I love listening to Don on the shows. One thing I like about him is he’s an ideas guy. Many of the other guys you listen on the shows are fund managers, wall street pros, etc. Don has an IT background like myself and he is an ideas guy. While I could agree with him on 90% of things – guys like this are INTERESTING people because you can further explore idea – and walk through things. He brought up a few things on his interview this morning that I’m writing about over lunch – so this will be relatively brief.
Royalty companies a no-fly zone for him
I agree with him, to an extent, but for different reasons – and for different time periods. In my crystal ball, I see a nice run up until perhaps summer/fall 2023. I see potentially a decent pullback again – perhaps some bigger deflationary worry – and then we get the massive move up to 2026-2030 or so. I feel that the WPM/FNV plays from now until 2023 are solid. Don has said that he thinks that when the metals run, it will be “too” profitable for the streamers and the miners will refuse to sell them the metals at the prices they agreed upon.
I do disagree with him on this 100%. Imagine you are a struggling miner, you get the loan for $50m to build a mine or something, and you AGREE to sell them silver at $4 per ounce for the 9 year mine life. This allows you to mine. Suddenly, it’s $50 silver. When you signed the agreement, it was $24 silver.
See – that miner now is making money hand over fist. While the stream of some of those oz cuts deep, they are STILL HIGHLY PROFITABLE. At issue could be a rising fuel cost cuts into some of those profits. But the thing to remember is when you stuck the shovel into the ground, silver was $24 and you selling back x amount of oz still had you profitable enough to have a construction decision and get financing done. At issue here is – is the streamer TOO profitable? Would existing streams stop paying?
No. And here’s why. At $50 silver, the miner is making stupid profits. I mean just stupid silver profits. Without that loan, they would not have ever been able to mine. However, if I’m looking to build a new mine, what I’m now looking to do is shop around. Maybe WPM gave me terms at $4 silver per oz, but the new Silver Stream Royalty R US – or SSRRU (fictional) is willing to go after your business with a streaming structure that benefits both of you as the price goes up.
Let’s assume that the price of silver came back to $24, and SSRRU approaches me and says, “I want your business. I see the stream on your last deal was $4 per ounce. How about you sign with us, I’ll give you the $50m you need, but I will structure it like this…
- $20-$30 silver, $4 per oz
- $30-$40 silver, $6 per oz
- $40-$50 silver, $8 per oz
- $50+ silver, capped at $10 per oz.
- The LOM is listed at 9 years – min of 50m oz to be paid with a max of 60m in those 9 years. IF mine life is extended through exploration, stream ends at 9 years. IF minimum has not been paid, the contract extends until the minimum is reached. If maximum has been reached in less time, the stream ends.
Now, how does this happen? Competition. I noticed last summer walking the dog listening to all of these YouTube videos that everyone and their brother was starting a streaming company. How do you take business from WPM? You are BOTH offering $50m to the miner – but there may be a bloodbath in these companies offering better and better terms for the miners in order to grow.
What this will do, effectively, is provide healthy competition and in the years ahead, as these mines approach end of life, the streams end. It incentivizes competition amongst the streamers.
Legally – I do not think an Alexco has any ground to stand on. They made a deal. IF they violate that deal, they will most certainly lose in court AND other companies may choose not to do business with them. It would hurt a brand and hurt efforts of future mining – and perhaps significantly increase their cost of capital with lenders jacking up rates in order for them to get credit.
Overall – I think streamers are good, for now, but when you start hearing of a Sandstorm doing things like this, it’s time to begin to move to other streamers who will attempt to take market share from the big boys.
Gold moves on the fear play
While I agree with him on this, to an extent – I think he scores major points in the fear play as a CATALYST for MOVING gold up. He talked about 9/11 as the fear for gold in 2001-2008, then perhaps the GFC for 2009-2011. You can say that the gas crisis and Iran situation in 1979 highly elevated the metals.
If you look at math here, in 1915 a gold coin cost you a $20 bill. Today you need 100 $20 bills to get you a gold coin. That means the value of the dollar lost 99% in the last 100 years. Unfortunately, the fear play has not been 100 years in the making. I do give him props though for calling this to get this to move, however.
When we look at technical drawings like triangles, the symmetrical triangles signal price compression. You have buyers and sellers arm wrestling.
The gold chart looked a lot like the above, except it had a lot of touches on the top and bottom. It lasted for 18 months, and when things move sideways like that for THAT long, you eventually have a catalyst (up or down) that causes capitulation of one or the other. In that case – you may have longs with tight stops, and shorts might need to cover ASAP – and those actions then tend to be magnified on explosive moves that cascade to trip stops further from the point of eruption.
I think ultimately what moves gold has a few things – but what you see is over the last 100 years, it’s been the inflation of currency first and foremost. 100 $20 bills to buy 1 oz tells that story. Next for periodic moves would be the interest rates. You then have periods of time you have gold moving opposite the dollar, then periods it moves in conjunction. Then you have long term risk on/risk off periods, with shorter risk on/risk off. But FEAR can be the catalyst that then moves the sticks.
Miners to moon
This is where I share 100% of Don’s view, and many need to understand the gravity of this. Don said in 2012 or so when he was writing this stuff up he was talking $100 silver. He looks for 5 baggers. Near the end, he talks about majors doing a 10x, perhaps even a 30x. IF a major was doing a 30x, then what would a junior be doing? This is partly how I have FSM on a track for 6-7x from here by summer 2023 IF we see $2500-$3000 gold. That is before we are talking about silly numbers by a 2026.
In a scenario with how this war MIGHT be playing out, many see tanks and all I see is an East versus West currency war playing out.
I believe, like many – and Don mentioned it in his interview – it is highly possible of a commodity-backed crypto, perhaps with gold in it. These countries that are rich with resources have been exploited for years by a Western-backed CME and LME which have driven prices down with paper, whilst these countries produce at cheap prices. IF these countries stopped providing, say, nickel to the LME, what would happen? Exactly what DID happen. Then, you can have a physical based trade with a crypto that the East sponsors. I ask you this…
If you are a country that is neutral and on the fence – and you wanted to sell wheat. Are you selling for paper US dollars or to an Eastern alliance for a currency that is exchangeable for other commodities, such as gold? I think many idea people see the cracks of the paper fiat system now becoming gaping holes, and it is possible the Ukraine invasion was “Pawn to K4” as many of you see these tanks as THE war. I believe obviously there is real conflict and real struggle, but I do not see OCCUPATION of Ukraine as a top objective here.
Once the US used Swift on them, and seized assets – including gold – it signaled to others that world reserve currencies held outside of borders are no longer safe – AND it pushes these bad actors to use another currency between them, and not the USD. By “punishing Russia” we sort of set off a nuke to our own financial system that maybe only a few percent in the world understand.
Don also brought up about how Russia was ahead of the game and had been out of bonds and dollars. He sees it is possible now that China may sell them – or a portion of them – further pushing interest rates up, and with that, Japan could not be left holding the bag and THEY might start selling. I just read early this morning that the Saudis had $180b in bonds and that has been brought down to $100b as they are looking into buying oil with Yuan.
The “majors going 30x” might be a little high, because I think there are a few things likely to happen at THAT stage.
- In poor nations, mines could be nationalized. If you are a gold miner in PNG (Barrick) and gold goes to $20,000 per ounce, I see it possible some general takes it over. But these people are not miners, so they will not run smoothly, and may have all kinds of problems.
- Massive taxing. I see taxes as the ways that countries will reap the benefits of the miners. Let them make a stupid high profit, but get your beak very wet in the process. Assume gold COSTS Newmont $950 to mine, a gold price at $20,000 is silliness and could have them going 30x. But like the streamer above, I could see an increasing tax based on how much you pull out. This still could see a NEM making $4,000 profit per ounce, but the high taxes at that stage may then diminish returns and disincentivize high numbers of ounces. So while the profit per ounce may be high, it’s possible we see drastically less oz mined.
I believe it is possible for mid tiers from here to see 10-30x if we are talking $10,000 gold by 2030. I believe the juniors could then do a 50-100x. This is not hyperbole – and the FEAR trade here will be the catalyst that turns into dollars coming back to our shores, the INFLATION of the money supply here, which then could take gold to $3,000-$5,000 by 2026 and further.
I promised I’d keep this short. Check out Don’s site at goldstockdata.com, I am a subscriber and if I ever want to look up any stock for quick info, he tracks like 900 there.
P.S. I disagree with him on Bitcoin 🙂