Weekly Wrap Up

Phony Numbers and Criminal Bankers. Have We Reached Peak Insanity? - Weekly Wrap-Up (December 06, 2019)

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December 06, 2019

Season’s greetings! The Weekly Wrap-Up returns with an extra-long edition to catch you up on all the gold and silver news you missed over the Thanksgiving break. Host Craig Hemke and our very own Eric Sprott take a deep dive into the latest economic news, including:

  • Why you should be like Poland.
  • The criminal enterprise “feasting” on investors.
  • Plus: Eric answers your listener-submitted questions

“I’ve said so many times it makes me sick: I don’t believe the numbers anyway. I just look around at the economic malfunction. You know, banks announcing layoffs. The car companies, production’s lousy. The industrial production indexes are weak. The softness around the world is incredible, OK? It’s not just in the United States. The German industrial production was down sharply again in November. Obviously, the Chinese are suffering from this trade war, as are the Americans. But somehow it doesn’t seem to show up in the jobs number. But we have to live through these things. And, of course, the favorite thing is: Knock gold down. ”

Craig: Well, season's greetings from everyone at Sprott Money News and sprottmoney.com. It's time for your weekly wrap-up. It's Friday, December 6, 2019. I'm your host Craig Hemke and joining us again this morning, Mr Eric Sprott himself. Mr. Sprott, good morning.

Eric: Hey Craig, good to be back. You know, it's too bad we missed last week because there was a lot of stuff going on, so we'll have a little catching up to do here.

Craig: That is for certain. There is a lot of stuff going on. There's a lot of shopping going on man. And I just want to remind everybody, sprottmoney.com is your one-stop shopping spot for all of your holiday gift needs. Remember we've got our holiday gift guide that you can find on sprottmoney.com. And here's an idea for a little stocking stuffer. You can buy 10 Sprott gold wafers, wafers, how I like to say wafers, a Monty Python thing. If you buy 10 of these gold wafers, you get 2 of them for free. That's 20%.

Each wafer contains one-tenth of a gram of gold on a beautiful background that reflects the Canadian national symbol of the maple leaf. You can find the gold wafers and other great deals in the holiday gift guide. Just go to sprottmoney.com to take a look at the guide. Of course, you can always just call us, 888-861-0775. Eric, speaking of wafers, if you can just eat one more, you'll explode. And we had to eat one more BLS, BS jobs report in the U.S. today. Let's just start there. Have we reached peak insanity, peak make-believe numbers with this thing, 266,000?

Eric: Well, it's hard to believe that the ADP would come up with 65,000 on Wednesday for private sector employment, and we got 266 from the BLS. So, you know, I've said so many times it makes me sick, I don't believe the numbers anyway. I just look around at the economic malfunction and, you know, banks announcing layoffs and the car companies productions lousy, the industrial production indexes are weak. The softness around the world is incredible. Okay? It's not just in the United States with the German industrial production was down sharply again in November.

Obviously, the Chinese are suffering from this trade war, as are the Americans but somehow it doesn't seem to show up in the jobs number. But, you know, we have to live through these things. And of course, the favorite thing is, you know, knock gold down and, you know, theoretically, the market should be weak on this. But you know what? It's not weak for some reason. It's the perfect world where stocks go up whether the jobs are bad or jobs are good. But it tells you a little about, you know, how uncooperative or unrealistic the stock market is. No matter what the data, it seems totally benign to anyone investing in stock. So...

Craig: Yeah. I saw a thing where since October, well, obviously the stock market goes up with the Fed and the liquidity and the cash they're pumping. But since October, it's gone up 12% on a bunch of trade war positive tweets, then it goes down 1% on one negative tweet. So they got that going for him too. I do want to ask you though, about the Fed, the balance sheet is now back up over 4 trillion, completely reversing any quantitative tightening they were alleged to have done this year. But that's not QE, Eric. So don't worry about it.

Eric: Yeah, not QE. It keeps getting bigger. The repo thing keeps getting bigger. The concern in the financial community keeps getting bigger and we really don't know what's going on. For some reason, none of us know, including you and I really, we all have suspicions of what's happening but we don't really know because when things are tough in the financial area, no one ever talks about it until years later, of course. And then we all know what happened. But anyway, it's kind of bizarre that things are, that the Fed has to put that much support out these days.

Craig: Every single day, going back to September, yup, just to kind of keep the beast tranquilized. Eric, I do want to talk about sovereign demand. Great story last week about Poland, Poland announcing...a couple of months ago, they bought a hundred metric tons of gold and then they immediately repatriated it. Good for them. I mean, that's what I would do. They took immediate delivery, just like we always say.

Eric: Yeah. And then there's more people positioning for delivery in sort of more Eastern European countries that, I forget which guy it was, but some guy said, "Well, there's no reason to trust anybody. If you own gold in London, you should bring it home." So, and of course, I couldn't agree more because when you look at what's going on in the Comex, and the fact that no gold ever gets delivered, and yet as you and I have discussed, we get so many thousands of tons that seemingly go over to London to be settled, which are who knows what happens, just goes up into the ether, and then there are never any deliveries. You know, the inventory never seems to change at the Comex and it just looks like it's, you know, somebody's paper machinations of...that we're theoretically trading for some reason, but nothing ever happens physically.

So, it's good to see some of those central banks taking their gold home. It was very good to see that India in the month of November imported 70 tons. And, you know, the thing that sickens me about that, and I've never mentioned this before, every time I read about what's going on in India, and by the way, I check India fairly often, weak, weak, weak, weak. Bang, 70 tons, strong. Like, who are these guys are reporting about the demand in India all month long when they ended up having a great month? I mean, that's 840 tons annualized for God's sake. So it was a very good number.

Craig: Absolutely. And again, all part of the demand to continue to, like you said, not trust what the bankers are doing. I think it just kind of seems gradually people are getting the word out. You know, we always say buy gold and take delivery. And it seems like that is, more and more people are catching on here as we move into 2020.

Eric: Yeah. Oh by the way, now you mentioned just before this call that three more JP Morgan traders were charged with manipulating metals over in London.

Craig: Yeah. That brings the total of nine.

Eric: Nine. And the words you mentioned, I haven't read this yet because I guess it came out this morning, you know, that this was something that went on for years. And, of course, we might be getting to the big thing, you know, controlling the price of precious metals for years. In other words, I don't think they're talking about spoofing anymore. This is a criminal enterprise that was just feasting off of investors by manipulating the price of gold up and down and always the banks being on the right side of the trade. And they would do it effectively in options, they'd do it in the futures, they'd do it in the share prices. And, you know, it was just like a payday all the time. And I hope that someone gets to the bottom of this because it just reeks of that when we see what goes on in markets every day.

Craig: The line that I saw, presumably from the press release announcing the three additional indictments, was it was referred to as being a massive multi-year scheme to defraud. Okay.

Eric: There you go.

Craig: There you go.

Eric: That sounds pretty serious, doesn't it?

Craig: Well, and to remind people that one of the people caught up in this is this Michael Nowak, who was the head of global precious metal trading for JP Morgan and a member of the board of directors of the LBMA in London. So, I mean, we're talking, I mean, this is not just like a couple of guys sitting at their desk.

Eric: Yeah. Massive multi-year, yeah. To defraud the public. Exactly what it is.

Craig: That's exactly what it is.

Eric: Somebody is going to have to pay for this.

Craig: Let's hope so. All right. Let's move on. Anything else? Let me just ask you this. Anything else on your mind? It has been two weeks since we spoke.

Eric: Well, I don't think there is much. Oh, well there's some discussion of, you know, a whale being involved in gold and silver here, just by the flow of contracts. Now it's not something where I pretend to be an expert. I mean, I watch it and I hear people talking about it. But, you know, there's some suggestion that there's some forces at work here that are accumulating gold and silver. So, we'll see how that battle plays out. I tend to give it some credence here, just based on what we've seen so far. And, of course, the open interest keeps going up and it's incredible what happens there. Anyway, I think the markets are looking better. I mean, yes, we have to put up with this, you know, one-day fantasy stuff with the jobs thing but that too shall pass.

Craig: Yeah. All right. I have another long list of companies that folks have sent in that we'd like your opinion on. And so, I might as well just work in now, Eric and I are going to try to find time over the next couple of weeks to record an Ask The Expert segment, which regular listeners will know that once a month, one of the things we do at Sprott Money is we have an expert. Last month we had Brent Cook, who himself is a mining expert and an economic geologist. And if you haven't had a chance to listen to that yet, you should. You go to sprottmoney.com, check the insights tab and click down, you'll see Ask The Expert. You'll hear the presentation from Brent Cook, the month before was Nomi Prins. And for this month, it'll be Eric Sprott. And what we'll do is we'll try to go through as many of these names as we can.

If Eric doesn't have an opinion, we'll just tell you. But we want you to know that we do get your emails, we do get your names, and we just have time constraints many weeks. We can't get into them all. So, please submit your names to us, submissions@sprottmoney.com is the email address. Of course, you can tweet them at us as well and we'll try to get to them sometime in the next couple of weeks. For today though, Eric, I know a lot of folks are dying to hear an update from you, and we'll get your thoughts on the acquisition of Detour Gold by Kirkland Lake. I'll just let you take it from there.

Eric: Okay. First of all, one other data point I didn't mention. You wouldn't know this, but we also have a jobs number in Canada for the month of November. We lost 71,000 jobs.

Craig: Yeah, of course. Yeah. Okay.

Eric: But then again, we have totally different parameters. You know, we don't have consumers like you do.

Craig: And honestly with that?

Eric: Okay. So, here's when I, first of all, I actually gave an interview to a Globe and Mail reporter yesterday saying I would vote in favor of the merger. I've had a lot of time to review Detour and I want to point out a few what I call big deltas, macro deltas, things that are changing at Detour, which was the reason and the support for buying that company. And first things I would say are this. In the third quarter, Detour produced 137,000 ounces. In the month of, no, October, they produced 60,000.

That's 180 annualized in the quarter, way up from 137. They are pushing up against their 75,000 tons per day of processed ore limit. They're not allowed to ever go over it. And they're going to make an application to go to 90,000. Well, you know what? Seventy five, 90. That's a 20% increase. Yeah. Okay, 20%. So, let's imagine that the 60,000 a month is 720 a year, which is higher than the 600 they're looking at. We're going to add 20% to that. Now, we're going to add another 140,000. I've just banged on 165, sorry, 260,000 ounces to their potential production. Okay? They also mention that they hope to get 75 to 100 million of synergies. The mine ore grade, the reconciliation of ore that they expected to have in particular places is running 21% higher than they expected. Now, that would affect the future reserve calculation more than anything else, but it also suggests you might have 21% more years of ore to process.

Another interesting thing is that the reserve grade as defined is 50% higher than what they're mining right now. Well, let's think now. Fifty percent on top of the 60, that's another 300. Oh my God. You could have a pretty interesting story here. We also have the exploration side of it. It's a huge property. It's like a thousand square kilometers. It's on the Sunday Lake deformation zone, which is the same zone that Walbridge is on, and we'll try to connect that a little later on. So, it's a very prospective area. They actually have some subsidiary deposits. There's one called 58 North that's got about five grand material versus the approximate one gram material of the existing mine. So, they only spent seven million on exploration. I think Kirkland spent probably 120 million on exploration this year. And that's because they were hanging on all the time between, you know, the shareholders that were always upset with them and the low price of gold, this company was just hanging on.

It's one of these things where, you know, all of a sudden the price of gold goes up, a partner with money in his jeans comes along and things can change very, very dramatically. And I think Tony has been in the news suggesting that he thinks he can get them to 900,000 tons a year, sorry, 900,000 ounces a year from 600,000. And that the cost could go down to a to $800, something like that. So, this company could earn half a billion dollars on top of the roughly whatever, 600 million that Kirkland makes. I think Kirkland at 600 million is about the 47th largest profitable company in Canada. If you add another 500, they're going to go into the low 30s, which is a statement about how significant Kirkland Lake gold is.

So, I think the acquisition will be very helpful. One of the nice things though with the acquisition, your buying of a share is okay. From day one it's cash positive, like the money's pouring in. You didn't use any money to buy this. So it's going to be very constructive and might very well lead to a company that can pay very significant dividends. I hope it does. Okay? So, that's about it on Detour. I should comment about Walbridge.

Craig: Please.

Eric: Because they announced that hole, what was it, 96, 230 meters below the previous lowest contact in the lower Tabasco zone encountered 16 meters of visible gold with abundant sulfides. And they further revise hole 86, which was the hole, up hole, they'd said it was 48 meters of 22 grams, not 38 meters of 27, but they also characterized the two subsections in there. And one was 9.8 meters of 34 grams and another was 23 of 32 grams. This is a one-ounce material.

So now we have, just in the Tabasco, lower Tabasco, we have 400 meters of vertical strike. We got 200 meters, sorry, of vertical depth. We've got 200 meters of strike and I'm going to say we've got 20 meters of thickness. It could well be more, it might be less, but, you know, we know there's at least a 48 or 33 if you want to use just the high grade stuff. Anyway, that can result in 4.3 million tons. Now, what grade are we going to put on it? We put half an ounce on it, it's 2.1 million ounces and these will be 2.1 million of very valuable ounces, not one gram ounces. That would be 16-gram ounces.

So, it's very good. They're going to drill deeper. I think they're going to drill along strike here. And it's interesting when you only have 200 meters of strike but you know it's got a thousand meters of strike on surface, oh my God. Every 100 meters of extra strike increases it by 50%. So, you know, I think they're going to drill out 200 or 300 meters along strike here. And if they ever hit this thing, it just explodes in size. And again, I reiterate, the value of the gold is incredible. This is not gold you get to buy for $100 an ounce when your profit margin is probably $1000. Okay? And you can get to it in a hurry. So, I think it looks great. I should talk about the private placement. There's a $42 million private placement.

I was not a part of the private placement. I would've liked to have been part of the private placement. But I do believe that it was more done to accommodate the strategic partners, and I believe the strategic partners are some sort of government money in Quebec, government-run pension money where the province wanted to be involved. And I think they will all figure out that there is a major mining company has probably bought in for just under 10%, which I guess endorses the whole project. And then, of course, funds them all for next year. So, the stock's been acting wonderfully. I think it's significantly undervalued. People just can't adjust fast enough to how this thing is changing in size and grade here. But it looks great.

Craig: Could you touch on Balmoral a little bit? Balmoral.

Eric: Sure. Balmoral reported nine holes. Now, unfortunately, I haven't really got anybody geologically to explain to me the significance of where they drilled. I mean, I look at it, I see it. But the last nine holes would seem to be concentrated on something that they call the Ripley zone. And unfortunately, the results weren't stunning. There were some small intersections of high grade, but it's hard to build tonnage when you got one-meter intersection. You need thick intersections like our friends at Walbridge are encountering. So, you know, I would call the results disappointing. But nonetheless, Walbridge is interesting because it basically surrounds Fenelon. They have a lot of property going all the way back over to the Detour Lake, which is, of course, on the Sunday Lake deformation zone.

So, if this Sunday Lake deformation zone starts to prove that it's a significant, has a significant endowment of gold all the way throughout it, and here we have it, one in low grade, at the other end high-grade at Walbridge, and who knows? Maybe even at Detour when you get down lower, you'll find the high grade, which is very likely. It's hard to imagine that there's 20 million ounces sitting on the surface that all came from somewhere down below that it's not better endowed down below. So, I think Balmoral has wonderful properties. They've had some great intersections before. I mean, they've had some very, very high-grade thick intersections that they never seem to be able to string together. But it just shows that this neck of the woods is a wonderful place to find gold.

Craig: Yeah. Eric, before I wrap up, I just wanted to check if there's anything else you wanted to cover this week?

Eric: Not much else. I mean, the only thing that was newsworthy is Continental Gold. There's a bid for Continental Gold by Zijin Mining, at 550 a share. It looks like it's trading as though the bid will go forward. I'm probably, I'm a shareholder and sort of a significant shareholder, a little disappointed that they sold out or committed to sell just to serve out to go into production because I think it is a very good ore but I don't think it'll be a very profitable mine. And we are not going to get to see that, I guess. So anyway, I'll be tendering to the bid.

Craig: Fun to see some M&A though. You know, I mean, this is the kind of thing we've been talking about.

Eric: Yeah, there's serious action going on here, you know. And the fact that, for example, that the Walbridge can get 42 million. Normally, you have to put a warrant in there to entice speculative buyers. Well, these aren't speculative buyers. These are industry buyers and they knew the project was great. And they were quite prepared to buy it without a warrant. And it's a long-term investment for them, of course.

Craig: Yeah. And noteworthy as you would, as you pointed out. All right. Again, we're going to wrap up here. I want to remind everybody though, again, we appreciate the names you send in every week. We will try to get to them with a special couple of Ask The Expert segments later on this month. So, please keep sending them. You can send them to submissions@sprottmoney.com. And also, go to sprottmoney.com, check out the holiday gift guide catalog. Yeah, it's your one-stop shop. If you want to either get some metal for yourself or to start somebody on the value of stacking physical precious metal, again, go to sprottmoney.com and check it out. Eric, thank you again for your time, and I hope you have a great weekend.

Eric: Thank you, Craig. All the best to you too.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thank you for listening. We'll talk to you again next Friday.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.