CEO.CA Weekly Wrap
A look at some of the week’s best chats and charts on CEO.CA, a community and platform for Canada’s venture stock markets.
What a difference a couple of weeks makes. After trudging through a challenging and lackluster month of May, the precious metals and junior mining sectors exploded higher at the end of last week with their best back-to-back performance since February. The significance of Thursday and Friday’s trading sessions for precious metals and mining shares is hard to overstate. For the majority of May mining shares had been weak with relatively light trading volumes, and in the span of the less than 48 hours everything changed as gold took flight and closed the week above US$1,300 per ounce:
Friday’s breakout above the downtrend drawn from the February top is especially significant because it comes after a relatively long period of digestion, and it is set against a weak sentiment backdrop.
Thursday morning, in an email to Trading Lab subscribers, I pointed out the ridiculously low volatility environment in gold and recommended a long call options trade in GLD August and September $125 calls. The following excerpt was part of my reasoning for why this was truly a unique moment in gold:
“As a long time gold market observer I can't recall a setup similar to what we have right now:
- Gold price is stable and outperforming other precious metals such as platinum and silver.
- Sentiment is extremely weak.
- Consensus has it that the gold price will remain stable for at least another 18 months.
- Both realized and implied volatility are at record lows.
- The macro backdrop couldn't be much less stable and the global sea of debt has never been larger.”
While gold’s price action wasn’t exactly exciting throughout much of May, platinum (-11%) and silver’s (-2.8%) performance during May were downright dreadful.
The extremely poor performance in platinum and silver can largely be blamed on US/China trade tensions rising throughout the month, which weighed heavily on demand for industrial metals such as copper and zinc. Platinum and silver both have a much more significant component of industrial demand than gold and with investment demand for these metals also suffering there was little in the way of bid support to hold them up.
According to the U.S. Mint, silver coin sales fell 27% in May, gold coin sales fell a whopping 60%, and wait for it....not a single platinum American Eagle coin was sold by the mint during May. Remarkable!!
I can’t recall such a dismal month for U.S. mint coin sales. Once in a while a multitude of factors all line up and point to a major bottom in a sector or asset class. To put it simply, if this isn’t a tradable bottom in precious metals, I don’t know what is.
Three weeks ago I began the Weekly Wrap with the following words:
“It’s been a humbling few weeks for the junior mining sector and multiple channels on CEO.ca have experienced market tensions and investor drawdowns boiling over into arguments and generally unproductive behavior. Investors are losing patience with the junior mining sector and falling share prices only make things worse.”
Fast forward to today it feels a heckuva lot better to be a precious metals and junior mining investor. May is in the past, and from the ashes of May’s depressed sentiment and price action, a much brighter future lay ahead throughout the summer as exploration programs get underway and a deluge of drill results awaits in the second half of the year.
Last week a couple of gold juniors gave us a delicious taste of drill results. Hopefully last week’s Great Bear Resources and Nighthawk Gold results were just a small sampling of what’s to come throughout the junior mining sector this summer:
To get it out of the way, I am long both GBR and NHK and therefore my analysis might be biased. While NHK’s intersection of 56 meters grading 13.49 grams/tonne gold was a more impressive headline, this intersection occurred in a known gold-mineralized zone at Nighthawk’s Colomac Gold Project in Canada’s Northwest Territory. A great intersection but not enough to really create much movement in a C$80 million market cap company with a known 2.7 million ounce resource.
GBR’s news was a much bigger deal because hole DNW-011 intersected high-grade and bonanza-grade gold in a completely new zone that Great Bear had not drilled before. Markets tend to move on pie in the sky and future upside potential. This is why a known mineral resource is much less sexy than a high-grade gold intersection in a new zone that is 2.5 kilometers away from where GBR had been drilling.
The following map helps to put the potential of the newly dubbed “Bear-Rimini Zone” into perspective:
A few bullet points from Great Bear’s news release help to understand the significance of hole DNW-011:
- “The new discovery is hosted by a new exploration target, the "LP Fault,” and adjacent lithologies. Airborne geophysics completed by Great Bear shows the LP Fault and a parallel structure, the "North Fault,” are interpreted to transect the property for 18 kilometres of strike length as shown on Figure 1.
- DNW-011 intersected intervals of gold mineralization across 110 metres of core length and were strongest in a coarse quartz crystal lapilli tuff unit in the northern footwall of the fault. This is the first drill hole in the project's history to target this tuff unit. Complete assays from DNW-011 are provided in Table 2 at the end of this release.
- The LP Fault is interpreted as a major gold mineralization control and hydrothermal fluid conduit during Archean age gold mineralization. The generally 1 kilometre wide area between the LP and North Faults may represent a significant structural dilation zone where gold rich hydrothermal fluids accumulated.”
There are 18 kilometers of open strike length that is about 1 kilometer wide. That’s a big deal. I was speaking about Great Bear with Eric Coffin last week, (Eric has been all over GBR since last August at $.50 per share and his Special Alert service has been relentless in telling subscribers to accumulate GBR on weakness) and I learned that this new discovery is near the former property boundary. The previous owner had wanted to drill in this zone, however, he could only drill in the "wrong direction" due to property boundaries.
Prior to last week’s NR I think the market was probably thinking 3-4 million ounces was the upper limit for the potential at Dixie, certainly nothing to sneeze at especially given the location. However, I believe the Bear Rimini discovery opens up the map and gives Great Bear a whole lot more blue sky in terms of total resource size. Neighbor Newmont Goldcorp, owner of the prolific Red Lake Mine, will be watching GBR's progress closely, and I would not be surprised in the least bit to see a takeout before September. More drilling success by GBR will only end up costing an acquirer that much more to scoop up this unique project, which Eric Coffin has dubbed "A once in a decade discovery."
CEO.ca Pro Level 2 Market Depth helped to visualize Tuesday afternoon’s powerful gap higher in GBR (starting at the :25 mark in the video):
Towards the end of the video it’s easy to see the resistance (supply of shares) near the $4.00 level. Not only is $4.00 a round number psychological level, the all-time high is $4.08. Once this resistance is broken I expect GBR to move significantly higher (25%+ over the near term).
From a technical analysis standpoint, last week’s move in GBR shares was especially impressive because it left two “open gaps” in the daily chart and price closed right near the highs, up 31% on the week:
Some might say the GBR chart is overbought here, which it is. However, bull markets are built on overbought conditions and in my estimation GBR is more likely to work off the overbought conditions through time (sideways oscillation), as opposed to price (pullback).
From a fundamental perspective, GBR’s valuation is certainly not “cheap,” the market is giving the company credit for a substantial high-grade resource in a great location. However, there is a scarcity of top-tier (yes, I hate that term as well) gold assets in the world and GBR is certainly not at any sort of insane valuation…..yet. Talk to me when there is a “B” in front of the “...illion”.
One of the topics I am pondering this weekend is the possibility that we are right on the cusp of a large gold rally that will finally vault the yellow metal over the key psychological US$1,400 level. Turning to the weekly chart of gold, it’s easy to make out a cup & handle pattern and Friday’s rally triggered a breakout above the “handle” of this technical chart pattern:
This confirmed breakout on the weekly chart has a measured move target well north of US$1,400, which means that gold could finally bust through the red shaded area in the chart above at some point this summer. The fact that Friday’s big move in gold took place against a weak sentiment backdrop for the metal makes it all the more notable.
Less than two months ago Wall Street analysts were calling for the Fed to hike interest rates. In a sharp turn of events, at least one prominent research firm put out a forecast that calls for three Fed rate cuts over the next year.
To put it simply, most hedge funds were not prepared for this sharp shift in the economic outlook and Fed policy. The end result could be a flight to Treasury bonds and gold, which we are already beginning to see. With the U.S. 10-year note yield closing Friday at ~25 basis points below the effective Fed Funds Target Rate the bond market is sending a strong signal to the Fed that it is too tight:
U.S. 10-Year Treasury Note Yield
The current macroeconomic/geopolitical backdrop could quite literally be a perfect storm for a gold rally and the best part is that it’s just getting started after a 6+ year slumber.
So how does one play it?
Buying physical gold is the simplest answer (Author’s note: in the month of May the U.S. Mint reported gold coin sales were down 60%), however, going to a coin dealer and then lugging it back to a safety deposit box is not for everyone. Most investors want something that is sexier with more potential upside than physical gold. This is where gold mining shares come into play, in particular, junior gold miners.
As May draws to a close, seasonality becomes much more favorable to gold juniors for the next three months:
GDXJ Seasonality (2009-2019)
Since 2009, the GDXJ (Junior Gold Miners ETF) has averaged a 6.3% gain from the end of May to the end of August. This is a significant bullish seasonal bias, especially because it includes several brutal bear market years (2013, 2014, 2015).
The standard seasonal playbook in the junior gold sector is to buy in June in anticipation of summer exploration programs and drill results, and then to sell in September as the results start to be announced. This playbook follows the well known market adage “Buy the rumor and sell the news.” Whether this seasonal pattern plays out, this year remains to be seen. However, I know that I like my odds of accumulating beaten-down unloved gold juniors as we enter a period of seasonal strength as gold breaks higher from a major long term chart pattern.
You could call me bullish on gold and gold miners.
I have mentioned the idea of buying a basket of Golden Triangle gold explorers a couple of times since March. I think this is still a valid trade setup as most of these stocks have barely budged in the last couple of months. While it’s tough to pick favorites in such a hit or miss sector I can name a handful of stocks that I own:
- Aben Resources (TSX-V:ABN)
- Ascot Resources (TSX-V:AOT)
- Benchmark Metals (TSX-V:BNCH)
- Crystal Lake Mining (TSX-V:CLM)
- Skeena Resources (TSX-V:SKE)
Of course, there are literally dozens of other interesting names. For instance, Brixton Metals, (TSX-V:BBB) which is drilling a 1,000 meter hole at its Thorn Project in the Camp Creek copper corridor in the northern Golden Triangle. There are lots of interesting exploration stories and many of these stocks are sitting at or not far from 52-week lows. This makes them all the more tantalizing, however, it’s important that investors understand the substantial risk in owning a micro-cap exploration stock that can only drill a few months out of the year.
From a technical chart vantage point, many of the aforementioned GT stocks have been forming broad long term basing patterns. In particular, BNCH and SKE posted impressive rallies during Friday’s trading session:
I believe Friday’s strength can be attributed not only to the gold rally, but also to the beginning of the seasonal bid into Golden Triangle juniors.
Friday’s price and volume action in BNCH really caught my attention as the stock gapped higher out of the gate and the buyers never took their foot off the gas (Friday trading starts at :16 mark in the video of CEO.ca Pro Level 2 Market Depth:
That’s enough about gold and mining stocks for now. I invited @slowride to be a guest contributor again and he delivered with a thoughtful, well-written piece on Maxar Technologies (NYSE:MAXR, TSX:MAXR) and the future of transportation and mining on the moon. Slowride is writing a three part series of which this is part 1.
GUEST CONTRIBUTOR: @slowride
Part I: MAXAR’s Big Idea - Transportation Solutions for NASA’s Moon Mining Plans
With the mining industry desperately searching for new gold mining finds that will make many companies rich (or poor from trying), I find myself constantly searching for other angles if some of my gold investments start to stall. This week, I couldn’t help but notice an intriguing Big Idea coming from an NR from MAXAR Technologies Inc. (MAXR -TSX/NYSE). I am fond of any articles relating to new technology, space or sports in my casual reading searches. So, considering I have both an Earth Science and Economics background, when I stumbled upon MAXAR’s NR this week, I was very fascinated when I realized the significance of what appeared in that news release.
Mining has recently been where I generally foray my speculative investment dollars. Although, when I see some other avenues to build a more complete investment portfolio by taking some long positions, I tend to gravitate toward companies that are leading their sector, or are the ‘next thing’ in their industry. Amazon is a good example of what I like, especially when they re-designed their whole corporate goal this past decade, and look where they are now.
While I do not see MAXR becoming a company with the same market cap as Amazon, I do however see a somewhat distressed company recently being given a ‘vehicle’ to take it beyond its former share price levels of the past few years. This ride will have some turbulence from time to time. Once we get out of the hot/cold levels of investors idealistic and ‘atmospheric’ predictions on this company, and once this company is purely focused on NASA type collaborations its seems to be aiming for going forward, I am sure we will hit a smooth ride through its own space level.
So here is the reason I am going speculatively long on them: Maxar Technology produces satellites and technology solutions for space dealing mostly with many governments. Specifically, MAXR has driven most of their company initiatives around building satellites, but a check of recent corporate developments suggest that this main division will continue, while another will grow much more significantly with a strategic partnership with NASA. I believe this division alone, in the coming years, is what MAXAR is going to transition to grow exponentially. This potential might substantially drive their bottom line going forward with significant large scale contracts.
This is the NR MAXR released this week: Maxar Selected to Build, Fly First Element of NASA's Lunar Gateway Basically, they have achieved the trust and partnership with NASA (and the U.S. Government) toward their future plans of mining the moon which ultimately, they will aim to use the geological materials that exist there and eventually produce a base camp to be built on the moon. How will MAXR help? They will be part of a solution to propel aircraft around the moon, for other Space mining initiatives of meteorites and propulsion tech from the moon for Mars initiatives that NASA has plans for.
The announced $375 million infusion from NASA is just the beginning. As space mining becomes normal practice next decade, MAXR’s relationship should accrue considerably more involvement in space mining. Considering the following estimate on Space Mining materials that could be tapped. There are an estimated $700 billion billion worth of material potentially within our solar system belt!
A partnership with NASA for MAXR is exactly what the company needs as it re-positions itself for its future, one that looked shaky recently due to problems in their satellite division. A check of how much money the present American administration has earmarked for Space initiatives relating to the mining is very significant as evidenced by this article. Although, I know the main reason why the U.S. is so interested in going to the moon. The main reasons are Geological, which is why I first stumbled upon this Big Idea in the first place. Check out this article to see what the U.S. has with their plans for the moon: https://www.vox.com/science-and-health/2019/5/22/18623177/nasa-artemis-moon-2024-trump-bridenstine-explained
Ideally, NASA will tap the water that exists on the moon to use as a potential propellent for other space initiatives. As well, something is not mentioned that I know to be true from other science research that I do from time to time. NASA is eyeing the vastly abundant Helium 3 that is just sitting on the moon waiting to be tapped at a $5 billion per tonne. Helium will most likely provide a further energy source or opportunity to propel them for other’ solutions which are outlined in this article: https://www.explainingthefuture.com/helium3.html
So, how does MAXR fit into this jigsaw puzzle? The NR this week gives very specific roles that they will play in this whole moon and Mars space, mining and energy initiatives. With the capability and talent of MAXAR’s engineering division, I would suspect they further have something else in mind for all space solutions that will spawn other roles and foster an even bigger relationship with NASA and the U.S. government moving forward. For now, they are tasked with building an aircraft in collaboration that if successful, NASA may choose to acquire the spacecraft made by MAXR after a year of testing, as stated in the article.
With the potential the moon holds for all that is vital in the future American economy, I can see an ever increasing chance for both Maxar Technologies Inc. and the U.S. government to tap space for both mining and energy opportunities. If we assume the U.S. government marches in this direction, it will mean an incredible monetization realized based on the following previous steps announced relating to Space Mining: (1) On November 25th, 2015 when President Obama signed the so-called “Space Law,” approved by the US Congress which allows companies in the country to exploit space and the appropriation of all asteroids and ‘other’ space resources (2) The International Treaty of Outer Space states nations cannot have territories in space (can companies?) or in other words, no nation can have territorial claim over any celestial body.
While the present U.S. administration might not last through the next election, certainly there is no chance of NASA or MAXR not following through on these initiatives and relationships given the sizable amount of opportunity that exists in space.
I believe the news that an investment of $375 million into MAXR from NASA recently suggests more is to come going forward. A check of financials might convince conservative investors to proceed with caution however.
MAXAR sits with a $454 million market cap on 59.6 million shares at the close of Friday. It is bleeding red ink with total debts of $3.37 billion, but a check of recent financials from Yahoo Finance shows it had 1st quarterly revenues of $504 million with a loss of $59 million. Recent book value estimates had it well over $9 per share. Truthfully, it needs to get its financial house in order. That is their goal with their self-restructuring of their divisions, but frankly, I am very encouraged to see the growing relationship forward with NASA given the big plans it has itself.
Would I recommend this to someone seeking only conservative and safe large cap investments? No. But as a mid-cap company with a low float and plenty of promise going forward, its at a turning point for it to grow beyond all of its past mistakes with a tightening of its financial belt and a firm nod of acceptance from NASA.
It just seems to me, MAXR has really collared a favourable partner, a major opportunity to pivot in a focused direction forward and potentially, a future significant contract if their first aircraft created tests well and NASA has claimed they would buy this division.
So ask yourself, why would NASA risk collaborating with a failing company as some people I have spoken with have suggested? Maybe investors need to key on an assumption that NASA believes MAXAR is a very viable partner for them! Otherwise, why choose them to launch their moon initiatives, which launches other bigger endeavours after? I conclude therefore that NASA, in the eternal words of Jean-Luc Picard, will ‘make it so.’ and this year, MAXAR just might be ready for a major liftoff, and I want to be a part of it.
Disclosure: Author has significant long positions in gold mining shares including many companies mentioned in this article (ABN.V, AOT.V, BNCH.V, CLM.V, GBR.V, NHK.V, and SKE.V) and may choose to buy or sell at any time without notice. Both the author and guest contributor have long positions in MAXR.TO at the time of publishing and may choose to buy or sell at any time without notice.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.