I don’t want you to talk about your assets in terms of the market cap that they might attract, if owned by a competitor. What I’m interested in is what’s the liquidation value of your company, the blow-down value.
Bob Quartermain has been one of the most successful resource sector investors of the last 20 years.
He ran Silver Standard, acquiring silver projects and making discoveries during the precious metals bear markets of the early 90’s and early 2000’s.
Rick Rule was involved in financing the company in 1992 when it was a small company. Its current market cap is around $500 million1.
Mr. Quartermain is now the head of Pretivm Resources, one of the largest resource ‘juniors’ in the world, with an advanced-stage exploration project called the Brucejack mine.
Tekoa Da Silva recently sat down with him to ask for his comments on successfully acquiring and developing new mines, and what he believes investors and resource sector leaders need to do in a tough bear market:
Over the weekend, Sprott’s Tekoa Da Silva sent us a link to a fascinating discussion on gold recorded over 37 years ago. The two panelists were Dennis Karnosky of the St. Louis Fed and “money expert” Merrill Jenkins. This remarkably frank and informative program is certainly worth taking the time to review.
Again, this was recorded at a St. Louis, Missouri television station in 1978, near the height of the inflationary spike caused by the closing of the gold window and the subsequent surge in U.S. government spending.
“The whole precept that printing money is good…that somehow zero interest rates and negative interest rates are good, is totally fallacious…It’s so unimaginable and yet somehow the investment public has bought into it…Things are unstable here…
In less than 10 years we will see physical assets backing currency. Of course, the most likely physical asset is gold.”
Speaking to the abysmal sentiment toward the PM sector, John Embry explained that, “I’ve seen this sort of ‘bearishness at the bottom’ phenomenon many times …There was a really ugly bear period between ’74 and ’76 which I remember really well…”
Further describing that period, John noted, “When [gold] was down to $102, off the high of [near] $200, a lot of people were calling for it to go back to $35 again… in ’76 it turned around and started to move higher and then it just went nuts at the end of the 70s…and got up to $850-$875, which completed about a 25-fold move.”
John emphasizes the belief that this period parallels the mid-70s bull market correction, and when asked about the depth of the current sell-off, noted that, “I don’t think I’ve ever seen, in the 40 plus years I’ve been following the sector, the shares cheaper in relation to the price of bullion as they are now.”
The level of current pricing combined with sentiment, sets up, “An historic opportunity,”
Bonds and stocks are grotesquely overpriced and I think gold and silver and the mining shares in particular are ridiculously underpriced. Those who figure that out when the inflection point [arrives] are going to make a fortune.”
During a time in which sentiment towards natural resources is bordering on doom, Rick Rule, Chairman of Sprott U.S. Holdings was kind enough to share a few comments.
Speaking first toward the phenomenon of market capitulation Rick noted that, “Capitulation is a very dramatic event. It’s when most participants in the market give up completely and simultaneously. They are two or three week periods [of] extraordinary [share price] violence. They’re emotionally driven rather than arithmetically driven events.”
One of the more important utilities of a capitulation according to Rick, is that, “In my experience they have marked definitively the end of long bear markets.”
When asked for a prediction on the gold price, Rick concluded that, “[The fight] is between gold and the U.S. 10 yr. treasury—and I don’t see how over 5 years we can possibly lose that fight.”
Following another few weeks of cascading metals and mining equity prices, Michael Kosowan, Investment Executive and Investment Advisor with Sprott Global Resource Investments and Sprott Private Wealth, was kind enough to share a few comments.
Speaking towards to the psychological challenge resource investors face in this market, Michael noted, “It’s uncomfortable swimming against the tides of uncertainty throughout these markets and the volatility that we experience…the sentiment is just abysmal…[But] therein lies the opportunity.”
Reflecting on the 2000 bottom in natural resources, Michael commented that he witnessed many juniors selling “For less than the cash they were holding. Meanwhile, you were getting the mineral upside, or the mineral potential they contained—for free.” The subsequent recovery produced momentum of “10x and 12x moves on a few of [the] larger caps names,” he further added.
“The market itself is very healthy. You are seeing a transition…a transition that doesn’t suggest, but rather screams that [junior resource issues are] under accumulation—which is a very, very bullish sign.”
Sprott’s Tekoa Da Silva joins The Doc & Eric Dubin on this week’s Metals & Markets from the Sprott Natural Resource Symposium in Vancouver discussing:
- PM futures roller coaster: metals smashed under $1300 and $21 ahead of options expiration, but close week with a strong Friday afternoon rally- is the take-down over?
- Tekoa discusses his journey from PM journalist and pod-caster to Investment Executive at Sprott Global– what he’s learned from the brilliant minds there including Sprott, Rick Rule, and John Embry, and how SD listeners can apply lessons he’s learned at Sprott to their investing
- With the BRICS announcing the $100 billion central banking alternative to the West, Tekoa discusses the death of the US & the dollar as occurring gradually so as not to alarm the boiling lobster: “At some point the lobster will pass away, and be eaten by outside groups!“
- Tekoa reveals how he was able to get the ECB’s Mario Draghi to admit central banks’ gold leasing has been unsuccessful
- From the stunning “Castle in the City” in Vancouver, Tekoa gives an inside update on the Sprott Natural Resource Symposium, and reveals how excited the Sprott team is about the next major bull upleg in the PM and natural resource sector.
The SD Weekly Metals & Markets With Tekoa Da Silva from the Sprott Natural Resource Symposium in Vancouver is below:
The five biggest banks in the United States in 2008, today those banks are bigger. They have a larger percentage of the assets of the banking system. They have much larger derivatives books and if you apply what I use which is complexity theory, to understand the risk in capital markets, you know that when you increase something in scale, the risk does not go up in a linear fashion. It goes up in an exponential fashion so the risk is – the size of the system is greater than ever before and the risk gets exponentially greater than ever before.
So we have a lousy economy. We have massive risk. We have the whole thing getting propped up like money printing by the Fed. This is naturally going to happen except this time, the next time, it will be worse than 2008 because it will be bigger than the Fed.
We have an economic slowdown in emerging economies that is very pronounced and I think some emerging economies may be submerging soon, and have actually significant economic problems. Then the question arises, “Will they continue to buy gold?” Say if there was a recession in China, in the downturn, would people buy gold?
I think if the Chinese economy imploded, it is likely that the currency would begin to weaken, the yuan. Or the government would implement even a devaluation of the yuan. It could be the case. If that were the case, then I think that Chinese individual investors would rather shift some of their money into gold which they can buy in China nowadays than keep their funds in the local currency. So I think that’s actually a trouble in Asia and also geopolitical problems in Asia and in other regions of the world may actually lead to rather higher gold demand.
There have been some very interesting developments in the precious metals markets. BaFin, the German regulator came out & said that the main regulator said that precious metals are manipulated worse than LIBOR and that word “worse” is a very significant word in my mind.
Then when you think about some of the chronology for BaFin, they announced in the middle of November that they were going to investigate the possible fixing of gold prices or manipulating of gold prices on the London gold fix.
On the very next day, Deutsche Bank declined to continue being a member of the fixing of the London bullion market. When you think about what must have happened, my own feeling is that the regulator probably went back to Deutsche Bank having looked at their records and said, “Do you know what your boys in London have been doing here?” And of course the next day they quit the LBMA…
If you think about manipulation, there’s only one reason in my mind that bankers manipulate things. They don’t manipulate them for the bank to make money. They manipulate them for the employees to make bonuses.
The parabolic structure in stocks will collapse. It’s going to take a collapse in the stock market for Yellen to reverse the taper and I think she will not only reverse it, but I think she will double down on QE. Instead of $85 billion a month, we may get $150 billion a month.
The problem is that when a parabolic structure breaks, you can’t put it back together.
The Fed is going to make the same mistake when the bubble and stocks pop. They’re going to follow the same game plan they did in 2008. They’re going to get the same results. Liquidity is going to flow into the commodity markets. It’s going to spike commodity prices which is going to make cost of living expenses for the average person go through the roof, and that collapse is discretionary spending and that will send us down into another recession/depression that I expect will be worse than 2008, and I expect the stock market will fall below 666.
Peter Grandich is known for having donned his “bear-suit” in 1987 right before the largest stock market crash in Wall Street history, as well as in 2007, only months before the 2008 financial crisis.
Now, according to Peter, financial conditions have warranted a return of the “bear-suit,” led by two primary factors—both of which are long-term positive for gold!
“You have to be a buyer when people are non-believers. You have to believe in something based on data that says you’re right when the world will tell you you’re wrong, because when the world says you’re wrong and you’re right, you know that the return will be outsized because no one is there. It’s like buying gold stocks in 2000 which I did to a very large extent. The HUI index was at 35 and it went to over 600. It went up 1700% in eight years. And that’s because everyone was against it. It was like a killing field for an investor to go in and buy things cheap and I really believe it’s kind of a similar opportunity again today.
Once gold starts looking like, ‘Hold it now—maybe that secular bull market wasn’t over?’…All will be forgotten quickly. If the price of gold is $2000 Tekoa, you would not believe what the sentiment will be…They’ll all come in…you will have everyone trying to get through the same door at the same time and it could be quite stunning…stocks will go up multi ten thousands of percent!“
Eric Sprott is making a bet that we’ve reached the capitulation point in precious metals and that the precious metals will pivot sharply higher in the next 12 to 18 months. He rightly points out that by putting sort of $50 million into this bet…he might lose 50% of $50 million or $25 million…or if he is right about the timing of the move in precious metals and the quantum of the move of precious metals, he could easily turn that $50 million into $500 million. A bet where you have one chance of losing half your money and another chance of making 10 times your money to the extent that you can afford to make that bet—that’s how you build businesses like Sprott.
I’ve had the good fortune in my life to know 12, 15, 20 self-made billionaires and what segregates the billionaires, what segregates the people who get that last digit—is guts. You have to take risks…Every billionaire I know has been willing to take bets that were contrary to conventional wisdom at the time that were highly risky. You have to see a situation that you think has outsized possibility of reward and you have to really, really, really swing for the fence.”
Hedge funds smell blood in the water,” and will likely “make sure stops are run below $1179…probably Monday morning.”
“We’ve seen a lot of manipulation in the gold market over the last year & so I expect we’ll probably see one of those middle of the night hits, where they dump a million contracts on the market, so that when traders wake up in the morning their stops are already run…We may have another move, something similar to what happened in April, where the bottom just drops out.
I think we’re probably going to test that 2007 c-wave top at $1030, and that’s the point where I think every short will cover and we will get our final bear market bottom…and that’s the point where you can back up the truck.”
In his latest video update, Tekoa da Silva discusses gold and whether trying to time/capture the bottom perfectly is advised in the wake of a 2+ year correction, and re-examines the fundamentals, which are only growing stronger with every passing month.
Tekoa da Silva’s full update is below:
As hedge funds reduce gold bets to 2007 levels, and Barrick Gold prepares to forward-sell future gold production (halted in 2009 for nearly $6B charge), one might think that all the world’s gold is going “back on the shelf” in terms of both lower prices and greater supply availability. But as widely circulated within the ‘church’ of gold this year, is the story of lower prices and deafening Eastward march of physical inventories.
Here are two updated key charts representing the movement.
The move in gold can be very quick. I’ll give an example; We hit lows in July of this year and then in the month of August, metal prices turned around. The price of gold was going up but the mining stocks just took off. There were gains of 25%, 75%, 100% in the sector in the space of less than 20 days.
It illustrates how we can move from a market that’s operating basically on a no-bid basis where no one wants to buy, to suddenly getting into a space where no one is offering any stock and prices are forced up as a result of that. I’m quite convinced we’re going to see that again in the not too distant future, and that’s what makes it exciting in this space.”
Investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth. The Fed, the BOJ (certainly), the ECB and the BOE are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high quality assets.
When we’re in an up-cycle, people can never see a reason why it’s going to go down but it always does. When we’re in a down-cycle, people can never see a reason why it will go up, but it [always] does.
This has been a good cycle. 2013 is the first year in a while that we’ve had a down-cycle in the gold price and of course, people are ready to bail out. So we’ve had a pretty good run but I don’t think it’s over yet.”
In order to operate successfully as a miner, ”You have to be able to survive the lows in order to reap the benefit of the highs.”