Erik Wetterling joins me today to share his thoughts on the recent news out of Novo Resources regarding the finer grain gold results. We discuss the ore sorting progress and how this could be a game changer for the overall project economics. Erik and I are both shareholders of Novo but we are just sharing our thoughts on the recent developments that have been driving the stock higher.
December 4, 2019
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In the long history of governments and central banks deceiving the people, August 15 1971 was just another date in the calendar. Throughout history, the ruling elite has always cheated the people. But the leaders’ irresponsible actions are always revealed as in the end they always fail.
Still, in modern times August 15th 1971 was a monumental day. That day was not the end of the financial system, and not even the beginning of the end. But it was perhaps the end of the beginning. Historians will recognise this paraphrasing of Churchill after the Allies’ El Alamein victory in 1942.
1913 WAS THE BEGINNING & 1971 THE END OF THE BEGINNING
The beginning was the creation of the Fed in 1913 in order for private bankers to take control of the financial system and money creation. With August 1971 being the end of the beginning, we have thereafter seen the final phase lasting soon half a century and creating the most ginormous super bubble that the world has ever seen.
WE ARE NOW APPROACHING THE END
So we are now coming to the end, after over 100 years of a fake financial system, created and controlled by the bankers for their benefit. The build up has been long but the end will be fast and extremely painful. The speed at which the collapse will happen will take the world by surprise. The final phase happens at an exponential rate as I explained in my article from 2017 about filling a stadium with water:
“EXPONENTIAL MOVES ARE TERMINAL
There is a more scientific illustration how these exponential moves occur and also how they end.
Imagine a football stadium which is filled with water. Every minute one drop is added. The number of drops doubles every minute. Thus it goes from 1 to 2, 4, 8 16 etc. So how long would it take to fill the entire stadium? One day, one month or a year? No it would be a lot quicker and only take 50 minutes! That in itself is hard to understand but even more interestingly, how full is the stadium after 45 minutes? Most people would guess 75-90%. Totally wrong. After 45 minutes the stadium is only 7% full! In the final 5 minutes the stadium goes from 7% full to 100% full.”
GLOBAL DEBT HAS TREBLED IN THE 2000S
It has taken 107 years to create global debts and liabilities of over $2 quadrillion with most of it generated in the last 25 years.
Just look at global debt which has trebled in this century from $80 trillion to $258 trillion. This is another example of the final phase being exponential.
Although debt has gone up 3X in the last 20 years, what we will see in the final 5 years will be even more spectacular. As Central Banks attempt to save the system, they are now embarking on the biggest money creation in history. Saving the financial system will require more than $2 quadrillion including derivatives and the shadow banking system. Hyperinflation will multiply these figures many times.
THE END OF THE FINAL PHASE WILL BE QUICK
I would be surprised if the final phase lasts more than 5 years. It doesn’t take longer than that for asset and debt bubbles to implode. So by 2025 the total financial system will not only be unrecognisable but also a mere shadow of what it is today.
What the world will experience is the inevitable effect of 107 years of false money, fake assets, unlimited debt and false moral and ethical values.
The fact that it will all implode over a short period like 5 years, doesn’t mean that the problems are over by then. It just means that debt and asset values have all disappeared into a black hole. The debts will be gone and all the false paper assets like $1.5 quadrillion of derivatives will be gone too. Virtually all bonds will be worthless also. Many good companies will survive but profits will crash and so will P/E ratios. The result will be that stock prices will come down by 95% on average in real terms.
A world economy which was based on fake money and false values will take a very long time to recover to where we are today. It will likely be decades or even longer. Remember that the Dark Ages lasted for 500 years after the fall of the Roman Empire.
We have learnt during this final phase that it is just not possible to soundly grow an economy based on debt and printed money. Every government that has attempted this has always been caught red-handed. And this is guaranteed to happen to the current fraudulent system too.
TAXATION IS A CONFISCATORY LEVY
Throughout history, the rulers have used numerous methods to swindle their citizens. Taxation has been the most obvious of all tricks. Taxation is a confiscatory fee on the people, often levied to finance the rulers’ extravagances and wars. The first known taxation was in Egypt already 3,000 years ago. Since then, there have been a multitude of taxes on goods or trade.
In England and Wales, in 1696, a window tax was introduced. The purpose was a tax based on the prosperity of the taxpayer. Initially it was a flat tax of 2 shillings per house (£13 or $16 in today’s money). There was also a variable part above 10 windows starting at 4 shillings. People objected to an income tax since the disclosure of personal income was considered a government intrusion into private matters.
How refreshing to hear the extremely sensible values of confidentiality and privacy which prevailed at that time. What a difference to today’s world when governments are prying into our personal affairs and control the people’s every move with nothing being confidential or private. Orwell was so right when in 1949 he wrote 1984, as we now have BIG BROTHER watching every step we take. But that will end too. As the system collapses so will governments’ ability to police the people. The state will run out of money and systems necessary to control the people.
INCOME TAX IS A RECENT PHENOMENON
Coming back to income tax, it was first introduced in the UK in 1798 but was quickly repealed. It was reintroduced a few times and became permanent in the late 1800s. In the US, taxation was a major reason for the American Revolution which led to the Declaration of Independence. Income tax was first introduced in the US in 1913 at 1% on income above $3,000 which very few people earned at the time.
So for 1000s of years most nations functioned with no or very low rates of taxation. There is no reason why that couldn’t work again. But obviously not based on the incredible waste and bureaucracy in the system today. A complete revision of the tax system with a sales tax of say 10% and corporate rate of also 10% would most probably work extremely well if all the waste in the system was eliminated. People would then pay for services they used like roads.
DEBASEMENT OF CURRENCIES IS A FORM OF TAX ON THE PEOPLE
Except for confiscatory taxation, the debasement of fiat or paper money is the most common method that governments use to defraud their people. By destroying the value of money, ordinary people are robbed of their savings and their pensions. Only the wealthy can take advantage of this. They invest in asset markets, often with leverage, like stocks or property which are benefiting from the credit expansion caused by the currency debasement.
Even though the wealthy will see a colossal destruction of their wealth, they will still be left with sizeable assets as long as they don’t have major debt. Buildings and land held by the rich will still exist although worth a lot less. But when Marxist/Socialist governments take over, they will either expropriate the properties of the wealthy or tax them so highly that owners can’t afford to keep them. The UK Labour leader Corbyn has already suggested that luxury properties in Central London should be occupied by ordinary people and not the current wealthy residents.
Most ordinary people have no assets but only debt. For the ones who have houses or apartments with a mortgage, the value of their property is likely to be lower than the debt. The question is if governments will legislate to let defaulting property owners stay in their houses? But what about people who rent accommodation, will they be allowed to stay too in the coming Marxist environment?
The effects of letting everyone stay in their property even if they can’t service the debt or pay the rent will obviously lead to bank defaults. So central banks will need to print more money for this purpose to prop up failing banks.
EXTREME WEALTH INEQUALITY LEADS TO REVOLUTION
Revolutions or social unrest are often the result of economic misery for ordinary people combined with disgruntlement with the leading elite and the wealthy. In most Western countries, but also in for example China and Russia, the gap between the rich and the poor has reached extreme proportions. The graph below shows the gap in the USA between the wealthiest 0.1% and the bottom 90%. In the mid 1980s the bottom 90% owned 37% and the top 0.1%, 10% of the assets. As the graph shows, this gap has now narrowed to the extent that the top 0.1% own as many assets as the bottom 90%.
The income gains in the US show the same gap widening between the top 1% and the rest. As the graph below shows the top 1% has seen a 350% growth in income since 1980 whilst the middle 60% has only achieved a 47% increase in the same period.
This massive concentration of wealth and income is bad for the economy but more importantly very dangerous. When the economic downturn starts in the next few years, the economic misery of the poor and the hungry is likely to lead to major social unrest and even civil war. The high number of recent immigrants in many countries today could also lead to neo-nazi or other right wing groups emerging.
So in all, we are rapidly approaching a very unstable and also dangerous period both economically and socially. We have already seen major protests and violence today around the world plus a significant increase in crime. Many governments can’t cope with the present level of crime and protests. In Sweden for example the prisons are full already. When these problems escalate, the world is likely to become a less safe place as governments lose control of law and order.
NASDAQ FALL WILL BE GREATER THAN IN 2000-02
Stock markets are at the end of a secular bull market. The quarterly chart of the Nasdaq shows the picture clearly. This index has gone up 112X since 1973. Once this market turns, the fall can be very rapid. In 2000-2002, the Nasdaq fell 80%. It would be surprising if the coming fall is smaller than the last one. Thus a 95% fall would not be surprising, at least not to me. I was personally involved with an e-commerce company in the late 1990s. I saw the bubble then and we therefore sold the company in early 2000 to a corporation quoted on the Nasdaq. We were paid in stock, but I set as a condition that we could sell our stock immediately. And we did of course. The company that bought our business and many others went bankrupt a few years later.
I am absolutely convinced that the situation today is worse than in 2000 and the bubbles are of course much bigger. Anyone holding onto Nasdaq stocks or any other stocks will see a total destruction of values and wealth in the next few years. So a CAVEAT EMPTOR! (buyer beware) warning here is totally motivated.
GOLD HAS MERELY STARTED THE MOVE
When stock markets fall, precious metals will continue their secular bull market which initially started in 1971 with the last leg starting in 2000. Anyone doubting that we are in a bull market needs to look at the annual charts of gold in US dollars and Euros. The picture could not be clearer. The 20 year bull market that started in 2000 has only seen one year with a major correction which was in 2013. (The green bars are up years and red ones down years).
This is a remarkably strong picture and anyone that has doubts about the future direction of gold should take heed. We have hardly started the move at this point. When the events I discuss in this article come into play, gold will move at a pace that will surprise everyone. We will see multiples of the current price before the current bull market ends.
But remember that physical gold should not primarily be owned for capital appreciation purposes. Above all, we hold gold as the best protection against a rotten financial system and insurance against unprecedented financial, economic and political/geo-political risk.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Phone: +41 44 213 62 45
Matterhorn Asset Management’s global client base strategically stores an important part of their wealth in Switzerland in physical gold and silver outside the banking system. Matterhorn Asset Management is pleased to deliver a unique and exceptional service to our highly esteemed wealth preservation clientele in over 60 countries.
Palisades Goldcorp Ltd.
A Crash Course in Junior Mining – what mining and technology share in common
Last week I spoke about the impending junior mining mania that will soon unfold. This move will be violent, extreme, and in many cases, the gains produced will be life changing.
This week I want to explore how the junior sector operates and how it fits into the overall commodity puzzle. In order to do so, I will draw a direct analogy to the tech space. These two sectors independently represent the two most volatile markets in the world and surprisingly have a lot in common.
Let’s start with tech. In tech, there are a handful of companies that produce a majority of the sector’s profits and represent the lion’s share of the sector’s market capitalization. Think of Google ($GOOG), Apple ($APPL), Amazon ($AMZN), Microsoft ($MSFT), and Facebook ($FB) – the Giants.
Next down the totem pole are companies that operate on solid cash flow, but lack conglomerate status. They are less known and ultimately serve as unsuspecting lunch should one of the top dogs get hungry to acquire.
Further down still are the start-ups – companies built to solve a specific problem. Some of them are known, but generally they are obscure and most fail to produce anything that gains market traction or longevity.
Start-ups serve an indispensable function in the technology space. They feed innovative concepts and ideas that change the world. Almost every technological revolution stems from a start-up. They begin as an idea in the mind of an inventor, but ultimately become capital intensive and rarely generate profit until maturation. The potential monetary prize of these inventions, platforms, or apps is exponential and thus warrants serious attention from the Giants.
The technology ecosystem was not designed like this, but has naturally evolved this way due to market forces. Tech Goliaths like Facebook and Google are constantly investing in R&D, but they simply cannot justify allocating the resources to create 2,000 startups in hopes of finding one gem. And even if they did, start-ups are organic concepts – a result of an inventor solving a problem they often times personally encountered.
For these reasons, tech giants are forced to sit back and watch with a checkbook in hand. When a start-up emerges that they deem to be critically important, they are willing to pay massive premiums to acquire that technology. Think of Google buying YouTube or Facebook’s purchase of Instagram. In both cases, these acquisitions cost $1B and were thought ludicrous at the time due to a lack of profit. They now contribute as massive profit centers for both companies. Investors trying to value technology start-ups on cash flow, or lack thereof, possess a fundamental misunderstanding of the sector.
There is of course the rare case where a start-up makes it through the maturation phase on its own. Facebook was famously offered $1B by Yahoo, but declined the offer. Uber ($UBER) has not had a credible takeout offer and is now public, but a sustainable cash flowing model has yet to be demonstrated.
Moving to mining, there similarly exist a handful of companies that make up the majority of production and lion’s share of the sector’s market capitalization – Barrick ($GOLD), Newmont ($NEM), Zijin, Kirkland Lake ($KL.TO) are some of the names that come to mind. These are the Majors, analogous to the Giants of technology.
A Major’s core competency rests in mining gold from the ground. They do occasionally perform grass roots exploration, but for the most part, are focused on development and extraction. A Major’s share price acts as a direct lever to the underlying commodity. Higher gold prices equate to better operating margins, and translate into a higher share price.
A bit further down the ladder are the mid-tier producers. They effectively perform the same duty as the Majors, but on a smaller scale and as witnessed time and time again, they are lunch for a hungry Major. Last week’s acquisition of Detour Gold ($DGC.TO) by Kirkland Lake is a prime example.
At the bottom of the hierarchical pyramid are the juniors, loosely defined as companies with less than a $250M market cap (often times below $10M). Juniors are focused on exploring for the mines of tomorrow.
These companies are the lifeblood of the mining business – without them there would be no ounces to replace the depleting reserves at operating gold mines. Just like technology start-ups, most of them fail. As the saying goes, 1-in-3,000 targets becomes a viable deposit. Ultimately those are pretty bad odds and why the majority of juniors fail. It is also why most Majors cannot justify grass roots exploration – it would bankrupt their operations.
For argument’s sake, a 1-in-3,000 success rate might be applicable to not just the juniors, but also tech startups. Success in achieving that pinnacle of discovery (or market relevance in the case of tech) will translate into serious profit for investors.
But, aside from market/discovery success, there is a force at play that is equally as important and that is the cycle itself. In technology today, the start-up ecosystem is robust. Across the board, companies have access to capital on terms that are not terribly dilutive. This has led to the ‘unicorn’ nomenclature, reminiscent of the dot-com bubble in 1999.
During the dot-com bubble, money rushed into the sector without prudence or precision. The value of tech companies rose in tandem regardless of quality, and investors made a fortune. This created an epic market bubble. The sector overcapitalized, capital was misallocated, and the market ultimately burst. It took a few years to come back, but money did ultimately return. The next cycle peak occurred in 2008. Today, tech appears once again in the euphoric portion of the cycle.
Mining is even more predictably cyclical. Following the Bre-X scandal in 1996, mining began a precipitous decline. The tides turned in 2000 and began an eleven-year bull market (minus the 2008 crash). Then in 2011 the mining market shifted into bear market territory, steered by the underlying commodity prices. In 2016, as a reaction to extremely depressed prices, the mining stocks rallied. Today, they remain depressed. But, positive indicators have emerged such as a rally in commodity prices, matched by moves in the Majors.
I cannot stress enough how important this cyclicality is to the ecosystems for both technology and mining. In a speculative market where valuations of companies are not based on profit, but instead derived from anticipation of future results, extreme cycles will always exist. When a lack of solutions are being invented to aid in technological issues, money will eventually pour in to fix this. When a lack of ounces exists in reserve in the gold market, money will ultimately rush in.
Conversely, when technology start-ups reach ‘unicorn’ valuations across the board, it only takes one WeWork moment to scare investors away – a not so subtle reminder that the risk they are taking on no longer can be met with the asymmetrical gains their capital deserves.
In mining, when an abundance of ounces are put into reserves due to discoveries and higher commodity prices, investors will achieve smaller returns for taking on greater risks. Major mining companies begin to overpay for ounces. The value of all juniors reaches extreme heights. And at some point, investors shy away.
Differences between technology and mining do, of course, exist. And they are valuable to examine in the context of this discussion as well.
I once asked a well-known industry titan why someone with such a sharp mind would subject himself to the junior sector? Why not venture into oil & gas for example? He responded that competition is a lot lighter when you are scraping along the bottom of the junior mining barrel. Harsh words – but not far removed from the truth.
People often times lament the junior mining sector with its inefficiencies and lack of intellectual capital. But there is good reason for this phenomenon and it is not going to change anytime soon – 1) the size of monetary reward and 2) the lack of predictability.
In technology, the prize for a successful start-up can directly translate into a $10B or $20B cash take out. This can happen in a very short period of time – a couple years. Facebook bought WhatsApp for $19B in stock and cash with only 55 employees on staff and five years into operation. Ownership of technology companies tend to remain quite concentrated in the hands of the founders, meaning the prize is really, really big.
In mining, it is rare for a discovery to yield over $1B on a takeout. $10B is unheard of. These acquisitions happen a couple times per cycle, not a couple times per month like in tech. Furthermore, the mining business is far more capital intensive in context of the value created in the market and therefore the founders receive a much smaller slice. Money owns the mining exploration space, not the geologists.
All this translates into smaller monetary rewards. Since money attracts talent, it is no wonder intellectual capital concentrates in technology rather than mining. Geologists can spend a lifetime in search of a discovery to call their own; when they find it, they rarely own enough to build serious wealth.
The second point is regarding a lack of predictability. In the start-up world, guessing what is going to be successful and what will not is no easy task. But there are venture capitalists out there that demonstrate an ability to pick the right horse time and time again – Peter Thiel, Andreessen Horowitz, etc. In mining, this is almost non- existent. Robert Friedland has had two multibillion-dollar discoveries to his name. He is the only person alive with such good luck. For those who will debate me on this point, I will further clarify that he is the only person to ever do it and remain the majority shareholder.
The reason for this is that mining is a game of odds. You have to buy enough lottery tickets to get a winning hand. If you ever wonder why billionaire Eric Sprott invests in hundreds of companies, it is not for lack of discipline. He understands the game innately. First, he takes educated guesses, planting seeds with the right teams and right projects. Then when the sniff of a discovery comes along, he is first in line to deploy as much as he can. Wallbridge Mining ($WM.TO) is a textbook example.
This is the only systematic way to play the discovery game and why Eric is bound to go from billionaire to multi-billionaire status when the next cycle hits.
Conversely, technology requires concentrated bets. Typical venture capitalists in Silicon Valley make very educated bets and will deploy into just a dozen companies over a few years period. This ability to predict the next tech success with some level of accuracy attracts intellectual capital away from an unpredictable sector like exploration and towards the world of tech. This fundamental difference in concentration of bets and associated risks is why technology start-ups exist in the private space, while mining is almost exclusively in the public sphere.
The bottom line is technology and mining are capital intensive and they require a constant flow of new ideas and new reserves. Without the start-ups and without the juniors, the ecosystem is broken.
The relevance of a technological innovation depletes over time in the face of new ideas, different needs, and faster processing capabilities. A mining project’s lifespan depletes very literally as every ounce mined is one less left in the ground.
These two sectors – tech start-ups and junior miners – lack traditional methods of valuation that are based on cash flow. And for that reason, cycles will always exist to reflect human nature – too much capital, too little capital, but always in search of a balance. Ironically, both sectors are currently out of whack. Mining is experiencing a lack of capital while technology is facing the opposite problem – too much money can result in an imprudent idea like WeWork being given a $40B valuation. The below graphic nicely depicts the discrepancy in relative valuations between the two sectors.
This is why I said last week that in some way, shape, or form, an impending junior mining mania is coming and it is going to be exactly the same this time!
Until next week,
Founder & Executive Chairman
Palisades Goldcorp Ltd.
Dave Erfle joins me today to outline some of the more encouraging signs for the precious metals sector. We have been talking about silver and silver stocks leading the sector, which is continuing, and now we are seeing M&A pickup in the past 2 weeks, plus the junior stocks are starting to get some attention as well.
Sean Brodrick joins me to chat about the stability of the US markets after the recent 2+ month run. Off to a bad start in December it won’t take long for investors to focus on the Fed and ask about the next round of easing. The question is, does the Fed have enough tools to save the markets from any significant decline.
Walter Coles, President and CEO of Skeena Resources (TSX-V:SKE & OTCQX:SKREF) joins me for a comprehensive update on the drill program that is underway at the Eskay Creek Property. 4 drill rigs are now on site with a focus on infill drilling with also an exploration component. The increase in exploration drilling is a new development since the Company reported some good results in new areas. We also touch on the drill program at Snipp which is completed and assay results are pending.
Brien Leni joins me today to share his thoughts on what’s important when assessing a company’s cash position. As we head into year end companies are setting plans for next year and ensuring they have the cash to follow through on the strategy is important. Please let us know what you think of when looking at the cash positions of a company.
I hope everyone had a very happy Thanksgiving down in the US!
On the first hour I focus on the resource sector. Topics range from metals to energy and thoughts on the two multi-million to billion dollar deals in the resource sector. Please keep in touch by emailing me at Fleck@kereport.com.
- Segment 1 and 2 – Jesse Felder kicks off the show by sharing some of his research on the cannabis stocks answering the question; are these stocks finally trading at value levels. We also discuss the gold market and what will be the major driver in 2020. Click here to learn more about The Felder Report.
- Segment 3 – Josef Schachter joins me for a close look at the energy sector. He shares the stocks that he is watching and adding to his portfolio as we progress through tax loss selling. Click here to visit Josef’s site and learn more about his newsletter.
- Segment 4 – John Kaiser wraps up the first hour by looking at the Kirkland Lake deal to acquire Detour Gold and Newmont offloading the Red Lake Gold Mine to an Australian company. Click here to learn more about John’s service – Kaiser Research.
Exclusive Company Interviews and Commentary This Week
- John Rubino – Big news out of Kirkland Lake and Detour Gold. Also comments on Great Bear and Novo
- Goldplay Exploration – More Information On The Recent High Grade Silver Results At The Nava Target
- Brien Leni – It’s time to get your tax loss selling hit list ready – Here’s what we are considering for Zinc Stocks
There are a couple main forums online that specialize in the junior mining sector. These can be a valuable source of information but are also littered with a bad crowd that have alternate motives. However there are some takeaways that
Erik Wetterling joins me today for a conversation focused on how we use these forums when analyzing stocks. We discuss different factors such as balancing blue sky comments, the number of people commenting on a certain stock, and understanding that everyone is carrying a bias into their comments.
Please share your thoughts on how you use the forums to do your due diligence.