Richard “Doc” Postma – Monthly Market Recap Of Precious Metals, Copper, The US Dollar, Interest Rates, and Fed Policy
Richard “Doc” Postma joins us for our regular monthly market recap of gold, silver, copper, the US dollar, bonds and interest rates, and expectations around the Fed’s tightening policies. It’s a discussion that looks at both the technical setups in many of these sectors as well as some of the fundamental macroeconomic drivers at work.
We start off discussing the recent bounce we’ve seen in the precious metals and related mining stocks, and while Doc sees the potential for green candle in the month of October, after 6 prior red monthly candles, he does not think this recent rally is the beginning of a new bull market in the sector. Then things turn to the mining stocks and the divergence we’ve seen in this bounce and the potential weakness still to come between the more established larger and mid-tier producers and the other earlier stage junior explorers and developers. Doc then shares the types of PM mining stocks he’ll be positioning in when he feels the sector has bottomed, and also offers some thoughts on the copper sector.
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Cory and I are attending the upcoming New Orleans Investment Conference on October 12-15. We’d love to see you there! It’s a great way to meet company management and spend some time in New Orleans. Click the link below to register and please let us know if you will be there so we can meet up.
Hi DT – Yeah, I’ve been nibbling at Superior Gold the last month or so adding to my position, which is currently a bit underwater, because I see them as very misunderstood and a good turnaround story.
SGI had a different team at the helm in the past and they only did a marginal job with production and didn’t really do a great job with exploration. The production has been around 70K-80k ounces per year, and they did have to adjust down their guidance for 2022. However, the new team believes that they can get production up closer to 100K ounces next year and then once they can start feeding their 2nd mill with more feed from other nearby miners on toll milling basis, and bring on some more satellite pits nearby, that they can get that up to 150K in about 2-3 years.
Chris Jordaan was brought in a little over a year ago as CEO, and then last July and August they switched out a number of positions on the board of directors, management and operational team, eliminating some positions and creating some new ones. So in that sense, most of this team is just 1 year into getting this ship turned around. After talking to Chris a few times and their IR team, the strategy is fairly sound and is missed by many people only looking backwards at prior quarters where they were, but not where they are headed.
Unfortunately, they had some really tough weather to deal with in the first half of this year, and then some covid 19 absenteeism and issues to deal with in Australia, so Q1 and Q2 had exogenous events outside of their mining strategy that caused them to get punished by an unforgiving market in a low sentiment environment. Q3 should be a little better, and see improvements over the prior 2 quarters, but I believe the real improvements in operations will be more evident in Q4 of this year and Q1 of 2023.
So, like usual, I may be a bit too early to the story as far as the proof being in the pudding for the turnaround, but I like looking ahead to where things are going and getting into position on buying the rumor, before it becomes the news. My estimation is that by the spring time next year, more analysts and investors will start seeing the results coming in and there will be a rerating in the stock. It could be a laggard until then, but then I expect it to be a dark horse catching up to the rest of the pack of peer producers doing over 100K ounces of production annually and be valued more in line with those kinds of companies.
There is a big undertaking as a company project (the main pit push back) that has been studied and in development for almost 2 years, and the company is finally getting that going which should expand mining throughput, and extend mine life. There are also some good exploration targets at their other open pits at Perch/Plutonic East, at Big Fish even further east than Plutonic East, and some new high-grade drill hits from the Indian Access area. The company just released Drill hole #UDD25627 that intersected 10.5 g/t gold over 27.3 metres; including 1.0 metre at 48.5 g/t gold, 1.0 metre at 44.1 g/t gold, 0.6 metre at 34.3 g/t gold, 0.8 metre at 29 g/t gold and 1.0 metre at 32.9 g/t gold. That shows a lot of promise in that Indian Access zone and is prime for more follow up.
In addition to those the company has another project the Hermes Open Pit and Hermes South, where there is some other exploration work to get resources growing there as well. Most of the exploration action will be at the Seaborg and Central Bore targets at Hermes South, so that will be another value driver in this secondary project and may also be trucked over to support that 2nd mill eventually.
I believe the last time we spoke with Chris he mentioned they are planning an updated Life Of Mine study by year end, and in July they announced an updated Resource Estimate where mineral reserves increased by 66% and inferred mineral resources Increased by 29%, so that was another nice milestone, but the market still sold them off on the back of the news that they had grown resources. It’s been a tough market (and really was in early July), even for good news that got released. Longer term, increases like that are meaningful for the operations, and eventually those increased resources will show up in the mine plan.
Anyway, Superior Gold (SGI) is not well loved or even widely followed at this point, but when I see the overall plan for the next 2 years that the new team has, coupled with evidence of increasing resources, and solid drill hits, then I think it has the potential to surprise investors to the upside. Now for me personally, it’s not just a quick swing-trade, but rather, more of a 1 year position-trade, based on the next 3-4 quarters of operations improving. Obviously higher gold prices will help too, but that will help most companies.
My general sense is that SGI is in the penalty box right now, but some of those issues from H1 2022 are in the rearview mirror now, but their team needs to show the marketplace they can deliver on their plan to then get a rerating up closer to their peer group. The first half of this year has been a tough slog, and so right now they are in my “ugly duckling” category, like Pure Gold and Americas Gold & Silver, but I like taking a stab at some of these turnaround plays if the strategy is sound and clear. They don’t always pan out (like Primero or MUX), but sometimes they do (like Newmarket, Claude, K92, or Karora).
I’m willing to give producing companies a bit more grace and patience, than drill plays or stagnant developers with no real plan if things bomb, because mining is a tough business and sometimes it takes a few quarters to work out challenges. It is also easy for smaller producers to be undercapitalized or not have the expertise to execute, but I don’t see those hurtles in this case with SGI. I have observed that the company is executing currently on exploration and their development project with the pit wall pushback, and they are taking their first mill from 1.8 million tonnes annually up to 2.2 million tonnes annually, and have the 2nd mill waiting in the wings for 2023 and 2024 expansion.
Superior Gold is not my top pick or anything, but it’s a horse I like having in the stable, and while it is being thrashed with a low valuation, I throw a little cheddar at it once in a while to keep accumulating, and believe it will be viewed in a much better light by this time next year.
E$x, I am always amazed at the amount of information you possess on the stocks you own, and there are many. I think they should clone your mind and put it in a robotic information system, that would only increase the power of Artificial Intelligence. They are probably already doing that. LOL! DT
Thanks DT. Yes, I’ve had these special ops people in lab coats and tinted glasses, along with little green men in flying craft, visiting me for quite some time working on the AI cloning and downloading.
I’m a little concerned about what may happen to me when the project is wrapped up, but hey, life is a wild adventure.
Thanks Doc.
So, according to Doc, this rally shall have no legs
The sense I got from Doc when we talked today, was that he thinks there could be a few weeks to the rally here in October, as we are overdue for at least a relief rally, and a green monthly candle.
However, since he pointed out many of the larger and mid-tier producers still may have further to drift down, and the dollar may not top until later in the year, then it sounded like he doesn’t think the bigger moves and fireworks will start until next year in the PM sector and related mining stocks.
Hey at this point, I’ll take a few weeks rally and green October, as it’s been a tough market to navigate. If the sector does find it’s legs and get running beyond that, it won’t hurt my feelings. 🙂
Welcome to the dawn of a new day. No intervention and free markets …NOT.
Some up …some down: -550 to start.
New program … wait for EOD. In meantime, look for bargain of the day or two.
Added some to Palladium One, GR Silver and Emerita.
Bob Moriarty: We Just Witnessed A Major Capitulation In Gold Stocks
Energy & Gold w/ @Goldfinger – 10/05/2022
“The last time we spoke with 321gold founder Bob Moriarty one month ago, Bob was very clear that a major tradable low in precious metals was imminent. It turned out that Bob nailed the low in silver to the day. But gold needed to run everyone’s stop-loss orders with a sell-off below $1670 in the futures last week, before reversing higher and reaching a high of $1738 yesterday. In this month’s conversation Bob explains why he believes we may have witnessed a major capitulation in gold stocks last week…”
> Bob Moriarty:
“Well, for some stocks like Barrick Gold September 1st was the bottom, it was the bottom for silver too. And then three weeks later, gold bottomed, and then everything fell apart because of the British pound, and it continued down. But certainly if you look at gold today, it appears to be strong. However, I will say that I think from a sentiment point of view, we had a bottom on September 1st and then we had another retest of that bottom. And I think that gold, silver, and the shares have seen capitulation and should move much higher from here.”
Scorpio, SGN, down on news today…
I sold out of my Scorpio Mining last year, and then got back in for a brief stint in the early part of this year, but haven’t really been following along. Both drill holes #18 and #21 were actually pretty good grade x widths, but unfortunately we keep seeing companies put out good news that just becomes a place to sell for investors that want out.
We’ve seen that in so many companies where they put out good drill news, or a nice resource estimate, or solid economic study, and then the market sells off on the release. That’s still reminiscent of a bear market playbook. In a raging bull market, even the bad news gets brushed aside and seen as a reason to pile in further. We’ll see that kind of market again, but it will likely take some investors time to switch from a bear market playbook to a bull market playbook; especially in the initial early parts of a new uptrend.
We don’t have enough data in yet to know if the recent bounce we’ve seen since the middle of last week to present was a low and major turn in direction, or if this move will fizzle out and if we may be stuck in the muck for even longer. However, because of a number of factors like the BPGDM index hitting 3.5 last week (after being in the 7-10 range prior to that), the contrarian COT positioning, the non-confirmation from Silver and the PM mining stocks not falling apart when gold was breaking lower to $1622, and single digit DSI numbers showing sentiment in the toilet up until last week…. I’m leaning towards this being a potentially significant start to an intermediate-term (and heck maybe even a longer-term) bottom.
If that’s the case, then people buying mining stocks putting out good news that are still selling off, should be richly rewarded in the revaluations that we’ll see over the next 6-12 months.
I think we are in the bottoming faze but still have to face the winter of tax loss selling before a real run can start. If we get higher than most people bought in at before tls then we are off to the races, haha.
Nice. Thanks Dan for sharing your view of things. Yeah, it’s hard to believe we’re already talking about the upcoming tax loss selling season again… Crazy times.
It’s the old sell the news, SGN is crying out for attention, but the investors keep selling. I looked at it this morning when that news release came out, although it wasn’t bad it just didn’t merit much attention in this market. DT
I bought some Superior Gold last week, the price was just under 36 cents. I have been in it in the past but my good friend E$x, was the one who brought this stock to my attention initially. Thanks, Buddy! DT😉