Market Report on Gold, Gold Miners, and Uranium
Gold Miners
On a technical note, GDX, GDXJ, and SIL (silver miners), put in a bearish "doji" yesterday on the daily charts. The "wick" that you can clearly see, most times indicates we've hit a temporary top in the larger gold and silver miners. I don't expect much of a pullback, but if you're looking to buy into producers that you missed much cheaper, you may get a slight discount from here over the next week or two. Even if the general stock market takes another dive, as I'm betting on, this time the gold stocks will not go down nearly as much as they did in March, in my view.
That said, I am noticing organic and real rising bids in a good chunk of the smallest gold junior miners!! In my "2020 Random Predictions" report I stated this: --"Junior gold/silver miners see significant capital inflows above $1,700 gold". Well, we are definitely not seeing any "significant" capital flows yet in tiny junior exploration stocks (I'm talking about sub $50M market cap type small). However, we're seeing bids, and share prices moving steadily off of bottoms, which is a start. Is it THE start? We'll find out soon.
Just one example I noticed yesterday is Bravada Gold (BVA/BGAVF), in which I own personally over 10% of the issued/outstanding shares and warrants, closed at .09-.10 bid. This is up from nearly dead volume in March when it touched back down to .05. There has been no news, but companies like this that have put tens of millions of dollars into exploration work over almost 2 decades, are trading for peanuts. At a dime CDN, this company with a 1m oz gold resource at their Wind Mountain project, and another 10 properties in Nevada (a handful are very attractive gold prospects), has a $4.5m USD market cap. I do not know the exact paid in capital amount since inception, but I'm confident in saying it's over $25M put to work on their various projects, if not double that amount. If you look into the details of their assets versus valuation, it's stupid.
This nano cap junior part of the market is absolutely the cheapest and riskiest part of the mining sector, and they are also ultimately going to rise the most in value as well! The organic bids in more than a dozen names I watch appearing, sometimes in earnest over this past week, is encouraging. Once actual real capital trickles down to this "ghetto" of the sector, incredible moves will occur. This is due to the backdrop of gold being in a pristine position to flourish in price, in all currencies, even against the almighty US dollar.
USD/Gold
That said, in the very near term, there is some compelling arguments for another potential rush into USD. Ultimately, and I'm talking intermediate and long term, the US dollar will be, and is being, debased. A surge in USD to $110-120 via another huge leg down in stocks and/or rush to cash, would be cataclysmic for emerging markets and dollar denominated debt globally. There is no way the US can allow too strong of a dollar for any extended period of time, it will wreak HAVOC!
Americans are so lucky that our POS fiat currency is still the globes reserve currency and viewed as the predominant flight to safety when it comes to cash. Yes, it is the strongest fiat on the block. But what happens when inflation, apparently no longer possible according to many "academics", starts to explode on the back end of this brrrrrrrrrr printing press? The currency of last resort is GOLD. It is the true measure of money, and the US dollar will BOW to it in terms of price, and in terms of IMAGE in the coming years. Traditional asset managers and institutions are out to lunch here and have some likely rude awakenings coming their way. Allocations in gold remain minuscule, but this is beginning to change.
So, in the short term, yes I have a strong chunk of USD that I am sitting on and it may get even stronger in the near term. But, the safest store of value of wealth over the coming 1-3 year time frame, let's say, is Gold. In fact, I have been quite conservative, I feel, in my views on ultimate price targets for gold's secular bull market. I always say that if we see $2,500-$3,000 gold, we are going to make utter fortunes in our mining shares, which I still believe.
I've used $3,000 an ounce as a modest target because if you take just HALF of the bottom to top percentage move in the 1970's, golds last major secular bull market, we would get a price of $3,200 USD (up from just under $300 in 2001). Based on what I'm seeing on MANY levels, I'm officially raising my forecast to $5,000-$6,500 per ounce gold. I believe that we will hit the $2,500-$3,000 level within 6 to 15 months on the outset. $2,300/$2,400 is likely by January 2021, if not sooner (which is just 8 months away). A retest is a "given" in terms of the 2011 highs at $1,900 and change and it will be interesting to see how long and how many attempts are needed to break it.
I believe it will take 2 attempts max, and do so within a quarter (maybe 2) of the first test. Once gold breaks through $2,000, which is only 15% away(!!!), we will swiftly begin entering a period of mass institutional and retail FOMO (fear of missing out). The frustrating activity from 2012 all the way until last year before it finally broke $1,400, will be a distant memory. Ray Dalio, Paul Tudor Jones, Peter Thiel, Raoul Pal, Paul Singer, Stanley Druckenmiller, and another dozen of the most successful prominent billionaire investors I could list agree with me. These guys are early, they are not late to a party! Who doesn't find gold at least intriguing in this environment? Warren Buffet, Wall Street sheep, and people who do not understand its function, that's about it.
So, I hope for the sake of you that are STILL (Hello???) underweight gold, silver, and mining stocks, that we see a near term pullback/pause. I've had a long term accumulate/buy up to price on gold to $1,600 for years, based on there being at least 100% upside from there ($3,000-$3,200). I'm raising that to $1,800 for those with no gold position. Don't wait for a pullback if you're naked! At least get something on the books. Then if/when we get a sharp snap back, be ready to buy more. The same with gold mining stocks, which are very likely the most compelling sector in terms of valuation and future earnings growth power on planet earth right now!!!
Q1 2020 earnings season will be the start of big money realizing how good gold producers profits are going to be moving forward. It will be a small early taste, but I expect significant exceeding of expectations by the majority of gold producers this Q1 earnings season. Show me ONE analyst that modeled in an average gold selling price of $1,600 for Q1! That's up from about $1,470 in Q4 and $1,325 on year over year comps. This gold price environment, including now a massive discount on one of their largest costs (energy), for a sector that has had to continually tighten their belts for 7 years, is going to be extraordinary for cash flow growth and M&A activity!
Q1 earnings for so many industries are going to be disastrous, Q2 likely even worse. Once earnings start to flow in earnest shortly, with abysmal or removed forecasts, it's the trigger I feel will stop this dead cat bounce rally in major indexes. For gold companies however, it will be a completely different story.
Uranium
Another one of my random 2020 predictions was: --"Uranium stocks become hot again and are one of the best performing sectors in the market."
I believe we're just starting to see this coming true as the sector has seen a very powerful bounce off of the March lows (many doubling or more). Uranium prices have been rising steadily the past few weeks, up nearly 50% in short order. Supply has been shut down massively by several of the worlds largest producing mines and now the big catalyst for US uranium producers AND explorers is imminent:
Part of the reason I felt good about uranium stocks 4 months ago was because I had known this was coming since last fall. The Trump administration is going to make things VERY attractive for domestic companies to find and produce uranium. Valuations for certain US based uranium stocks could explode in the coming months and years. This sector has been on its back for a decade and is well overdue for a comeback.
I have one huge primary junior position in Encore Energy (EU/ENCUF), which recently put out a press release outlining very well the current state of affairs in the uranium market. I've posted that below, which also gets into details about their assets. This deal has an approximate $20m USD market cap at yesterdays closing price with nearly 50 million pounds of US based uranium resource (inferred and indicated). So, you can buy uranium in the ground at .40 per pound (spot price is $32 per LB on its way to at least $45-50, I believe) and get all of their other assets for free (huge land position, valuable data library, and mill).
This is primarily the same team that advanced Energy Metals Corp from penny stock to a $1.8 Billion exit at the peak of the last uranium bull cycle. The upside here is very large in my view and it finally looks like uranium is going to get some love from the market. Obviously you can move up the chain and get your exposure via Cameco (CCJ), or a mid tier listed company like Nexgen Energy (NXE), which I own as well.
Check out some of the stats in Encore's recent PR and keep an eye on this sector.
ENCORE ENERGY PROVIDES UPDATE ON MAJOR REDUCTIONS IN URANIUM SUPPLY
EnCore Energy Corp. has provided an update on material developments affecting the uranium market and its implications for the long-term outlook of the company's portfolio of significant U.S. uranium assets.
Highlights:
About 50% of world mine uranium production has been halted and the spot price of uranium has increased by +30% in less than a month;
EnCore is well positioned for rising prices with a portfolio of significant U.S. uranium projects, including ISR amenable Sandstone-hosted resources, and high-grade Breccia Pipe properties;
EnCore's management team has extensive experience in all phases of the nuclear fuel cycle;
EnCore has a healthy treasury and no debt.
As a result of the ongoing COVID-19 pandemic, seven of the world's ten largest uranium mines have been temporarily halted, representing approximately 50% of global mined supply. This major reduction in mine supply has resulted from halted operations in Kazakhstan, Namibia and South Africa while Cameco's Cigar Lake Mine in Canada has been placed on extended care and maintenance.
The ultimate extent of supply reductions has yet to be determined but is expected to be significant. With demand continuing at a steady rate, along with a reduction in mined supply, the Company anticipates significant declines in uranium inventories. This anticipated decline is likely to accelerate rising prices in order to incentivize new sources of production. We have seen early indications of this trend with prices for all forms of uranium and equivalents having increased substantially in recent weeks. The uranium spot price has increased by over 30% to US ~$32 per pound as of April 17, 2020 from US ~$24 per pound as of March 23, 2020.
The severity of current supply disruptions underscores the need for security of supply, a key driver behind President Trump's plan to establish a strategic domestic uranium reserve (See News Release dated February 19, 2020). The Company is encouraged by the President's initial actions to reinvigorate the domestic nuclear industry along with his continued emphasis on removing unnecessary regulations and improving access to critical minerals on federal land.
EnCore Energy's Significant U.S. Uranium Portfolio
The Company is well positioned for higher prices with a portfolio of significant U.S. uranium projects. The portfolio is highlighted by advanced-stage Crownpoint and Hosta Butte ISR projects, which hosts Indicated Mineral Resources of 26.6 million pounds contained within 12.7 million tons grading 0.11% eU308 and Inferred Mineral Resources of 6.1 million pounds contained within 2.8 million tons grading 0.11% eU308(2). Importantly, Crownpoint is permitted under a Nuclear Regulatory Commission License to recover up to 3 million pounds per year.
The Company's Marquez Project, a past-producing underground mine within the Grants Mineral Belt of New Mexico, hosts another large uranium endowment. A 2010 NI 43-101 Technical Report documented Measured and Indicated Mineral Resources of 9.1 million pounds contained within 3.6 million tons grading 0.13% eU308, an Inferred Mineral Resource of 4.9 million pounds contained within 2.2 million tons grading 0.11% eU308 at the project.*
Equally significant, the Company holds a dominant land position within Northern Arizona, the highest-grade uranium district in the U.S. with an average recovered grade of over 0.60% U308, and located within trucking distance to the only operating uranium mill in the U.S. The Company holds more than 80% of all current mineral claims within this district with 467 claims that together with state mineral leases span more than 10,000 acres.
An innovative targeting approach using an airborne Versatile Time Domain Electromagnetic (VTEM) survey provided an exploration approach for evaluating the district as a whole and resulted in 145 validated targets within the Company's land package. A total of nine targets have since been drilled with eight having intersected significant mineralization, an 89% success ratio.
As reported by the U.S. Geological Survey, Northern Arizona Breccia Pipes are an important source of uranium from both an economic and national security perspective. Increasing access to this large, high-grade uranium endowment, which is now subjected to a temporary withdrawal dating from Obama Administration, is consistent with President Trump's stated goal of increasing access to critical minerals on Federal lands while at the same time reinvigorating the domestic uranium mining industry.
In addition to a strong portfolio of properties, the Company also controls a leading U.S. proprietary database. The most recent additions are the Quaterra (Metamin U.S.) and the VANE Minerals (US) LLC files with emphasis on the northern Arizona Breccia Pipe District. This vast data collection includes the Union Carbide worldwide database, the UV Industries database, the W. R. Grace uranium related files, Uranium files from Federal Resources, Ranchers Exploration uranium files (Hecla), select Atlas files, and a number of private collections and small partial collections from various companies.
The EnCore Team - A Proven Track Record in the Uranium Sector
The Company is led by a team of uranium experts with a proven ability to build value within the domestic uranium sector. The EnCore team was instrumental in advancing Energy Metals Corp. to compile the largest domestic uranium base in U.S. history before the company was acquired for $1.8 billion during the last major uranium bull market.
This experience has allowed the Company to opportunistically navigate the difficult post-Fukushima uranium market by selectively acquiring high-upside projects, maintaining low corporate expenditures and a healthy treasury, which currently stands at over $3 million in cash with no debt. The team views the ongoing supply disruptions, along with long-term increases in demand, as a bullish indicator for the uranium market and the need for higher prices to incentivize new supply sooner rather than later.
William M. Sheriff, the Executive Chairman of EnCore Energy, was a pioneer in the uranium renaissance as co-founder and Chairman of Energy Metals Corp. He was responsible for compiling the largest domestic uranium resource base in U.S. history before the company was acquired by Uranium One, where he continued to serve as a Director.
Dr. Dennis Stover, Chief Executive Officer, is a renowned uranium mining expert with a 40-year career focused on direct involvement with commercial uranium exploration, project development, and mining operations. Dr. Stover served as Chief Operating Officer for Energy Metals Corp. and then as Executive Vice President, Americas for Uranium One, Inc. where he oversaw commercial development of Uranium One's substantial U.S. uranium assets as well other uranium assets in the Americas.
Dr. Douglas Underhill, Chief Geologist, has 50 years of both domestic and international experience with natural resource exploration, development and analysis, including 40 years with a specific emphasis on uranium. For a decade, he served as the Uranium Resource and Production Specialist with the International Atomic Energy Agency.
Richard Cherry, Board Member and a veteran nuclear industry executive, has worked for leading companies in the areas of uranium mining, production, conversion, marketing and power generation operations for 40 years. Mr. Cherry previously served as President and CEO of Cotter Corporation and Nuclear Fuels Corporation, both affiliates of General Atomics Corporation, where he oversaw their mining and milling operations in Colorado.
Mark Pelizza, Board Member and environmental expert, has spent 40 years in the uranium industry that involved with numerous commercial U.S. ISR project. He was responsible for the permitting and licensing of the Church Rock, Crownpoint and Unit 1 projects in New Mexico. His licensing efforts led to the Company's Crownpoint project receiving an NRC license. He previously served as Sr. Vice President of Health, Safety and Environmental Affairs with Uranium Resources Inc.
Eugene Spiering, Geologist, has over 30 years of experience including 10 years focused on uranium in the U.S. Significantly, Mr. Spiering oversaw the application of VTEM aerial surveys to the Company's large land holdings in Northern Arizona and subsequent drilling that led to two new discoveries and revolutionized the exploration approach for this district, with an 89% success rate.
Gordon R. Peake, Director of Lands, previously served as Vice-President of Lands for Uranium One Americas, Inc. from 2007 to 2010 and with Energy Metals Corporation (US) from 2004 until 2007. He brings over 40 years of experience in natural resource exploration, development and production having worked with major and junior mining companies.
Nuclear Energy for the 21st Century
Nuclear power is an important part of the global energy mix and currently provides nearly 20% of all electricity generated in the U.S. and 55% of emission-free power, far more than wind and solar combined. With an increasing global recognition on the importance of reducing carbon emissions while at the same time meeting the growing requirements for 24/7 baseload power, nuclear power is essential for meeting both environmental and economic initiatives.
Ongoing global expansion, license extensions and new technological advancements are expanding long-term demand. Russia, China and India continue to be an area of rapid growth. These three nations collectively account more than 70% of all new construction. Even with China's large-scale nuclear buildout, nuclear is planned to meet only 4-5% of China's electricity demands. By comparison, the U.S. currently generates nearly 20%, indicating the potential for greater expansion of China's nuclear generating capacity.
The U.S. currently operates 96 nuclear power plants. In 2019 these plants generated a record 809 million megawatt-hours of electricity, the highest total since the birth of commercial nuclear power in 1957 while achieving a record-high 93 percent capacity. A total of 88 of the 96 reactors now have been granted operating life extensions from 40 to 60 years. In December 2019, the Nuclear Regulatory Commission granted the first-ever license extension to 80 years and subsequently again in March 2020. The continued lifespan of these reactors, combined with a world-class safety record, underscores the ability for long-life power generation and continued demand. Two new state-of-the-art reactors are also nearing completion in the state of Georgia.
New technological initiatives are providing new applications for nuclear power, improving the efficiency of existing operations, and incorporating additional safety measures. Several accident-tolerant fuel rods have been developed including Westinghouse's EnCore fuel rods, now adopted in commercial applications. Small modular reactors (SMR) are being rapidly advanced in the design and permitting phase for widescale use and are attractive due to lower capital costs and the ability to operate in a variety of locations. A number of other developments including modern reactor designs have the potential to further increase demand well into the future.
*I own shares of Bravada, Encore, and Nexgen and may buy or sell my shares anytime without notice.