. I have no idea why. But, obviously, there's a lot of difficulty amongst all companies, even the great companies, the Amazons, the Apples, whatever. I mean, I can imagine, what's Google's advertising revenue gonna be like this quarter? Like, I just fear that even the stalwarts and the great captains of industry, I think, are gonna surprise the downside when we figure out what's happening this quarter. Let alone all those industries that we see every day that have problems, whether it's, you know, airlines, or cruise lines, or restaurants, you know, food companies. Anyway.

Craig: Well, that leads me to, I guess we'll talk about the majors, because earnings reports are gonna start next week. We got one yesterday from Yamana just to kinda kick things off, and it was pretty good, with an increase in their dividend. You talk about all these other equity sectors that are under pressure, cutting dividends, negative earnings reports, all that kinda stuff. But here in the mining sector, it's the complete opposite, right? You've got dividends being increased, earnings being great, year over year, quarter over quarter, and there's no other sector that is performing that way. So we're seeing some money flow in, the GDX looks like it's breaking out to seven-year highs. What do you think, going into earnings season?

Eric: Sure. Well, first of all, on the earnings front. I think it's gonna be very variable what different companies will report. You know, if you're in Mexico, you're shut down. If you're in Peru, you're shut down. If you're in Quebec, you're open. If you're Ontario, maybe you're partially open. So the earnings reports that we get aren't necessarily gonna tell us a lot, but I think the way I look at companies is, I always say every day, "Okay, what would they be earning today based on today's prices, today's exchange rate, today's mining operations? What would they be earning on a 12-month basis looking forward?" And, of course, to the point you're making with earnings going up and dividends going up and cash balances going up, all those things would be happening in the environment we have today. $1700 gold is a great price for all companies. And I've spoken before about some of the values that we see in company, I think I mentioned Gran Colombia, here. It's probably trading at, you know, three times cash flow. I might have mentioned Jaguar before. It was in Brazil. And I think the price of gold in Brazil is up to, like, 90% year over year. So it's not hard to imagine that, you know, earnings are gonna be fantastic. And back onto majors, there's obviously a move here to move into these stocks. And, of course, I always put it down to, the computers keep spitting out, "Well, what's the best performing group?" Well, of course, it's been the gold stocks. And, "Who's got the best earnings?" Well, the gold stock. "Maybe I should buy some of that." And, of course, we hear, anecdotally, that there's a lot of buying going on of the majors, which is great. Because the people selling the majors will be moving down into the intermediates, and then the intermediates will move down into the small companies, and the explorers, and the whole thing will rise as one.

Craig: Let's talk about an intermediate that we've discussed quite frequently here over the last 6 months to 12 months, maybe. Wallbridge Balmoral had some pretty good news.

Eric: Yeah. Balmoral came out with quite a spectacular pull. I think it was, like, over 3 meters of 301 grams, something like that. 301 grams, that's almost 10 ounces. Up just south of the Fenelon property. Now, as you know, Wallbridge, that owns Fenelon, is merging with Balmoral, and I think what it indicates, is that the whole area, not just the Fenelon property, the whole area seems to be setting up to be a whole new gold camp. And when you start talking camps, you're talking multiples of tens of millions of ounces here. I was reminded of the phrase in the 1993 World Series' Joe Carter's home run was going over the wall, the ump says, "Touch 'em all, Joe." And I think, "Touch em all," Okay, we got Balmoral. Good. Yes, we own that. Here we got Walbridge. Good. Yes, we own that. We own Ely, who has the royalty on Wallbridge. We own Great Thunder, that has properties north of that. I mean, it's just, wow. Owned Kirkland, that owns 10% of Wallbridge. So, man, touch 'em all. We love the announcement and I think it'll create a little excitement when things open up today.

Craig: You've been sniffing around the silver space, if I can put it that way.

Eric: I have.

Craig: You're sniffing around. I sniff around. You do a little bit more than sniff around. Talk about a couple of those companies, would you?

Eric: Sure. Well, first of all, the reason I've been sniffing around and acting, is because I've sort of mentally determined, "Okay, I think the mines are going to keep operating here." Maybe at reduced levels, but I think they're gonna keep operating, and, of course, if you have an open pit it probably operates at 100%, underground's a whole different thing. But I think they're gonna keep operating, so there's a window of opportunity to buy the stocks. And also, when I look at the trading of gold and silver, I look at what's happening in the [inaudible 00:12:47] traders. When I look at the open interest not going up anymore, in other words, the commercials are not standing in there, stopping the price from going up. Yes, we get these blitzkriegs that happen, like yesterday when it dropped $40 in, like, a minute. But I think that's some guy who's setting it up for options expiry, which happened yesterday. And, of course, now that we finished the month, things are gonna be great. And, of course, I have always had this deep suspicion that silver was the most depressed of all commodities and I personally own quite a bit of silver. And then I say "Wait, maybe I should make a move here." So about a week and a half ago I got a pretty good position in a company called SilverCrest. I've been asked about SilverCrest in this broadcast before, I say, "You know, I missed it, I didn't get it. It's a great company, but, you know, shame on me for missing it." Well, there was an opportunity, the stock sold down a little, so I plunked something into it. Another opportunity came along in a company called MAG Silver, and they needed about $50-odd million to finally have their cap ex-funded for a joint venture. And you know, if you go in there, if you give 'em the $50, that will solve a big problem for the stock market, the worrying about whether they're gonna get the $50 or not. As it turned out, I put $60 in, which more than got them over the edge. And the stock went up about...I bought it at $13.25, went to $17.25 in, like, two days. And I learned about a new phenomenon. I learned about the phenomenon of people being short stocks in anticipation of events. And of course, the event in the case of MAG Silver was going to be, "Oh, we're all gonna buy this issue, we'll get it at a discount to market, so let's short it ahead of time and buy it on the issue." And then I come along and buy all the issue. And now all of a sudden, all the shorts are sitting there naked short, and nothing to buy. And the stock, I think, went up more than it should've gone up. And it got me thinking about shorts and I've spent a lot of time this week studying the short situation. As you know, I'm trying to get involved with a group called "Save Canadian Mining" that would like the uptick rule re-instituted. And a company that I'm involved with called Rio2 put out a new release saying that they're making inquiries about massive shorting in their stock, both in the U.S. and Canada, over just the last month. And in fact, I think the comment made was that there were 40 million phantom shares [inaudible 00:15:36]. Phantom.

Craig: What?

Eric: These are shares that don't even exist, okay. It's just where some lender says to some guy who wants to short it, "Yeah, here, we'll cover you on the loan."

Craig: What?

Eric: "We have a position here," even though they don't have a position there, and, of course, it lets the guy short it and there's been many instances of companies where more than 100% of the shares are outstanding.

Craig: That's outrageous.

Eric: Because these guys create shares totally out of thin air.

Craig: That's outrageous.

Eric: It is outrageous, and it makes me even more want to get into this thing and try to bring some resolution to it because it's just about the worst thing that could possibly happen. So the investment in the silver shares all of a sudden brought the realization to me that it happened not just to little companies but to big companies. And, of course, when I hear that Rio2 has phantom shares, oh my god, now the problem's even bigger than I might have imagined. So I'm gonna spend a little time on that in the weeks going forward.

Craig: Goodness gracious. We had a couple questions this week asking about your investment in silver, some people wanting to get involved, and that, you know, their first thought is to buy exchange-traded funds or exchange-traded notes. And people start thinking, "Well, I could really capitalize if I could get one of these leverage deals, you know, two times and three times." So the question is, what do you think of those?

Eric: Yeah. I've never bought them. I think they're very inappropriate. There's a timed evaluation that goes on there all the time. You know, as we logically know, you can't get three times the action on something. You gotta give up something to get that, okay. It's like when the zero hedge, which is a website, but it's also a statement. You can't hedge for nothing. There's a cost to hedging, okay. There's no perfect thing where you can...you think you're gonna get three times the leverage and you're not taking on risk, that just is naive as can be. And we've seen some very, very unusual noncorrelations in some of these plays recently. So, I think, you know, you should be satisfied. Just own whatever it is you wanna own and forget the leverage part because, boy, when you're wrong, or if it's wrong and not working properly, you could lose a lot of money in a big, big hurry.

Craig: Yeah. And again, as always, we always appreciate all the names and questions that are sent in. The email is submissions@sprottmoney.com, that's the email you wanna use if you wanna send in something to us for these Weekly Wrap-Ups. We had a lengthy list of companies this week, a lot of names that Eric does not have an opinion on, so we don't talk about 'em. But I do have a couple here that I know you can discuss. One is this Mistango and Orefinders?

Eric: Yup. I think I might have commented on it before. Stephen Stewart, I think, is the gentleman who runs it, and he one time sent me a picture of the properties that he owned that were right beside the Macassa Mine that Kirkland Lake owns in Ontario. And I thought, "Oh my God, this guy's got the extension of the Amalgamated Break, he's got the extension of the Main Break. I think the market cap at the time was, like, $2 million or something. I couldn't help myself, so I bought a fair piece of it. Like, I might own about 30% or 40%, I'm not sure. Anyway, I bought that and the parent company is called Orefinders and it's an area play, I'm just betting, I think the Amalgamated Break extends west and I'd be even less surprised if the '04 Break extends west. So this guy's sitting in a pretty good position here in terms of the prospectivity of his properties.

Craig: And the other one is a company called Golden Predator.

Eric: Sure. Golden Predator, I'm an investor in it. I'm proudly a 10% investor, maybe a little higher, I'm not sure. They recently did an issue, I think they raised $2.5, $3.5 million. They have an orebody called Brewery Creek that they're hoping to bring back into production. I think this funding will help them get there, it's in the Yukon. And I think the economics are, of course, it's $1700 gold, incredibly robust. As anybody with an orebody who can get it into production, I mean, I can't imagine not making a lot of money at $1700 gold when the average guy's [inaudible 00:20:08] was around $1200. So, even to make, you know, $500 on, like, 100,000 ounces, it's $50 million, which is not bad. I'm gonna guess the guy's market cap's probably 40 or something. So, I like it, hopefully he can get the mine back into operation and start throwing off some money to shareholders.

Craig: Well, Eric, we made it through the week. It was frustrating to watch, and it almost always is frustrating into the end of the month. But now we enter May, where we gotta lot of contracts standing for delivery suddenly, I think a record amount of May silver contracts. We've got the...

Eric: Yes. I shoulda mentioned that. It's, like, 15 million ounces is standing for delivery in silver and 25 tons in gold standing for delivery as well. So, those are big, big numbers here. Just to put it in perspective, we produce about 80 million ounces a month, we got 50 standing for delivery on COMEX, we had about 50 going to the ETS this last month. Where is the silver coming from?

Craig: Yeah. Or the GLD is up, what, 120 tons in the last 6 weeks? Where are they getting that?

Eric: That's a very good question.

Craig: You know, allegedly it's in such short supply, but the GLD can source it. Well, anyway, that's a topic for another day. It has been, though, an interesting week. Next week is gonna be interesting too. We'll have up some economic data, the US Employment Report by next Friday as well, but then all of these earnings reports as well. I'm sure you'll be watching all of it. Anything else on your mind?

Eric: Not really. I think it's a good time to think about owning gold stocks as you pointed out. I mean, the GDX has broken out here. I think, you know, the average stock's up like 70% to 100% in the last seven or eight weeks. I think the breakout would suggest, like, man, this thing could double again here. And I'm hopeful, I'm...you know, there's been some shenanigans going on in both silver and gold here as we ended the month, but I'm pretty certain we're gonna get on another run here, and I think all the money's watching now. All the money's watching the gold stock, and gold and silver, so could be a lotta fun.

Craig: Well, I look forward to talking to you next week. Again, please visit sprottmoney.com on your way out. Not only are we a great bullion dealer, but also bullion storage and under the "Insights" tab you'll find all sorts of research reports, analysis, and podcasts as well. You can sign up for a newsletter. All that information gets sent to you as well, so you'll never miss any of it. Again, that's at sprottmoney.com. Eric, thank you, for your time this morning. Again, I hope we survive next week a little better than this week. And I look forward to talking to you then.

Eric: Okay. I'll look forward to it too. We got an opening here and I'm looking forward to touching 'em all.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thank you for listening, and have a great weekend.