Dave Erfle – A Healthy And Expected Correction Within The Larger PM Bull Market Cycle
Dave Erfle, Founder and Editor of The Junior Miner Junky, joins us to review the volatility this week in gold, silver, and the precious metals stocks. The whipsaw markets came on the back of a flurry of economic data from the Fed meeting and press conference mid-week, and the stronger-than-expected jobs number and ISM manufacturing data that hit on Friday.
While the end of the week saw a quick reversal of the bullish trend from earlier in the week, he pointed out that a corrective move should not be a surprise here as both silver and the mining stocks have been signaling for a few weeks that the move in the PMs was in need of some consolidation. Dave also points out that the January monthly close near $1950 in gold was very constructive for the longer-term bull market, and that gold was very overbought and in need of a digestive period, after a few months of upwards price action, adding around $350 off it’s lows in November to where it advanced to earlier this week.
Next we shifted over to the performance of the mining stocks, and with both GDX and GDXJ up over 50% off their September lows, and many individual mining stock up 100% – 200%, we asked if he felt this was a good time to sell into the recent strength, or in front of any further corrective action. Dave reviewed that he got positioned at the end of last year at good entry points and a solid cost basis in many stocks, and that it is far too early to start selling at this point in the 7 year bull cycle. He advocated having patience not to over-trade, and that he is positioned in companies in his portfolio for 3x or 300% gains at a minimum, before he will start taking profits in part of the positions.
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Haha! Good one Marty. Yeah… this has been an absolutely wild week. We kicked things off coming out of the relatively bullish and optimistic mining conferences in Vancouver, then we had the Fed meeting mid-week, sending the PMs up sharply (especially in overseas trading Wednesday evening/ Thursday early morning), and then we got this better-than-expected jobs report and ISM manufacturing report sending the US Dollar back up, and the PMs crashing right back down again.
What a rollercoaster…
Wall St Falls As Jobs Data Fans Higher Rate Fears
By Shreyashi Sanyal and Johann M Cherian – Reuters – Feb 03, 2023
“Wall Street’s main indexes edged lower on Friday after data showed the economy added jobs at a rapid pace last month, feeding into fears that the Federal Reserve could keep interest rates higher for longer in its fight against inflation.”
“The Labor Department’s nonfarm payrolls report showed 517,000 job additions in January, almost three times expectations of 185,000 additions. The unemployment rate ticked down 3.4% in January to hit a more than 53-1/2-year low.”
“Whenever we see these big numbers, the fear of the Fed comes back with a vengeance because people are probably afraid that the Fed is going to push things even further than what they have, running the risk of not soft landing, but more of a car crash,” said Brian Jacobsen, senior investment strategist for Allspring Global Investments.
ISM non-manufacturing PMI jumps in January
Geoffrey Smith – Fri, February 3, 2023
“A key gauge of service-sector activity in the U.S. rose strongly in January, adding to evidence earlier Friday that the economy still has plenty of momentum. The Institute of Supply Management’s non-manufacturing purchasing managers index jumped to 55.2, after dipping below the key threshold of 50 for the first time in two and a half years in December.”
“Although responses varied by industry and company, the majority of panelists indicated that business is trending in a positive direction,” ISM chair Anthony Nieves said in a statement. “Importantly, the forward-looking new orders sub-index surged to 60.4 from 45.2 in December.”
https://finance.yahoo.com/news/ism-non-manufacturing-pmi-jumps-101926430.html
Interesting trade of day: recently Fission Uranium 3.0 chaged its name to F3 Uranium. I guess to clear up the abbreviation of FU 3.0. However, as these things go, the specs hit the News of the Name change. Then later this week the algos hit it for no particular reason other than they were in my account. Based on the wonderful bashing it was getting and growing by the minute this afternoon, I decided to buy a few, I put in the name F3 in the trade area and it put in a (wrong) symbol but I wasn’t paying attention and completed the trade info. It got rejected. So I checked and got the new symbol and it got rejected. I checked the symbol next to the shares I had and it was the last symbol entered and rejected again. I decided to go to the Research area through FUUFF (which was the new symbol) and it recognized it as F3. So then on the “Research Site” it had “Trade” and it took me directly to the Trading area where that symbol had been rejected twice already, and automatically put it in the trade info blocks, which I completed and made the trade at the reduced price. I then tested the Trade Site and put in FUUFF again and it rejected. With that I ended another week Red and wrote George Santos to see if he could help. I have not heard back as of yet.
I’ve been a Uranium bull for a while now, but have never been that interested in Fission Uranium, or any of their spinout companies. At one point I held and traded Fission 1.0, before I learned of how challenged their deposit was going to ever be getting into production under that lake.
The Abitibi is great for grade, but torture to produce from with all the water issues. Just look at the mess Cameco has had to deal with for years to extract Uranium from its mines using very expensive freeze-walls, and then the challenges where they failed flooding certain shafts in the past. It’s no wonder Cameco is getting less interesting in mining and producing in the Abitibi, and more interested in JVs overseas and doing deals with Westinghouse on reactors.
For the Abitibi, NexGen is the clear ideal deposit that stands head and shoulders over all other company deposits as the true gem of the area. It is not just because of it’s higher grade and scale, but precisely because it doesn’t have all the underground water issues to contend with that most other projects in the Abitibi Basin do. The Arrow deposit will eventually get purchased by one of the big boys, and will be a significant source of global U308 production… but that is likely years away from it being a contributing deposit to actual production.
I also like Denison, because they have decades of past experience as operators and producers in prior cycles, and they are trying the ISR in-situ mining process in the Abitibi on their sandstone hosted project, and have a lot of other interesting JVs and key stakeholdings with other promising juniors and majors.
Most of my larger positions are with US focused Uranium companies though like Energy Fuels, Ur-Energy, Uranium Energy Corp, and more recently in enCore Energy.
I also took Wolfster’s advice and finally got a stake going last year in Uranium Royalty Corp.
I was going to add in UEX, but alas they got scooped up by UEC and I already owned it, but missed getting positioned right before the bidding war started. Bummer, but those assets are inside my portfolio now anyway, so a longer term win in that sense.
I read where the Athabasca Basin is a Delta but could not find the under water part. I tried Cameco articles and they were saying it was Covid making workers availability unpredictable coupled with the decline in Uranium prices and increase in inflation on costs.
But I also know you may know more than the average North American Bear. I also googled mining issues in the Basin and didn’t get much out of that either. But, the fact they refer to the area as a Delta gives me a clue that you know something that evidently is not talked about much.
Also saw articles on oil polluting rivers but didn’t see that with Uranium. There was more discussions of cleanup and radiation exposure issues.
There are definitely underwater issues in most of the Abitibi Basin, and Cameco has to produce using freeze-walls at a huge expense. If it wasn’t such high grade in the Abitibi Basin, then it would not be economic or worth the candle. Yeah, recent articles likely came up above Covid 19 shut downs, which was real, but many have speculated that they milked that excuse because the real issue was the expense of pulling the uranium out of the ground and it being much more than their remaining contract pricing at the time.
What I was referring to was from about 8-10 years ago they had an issue where the wall broke and water came rushing in flooding one of their mines. They’ve also had a bunch of radioactive materials discharges into the water over the years.
Here is a list compiled of all the crazy environmental and operational challenges and incidents that Cameco has a had for decades now. It goes from the 1980’s through 2017, and I’m just pulling one out for an example here:
__________________________________________________________
2006 October Cigar Lake, Canada
More flooding hits Cigar Lake, delaying production by at least another year.
Cameco CEO Jerry Grandey admits the uncertainties of groundwater
geology. “Management’s about taking risks — calculated risks.” he said of the
Cigar Lake Incident. “We thought we were on the safe side of that
calculation,” he says. “And we were wrong.”
WISE-Uranium provides the following information: On Oct. 23, 2006,
Cameco Corporation reported that Cigar Lake mine construction is expected
to be delayed by at least a year after the mine experienced a significant
water inflow following a rock fall and a portion of the underground
development was allowed to fill with water. The incident began on October 22, 2006, in the future production area that previously had been dry.
Cameco later reported that it was unable to contain the water inflow by
closing bulkhead doors and that all underground areas of the Cigar Lake
project are expected to be filled with water.
On Mar. 18, 2007, Cameco announced that production startup is targeted
for 2010, subject to regulatory approval and timely remediation. Total flood
remediation cost is estimated at C$92 million.
On April 3, 2007, Cameco issued a Technical Report on Cigar Lake, including
an updated capital cost estimate and a production forecast that are
considered necessary because of the October 23, 2006 water inflow.
Cameco Corp. said its “deficient” development of the Cigar Lake mine
contributed to a flood that delayed the project by three years and will
double construction costs. Blasting by contract miners was performed with
the wrong equipment and inadequate safeguards, producing a greater
opening in the earth than specified and allowing the mine to flood with
groundwater on Oct. 22, 2006, Cameco said. “Insufficient assessment of the
ongoing development, lack of quality control of the excavation and slow
installation of ground support − when taken together − demonstrate”
Cameco “failed to fully appreciate the degree of risk of developing in less
than ideal ground conditions,” Chief Operating Officer Tim Gitzel said in a
May 2, 2007, letter to federal and provincial nuclear regulators that was
included in the report. (Bloomberg May 4, 2007)
An 20 April 2007 Bloomberg article states:
“Cameco Corp. announced at 2:11 a.m. on Oct. 23 [2006] that its Cigar Lake
uranium mine in northwest Canada had flooded after a “rock fall,”
jeopardizing the world’s richest undeveloped source of nuclear fuel. In the
six months since, Cameco has said little about the circumstances behind a
disaster that will delay production at its $25.5 billion claim for up to three
years. … Canadian government records and interviews with authorities
reveal that blasting by Cameco workers may have triggered the flood at
Cigar Lake and that the company couldn’t control the water because it didn’t
Elliot Blair Smith and Christopher Donville, 20 April
2007, ‘Flood at Canada Uranium Mine Tied to
Cameco Blasting (Update 1)’,fulfil repeated pledges to regulators to install more underground pumps
there. Those promises came after a similar accident at another of its
Saskatchewan mines three years earlier. …
“Previous Accidents: In April 2003, blasting contributed to a flood that
exceeded Cameco’s pumping capacity and almost cost the company its
flagship McArthur River mine, 50 kms southwest of Cigar Lake, according to
a company report filed with the nuclear safety commission. Another flood at
Cigar Lake in April 2006 knocked out a secondary shaft that remains
underwater. A company report on the accident that was due in February
hasn’t been filed with regulators yet. The setbacks are prompting Canadian
regulators to question Cameco’s ability to master the daunting geology of
northern Saskatchewan’s uranium-rich, water-laden Athabasca Basin…
I could go on and on, but you get the idea about the challenges of underground mining Cameco has faced for many years now, due to water. These are sandstone hosted deposits at the conformity and there is just insane amounts of underground water to deal with, both pockets of water and flowing water. It’s a nightmare.
That is precisely why most projects will never go into operations in the Abitibi Basin, unless they want to fork out huge sums of money to do the underground freeze walls like Cameco has done, and it sure seems like the team at CCO/CCJ is fatigued from decades of mining this way… hence the diversification to Kazakhstan and to working with Westinghouse to build nuclear reactors. This is also why many other majors have steered clear of the area for many years — too expensive, specialized knowledge to extract it, and an accident waiting to happen…
In contrast, this is what makes NexGen’s Arrow deposit so important for that whole area, and for global Uranium supply in the future…. It thankfully doesn’t have the underground water to deal with by a stroke of natural luck in the deposit and their sandstone and conformity. This is why it is such a better deposit to invest in than most of the other deposits in the Abitibi Basin.
However, as previously noted, Denison is trying something a bit different in that they are going to deploy ISR in-situ mining at their deposit (where they inject fluids into the porous rock to extract the Uranium in the return pumps). Denison will be the first new company there in the Abitibi to make it into production (outside of Cameco, and even before NexGen’s Arrow deposit). That should give them a premium to other companies, although there are plenty of doubters and haters for some reason… (some legacy Denison haters… and some doubtful that ISR mining will actually work in the Abitibi Basin… because it’s never been tried before). They’ve done test work on the porosity of the rock and sample trial Insitu mining, and to the ire of the haters and doubters, it appears to have worked fine. Now that is a lot different than commercial scale production, and we know there are many things that can go wrong with mining, but I’m willing to take the risk on this one in case it does work.
ISR mining is commonly used to extract Uranium in the USA, and both Energy Fuels, Ur-Energy, and Peninsula Energy have successfully mined uranium this way using fluid injection even up until a few years back. Uranium Energy Corp (UEC) and enCore Energy are also development stage ISR uranium companies that are near-term producers when the pricing gets high enough (high $50’s low $60s and stays there for long-term off-take contracts to be put in place). That is why I like all those companies, and it is generally lower cost and less surface disturbance and more ESG friendly than hard rock deposits with radioactive materials.
Many investors (including some prominent talking head resource pundits and newsletter writers) have shot their mouths off for years about different uranium projects that are likely never going to see the light of day, or dissed on the lower grade US projects that actually have made it to production and/or a reasonable pathway to production. They really don’t know much about uranium mining, the projects, the water issues in the Abitibi, or the which projects work and which ones don’t, and it has always been frustrating to me to hear how many people cover the Uranium, sector. (because most are simply clueless as to the realities).
Quite frankly, many of the people suggesting Uranium stocks have run their course already (which is tragically wrong) don’t even understand the basics of the supply/demand picture, the need for much more production to come on line, the basics of the fuel cycle with mined U308, upgraded UF6, a refined enriched Uranium fuel, nor do they understand underfeeding, how refiners work with both miners and utility companies, or any of the basics on long-term contracts. Their focus on simply spot pricing and lack of understanding on some many other key areas is a clue that they really shouldn’t be giving others advice on the uranium sector or calling it overdone or promoting it with companies that are lost from the get-go.
So many erroneously focus on only the uranium spot price, or like to pontificate on the uranium mining sector based simply on recent stock prices. Many undersell or dismiss the uranium mining stock opportunity, and have for years at their own peril and missed some amazing gains the last few years, but that was true of the Lithium sector for the last few year too (which they are equally as clueless about). Then there are those that are rightfully bullish on the Uranium sector, but then follow the sizzle and nonsense on many corporate presentations, and end up backing the wrong horses and jockeys.
I personally find it very hard to find people that can talk intelligently about the Uranium sector, including a number of guests that come on our show unfortunately. (I often have to bite my tongue or shake my head silently when I hear people pop off about Uranium stocks or fundamentals that don’t really have the bench of knowledge to be making the comments they do). Oh well, that sometimes happens in niche sectors, and again, that has been the case in the Lithium sector too for many years now.
For Uranium expertise, we do bring on the show Justin Huhn from Uranium Insider though, because he actually is incredibly well-informed, and is one of the few experts in the sector, and IS actually worth listening to. He knows his stuff, and I learn things from him all the time.
John Quakes (@quakes99 on Twitter) is another one of the most knowledgeable guys in the investorsphere, and is like an encyclopedia on Uranium and the Nuclear energy sector. He is worth following and listening to on the sector.
The analysts at Red Cloud (like David Talbot) and Sprott (including Rick Rule) actually have a good handle on both Nuclear Energy fundamentals, and Uranium mining stocks and they are good sources of information. Katusa Research is pretty knowledgeable on the U sector as well. Brandon Munro of the Aussie company Bannerman Energy is also an expert on the sector, and occasionally does interview geared at retail investors for institutional funds.
There are a few other sources of good information and few analysts that aren’t as active publicly these days that were good, but overall it’s pretty slim pickings for getting useful information about the sector. Unfortunately most of the people that bring up Uranium or Nuclear energy in passing are just not dialed in on the details and mischaracterize the sector and realities incorrectly all the time.
I’ve been following the sector closely for over 12 years now, and have a basic handle on it enough to separate the wheat from the chaff, but I’m still very much a neophyte learner and I’ve invested hundreds of hours researching the sector. When I want information on Nuclear energy or the Uranium stocks, I now turn to either Justin Huhn, John Quakes, or a select group company executives that work for legitimate Uranium companies, and I pretty much block out most of what everyone else puts forward as their opinions on the sector… because in my experience, very few “get it.”
It’s a complex sector, with many nuances, and much more opaque and multi-faceted than gold or silver or base metals mining investing in contrast. Because of those realities, I tend to stick with the most established companies in the sector that actually are in production, were in past production, or will be in near-term production, and I skip most of the earlier stage companies. That doesn’t mean one can’t make great returns on the exploration juniors or earlier-stage developers, but since after hundreds of hours of study I still can’t discern if many of them are blowing smoke up investors rumps with their claims, I wait for the cream to rise to the top.
There is already so much leverage in the Uranium stocks (because when they move, they really move…) that going with the producers and most advanced developers and near-term producers still offer plenty of torque, and are more of a known quantity and they are most probable to participate in any upside moves in the sector.
I mentioned John Quakes as an expert in Nuclear Energy, the Uranium fuel cycle, and Uranium miners and here is his Twitter thread:
I also mentioned that Justin Huhn is our go-to guy for Nuclear Energy, the Nuclear Fuel cycle, and Uranium Mining stock investing, and here is his Twitter thread:
Ex: Wow. That is more than a wonderful response. That gives me new direction. Thanks for going the extra mile as always.
Absolutely Lakedweller2. Always happy to discuss the Uranium miners and misunderstood nuclear energy sector.
US government is contracting with some uranium producers with US mines to replenish its reserve. So producers with US mines using ISR techniques are favored.
Agreed Terry. Often the Canadian investors, newsletter writers, and resource pundits rip on the US ISR producers as being lower grade and smalker deposits, going on about the higher grades of the dozens of companies that have been exploring around the Athabasca Basin instead in Canada.
However with the exception of the big boys at Caneco, wirh a checkered past of challenges producing at their mines, there have not been any other companies that made it into production yet, unlike the US producers where a handful of companies have in the past.
NexGen is the gem in that area, as highlighted above, but it is nowhere close to production at present. Denison is closest to production compared to any other Athabasca based company, but they are also goung with ISR mining, but it’s untested at the commercial productiob scale thus far. The rest of the Canadian companies are many years away from a producing scenario.
Personally, I’ve done quite well over the last few years holding a number of US developers and smaller producers, and few of them also are dual-listed and can tap into the much larger capital and investor pools in the US. Companues like Energy Fuels, Ur-Energy, Uraniun Energy Corp, and enCore Energy will do just fine in rhe next leg higher in the Uranium bull market.
Dave’s perspective is always welcome, as he always has some pragmatic advice in the PM markets……..
Supply side disruption, whether it’s covid lockdowns, climate action and war on oil, real war, geopolitical sabre rattle-ing…….is all part of the concerted effort to get inflation moving, while claiming it’s accidentally occurring……The developed world debt trap demanded a rework of the DEBT/GDP ratio……..I have raved about this before…………I am also in the camp the Powell et al………..only pretend they want 2 %inflation…….and that 3 to 4 will likely persist for years, under stagflation, to get the sustainable ratio they are looking for……low yielding paper holders will continue getting robbed……
….in this back drop, I have to agree with Dave…..bottom is in, and after a healthy correction………..up we go………..will throw the towel in if proven wrong with loss of the 1800 handle on gold !
We got Ying Yanged between MIF- VRIC – PDAC, OR WE GOT PDACed early today !