A Conversation On The Factors Driving Gold and Silver

June 18, 2019

This editorial is another recording of a conversation between David Erfle and I. We share our thoughts on the new optimism in the gold sector, if central bank easiness will actually help the economy and what it will take for silver to get moving.

I hope you all enjoy this format and general discussion.

Click here to visit David’s site – The Junior Miner Junky.

    Jun 18, 2019 18:20 PM

    Nice work!

      Jun 19, 2019 19:47 AM

      Good informal chat about the global market macro forces, Fedspectations, precious metals & miners. I also agree with the points made by Cory & David about looking for the move in Gold to start first, and then watching for Silver and the miners to play catch-up, and then outperform on a percentage basis.

      Last week I posted this bullwhip analogy, but it is fitting based on this conversation:


      We often see a bid for Majors and Mid-tier producers (like the components of $GDX) at the beginning of a leg up in the miners, and that is when the larger institutional funds are getting positioned and bigger money is starting to flow into the large-cap and more liquid stocks.

      When a sector gets going it is often the Bull Whip process, where the larger market cap #Producers move first, then the advanced #Developers near production ratchet higher, and then the #Explorers that hit pay-dirt explode higher leaving the rest in the dust at the tip of the whip

    Jun 18, 2019 18:53 PM

    It’s not my intention to knock Bear Creek Mining but, if history is an accurate guide, it is far from the silver stock with the most leverage to silver. Many outperformed it in 2016 including some with much larger market caps.
    However, I do have to admit that BCM has a much better looking weekly chart than my IPT.

        Jun 19, 2019 19:42 AM

        I’m looking forward to an easy double in IPT, right out of the starting gates once Silver and the beat down Silver miners finally start to make their move.

          Jun 19, 2019 19:43 AM

          After that, for the longer term (2-3 years)… an easy 10-bagger in IPT from here.

            Jun 19, 2019 19:54 AM

            Yes, barring some kind of IPT black swan, I see much more than a 10-bagger within 3 years.

            It hasn’t done much in the last few weeks but when it finally does pop, I think the coast will be clear for the whole sector.

      Jun 19, 2019 19:04 AM

      Matthew – I concur on the comments around Bear Creek, as not being the most highly torqued to rising Silver/Zinc prices and there were plenty of other Silver stocks that outperformed it in the 2016 surge like Impact Silver, Excellon, Alexco, Silvercorp, Americas Silver, First Majestic, and Coeur to name a few. Silvercrest outperformed all of them, but they are valued way higher now and are a juiced up explorer with great grades, so their upside from here will be more limited than last time off the bottom.

      I will say that I’ve heard Catherine McLeod-Seltzer mention in a number of previous interviews that for every $1 rise in Silver, they have the largest $$ about leverage (which is due to the sheer size of their deposit). Bear Creek Mining (BCM) is a large low-grade deposit, so they do need pricing over $20 to make it worthwhile to consider putting it into production by them or a larger company. That isn’t to say they couldn’t get bought out by a bigger mid-tier base metals miner, but that wouldn’t be my ideal exit anyway on playing these Silver miners.

      Personally, I want Silver stocks that are unloved, right near the line in the sand on profitability, that suddenly gets really profitable at $18-$20+ Silver.

      Companies like ImpactSilver, Excellon, Santacruz Silver, Avino Silver & Gold, Bayhorse Silver, and even Endeavour Silver are far more likely to be able to monetize and capitalize on a rise in Silver of a few bucks. Also the economics on Alexco, get very nice at $18-$20 Silver.

      There are also companies like Silvercorp & Americas Silver that are making most of their money off base metals like Zinc & Lead at present, that can both ramp up their Silver production at higher prices that will make an absolute fortune at $20 silver or higher. I’d much rather bet on them for the medium term than a large low-grade developer than needs to raise a crap ton of money to get into production like BCM, but that’s just a personal preference.

      Lastly, there are Silver exploration companies like Metallic Minerals (Alexco’s neighbor), Dolly Varden in the Golden Triangle, Kootenay Silver, Orex Minerals, Defiance Silver, New Pacific Metals, Klondike Silver, etc… that will have the most “optionality” but it will take a higher silver price to get eyeballs on them again for a bid.

        Jun 19, 2019 19:14 AM

        To be clear, I don’t want to completely knock Bear Creek Mining, as I do believe it is very well run company, and as David mentioned, there is some patient larger money funds and investors involved, similar to MAG Silver. The draw to BCM is that it is a big optionality play, and included in some indexes, so It will do just fine, like most of these silver stocks when Silver gains a few dollars. Sometimes it is the smaller higher grade Jrs that really take off like a scalded cat though….

          Jun 19, 2019 19:19 AM

          As for Hecla (HL), I used to like it a lot more in the 2010-2011 time period, and even in earlier 2016, but they really have become more of a Gold company than a Silver company, and have made some bad decisions over the last few years IMO, that will affect their leverage to a rising silver price. Yeah, they could double or triple, but so could almost every Silver stock, when the worm turns, so that isn’t saying much.

          They’ve also been hit with things like this lately:


          Kaplan Fox Files Class Action to Recover Losses for Investors Who Purchased Hecla Mining Company Common Stock (NYSE: HL)
          PR Newswire – May 24, 2019

            Jun 19, 2019 19:19 AM

            HL) Hecla Cuts Nevada Spending, Trims Gold-Output Guidance

            Allen Sykora – Thursday June 06, 2019

            “Hecla Mining Co. (NYSE: HL) is reducing spending and laying off personnel at its Nevada operations in order to improve cash flow, the company said Thursday.”

            “Officials also revised down the gold-production outlook for Hecla’s Nevada mines. When issuing its first-quarter earnings report in May, Hecla had suspended its 2019 guidance and said it was reviewing its Nevada operations.”

            “Hecla said Thursday that the company has significantly curtailed planned development investment in Nevada while production continues. Officials trimmed expectations for company-wide capital spending by $12 million, with exploration reduced by $9 million, and general and administrative/other costs cut by $4 million. ”


            Jun 19, 2019 19:26 AM

            For one of the larger Silver companies, I still like First Majestic (AG) (FR) as the pick of the litter because it has the most exposure to Silver compare to the other big boys like Hecla, Pan American (who acquired Tahoe), Hochschild, Fresnillo, or Coeur, that now have much more exposure to Gold than in previous cycles.

            Jun 19, 2019 19:53 AM

            Silver Mine # 5 is on track for development. Good to seek EXK get this permit.

            (EXK) (EDR) Endeavour Silver Receives Final Tailings Permit for the Terronera Mine Project in Jalisco State, Mexico


      Jun 19, 2019 19:23 AM

      While most Silver/Zinc/Lead Producers have been struggling, there is still one standout company in the sector that continues to deliver:

      (SVM) Silvercorp Reports Net Income of $39.7 Million, $0.23 per Share, and Cash Flow from Operations of $67.8 Million, for Fiscal 2019–and-cash-flow-from-operations-of-678-million-for-fiscal-2019–

    Jun 18, 2019 18:26 PM

    OFF TOPIC (for educational purposes)

    For Bitcoin novices:

      Jun 18, 2019 18:32 PM

      If you are a trader, you worry about “ugly”.

      If you are a fundamentalist, “ugly” is sometimes a place to start looking.
      e.g. Platinum. Has history no relevance?
      You believe gold is material that holds value over time. Is that not because of history?

    Jun 18, 2019 18:47 PM

    Off Topic: Cyberpunk game predictions……interesting:

    Jun 18, 2019 18:59 PM


    We are going into a Grand Solar Minmum:

    Jun 18, 2019 18:20 PM

    And you think Trump does not have a major issue for 2020?

    Jun 19, 2019 19:30 AM

    long UCLE

    Jun 19, 2019 19:39 AM
    Jun 19, 2019 19:51 AM

    If you think, as I do, that silver is going to $150, why not buy PSLV which would be at least a 10 bagger without the worry of all the problems and politics miners are subject to?

      Jun 19, 2019 19:10 AM

      Bonzo: because many miners will go 50 to 100 fold if silver goes to $150. So, for example, the risk-averse could put 10 or 20 thousand dollars into 5-10 good silver stocks and make more money than those who put $100k or more into PSLV.
      I think the right move for most people is to own both, but since the miners look better now versus the metals than they have in decades, my position in them is probably 10 times what I have in the metals.

        Jun 19, 2019 19:17 AM

        Agreed Matthew. The outperformance and amazing returns will be in the torqued up Silver Jrs and Mid-Tiers more so that larger companies like PSLV (who has much more exposure to Gold now than it used to in ratio to it’s silver.) Pan American returns in 2016 paled compared the smaller companies, or even compared to larger ones like First Majestic or Coeur. I’d much rather own them than Pan American, or Fresnillo, or Hochschild, etc…

        Personally, I like owning a basket of Silver companies with some exposure to a few larger names in the producers for more measured, but less risky growth; but ultimately have more exposure to smaller producers, developers, a few explorers peppered in for the potential of massive out-performance of the Jr miners.

          Jun 19, 2019 19:28 AM

          Ex, PSLV is Sprott’s physical silver trust so even the large cap silver stocks will smoke it. CDE was a 10-bagger in 2016 while even PAAS quadrupled while PSLV gained 50%.

            Jun 19, 2019 19:32 AM

            Yes, you’re correct Matthew. Sorry, I was thinking PAAS Pan American not PSLV the ETF.

            Correct, my point about PAAS was that it only went up 4x , in comparison to many silver companies that went up 5x to 13x ….. As you mentioned even CDE Coeur went up 10 times, as did First Majestic, so for larger companies I’d rather steer clear of Pan American, and if taking the risk on miners, get the reward of out-performance after the long wait.

            Jun 19, 2019 19:35 AM

            It’s interesting that PSLV looks a lot better than SLV these days:

            Jun 19, 2019 19:39 AM

            For a medium-sized Silver producer with 4 active mines, a 5th one in ramp up, and a 6th one on the horizon – (EXK) (EDR) Endeavour Mining is one I’m starting to add to down here as they have been beat down to a bloody pulp, and it seems like overkill how much their stock has sold off the last few years.

            Brad Cooke is a competent CEO, and they have plenty of room to run, and because they have diversified their mining exposure, they seem like a safe bet for the medium to longer term as well.


            (EXK) (EDR) Endeavour Mining – Building New Mines, Driving Organic Growth

            Corporate Presentation – May 2019


            Jun 19, 2019 19:40 AM
            Jun 19, 2019 19:48 AM

            It is nice to see SIL (miners) outperforming SLV (Silver ETF), but I’d like it to be a 3:1 or 4:1 out-performance.

            Jun 19, 2019 19:01 AM

            (SBB) (SGSVF) Sabina Gold & Silver Reports Initial Results From Spring Drill Program

            by @nasdaq on 19 Jun 2019

            “Drill hole 19GSE569 located approximately 180 meters up plunge from the Umwelt Vault zone, returned 14.97 g/t Au over 21.75m including 28.94 g/t Au over 5.20m. The purpose of this hole was to build on previous high-grade results (including Vault) by continuing to demonstrate continuity within a high-grade corridor in the Umwelt underground.”

            Bruce McLeod, President and CEO states, “The presence of a significant high-grade core within the Umwelt underground could provide opportunities for early advancement of underground resource extraction that could have positive impacts on the economics of the project. This scenario would require further definition drilling and studies however, these results continue to improve our confidence in this robust underground zone. We believe our exploration programs over the last three years at Back River have been important to the project. At the Goose project, our work has continued to add value by providing better confidence in our geological models and understanding of our deposits as well as identifying areas of opportunity to enhance future mine plans. Additionally, our regional work has continued to demonstrate how important Back River is as a district which we believe will be a multi-generational mining camp.”


            Jun 19, 2019 19:10 AM

            3 or 4 to 1 is coming. Watch the MACD on that chart for a sign that things are going to get better.

            Jun 19, 2019 19:15 AM

            + 3.5

        Jun 19, 2019 19:44 AM

        Matthew, I have more than 200K in AG, AXU, EXK, PAAS, SSRM, HL, and WPM, in addition to my PSLV and CEF, so I am eagerly waiting for $150 silver. Do you own any ETHOF? I bought some of that yesterday, as well as some IMBBY yielding about 11%

          Jun 19, 2019 19:05 PM

          Oops, I forgot my USAS.

          Jun 19, 2019 19:10 PM

          It’s had a great move in the last couple of weeks but I don’t own ETHOF.

            Jun 19, 2019 19:16 PM

            Matthew, ETHOF has just commenced drilling in Nevada at the intersection of the Cortez and Getchell trends. Hope they find a 15 million oz deposit. And last week they started drilling the “El Slamo Dunko” property. Could be a wild summer…Auryn and Irving could get crazy too.

            Jun 19, 2019 19:36 PM

            Thanks Bonzo

    Jun 19, 2019 19:12 AM

    Stewart says: “It’s my firm belief that most Americans are living in a fantasy world where a superhero named President Trump is going to negotiate fabulous “America-first” trade deals with cowering governments around the world… and Americans will then magically relive the 1950s with massive GDP growth, even while QE to infinity becomes as American as apple pie.”
    Stewart is correct and it’s pathetic.

      Jun 19, 2019 19:50 AM

      It is difficult to underestimate the quality of education in the U.S., isn’t it.

      I don’t know how focussed Trump is on China’s food situation, but if he is, he should know China is in a serious potential famine problem.
      Swine flu in pigs is set to kill 200 million pigs in China.
      China is so scared about food shortages is has turned a blind eye to incorporated infected pigs into the food supply. (I guess technically, provided there was care in high temperature processing this could be safe, but really do they care?
      This should allow tough negotiations by Trump, because China will have to buy extra grains from the U.S. to make up food shortages.

    Jun 19, 2019 19:05 AM

    Some more Takeover news in the resource sector – This time regarding streams & stockpiles of Cobalt & Nickel.

    Pala Investments to acquire (KBLT) (CBLLF) Cobalt 27 for C$501 million; creation of Nickel 28

    by @newswire on 18 Jun 2019

    Cobalt 27 Capital Corp. (TSXV: KBLT) and Pala Investments Limited are pleased to announce that they have entered into an agreement (the “Arrangement Agreement”) pursuant to which Pala will acquire 100% of Cobalt 27’s issued and outstanding common shares, other than the approximately 19% that Pala already owns, for total consideration of approximately C$501 million on a 100% basis. Under the terms of the transaction Cobalt 27 shareholders will receive C$5.75 per common share, comprised of C$3.57 in cash plus C$2.18 in shares of a newly listed company to be named Nickel 28 Capital Corp.”

    Jun 19, 2019 19:30 AM

    (MND) (MNDJF) Mandalay Resources Corporation Provides Exploration Update and Announces Optimization of its Björkdal Operation

    by @nasdaq on 18 Jun 2019

    Dominic Duffy, President and CEO of Mandalay, commented, “We are pleased to announce that we have commenced our 2019 exploration programs at both of our sites. We believe that the most recent drilling results at Costerfield and Björkdal are very positive and suggest further opportunities for increasing the value of our operations.”

    Jun 19, 2019 19:22 AM

    (JAG) (JAGGF) Jaguar Mining Announces a USD$25 Million Non-Brokered Equity Private Placement Offering
    June 18, 2019 /CNW

    > The Company’s two largest shareholders both intend to participate in the Offering.

    Eric Steven Sprott (21.7% shareholder): Mr. Sprott intends to subscribe for a minimum amount of USD$15 million; and

    Tocqueville Asset Management LP (19.6% shareholder): Tocqueville intends to purchase 19.6% of the Offering (representing a minimum investment of USD$4.896 million).

    The minimum amount from these lead orders therefore represents USD$19.896 million, representing 79.58% of the Offering.

    “I am pleased to participate in the Offering”, said Mr. Sprott, who also added: “The Offering represents an opportunity for Jaguar Mining to remedy its operating issues at its Turmalina Mine and as a result, improve its overall production profile, operating efficiency and cost structure.”

    Jaguar’s Interim-CEO, Benjamin Guenther (P.Eng.), stated “The proceeds from the Offering will be utilized to make overdue changes to the Company and its otherwise rich and robust yet historically underperforming mineral properties. Completion of the Offering will result in an opportunity to increase developed reserves, improve and update the capital equipment and infrastructure, increase gold production, expand reserves, reduce expenses per ounce of gold produced, improve efficiencies and cash flow, and reduce the financial distress caused by debt.”

      Jun 19, 2019 19:24 AM

      I’m not a fan of the upcoming dilution, as the company could have waited a bit longer for the sector to rebound before doing a financing and it would have been at a much higher shareprice, and require less shares.

      On the brighter side, these capital inflows should cause this to get rerated, and be back on the map again for investors.

        Jun 19, 2019 19:25 PM

        Based on the volume and action, it seems the market cares more that Jag will be cashed-up than it does about the dilution and that is my position. Warranted or not, we don’t need interested investors worrying about bankruptcy.
        $25 million will also go a long way toward Jag bettering its situation sooner rather than later.

          Jun 19, 2019 19:52 PM

          Good thoughts on the cash injection, and for where Gold is in its cycle, at least the sector will be heating up right as they finish getting everything optimized at their mines.

          Personally, reverse stock splits just bother me in general, but at least it will be a much higher price per share afterwards and if the sector is recovering it may finally start attracting institutional investors that won’t touch it as a penny stock. Also, I’m less concerned with reverse splits on producers that can ride the metals prices up, than I am with exploration companies that don’t have any revenue coming in and rarely recover. At least JAG can produce it’s way through it.

          Ever Upward!