A ‘Hoof-in-Mouth’ Market

GDXJ Chart

Precious metals expert Michael Ballanger discusses the effects of Donald Trump’s comments on the U.S. dollar and trade with Canada on precious metal prices.

As I muse delightfully this afternoon over my quote terminal, I am enthralled to take note of silver’s uncanny ability on Tuesday to actually listen to my cares and concerns and mount a 2.5% rally against a paltry 1.6% for gold into what has been the first of many of what I alluded to on the weekend—the insertion of a large Donald Trump boot directly into the very large Donald Trump mouth with his overnight comments about the USD being “too strong.” The resultant crash in the USD has caused a rally in the T-bonds and a crash in stocks despite efforts being made everywhere to stick save stocks and cap gold and silver.

Also contributing to a wonderful day of freezing rain and accelerated garbage pick-up here in lovely Port Perry was the revelation that the Commercials in the bond pits are massively long the T-bond futures and massively short the USD futures, which is being played out wonderfully today amidst pre-Inauguration shenanigans being planned by the populist Millennials displeased with their soon-to-be-removed free cell phones and loss of populist leader Hillary Clinton. The fact that the Clinton Foundation has begun to dismantle the Clinton Global Initiative so soon after the election fiasco should never be recognized as a failed political maneuver but rather as a “change of strategy” now that all of the donors expecting political favors after January 20 have come to realize that the tens of millions given to Slick Willie and Co. is now money up the flue never to be recovered in favors of any kind nor currency of any flag. Anyone that has ever watched “Boiler Room” should agree that Bill Clinton was a natural for that movie as lead actor, producer and director.

GDXJ (VanEck Vectors Junior Gold Miners ETF) is rattling up against the 200-dma with uncanny (sarc) predictability and is also challenging the downtrend line drawn off the summer tops at $52.50 and $46.00. With the RSI (relative strength index) up around 66, it is not exactly the ideal time to be initiating new positions in the juniors but if we catch a post-Inauguration bid in gold and bonds and a counterintuitive shellacking in stocks and the USD, the miners could easily resume the uptrend that was so brutally capped by the Commercials in the summer. The GDXJ, IMO, has to trade comfortably above $38 for a few days with silver confirming in order to signal “All Clear!” for additions to the juniors.

Of even greater interest to me than the gold and silver markets is the action in the bond and currency “pits” where investors are lined up in droves to profit blindly from a massive increase in interest rates (a drop in bond prices) AND a continued surge in the U.S. dollar (“USD”), both of which will result in new highs in the S&P and the revival of “Dow 20,000” hats everywhere on Wall Street. The consensus view on every financial news channel around the globe is that Trump is the “savior of the free world and American manufacturing” and that narrative continues to get jammed down our throats at each and every turn of the channel. But what is staggering, at least to me, is that the anti-NAFTA rhetoric has moved into overdrive and that affects not only Mexico but also Canada. Now Canada is experiencing a property bubble of epic proportions because the global bankers allow Chinese holders of Renminbi to exchange their massively over-inflated currency for Canadian dollars and Australian dollars and Bahamian dollars at which point they use those currencies to acquire Canadian and Australian and Bahamian assets that it would normally take four generations of hardworking families in Canada or Australia or the Bahamas to afford. So, with the stroke of a pen and the blink of a politician’s greedy little eye, the Chinese immigrants are allowed to “invade” these countries using the weapon of currency—phony, counterfeited, unrealistically inflated monopoly money that includes citizenship and/or landed immigrant status—in a manner totally within the law and totally to the benefit of the Canadian banks whose mortgage business is booming as thirty-something Millennials “aspire to get in the game” and GenEx-ers choke on massive mortgages supported by two working adults and sometimes holding two jobs.

Now, what pray tell happens if the Trumpmeister decides to re-jig NAFTA resulting in the loss of jobs in Canada and the depletion of trade? Much to everyone’s shock and surprise, take a guess which market around the globe consumes the most U.S. exports? Is it China? No. Is it the Eurozone? No. Is it Mexico? No. Why, it’s Canada! With its miniscule 39 million people and frozen landscape, Canada cannot survive without American manufacturing and fruit and vegetables and iPhones but at the same time, the Donald wants to renegotiate NAFTA and you can bet that it won’t result in Canada importing MORE American goods and services, now, will it?

Yes, my friends, as the Chinese curse says, “May you live in interesting times” with the operative word being “INTERESTING” because when times are UN-interesting, they are concurrent with peace and tranquility, as in “boring.” Under the swamp-draining, soon-to-be Commander-in-Chief Donald J. Trump, this tranquil world of “dip buying” and “outperforming my benchmark” and “beating the Street” is going to be turned upside down, landing on its ass, because DJT has populated the incoming administration with swamp creatures of all description and temperament. Bible-thumping vice-presidents and racist chief strategists and Wall Street-coddling Commerce secretaries and a gaggle of ex-Goldman lieutenants has now transformed the liberal incompetence of the Obama administration into the neo-conservative extremism of the megalomaniacal Trumpladites, fully armed and eager to do battle with every food stamp recipient and welfare receiver in the country. However, it won’t stop there because DJT wants to leave an indelible mark on not just the U.S.A., but also the memory banks of the Germans, the Chinese, the Brits, and every other nationality that ever watched “The Apprentice.”

The next time you sit down with your “wealth advisor,” ask him or her for a range of possible outcomes for interest rates, real estate and stocks and then ask what impact it might have on your retirement objectives. First, the vast majority of “wealth advisors” have only carefully scripted responses with cleverly crafted disarming mechanisms such as “long-term objectives” and “proper diversification” and “risk management,” but the absolute reality of the industry known as “wealth management” is that there is NO answer to the question of predictability. You pay these “wealth advisors” a yearly management fee for nothing more than guesswork. When I was a young boy, I used to get up at 5 a.m. in the summers to sell Toronto Telegram newspapers and copies of the Daily Racing Forum at Woodbine Racetrack in northwest Toronto, which was a twenty-minute bicycle ride from my house. An old and very-seasoned trainer, Jerry Lavigne, sat me down one time to explain the science of handicapping a horserace and he started with the Daily Racing Forum and went immediately to the section containing the “touts” where the writers were the likes of “Chawkie’s Favourites” or “The Trackman” or “Paddy McBookie.” Jerry described how they would go through all of the heats of the prior day’s workouts and all of the prior races and the winning percentages of the jockeys and how at the end of the day, it all sounded very “scientific” and “believable” and that studies had shown that 95% of buyers of the Daily Racing Forum did so strictly and purely for these “touts.” The forum had 50 or so pages of all of the data that the touts used but no one knew how to decipher it and therefore out of laziness would use the “touts.”

He then told me something I have never forgotten. He gave me the example of a race in which a favored horse, “Windslammer,” came in at post time with the odds at an incredible 1:10 meaning that a $10 bet returned $11. It also meant that the betting “pool” (all bets placed for that race in the building and in all off-track sites) was literally “all-in” for Windslammer to win. The “touts” were unanimous in their selection of this fine nag as it had blown away its competition in every race that season and was mounted by Canadian legend Sandy Hawley. It was a “sure thing.”

About twenty minutes before post time, Jerry noticed one of the grooms quietly bringing a large bucket of oats into Windslammer’s stable after which, as this majestic steed was walking to the starting gate, it lifted its tail and proceeded to unload its bowels onto the track. Jerry quickly ran to the ticket window and laid down a “wheeled exactor including every horse to win, place, or show EXCEPT Windslammer. Within minutes, the bell went off and the horses strained against each other to get to the front of the pack—all except Windslammer. This nicely sated steed, resplendent in fine silks and a very full tummy, ambled across the finish line a distant seventh, completely out-of-the-money but happily fed and ready for his return to the farm and fun and frolic with the mares.

The point I took away that day is a lesson that I wish I had applied in my career without fail. There is ZERO predictability in ANYTHING we do with our money. Just as these suckers laid down dollars to buy that Racing Forum and read with bulging eyes and wallets the unanimous selection of Windslammer as the “no-brainer” favorite to win that race, investors pay 1–2% of the value of their life savings/retirement funds to the same investment “touts” (“wealth advisors”) to handicap what series of events in 2017 are going to shape returns for stocks and bonds and real estate. So every time your wealth advisor sends you a long-term chart of the TSX300, send him back YOUR chart of the NIKKEI300, which peaked in 1980 at 50,000 and has never come close to that in 37 years. Or send him a picture of bucket of oats, or a Racing Forum.

That goes as well for these legions of real estate agents talking about the “favorable demographics” for the Greater Toronto Area while what they should be highlighting is the government-sanctioned financial invasion of Canada by immigrants carrying baskets of synthetic paper exchangeable for highly valued Canadian dollars and having the full blessing to acquire all of the prime real estate formerly belonging to fourth-generation Anglo Saxon or Italian families. The chart below is a comparison of the NASDAQ bubble of 1990–2000 and the same graphic representing the Toronto real estate market. Toronto real estate is in a bubble of the highest degree, even greater than the subprime bubble in the U.S. pre-2008, and you can thank the short-sightedness of politicians and the greed of the bankers for all of it. And it stinks.

Toronto Real Estate Prices

Toronto Real Estate Prices 2003-2017

NASDAQ 1990-2000

NASDAQ 1990-2000

Those of you deeming today’s missive to qualify as a “rant” may do so with the full blessing and condonement of the Ministry of Truth as created by yours truly at about 3 a.m. this morning and devoid of the contents of either the medicine chest or the liquor cabinet. I made a solemn vow after rescuing Fido from those inebriated ice-fishermen that I would behave myself in the month of January so here on Day 18 of total sobriety and 90-minute morning workouts on the elliptical and stationary bike machines, I can honestly say with great pride that Fido is once again sleeping at my feet in the sublime contentment of a dutifully loved pet. However, he has grown accustomed to very sudden jerky movements that I have had to make from time to time since New Year’s Day and growing ever more frequent each and every day as I am forced to swing my 1976 Guy Lafleur-signed hockey stick at these horrific green and purple creatures crawling out of the walls only to disappear upon my assault. The look of bewilderment on Fido’s face is analogous to a Monty Python sketch from the 1960s.

Welcome to 2017.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

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Disclosure:
1) Statements and opinions expressed are the opinions of Michael Ballanger and not of Streetwise Reports or its officers. Michael Ballanger is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. Michael Ballanger was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

All charts and images courtesy of Michael Ballanger.

Slivovo Gold Study Points to Further Exploration at Avrupa Minerals’ JV

The Slivovo Gold Project Study that Avrupa Minerals received from its JV partner recommends further exploration to increase the size of the deposit.

Avrupa Minerals Ltd. (AVU:TSX.V, FWB:8AM) announced that it had received the Slivovo Gold Project Study from its JV partner, Byrnecut International Ltd., in a statement released on Jan. 13. According to the company, “The study contains detailed geological, geochemical, and geophysical information about the Slivovo gold deposit, as well as chapters covering environmental, social, metallurgical, mining, infrastructure and surface facilities, waste management, capital costs, and other studies.”

Byrnecut has earned into 85% of the joint venture by delivering the report on the Kosovo project; it spent an estimated €4 million on the project. Avrupa noted that “since the start of the joint venture in April 2014, Avrupa and Byrnecut have made a gold discovery at Slivovo, calculated an initial NI 43-101 indicated resource estimate, and produced an extensive study of the deposit. As expected, the Slivovo Study advises that further exploration, particularly drilling, is necessary to increase the size of the Slivovo gold deposit.”

Avrupa stated that it is “currently evaluating the information contained in the Study and will advise Byrnecut as to how it will proceed in the joint venture. . .Avrupa will have the opportunity to choose to continue to invest in the Slivovo Project at the 15% shareholder level or allow Byrnecut to carry all future costs to a point where Avrupa would be diluted to a 2% net smelter royalty. To date, since discovery of the mineralized Slivovo outcrop, Avrupa has spent approximately 115,000 Euros on the Project.”

In a Jan. 17 company update, Avrupa noted that it plans to “continue working with our partner on the Slivovo Gold Project in Kosovo to expand the gold resource by way of additional exploration drilling.”

Avrupa holds nine exploration licenses in Portugal, Kosovo and Germany, and has three joint ventures, two in Portugal and one in Kosovo. The company uses a prospect-generator model and brings in partners to share the exploration costs.

Avrupa Chairman Mark Brown told Proactive Investors, “When we get a project to the stage that it’s ready to be drilled, which costs a lot more money, we quite often go and find a partner to do that drilling. . .investors get good exposure to a lot of different metals and they don’t have to pay for all the exploration as our partners often do.”

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Disclosure:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: Avrupa Minerals Ltd. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview or article until after it publishes.

( Companies Mentioned: AVU:TSX.V, FWB:8AM,
)

Joint Venture Decision on Golden Arrow’s Chinchillas Project Nears

Development progresses at Golden Arrow’s Chinchillas project as investors await Silver Standard Resources’ business combination decision, which is due by March.

Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCQB) and Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ) entered into a business combination agreement in October 2015 for the joint development of Golden Arrow’s Chinchillas project and “an agreement to combine the producing Pirquitas Mine and the Chinchillas project, located approximately 35 kilometres apart in Jujuy Province of Argentina, into a single new operation.” The joint venture would be 75% owned by Silver Standard and 25% owned by Golden Arrow.

During the 18-month preliminary period, Silver Standard would invest up to approximately US$12.6 million “at Chinchillas to advance the project and evaluate the feasibility of developing a combined mining business with its existing Pirquitas operation.”

Development has advanced at Chinchillas since that time. On Dec. 20, 2016, Joseph Grosso, chairman, president and CEO of Golden Arrow, noted that “as of the end of September 2016, Silver Standard has invested approximately $11M USD to advance the project towards pre-feasibility. In 2016, work completed included: a Phase VI drill program, an upgraded resource estimate, metallurgical studies, engineering studies, environmental monitoring, and community relations programs. The Environmental Report, which is the major mine permit application, was submitted to the authorities in September.”

Grosso also noted that “currently at Chinchillas, there are two drills working to complete detailed geo-mechanical and hydrogeological programs in and around the designed open pit by mid-December. Exploration work is also continuing both at Chinchillas and regionally, to delineate additional potential ore feed for the proposed operation.”

Investors are awaiting Silver Standard’s decision. Byron King, in the Jan. 10 issue of Jim Rickards’ Gold Speculator, stated, “We’re now on the countdown to March, by which time Silver Standard will have to announce a decision on its smelter in northern Argentina. If the smelter is to remain open, Silver Standard will need ore, and that ore will most likely come from a nearby site owned by Golden Arrow. Golden Arrow offers significant upside in a rising environment for gold-silver.”

Read what other experts are saying about:

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Disclosure:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: Golden Arrow Resources Corp. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview or article until after it publishes.

Additional Disclosures for this Content

( Companies Mentioned: GRG:TSX.V; GAC:FSE; GARWF:OTCQB,
SSO:TSX; SSRI:NASDAQ,
)

Troubling Contradictions in Trumponomics

US Domestic Investment/GDP

Markets are expecting a Trump economic miracle with real GDP growth estimates of 4% per year and more. The cheerleaders cite tax cuts, infrastructure spending and deregulation unleashing a wave of new economic activity. But that’s not where growth comes from, argues Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, as they discuss some basic contradictions in Trumponomics.

Economic growth is not a mystery. As Dr. John Hussman reminds us, economic growth always comes down to the sum of just two things: 1) more people working, 2) higher productivity. Add them up and you get the real growth rate. Everything else means nothing unless it contributes to these two factors.

Hussman assumes that the unemployment rate falls to an incredibly optimistic 2% by 2024 (from its current level of 4.7%). Built-in labor force demographics (slow population growth and an aging population) would limit annual growth in U.S. employment to just 0.7% annually at most. That’s what this factor would contribute to the real economic growth rate…0.7%…which can only be altered by massive immigration and a new Trump administration certainly doesn’t stand for that. In Reagan’s day, the unemployment rate was above 10%; there were millions of people ready and willing to work. Now, the unemployment rate is less than half what it was in 1982.

Some analysts point to the fact that there are 95 million Americans of working age who are not in the work force; all they need is an opportunity to work. This is naïve. More than 18 million have a “health problem or disability which prevents them from working or which limits the kind or amount of work they can do.” Another estimated 30 million reportedly do not have marketable skills. Many more are at home looking after children or family members. How many are actually able and willing to work, especially at the low wages the market now offers for most jobs?

Therefore, any sustained acceleration in real GDP will have to come from the second factor, productivity growth. That, in turn, is highly dependent on gross domestic investment (broadly defined to include investments in education and job-training initiatives to boost labor productivity). But this is the component of economic growth that faces the largest downside risk in coming years. Gross domestic investment has been trending down for decades, and the Trump administration does not seem to understand that its policy proposals will make it worse.

Here’s the trend. The red line (measured on the right scale) is the annual growth in real U.S. GDP. The green line (measured against the left scale) is U.S. Domestic Investment. The impact of declining investment is clear. Turning around this dual downtrend is the work of many years.

But the investment trend is not the fundamental problem. Investment depends on savings and America simply does not save enough savings to fund aggressive investment. U.S. gross domestic investment is always identical to the sum of household savings, government savings (or dis-savings), corporate savings and savings acquired from foreigners. The real problem is that weak household and corporate savings do not offset the enormous deficits (negative savings) that the federal, state and local governments are running, making the U.S. totally dependent upon importing foreign savings to fund investment.

Here’s how the U.S. gets foreign savings. The U.S imports goods and services in excess of what it exports…running a trade deficit of more than $500 billion per year. This deficit is paid in cash to foreigners who invest it in U.S. securities, filling in the U.S. savings gap and enabling investment to take place. In effect, we obtain the savings of foreigners by exporting securities to them, rather than goods and services.

Here’s the problem: Trump is proposing to bring production back home by taxing imports. Pursue a policy to reduce the trade deficit and you automatically pursue a policy to reduce the import of foreign savings. Now, that’s fine if the domestic sectors of the economy are running savings surpluses. But that’s nowhere near being true. In fact, Trump is talking about increasing the Federal deficit over the next few years to fund new tax cuts and additional infrastructure spending, thereby further cutting the domestic supply of savings and increasing the need for foreign savings.

The bottom line, as Hussman says, is that large and sustained increases in U.S. gross domestic investment have always been achieved by financing a substantial portion of the increase with foreign savings. Booms in U.S. gross domestic investment are always associated with a deteriorating trade balance. Trump’s war on trade simply does not support the need for foreign savings required for more aggressive investment needed to generate the higher productivity required for faster growth in the U.S. economy. There is a basic contradiction at the heart of Trumponomics. That’s just one reason why market expectations of a Trump economic miracle are vastly inflated, in our opinion.

This article is the collaboration of Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, and reflects the thinking that has helped make them successful gold investors. Rudi is the current Chairman and CEO of Seabridge and Jim is one of its largest shareholders.

The authors are not registered or accredited as investment advisors. Information contained herein has been obtained from sources believed reliable but is not necessarily complete and accuracy is not guaranteed. Any securities mentioned on this site are not to be construed as investment or trading recommendations specifically for you. You must consult your own advisor for investment or trading advice. This article is for informational purposes only.

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosures:
1) Statements and opinions expressed are the opinions of Rudi Fronk and Jim Anthony and not of Streetwise Reports or its officers. The authors are wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the content preparation. The authors were not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the authors to publish or syndicate this article.
2) Seabridge Gold is a sponsor of Streetwise Reports. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
4) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.

Chart provided by the authors.

Dolly Varden: Exploring a High-Grade Silver District in British Columbia

Dolly Varden Silver Stock Chart

The Critical Investor examines Dolly Varden Silver, a junior exploration company fully focusing on the Dolly Varden silver district, which is home to several former high-grade silver mines.

• Dolly Varden is looking for much more high grade silver on its prolific land package, just inside the Golden Triangle

• A new management team has taken on Dolly Varden under the leadership of Gary Cope as President & CEO.

• After raising C$7.2M, Dolly Varden is ready for a major drill program in 2017.

• The 2016 drill results are in and look very promising.

1. Introduction
The best place to explore for a new mine is in the shadow of an old mine. This is a very old adage in the mining sector and is definitely valid for new sponsor of my website Dolly Varden Silver Corp. (DV:TSX.V). Dolly Varden is a junior exploration company fully focusing on the Dolly Varden silver district, which is home to several former high-grade silver mines. The company hopes to expand known deposits, and find new ones under the technical guidance of veteran geologist Ben Whiting (P.Geo).

This district is located at the southern end of the Golden Triangle, a well-known mining area in Canada’s British Columbia province.

Dolly Varden has just started drilling, but things weren’t always that bright for this little junior. The company had for example a bad share structure, debt from the past and hardly any cash, and was involved in a fight with long time major shareholder Hecla Mining Co. (HL:NYSE), which launched a buyout offer and tried to take control right before the summer. This (hostile) attempt fell back, and Dolly Varden was able to raise CA$7.2M to repay all of the debt it owed and could finally start a significant field program in September 2016. Results of this program are already impressive, and this company will probably remain fixed on the radar of many mid-tiers.

All presented tables are my own material, unless stated otherwise.
All pictures are company material, unless stated otherwise.
All currencies are in US Dollars, unless stated otherwise.

2. Company, Project, Background
Dolly Varden Silver is a mineral exploration company focused on the Dolly Varden silver properties located in northwestern British Columbia, Canada, 25km by road from deep tide water. The 8,800 hectare property hosts a robust high-grade mineral resource and is considered to be highly prospective for further high-grade deposits, being on the same structural and stratigraphic belts that host numerous other, on-trend, high-grade deposits, such as Eskay Creek and Brucejack.

There have been some recent changes to senior management. Since December 5, 2016, Gary Cope has been appointed president and CEO. He is a well known name in junior mining sector, and also very familiar with adding value regarding silver juniors. His last big deal was the buyout of Orko Silver Corporation by Coeur Mining for C$350M as the president and CEO of Orko Silver. The Board of Directors of Dolly Varden was delighted that someone of the calibre of Cope wanted to step in, and he did this because he saw great opportunities to add considerable value.

Another new and high calibre exec is Ben Whiting, the new VP of exploration, replacing Rory Kutluoglu, who is strengthening the team of Black Sea Copper and Gold. Gary and Ben know each other from Orex Minerals and Orko Silver. Gary didn’t have to be very persuasive to get Ben on board. Ben Whiting is a professional geoscientist with more than 35 years experience in the international mining industry. He has worked for both major (for example, Rio Tinto) & junior companies, managing a wide range of operations from exploration through to production. He has also acted as a special advisor on mining industry matters to government agencies and is a past Adjunct Professor of Queen’s University in the Geological Sciences & Mining Engineering departments. Whiting is an “Economic Geology” medal award winner and winner of the 2008 IAC “Explorer of the Year” award, and has a host of other distinctions and memberships of professional organizations to his name.

The latest addition to the team is Robert van Egmond, who is also a professional geologist with over 25 years of experience at the likes of Cominco, BHP, Kennecott, Platinum Group Metals, Candente and Northern Dynasty Minerals, and knows Gary and Ben from the time he worked at Orex recently, so it’s kind of a reunion for them.

Some basic information: Dolly Varden has just 34.5M shares outstanding, with Hecla Mining as a major shareholder (about 15%). The cash position is estimated at C$3M, with no debt. The current share price is C$0.69, resulting in a market cap of C$23.81M.

Share price; 1 year time frame

After this, it’s time to elaborate a bit more on the Dolly Varden silver project.

Location, together with grade, is one of the most important features of any mining project anywhere in the world. The location and access to existing infrastructure can really make or break a project, and fortunately Dolly Varden Silver has been blessed as the location of its land package in British Columbia is pretty much as good as it gets.

Dolly Varden Map

The claims are located approximately 40–45 kilometers to the southeast of Stewart, and just 25 kilometers north of Kitsault, where Kitsault Energy has unveiled plans to build a huge LNG factory to convert the natural gas coming from Alberta into LNG before shipping it out to Asia where the gas prices are much higher than on the North American continent. Even though this project is still in the early stage, right next to Kitsault is the large molybdenum project owned by Resource Capital Funds after it took Alloycorp Mining (former Avanti Mining) private. If any of both projects ever gets the green light, Kitsault’s “ghost town” could become one of the newest mining-focused settlements in British Columbia.

The proximity to Stewart and perhaps Kitsault could also benefit Dolly Varden Silver as it will be much cheaper to source labor from an existing town rather than finding employees using a fly in–fly out regime. Another potential source of labor would be the city of Terrace, which is approximately 225 kilometers to the south on an all-weather road.

Dolly Varden Map

The Dolly Varden claims currently consist of approximately 8,800 hectares, which are 100% owned by Dolly Varden Silver, subject to a 2% Net Smelter Royalty (of which 1% can be repurchased C$1M). No further milestone payments nor any work commitments are required, which gives the company quite a bit of flexibility when it designs its exploration plans.

The Dolly Varden land package has seen two distinct periods of historical production; in the 1920s and 1950s high-grade ore was mined and even though the historic mine records are incomplete, approximately 20 million ounces of silver were recovered from the four historic deposits.

The most successful zone on the claims was the Torbrit mine (which was powered by its own hydropower installation, but could now be connected to the existing provincial power grid at Kitsault) where a total of 18.7 million ounces of silver as well as 11 million pounds of lead have been produced from rock with an average grade of in excess of 13.5 ounces of silver per tonne. The Torbrit mine was shut down in 1959, and it took 30 years before another drill program in 1989 was trying to uncover the rich silver veins on the property. Nothing happened after this 24 hole drill program until Dolly Varden acquired the property in 2011, more than 20 years after the most “recent” exploration program had been completed.

From 2011 to 2015, Dolly Varden continued its exploration activities at a moderate pace (after all, the silver price had started to trend down from its peak of $48.48 in H1 2011), but the company’s exploration success was very consistent as all target areas returned anomalous to high-grade silver mineralization. On top of that, an underground sampling program in the historic Torbrit mine returned an average value of 262 g/t silver over a total length of approximately 226 meters.

Resource chart

This eventually allowed Dolly Varden to complete a maiden resource estimate in August 2015, and despite the fact this resource estimate took less than 10,000 meters of drilling into consideration, the results were very encouraging with a total of 42.5 million ounces of silver (using a cut-off grade of almost 5 ounces of silver per tonne), of which 75% was located in the Indicated Resource category. As Dolly Varden has spent less than C$20M on its 2011–2015 exploration program, it’s safe to say the discovery cost per ounce of silver was very likely less than C$0.50, confirming the efficiency of the past exploration programs. As far as management is concerned, this is not the end of it by any means.

The 2016 exploration program was focusing on the so-called Ace-Galena trend, where drill results confirmed the existence of a high-grade silver system, with intersections of 1.25 meters grading 454 g/t silver and 3.15 meters containing 591 g/t silver.

In this Ace-Galena trend (where both VMS-type mineralization and epithermal veins have been encountered), as this is also where the past-producing Torbrit mine is located (keep in mind the majority of the historical production in the Dolly Varden district was produced at the Torbrit mine).

The existing resource estimate containing 42.5 million ounces of silver is a nice milestone, but if Dolly Varden’s geological model is even just remotely correct, there’s much more to come. The Dolly Varden property contains the same host rocks as the world class Eskay Creek deposit (further up north in British Columbia). As a brief reminder, Eskay Creek was Canada’s largest gold producer and one of the top-10 silver producers in the world with a total production of in excess of 3 million ounces of gold as well as 160 million ounces of silver.

Eskay Creek

Eskay Creek wasn’t just a pure gold-silver deposit, but should be seen as a VMS-type deposit with substantial base metal credits as the average grade of the zinc and lead were pretty substantial. Granted, the encountered lead and zinc grades at Torbrit and Ace-Galena (see later) were lower than at Eskay Creek, but it’s encouraging to have encountered these two base metals as it further validates the thesis and the geological model.

What’s making Dolly Varden even more exciting are the epithermal veins running over the property, which indicate this isn’t a pure VMS deposit à la Eskay Creek, but also shows characteristics of the Brucejack project, which is currently being developed by Pretium Resources Inc. (PVG:TSX; PVG:NYSE). These epithermal vein deposits are characterized by very high-grade precious metals mineralization, and Dolly Varden’s historic drill results with for instance 0.5 meters containing in excess of 3,000 g/t silver (!) and more recently 2 meters at 2,500 g/t silver are confirming the Dolly Varden property to be a blend of Eskay Creek-style and Brucejack-style mineralization that looks really promising.

3. The 2016 field program
Dolly Varden has used the flow-through funds it raised in July to complete its 2016 field program at its land package with a specific focus on the past-producing Torbrit mine, where in excess of 2,300 meters have been drilled.

Dolly Varden Property

Five holes were drilled at Torbrit, but unfortunately one of the holes was lost in the historical workings. The four other holes did reach their specific targets and confirmed the continuous existence of high-grade silver mineralization. With 4 meters of 317 g/t silver and 2.82% ZnPb and 6 meters containing 367 g/t silver and 0.93% ZnPb, it’s pretty safe to say the summer drill program at Torbrit has been successful as Dolly Varden was specifically testing certain zones within the so-called “resource shapes” where no drill data had been compiled before.

2016 Drill Program, Torbrit Section 3Torbrit 2016 drill results

It’s very positive to encounter more high-grade silver at Torbrit, as this part of the land package will very likely be the main focus for the time being. After all, approximately 25.5 million ounces of silver of the total of 42.5 million ounces in the Indicated and Inferred resource categories are located at Torbrit. With 60% of the total resources located in one well-defined area, it shouldn’t be a surprise the Torbrit zone has the potential to be fast-tracked towards development.

Of course, the greater Dolly Varden land package consists of much more than just the Torbrit zone, as this is just one of the four high-priority zones.

Approximately 2 kilometers north of Torbrit, Dolly Varden has identified the Ace-Galena zone which was the subject of a 2016 drill program after the 2015 exploration program unveiled very interesting drill results and confirmed the existence of epithermal mineralization as well as a VMS horizon.

Ace-Galena Project

The 2016 drill program consisted of seven drill holes, of which five holes returned positive assay results with decent silver grades (ranging from just a few grams per tonne to 3.25 meters containing almost 406 g/t silver). However, the key thing to remember from the drill holes at Ace Galena isn’t the silver grade, but the fact the strike length of the mineralization has now been extended by an additional 300 meters towards the north, and this will allow Dolly Varden Silver to add more tonnes to future resource estimates.

4. The Hecla takeover attempt
During the final days of June, Hecla caught everybody off-guard when it announced it would make an unsolicited takeover bid for Dolly Varden. Hecla probably felt the need to do “something” as its grip on the company was slipping away after Dolly Varden announced its intention to repay a loan to Hecla Mining.

Dolly Varden originally entered into a loan agreement with its two largest shareholders, Hecla Mining and Robert Gipson, to meet the working capital requirements in September of last year, when the entire mining sector was going down the drain. The loan originally had a one-year term, and as the original creditors didn’t want to consent to a prepayment on this loan, Dolly Varden decided to refinance the Hecla/Gipson debt with erasing all debt from its balance sheet as the ultimate goal.

So why was Hecla playing hardball with regards to the original loan agreement? Hecla might have been counting on Dolly Varden not being able to meet its commitments to service the debt, and upon defaulting on the loan, Hecla would have been allowed to take the asset away from Dolly Varden, considering it was a senior secured loan.

In a first step, Dolly Varden refinanced the Hecla loan with the proceeds of a short-term loan issued by Sprott and K2. This could be seen as some sort of bridge financing, as the Sprott/K2 loan was maturing just six months later, and carried an interest rate of just 4%. This allowed Dolly Varden to immediately repay Hecla, and raise the funds to repay Sprott/K2 in a private placement.

It took a while before this placement could close as Hecla and Dolly Varden’s clash was fought out in court. Hecla Mining was “not amused”‘ by this move, and promptly launched an offer to acquire all of Dolly Varden’s shares it didn’t already own at C$0.69 (in cash). This caught Dolly Varden off-guard, and the company was successful in claiming Hecla’s offer to be an “insider bid,” which has to be subject to an independent formal valuation.

At the end of July when the Ontario Securities Commission sided with Dolly Varden, causing Hecla to withdraw its hostile bid, Dolly Varden was finally able to close the equity placement. A total of C$7.2M was raised, consisting of 9.1 million shares priced at C$0.62/share (hard dollar) and an additional 2.14 million flow-through shares priced at C$0.70/share. The flow-through funds were immediately put to work right after the summer when Dolly Varden mobilized its field crews to complete in excess of 2,000 meters of core drilling as well as a sampling and mapping program.

With several million dollars now in the bank, Dolly Varden is in a much better shape than just six months ago. Not only has the working capital deficit (-C$2.3M as of at the end of June) been converted into a positive working capital position, the company is now completely debt-free, and more importantly, the assets are now unencumbered. Management also hired top-notch investor relations firm Skanderbeg not too long ago, so investor awareness will be up to speed soon, too.

5. Next steps/upside
There’s very little doubt the first resource estimate containing 42.5 million ounces of silver was just a very first step in the right direction, and there are several possibilities to increase the resource, and to increase the value of the property.

First of all, it looks like the total tonnage of the existing resource estimate might actually be understated. As drilling was still relatively limited in the past few years, Dolly Varden’s consultants have been very conservative when modeling the specific gravity data for the four zones.

In 2015, the author of the technical report has based its specific gravity estimates on 301 samples that have been collected in the 2012–2013 drill program, completed with 21 core samples from the Wolf zone in 2015. The specific gravity ranged from 2.73 (for the waste) to 3.12 (at Torbrit), and an average specific gravity ratio of less than 3 has been used to convert the rock volumes to a tonnage model.

As more data is coming to surface, it’s now very likely this specific gravity assumption might be too low. The rock at Dolly Varden contains both sulphides and barite, and these usually have a higher density. This could mean the tonnage in the current resource estimate (containing approximately 4 million tonnes) could be revised upward to 4.2–4.4 million tonnes, which would also increase the total amount of silver in the resource.

Torbrit Surface Geology

Second, there are several zones with historical data that were excluded from the current NI43-101 compliant resource estimate as there was not sufficient “new” data to confirm the historic numbers. As Dolly Varden continues to drill the zones at and around the spots where the historical mineralization occurs, it should be able to add these zones to future resource estimates, which will increase both the tonnage as well as the ounces of silver in the resource.

And finally, drilling at Torbrit and Ace-Galena confirmed the existence of zinc and lead. Even though the grades aren’t very high (the combined zinc-lead ratio at Ace-Galena is generally less than 1%), both base metals could be an attractive by-product that could reduce the production cost per ounce of silver. A zinc-lead percentage of 0.75% (with a 50/50 ratio zinc/lead) will increase the value per tonne of rock by almost $20. Needless to say that adding zinc and lead to the resource estimate and a future mine plan will be accretive to the total value of the project.

After discussing these subjects with management, it seems that Dolly Varden seems on its way to possibly add 40–50% more silver (equivalent) ounces to its existing high grade resources. What this would mean for EV/oz ratios among peers can be seen in these tables, which I reconstructed and expanded upon data from a table of Haywood:

EV/oz Ratios

And:

Resources Chart

Considering the stage, high grade and solid jurisdiction, I could view Dolly Varden as undervalued according to this peer comparison, as peers at the same stage have (much) higher valuations. As always with peer comparisons, you actually need to look into the chosen peers very carefully, and fully understand how their valuation could be motivated. However, as a first indication it does seem that Dolly Varden is at the low end of the spectrum for now.

All the data from the 2016 exploration program will now be analyzed during the winter, and Dolly Varden is expected to move forward in 2017 with a follow-up drill program and perhaps an updated resource estimate, incorporating all the new features of the property.

6. Conclusion
Dolly Varden Silver had a tough 2016 on the corporate front, but has been successful in defending itself against a hostile buyout offer from Hecla Mining. Dolly Varden’s share price is currently lower than what Hecla was offering to pay for the company, and the recent positive exploration results have actually increased the value of the entire project.

It doesn’t look like Hecla will quit its attempts to control the Dolly Varden district, as the senior silver producer has elected to keep its position in Dolly Varden Silver stable at approximately 15% (and has the right to retain that equity level as long as it owns more than 10%), so it does look like Hecla could still pursue a (friendly?) deal with Dolly Varden Silver. As other major shareholders are continuously blocking all takeover attempts until now, my expectation is that Dolly Varden will only be sold for a significant premium to today’s share price, also probably doing justice to the eventual exploration upside.

The first resource estimate contains 42.5 million ounces of silver, but there’s much more to be found on the Dolly Varden claims, and the recent drill results at the old Torbrit mine are very encouraging. But even if we would use the current 42.5 million ounces, Dolly Varden Silver is trading at just C$0.33 per ounce in the ground. This makes Dolly Varden Silver one of the cheapest high-grade silver companies based on EV/oz, and there’s no fundamental reason why the company should be trading this cheap. As far as I’m concerned, this value gap will only widen more when incoming results and follow up drill programs will continue to yield very strong drill results.

I hope you will find this article interesting and useful, and will have further interest in my upcoming articles on mining. To never miss a thing, please subscribe to my free newsletter at criticalinvestor.eu, in order to get an email notice of my new articles soon after they are published.

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Disclosure:
1) The author is not a registered investment advisor, and currently has no position in this stock, but might initiate one soon. Dolly Varden is a sponsoring company of The Critical Investor. All facts are to be checked by the reader. For more information go to dollyvardensilver.com and read the company’s profile and official documents on sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.
2) The following companies mentioned in the article are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.

( Companies Mentioned: DV:TSX.V,
HL:NYSE,
)

Is the Appointment of Paul Zink a Game-Changer for Terraco Gold?

Terraco Gold rang in 2017 with the announcement that it has appointed Paul Zink as consultant and advisor.

In a Jan. 3 news release, Terraco Gold Corp. (TEN:TSX.V; TCEGF:OTCPK) noted that “Mr. Zink is a mining industry professional with more than 35 years of experience in finance and the extractive industries. He has particular expertise in mineral royalties, project financing, financial analysis, business development and strategic planning. Within his career, Mr. Zink has held several senior positions specific to the royalty sector including President of International Royalty Corporation (“IRC”) until the successful sale of IRC to Royal Gold, Inc. in February 2010. . .he began his career following the mining and metals industries during a 17-year tenure on Wall Street with J.P. Morgan & Co., where he performed industry research and merger and acquisition analysis on mineral companies, banking and project finance advisory work for European mining companies, and sell-side equity research on U.S. mining stocks.”

Todd Hilditch, CEO of Terraco, stated, “I have known Paul for several years and fully appreciate his high level of professionalism and character combined with his mining industry expertise and royalty sector success. He is a welcomed addition to the Terraco team and I look forward to working with him.”

A post by The Critical Investor noted that “Paul Zink isn’t just any name in the royalty space, and I think Terraco is lucky to have a royalty veteran like Paul helping them out from now on. . .as a consultant and advisor, Paul will advise and help Terraco management review/evaluate assets, and bring in royalties for evaluation that could be a good fit.”

The Critical Investor says Zink could be a game-changer for Terraco: “With his vast network in the royalty- and mining space, and the successful IRC story as an indication of the kind of playing field he likes, I’m pretty sure his ambitions reach outside the usual realm of small companies like Terraco Gold. People like him could raise cash fairly quickly and easy, and also attract the best people available if necessary. Besides this, the best available projects will find guys like Paul, not the other way around as is usual with less familiar names. ”

“Paul brings a new level of doing business in the royalty space to the table. I’m looking forward to his first moves,” The Critical Investor concluded.

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Disclosure:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: Terraco Gold Corp. The companies mentioned in this article were not involved in any aspect of the article preparation. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview or article until after it publishes.

Additional Disclosures for this Content

( Companies Mentioned: TEN:TSX.V; TCEGF:OTCPK,
)

High-Grade Gold Discovery in New Mexico Doubles the Opportunities for Southern Silver Exploration

The discovery of a widespread oxide gold system at the Oro deposit in New Mexico creates a second prospect for Southern Silver Exploration.

Recent drill results from Southern Silver Exploration Corp.’s (SSV:TSX.V; SSVFF:OTCQB; SEG1:FSE) Oro deposit in New Mexico identified a widespread gold system at the Stockpond target. The company announced on Nov. 23, 2016, that drilling “intersected widespread alteration and a thick zone of strongly anomalous gold mineralization in a sediment-hosted oxide-gold system located on the edge of the drill pattern, which remains open laterally to the east, north and south under thin gravel cover.”

Nine reverse circulation holes were drilled during the exploration program, totaling 1,223 meters. Hole SP16-004A contained the highlight of a “9.1 meter interval averaging 0.75g/t Au, contained within a 41.2 meter interval averaging 0.42g/t Au.” The company noted that, “the results from this initial program were successful in identifying the edge of a potentially large auriferous mineralizing system and in particular, showing open vectors to the east of the Phase I drilling which will now be the focus for further surface exploration, geophysical studies and an eight to ten hole, wide-spaced drill program covering an approximate five square kilometer area.”

Southern Silver President Lawrence Page, Q.C. noted that “Oro remains a most attractive porphyry copper/gold target with distal gold values. We have expanded our land base with the addition of located mineral claims and now intend to vigorously continue exploration for a significant gold resource in the northeastern portion of the property where values of gold discovered to date, are similar to those being mined in other major oxide gold deposits throughout the western United States.”

Southern Silver has been able to consolidate the Oro land package; it is made up of patented land, state leases and Bureau of Land Management located mineral claims. There is a 2% net smelter return (NSR) royalty.

Southern Silver noted that “management is very encouraged by the results and has subsequently staked an additional 54 lode claims on BLM-administered land on the Oro project, covering potential extensions of the Stockpond mineral system and the other potential targets. In addition, the company has begun the process of planning and permitting for additional drill sites to test an approximate five-square-kilometer area to the east of the current drilling.”

Martin Wood of Vicarage Capital, on Nov. 4, 2016, before Oro’s drill results were released, noted that “the area drilled covers a gold-in-soil anomaly and mineralised outcrop exposure where rock-chip samples returned up to 4.8 g/t Au. The dimension of the gold anomaly coupled with the sampled grades underscore the project’s potential for the discovery of a significant bulk-tonnage, intrusive-related, disseminated oxide-gold deposit.”

The Oro property is situated in the historic Eureka mining district, an area that has been mined since the early 1900s.

Southern Silver’s original project is Cerro Las Minitas in Durango, Mexico. Three high-grade silver-lead-zinc deposits have been outlined there, and a high-grade gold deposit was recently discovered. Electrum Global Holdings LP has earned a 30% indirect interest in the property and has until May 2019 to earn up to a 60% indirect interest.

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Disclosure:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: Southern Silver Exploration Corp. The companies mentioned in this article were not involved in any aspect of the article preparation. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview or article until after it publishes.

Additional Disclosures for this Content

( Companies Mentioned: SSV:TSX.V; SSVFF:OTCQB; SEG1:FSE,
)

Nexus Scores on Gold, Misses on Press Release

Veteran investor Bob Moriarty provides an update on Nexus Gold’s potential home runs in Burkina Faso.

I wrote about the incredible coup that Nexus Gold Corp. (NXS:CVE) scored in Burkina Faso back in early December. Basically they have picked up two potential home runs in the best country to explore and build a mine in, in the entire continent. Using the skills of the former Chief Geologist for Roxgold, Warren Robb, the company managed to scarf up two good properties for about US$1.5 million each but the deals are rear end loaded and have a tiny 1% NSR. They have two years to test the crap out of the projects before big bucks are due so the money they raise now goes directly into the ground rather than into the landowner’s pocket today.

One thing I have learned over the last fifteen years and seeing hundreds of projects is that the interests of the landowner and the company doing the deal have to align. In 100% of the cases I’ve seen where a big front end payment is made, the landowner immediately does everything in his power to queer the deal so he can go flog the property to some other damned fool. In Tanzania I’ve seen one project with a lot of gold in the ground get pimped out to four different groups in five years. The landowner realized he could make a lot more money on front end payments than from actually producing gold.

On January 11th, Nexus Gold published a press release detailing some of the best results from the initial RAB program and grab samples. So far there have been 556 test pits, and 11 trenches sampled with nice numbers coming up. Rock samples done before the deal was concluded came back with values up to 18 g/t gold. Soil samples tested as high as 34 g/t gold.

The testing the company has done since signing the acquisition in early December has generated incredible bonanza grade results as high as 2,950 g/t gold. For those who can’t do math in their heads, a ton of that rock would be worth $114,183.54 roughly at $1204 gold. For gold that rich, you could measure in percentage of gold rather than grams per ton or PPM. Another sample, NG006 returned a more reasonable value of 23.9 g/t gold.

Peter Berdusco, President of Nexus, wanted to talk to me about the results and how excited the company was. Certainly a sample of $114,000 rock should excite anyone. But in the real world, those sorts of grades are one-offs. I actually have never seen a piece of $114,000 rock before. I was more excited by the 23.9 g/t material. That indicates something far more doable.

Peter talked for a few minutes before I interrupted. As a matter of simple logic, the purpose of a press release is to communicate. Not to inform but to communicate, and there is a big difference. If you ask web designers to give you one word that describes what a website is supposed to do they will almost always give you one of two different words. People think of the web either as information or communication. Those who think of the web as information make lousy web designers. A telephone book is information. A telephone is communication. Big difference between the two.

I suggested to Peter that a press release should answer questions, not ask them. As soon as I saw the number of 2,950 grams per ton, I pulled up my handy Rocks in the Box URL and fed in the number. As of yesterday, the rock was worth over $111,000. Today gold is higher. You should keep that URL by the way; it makes putting assay results into context a whole lot easier.

Their press release informs but does a really lousy job of communicating. I asked Peter how he could collect a sample from the primary vein at 46 meters below the surface? Was it from drill core or a RC sample? If it was from drilling, how long was the interval? Do you understand my issue?

To say a sample is 2,950 grams per ton is pretty meaningless. What is the sample? Was it a 20,000-ton bulk sample or a nugget that someone dropped on the floor? Was it a .005 MM true width of core or a 40-meter intercept? If it was from a 20,000-ton bulk sample you could either retire rich or bribe Hillary Clinton to sell you an ambassadorship.

Peter explained patiently that it was a 46-gram sample that had been chipped off the target vein 46 meters from the surface down a shaft put in by the artisan miners. All it represented was an extremely high-grade chip off the vein that Nexus is targeting. The other 23.9-g/t sample was taken off a pile of material to be processed by the artisan miners and it represented a sample of the shear zone material from 60 meters down another shaft.

My comment to Peter was that he should have and could have explained what the results meant and defined what a sample was. If he could explain it to me over Skype, he could have put it in the press release as well.

There were a few diamonds among all the coal in the press release. The primary quartz vein has been traced over a 1000-meter length. The secondary target, the shear zone, appears to run for 500 meters and is splayed off the primary vein system. The press release appeared to be about results from the RAB program but there was no communication about how many holes or how deep they were or what the intercepts were or the grades other than a single 1.05 g/t gold assay over 12 meters in hole 19.

In short, the press release reported easily the best results I have ever seen announced in the most poorly written press release I have ever read. I think Nexus is on to something giant. But they need to stop informing and start communicating. Whoever wrote that press release should not be writing press releases.

As I explained in my early December piece, Burkina Faso is one of the best places to explore in the world. If I could find a piece of VG just by chipping on rocks while eating a sandwich at a rest stop far from any exploration workings, there is a lot of gold in the country still waiting to be found.

Nexus Gold has doubled since I wrote my piece in early December. Those readers wise enough to invest have done well indeed. It’s nice to have a double in five weeks any time at all.

My “OPINION” and that’s a big opinion because I cannot support it with the scarcity of information in that really rotten press release, my opinion is that if the 1000 meters length for the primary vein system is accurate or the 500 meters length for the splayed off shear zone, I think they have found a really big deposit.

Obviously they need to do a lot more drilling but they have one of the finest and most experienced technical people in Burkina Faso in the person of Warren Robb. A lot of my attitude toward the project is really based on his experience in Burkina Faso and his just plain good sense. I like the company and the project a lot. But if that press release had been written in simple clear English, the stock would have doubled instead of going up 16%.

Nexus is an advertiser. I have bought shares in the open market based on those results. There will be a private placement and I am sure I will participate in it as well. I am naturally biased. Please do your own due diligence.

Nexus Gold Corp.
NXS-V $0.14 (Jan 11, 2017)
NXXGF-OTCBB 96.6 million shares
Nexus Gold website

Bob and Barb Moriarty brought 321gold.com to the Internet almost 16 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 832 missions in Vietnam. He holds 14 international aviation records.

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Disclosure:
1) Bob Moriarty: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Nexus Gold. The following companies are advertisers on 321 Gold: Nexus Gold. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in the article are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.

( Companies Mentioned: NXS:TXS.V; NXXGF:OTC,
)

Should Investors Continue to Hold Ares Capital after the Merger?

The completion of the acquisition of American Capital by Ares Capital leads money manager Adrian Day to reappraise an investment in Ares, causing him to ask if investors should buy or continue to hold at this time.

Ares Offers 9% on Top BDC
Ares Capital Corp. (ARCC:NASDAQ, 16.91, 8.99%) is not only by far the largest Business Development Company (BDC), with about $12 billion in investment assets, it is also one of the best and one of the most conservative. It has a strong balance sheet, with sizeable liquidity, and one of the top platforms for new investments. Over the past three years, it has a ROE (NAV growth plus dividend) of 9.7%, almost twice the average BDC, and the growth outlook remains positive, with quarterly earnings on track to grow from last quarter’s 39 cents per share to 43 cents over the next several quarters, according to analysts. Most loans have floating rates, so the company’s income will increase as rates move up.

The acquisition of American Capital Ltd. was by far the largest M&A transaction in the BDC space ever. Given American Capital’s $1 billion in cash (with no debt), following some steady asset sales by that company since the acquisition by Ares was first announced, the transaction is modestly deleveraging for Ares. Most of the payment for American Capital was in cash—$10.13 per share plus 0.483 of an Ares share—minimizing the share dilution. American Capital adds just over 100 million new shares to ARCC’s 418 million.

Is the yield safe after American Capital buy?
American Capital’s portfolio was relatively low yielding (about 7.5%) with many equity investments. Although Ares will look to monetize some of these, it won’t happen overnight; American Capital doubtless already sold much of the low-hanging fruit. So the question has been raised whether Ares can continue to pay the current dividend after the American Capital acquisition.

We believe it can. As mentioned, the equity dilution is minimal. In addition, Ares management has waived $100 million in fees over the next 10 quarters. And we expect earnings growth. So we certainly believe Ares can continue with its current dividend payout, even if it has to subsidize the dividend for a quarter or two. The current dividend is 38 cents per share. It has sufficient liquidity, including an expanded line of credit, so will not need to raise any new equity any time soon.

As mentioned, Ares’ stock has moved up, from a level just over $15 for much of the fall, and the yield has just edged below 9%. While lower than it has been for the last couple of years, it is still a very attractive yield and well in-line with the stock’s historical yield.

Low valuation given best returns
Among the major externally managed BDCs, Ares has the highest returns and currently the lowest valuation. After the recent run—it was trading under $15.60 less than a month ago—the stock is now just above book value. Again, this is higher than it has traded for the last couple of years, but lower than in the 2010–2014 timeframe. In the immediate term, the stock could continue to move now the acquisition has been completed, given the large short interest. As often happens, arbitragers and others sell an acquiring company’s stock (or even sell short) and buy the target. Once the acquisition is complete, these positions need to be unwound.

Beyond that, for income-oriented investors who do not already own the stock, I would rate this a good time to buy. If you are looking to add to existing positions, I would look for any pullbacks in the sector or broad stock market. But make no mistake: buying a 9% yield from a substantial, conservative, growing company is a solid buy for long-term investors.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Ares Capital. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Ares Capital. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.

( Companies Mentioned: ARCC:NASDAQ,
)

A Time for Caution, Though Gold Stocks Look Like Good Buys

While fund manager Adrian Day believes investors should tread cautiously in the market right now, he is upbeat on some gold stocks.

Given our caution on the broad stock market, resulting from relatively high prices across the board, we have relatively few “buy” recommendations. Most of our buys are concentrated on the gold stocks, and even there, many of our limits are below current prices. I do not think one needs to be aggressive in the current environment.

Of course, so much depends on your personal circumstances—all the “financial planning” circumstances such as age, future financial obligations and so forth—as well as what your current portfolio looks like.

If, for example, you do not own very much in the gold space, I should certainly step up to the plate now; start with two major gold royalty companies, Franco-Nevada Corp. (FNV:TSX; FNV:NYSE; 61.27) and Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX; 65.51), top buys on our current list. Both are solid buys now, particularly if you do not already own them. We could see both at lower prices in coming weeks, given the sharp runs they have both experienced over the past three weeks, Franco from $54.77 and Royal from $61.37. Prices half way between recent lows and the current price would be a fair target (i.e., $58.81 for Franco and $63.40 for Royal).

American Capital, Yamana and Sunridge Redux
The acquisition of American Capital Ltd. by another of our recommendations, Ares Capital Corp. (ARCC:NASDAQ), has now been completed. Shareholders received $10.13 cash plus 0.483 of a share of Ares. Most definitely, hold your Ares shares.

To add insult to injury, investors had a Canadian tax withholding taken on the receipt of the Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) purchase rights recently distributed. The rights were over 20 cents when distributed—the value on which the tax was based—even though, because of the convoluted procedure required for U.S. shareholders, they could not be sold at that time. By the time one large custodian finally had the rights free-trading in accounts, the price had fallen to far less than the minimum commission the custodian charges. Through a combination of a cavalier company with an ill-judged plan, a rapacious tax authority, and an incompetent custodian, many shareholders end up with a loss on the distribution of these rights.

Sunridge Gold Corp. added a touch of icing to its liquidation after its assets were acquired in a friendly takeover, with the distribution of a second tranche, of CA$0.03 per share. A third and final distribution will be made once a lawsuit is settled, expected by the middle of the year. It is estimated to be around another 3 cents, though could be higher or lower depending on any expenses.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Franco Nevada, Royal Gold and Ares Capital. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: All of the companies mentioned. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.

( Companies Mentioned: ARCC:NASDAQ,
FNV:TSX; FNV:NYSE,
RGLD:NASDAQ; RGL:TSX,
SGC:TSX.V; SGCNF:OTCQX,
YRI:TSX; AUY:NYSE; YAU:LSE,
)