Recent trade in gold is showing some real conviction having taken out key resistance at $1750, a level that has held prices in check for the past month and a half.
After forming a Double Bottom at key support in mid to late March, the low may be in for what some call “eight agonizing months” of sideways to downward price pressure.
The hasty retreat in Q1 dragged sentiment in the sector to an extreme low.
Adding validity to this upward trajectory in the metal, there also appears to be a breakout in the works for the Sr. gold stocks, having broken out above a downtrend line that has been in force since last summer. Game on?
Inflation spike
Rising inflation—a phenomenon known to trigger powerful and sustainable moves in the metal—is now a reality. This sudden loss of purchasing power could mark the beginning of a destructive trend. The Fed was expecting it, but believes the outbreak will be transitory.
You don’t need a degree in economics to see what’s happening here in North America—everything is more expensive today than it was only months back… everything we use and consume in our everyday lives.
Example: Friends of mine who plan on building their dream home in a mountain hamlet here in British Columbia have put their plans temporarily on hold due to the price pressures percolating beneath their buildout plans.
They state that in 2019, two-by-fours (2x4s) were $372 per 1000 board feet. In 2020 they were $570 per 1000 board feet. On April 9, 2021, 2×4 prices rose to $1,132 per 1000 board feet. Overall price increases over the past year amount to roughly $50 per square foot, adding an additional $100k to the cost of their dream home.
That ain’t chump change.
British Columbia Forest Product Prices – Selected Statistics for the week ending April 13, 2021
After some surprisingly strong Producer Price Index (PPI) numbers released on April 13th—the U.S. PPI popped 1% month-on-month pushing its annual headline rate to 4.2% (the highest in nearly a decade)—the U.S. Labor Department reported a 0.6% rise in its U.S. Consumer Price Index (CPI) for March. This follows a 0.4% rise in February. Consensus forecasts anticipated a 0.5% pop.
The report stated: “The March 1-month increase was the largest rise since a 0.6-percent increase in August 2012”.
Gold’s reaction in the minutes following these higher-than-expected inflation numbers shows that the market is beginning to suspect that this price pressure may not be as ” transitory” as the Fed hopes (hope is a weak prayer).
The Fed is in the mother of all binds here. It can’t pull the trigger on higher rates. To do so would kill whatever momentum the U.S. economy can generate.
It would appear that no matter what the Fed does, it’ll be behind the (inflation) curve.
Out-of-control inflation is a Gold Bug’s best friend. But be careful what you wish for. What will be a pays de Cocagne for those prepared and well-positioned in the metal could turn into a flat-out f*cking nightmare for the unsuspecting.
Gold demand
Physical demand for the metal, with all of the trillions’ worth of cheap (stimulus) paper orbiting our planet, is also picking up.
Central bank buying, after a pause in 2020 as gold rallied to record highs, appears to be gaining momentum.
In February, global central banks were net buyers led by India which acquired 11.2 tons.
In March, the Polish Central Bank announced its intentions to buy at least 100 tons in the near future.
A more recent headline shows Hungary’s central bank increasing its gold reserves to 94.5 metric tons from 31.5 tons. This marks one of the most significant central bank gold purchases in decades.
The Budapest Business Journal – Hungary triples gold reserves
A choice quote from the National Bank of Hungary (MNB):
“As it carries no credit or counterparty risks, gold facilitates reinforcing trust in a country in all economic environments, which still renders it one of the most crucial reserve assets worldwide, in addition to government bonds.”
It’s on
Regarding the Gold versus Bitcoin debate—It’s On…
Over at Equity Guru, I probed the two prestigious personalities pondering this potential parley in a piece dubbed Globex Mining (GMX.T) monetizes assets adding to its cash horde + Giustra challenges Saylor to a Gold vs Bitcoin debate + Gold’s repeated attempts to put resistance in its rear view
This is one you’re not going to want to miss.
Unconvinced
There’s still skepticism in the market regarding gold’s next move. Even your hardcore types—jaded by the number of false breakouts (bull traps) in recent weeks/months—are reluctant to declare GAME ON. This ambivalent sentiment is exactly what’s needed for the precious metal to take and hold higher ground.
(the greater the level of doubt, the fatter the stacks that will eventually mobilize to the metal)
A quick look at copper
If you believe the dawn of a new supercycle in commodities is upon us—a structural bull market that will prevail for years, if not decades—copper will be a major driver as the global economy accelerates its push to electrify.
One attention-grabbing headline, published by Bloomberg on April 13th, featured Robert Friedland’s recent take on the ‘green energy’ metal:
Billionaire Miner Sees Copper Supply as National Security Issue
Never at a loss for dramatic flair, Friedland stated that mining is suffering from years of underinvestment.
Copper is a vital part of green infrastructure from grids to wind turbines. Massive investments are needed to electrify economies. The U.S. power grid, which “is a joke” compared with China’s, needs $10 trillion and “astronomic amounts” of the right metals to get up to scratch, he said.
The junior arena
Though a select group of companies in the Junior space are trading firm to up, reflecting this recent strength in gold, a large contingent is still trading sideways to down. This sets up an opportunity for those companies that are currently flying under the radar—those with compelling fundamentals backstopping their lowly valuations.
I believe that once the junior gold arena catches fire, all Exlorecos—base metals, green energy metals, PG-metals, etc—will ignite.
Lastly, I also believe that a significant new wave of M & A is on deck.
Updating some of the companies on our list
Due to time constraints, I’m going to divide this episode of Highballer into two parts. Part one today. Part two later this week.
Forum Energy Metals (FMC.V)
Forum, an expertly run Saskatchewan-focused ExploreCo, boasts an extensive project portfolio that includes the Fir Island Uranium Project located along the northeast edge of the prolific Athabasca Basin.
On April 12th, the Company dropped the following headline: Forum Completes Drill Program on Fir Island Uranium Project
The winter drilling campaign at Fir Isle is now complete.
Ten holes for 3,051 meters were drilled, short of the 5,000 meters planned, due to a slow start-up caused by poor ice conditions.
The drills probed the subsurface stratum along the Cathy Fault/resistivity anomaly for a total of eight holes. A smaller resistivity low to the southwest was also tested (above map).
This winter program was operated by Forum and funded by Orano Canada—Orano has an option to earn up to 70% by spending up to $6 million on exploration.
Infill drilling on land tested the Cathy Fault on approximately 500 metre sections. The offset of the unconformity continued along its length and the holes returned strong tectonization, quartz dissolution and remobilization, strong alteration, and confirmed the presence of dravite clays in both sandstone and basement lithologies (dravite is a common indicator around most uranium deposits on the east side of the Athabasca Basin).
A total of 361 core samples were collected and sent to the Saskatchewan Research Council (SRC) for geochemical analysis; results should be available by the end of April. Approximately 500 samples were collected for clay analysis and are currently being processed.
On April 14th, Forum released a highly anticipated update on their flagship Janice Lake Copper-Silver Project where mining behemoth Rio Tinto (RTEC) is earning up to 80% by spending a weighty $30M.
Rio Tinto Completes Winter Drill Program at Forum’s Janice Lake Copper/Silver Project, Saskatchewan
Here, Forum announced the completion of its winter drill program at Janice Lake.
Winter was late to start and Spring arrived early in northern Saskatchewan, limiting what JV partner RTEC was able to accomplish with the drill bit this go-round.
“Three drill fences at 200 metre spacings for a total strike length of 650 metres were tested on the Rafuse target (figure below). Historic drilling of nine holes in 1969 at Rafuse only tested to a maximum depth of 62 metres; these returned up to 17 metres of 0.68% copper. Two holes drilled by Noranda (1993) to a maximum depth of 128 metres returned 21.7 metres of 0.19% copper. The nine holes drilled by Rio Tinto went to an average depth of 259 metres, investigating the down-dip extent of the surface mineralization.”
Though the winter program was cut short, nine holes for a total of 2,330 meters were drilled along this priority (2.8-kilometer-long) target—a target characterized by surface copper mineralization developed during RTEC’s mapping, prospecting, and geophysical program last summer (RIO TINTO COMPLETES SUMMER EXPLORATION PROGRAM AT THE JANICE LAKE SEDIMENTARY COPPER/SILVER PROJECT, SASKATCHEWAN).
Forum and RTEC have their sights set on a large Cu deposit similar to other sedimentary hosted Cu deposits around the world.
The Udokan Copper Project, located in the Zabaikalye region of Kalar District in Russia—the third largest Cu deposit on the planet—is the analog for Janice Lake.
As I’ve stated in previous offerings on the subject, if RTEC didn’t believe Janice Lake offered the potential for a world-class orebody, they wouldn’t be there with $30M to dole out.
On deck for Janice Lake…
The two drills were left at the 80-person camp in preparation for a potential resumption of the drill program in June. The scope of the drill program and the planned geological, geophysical and geochemical surface exploration program will be finalized once assay results are received.
Aside from assay-related newsflow out of Fir Isle and Janice Lake, we should soon learn what the Company has planned for its wholly-owned Love Lake Project, a project that will see its first probe with the drill bit later this summer.
Forum currently has 144.7 million shares outstanding (190.1 million f/d) with roughly $3 mill in the till and a monthly burn rate of $70k. There are also roughly 36.6 million in-the-money warrants priced between $0.10 and $0.20.
Defense Metals (DEFN.V)
An April 12th headline: Defense Metals Prepares Additional High-Grade Rare Earth Element Concentrate Samples For Evaluation By Leading Global Rare Earths Producers
Here, the Company announced having received requests from two leading global Rare Earth Element (REE) smelting and separator firms for samples of its (Wicheeda Project) REE mineral concentrate for evaluation. This could ultimately lead to mineral concentrate offtake agreements with an initial memorandum of understanding (MOU) setting the stage.
The count is now four—the requests-for-REE samples received to date, and discussions are ongoing with several other interested parties.
Concentrate sample requests are significant given that these rare earth smelting and separator enterprises have previously executed capital investment, in addition to REE mineral concentrate product offtake MOU agreements, with multiple international third party REE miners and explorers.
Craig Taylor, Defense Metals’ CEO:
“We have now received four requests for evaluation samples of our high-grade Wicheeda REE mineral concentrate from Asian-based REE refiners. Defense Metals believes this underscores growing international market demand for readily accessible, high-quality, North American REE products. Discussions with potential offtake partners have the potential to yield benefits through opportunities for direct project funding, technical services agreements, and access to the full downstream rare earths value chain.”
Prime Mining (PRYM.V)
Prime dropped two headlines on April 6th…
Here, the Company reported additional positive results from an ongoing 15,000-metre Phase-1 drilling campaign at its wholly-owned Los Reyes Gold-Silver Project in Sinaloa State, Mexico.
The Company states that five diamond drills will remain spinning on the property until the rainy season sets in (August).
The results announced here include initial core assay results from Zapote-South, Noche Buena, and San Miguel East, three of eight known deposits that comprise the current mineral resource at Los Reyes.
Current Measured and Indicated pit-constrained oxide mineral resources include 19.8 million tonnes (‘mt’) containing 633,000 ounces of gold at 1.0 gpt and 16,604,000 ounces of silver at 26.2 gpt plus an additional 7.1 mt Inferred containing 179,000 ounces gold at 0.78 gpt and 6,831,000 ounces silver at 30 gpt.
Highlights from this April 7th press release:
- Drilling encountered several higher-grade intervals within the Zapote-South mineralized envelope, with drill hole 21ZAP-04 intersecting 4.5 metres (or 3.6 m estimated true width) at 8.95 grams per tonne (gpt) gold (Au) and 74.5 gpt silver (Ag);
- Drill hole 21ZAP-03 intersected 13.0 m at 0.76 gpt Au and 33.0 gpt Ag, including 1.66 gpt Au and 41.5 gpt Ag over 4.6 m. This expands the Zapote deposit 35 m down-dip on the most southerly drilled section. The mineralized zone in this area of Zapote-South now has a 150.0 m dip length and is completely open to the southeast and down-dip;
- Drill holes 21ZAP-04, 05, and 06 all intersected discrete zones of higher-grade adularia-bearing quartz mineralization within a broader lower grade envelope. 21ZAP-07 intersected 11.3 m at 0.97 gpt Au and 29.2 gpt Ag and 21ZAP-08 yielded 18.7 m at 1.96 gpt Au and 63.1 gpt Ag, including 2.44 g/t Au and 85.3 g/t Ag over 7.2 m;
- The eight Zapote-South holes provide: (1) information on the key geological and structural controls for the mineralized intervals that can be used to effectively target higher-grade mineralization along structures within the optimal boiling point elevation, (2) missing silver assay data for the block model, and (3) higher confidence in resource categories that will upgrade the currently defined in-pit resources;
- The four step-out holes completed at Noche Buena expanded in-pit mineralization both down-dip and to the southeast. Noche Buena also remains open along strike. Drill hole 21NB-02 intersected 3.17 gpt Au and 141.2 gpt Ag over 2.9 m within a broader zone of 39.0 m at 0.7 gpt Au and 29.5 gpt Ag. This expands Noche Buena down dip by 20.0 m. Drill hole 21NB-03 expands this mineralized zone 25.0 m along strike with an intersection of 1.12 gpt Au and 29.7 gpt Ag over 6.0 m.
“These are Prime’s first results from three of the larger deposits at the western end of Los Reyes. They are in-fill drill holes largely designed to improve our geological understanding, upgrade known resources and test local extensions to the currently interpreted in-pit resources. At this early stage, we have extended the margins of known deposits, and the gold and silver grades encountered appear consistent with current resource grades. Drilling also gathered silver assay data in an area of the Project where limited silver assaying had occurred historically and was potentially underrepresented in our current resource. Silver is already a valuable contributor to the economics of any potential operation at Los Reyes; while incorporating the additional silver assays is expected to have a positive impact on silver grades in the resource and improve project economics. As these are the first holes in our Phase 1 program, they were drilled from more easily accessible locations. Later in our current program, with an improved geological understanding gained from these holes, we plan to aggressively drill step-out holes and test the numerous targets for resource expansion within the district-scale epithermal system at Los Reyes.”
This next headline dropped only a few hours later…
Prime Mining Corp. Announces C$25 Million Bought Deal Private Placement Financing
Following fast on the heels of the Los Reyes drilling update, the Company announced having entered into an agreement with a syndicate of underwriters co-led by Desjardins Capital Markets and TD Securities to purchase, on a bought deal private placement basis, 8,475,000 units priced at $2.95 for gross proceeds of approximately $25,001,250.
Each Unit will consist of one common share in the Company and one-half of a 3-year warrant—each whole warrant is exercisable at $5.00.
The net proceeds from the Offering will be used by the Company for exploration and development of the Company’s Los Reyes mineral property and for general corporate purposes. Prime has also been informed that Pierre Lassonde intends to participate in the Offering.
The following link digs deeper into this expertly helmed, advanced stage exploration-development play:
Updating the price action of gold as it gets into full swing here in NA trade, a 15-minute intraday chart (hang on – it’s going to be a bumpy one)…
END
—Greg Nolan
Full disclosure: Highballer has a marketing relationship with Forum Energy Metals.
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