A former small cap research analyst looks for value in the Canadian junior mining sector and shares his experiences, thoughts, and rants. The blog is free and for information purposes only, so should not be construed in any way as investment advice.
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Would you rather...
Receive one of the following:
$16,000 US dollars
1,000 ounces of silver
13 ounces of gold
500 pounds of cobalt
5,400 pounds of copper
Whatever your fancy, the valuations are all currently about the same.
The pullback in Bitcoin I noted a week ago, which looked substantial at that time, now looks like a minor blip on the chart. Exponential action!
Was Thursday's high on Bitcoin the top? Probably not. People don't seem to learn, so history repeats itself again and again with bubbles (lots of bubbles documented here). Below is a chart for one of the first documented bubbles, tulip mania. One thing I've learned from bubbles and market crashes is that the decline in price when a bubble pops is typically several times faster than the exponential rise up. So, when the Bitcoin/cryptocurrency bubble pops, it is likely going to be mind blowing! If 20% daily gains and losses are normal for Bitcoin, a sharp selloff is going to look like 40 or 50% in a day. You see, many of the speculators buying Bitcoin now probably acknowledge that this is a bubble and they are betting that they can get out quickly with minimal losses. Usually that is not the case. Something will trigger a gap down, servers will crash, and losses will be staggering for those who jump in too late.
Bitcoin seems to have gained some legitimacy with futures now trading on the CBOE. My view remains that Bitcoin is a bubble that will crash. The only question is when. Tulip bulb prices could not be justified at 10 guilders, yet they went to 60. Bitcoin could well go to $50,000 or even $100,000. All I know is that something unexpected will trigger a sudden and sharp collapse. We will know the top is in when we see a 50% drop. History repeats itself.
While Bitcoin had a stellar week, precious metal and base metal prices took a beating. Who wants tangible assets when you can now get cyber assets? Metals have to be mined and then stored in warehouses. Cryptocurrencies can be "mined" using computers and stored using Blockchain. So what if they are constantly being hacked, waste massive amounts of electricity, and if most of the computing power resides in China and Mongolia?
In classic fashion reminiscent of the dot com craze and marijuana mania, failed mining companies and even a failed biotech are rushing to become Blockchain or cryptocurrency companies. In many cases, all it takes is just the announcement that you intend to get into the sector that can move your stock. And, in some cases like Routemaster Capital (TSXV:RM) and Vogogo (TSXV:VGO), you don't have to mention anything publicly and you claim no material changes while your stock shoots up on volume right after you raise money at low prices. A classic case of "investors" chasing returns, which usually does not pan out.
Call me old school, but I still like metals and mining (and fundamentals). Bitcoin will likely be gone in a decade, but all of our electric, autonomous vehicles will still be using lots of copper, zinc, cobalt, lithium and nickel. I especially like zinc in the short-term, as inventories are hitting critically low levels. I think zinc prices will soon start another run up and if I had any Bitcoins I'd be selling them and buying zinc mining stocks.
Tin is a boring metal. It is used predominantly for solder (yawn!), and for applying a thin, corrosion resistant layer on metal (a.k.a. tin-plating) (double yawn!). Or, so at least I thought.
Recently, Rio Tinto Ventures hired MIT to study which metals would be most impacted by new technologies such as autonomous and electric vehicles, renewable energy, energy storage, and advanced computing and IT. Never in my wildest dreams would I have expected tin to come out at the top of that list, edging out lithium and cobalt.
We've all heard lots of hype about lithium, cobalt, nickel, and even vanadium being the hot metals associated with electric vehicles and batteries. Lithium has lost some of its luster due to Tesla's struggles as well as potential that SQM could flood the lithium market. I still like cobalt due to the supply concentration from the DRC, a hellhole of a country that, ironically, has amazing mineral endowment. But, this is the first time I've seen or heard …
Markets don't like uncertainty because uncertainty equals risk. For this reason and US dollar strength, we've seen metal prices plummet over the past few months. This uncertainty stems from the escalating trade war situation between the US and China, the big fat pig with an insatiable appetite when it comes to metals consumption.
Ironically, despite the recent metal price weakness, large mining companies have never been so eager to acquire large new copper assets. Lundin (TSX: LUN) is still looking to acquire copper assets, after it lost Nevsun (TSX: NSU) to Zijin. BHP (ASX: BHP) just acquired a 6.1% equity stake in SolGold (LSE: SOLG), which is advancing a big copper porphyry discovery in Ecuador.
South32 (ASX: S32) is also looking for copper exposure. South32 already has a $150M JV deal with Trilogy Metals (TSX: TMQ), the base metals spin out from NOVAGOLD (TSX: NG) that has two large copper assets in Alaska that are infrastructure-challenged. The challenge in finding …
Garibaldi (TSXV: GGI) created lots of hype last year by making insinuations that they had discovered a new nickel deposit that could rival Voisey's Bay. Eric Sprott was a believer and validated the story, so lots of investors bought into GGI, resulting in a market cap north of $300 million. An impressive feat given the recent state of the mining sector!
Based on the latest drilling, I congratulate Garibaldi on the birth of baby Voisey. Aww, it's so small and cute! Dr. Peter Lightfoot must be a proud papa.
What this baby is still lacking is some size. The market seems to have clued in on this, when in reality it shouldn't have come as a surprise because this is how exploration typically plays out. Geology is tricky and involves a lot of luck. I've met Dr. Lightfoot and I think he is a very knowledgeable and enthusiastic gentleman. Maybe Nickel Mountain does grow into something big, but it will take lots of time and drilling...and some luck, which factored in lar…