Dave Erfle – Lots Of Recent Bad News For Resource Stocks, Here’s How Dave Is Trading It All
We all know that on top of the overall bear market there has been some pretty negative news out of resources stocks over this past year. Cost overruns, mine pauses and now the sanctions put on mining companies in Nicaragua. This flood of negative news has come as a surprise to many investors and pushed the stocks most impacted.
Dave Erfle, Founder of The Junior Miner Junky joins us to share his trading strategy around some of these negative news events. We focus mostly on the Nicaragua sanctions but also look to some of the cost issues development companies have reported.
Click here to follow along with Dave’s resource stock investment at The Junior Miner Junky website.
GDX:Dow has a small head and shoulders that is arguably at the neckline today and looks 100% poised to trigger by end of day or next week.
That’s not good. The 2016 and 2018 lows are surely about to be tested if not broken.
Maybe this will mark a capitulation event that reverses the miners. Or not. All the pain and frustration goldbugs have suffered the last decade coming into clear focus.
Silver’s h&s still alive and well. A break of $18 means a projection down to about $15.
While gold doesn’t have a true H&S since its missing a left shoulder, at price lows you can actually see this formation behave just a like a regular H&S. Basically if $1620 gets broken (and come on, it just too tempting of a target now and the daily chart looks poised for it), the projection lower would be to the upper $1400s.
Green forget the gold sector stocks compared to everything else you so well describe.
All that matters for gold bugs buying the stuff in an near two year downtrend, is brixton, a very talked about go to stock, and it not breaking low at 11 pennies, and hopefully surging above recent 19 pennies and we’re off to the races. With an unprecedent volume of 15k shares today.
Well I am one of those that is bullish on Brixton based on nothing more than chart analogs that displayed eerily similar long term bottoming patterns that resolve in massive, nearly straight line upward moves.
But even as a bull I could see Brixton making a marginally lower low (if not a bit worse) coming up in the next few weeks, which could be part of a larger capitulation across the sector.
And at this point, I am just “hopeful” that a major turn is coming, because there is literally no other reason to think the miners can go up for anything more than a technical or countertrend bounce (which I admit could be very large–I keep mentioning the 100 WMAs as relevant targets).
Hopefully Joe will now show up with his usual SELL SELL SELL.
It’s funny how you try to diminish Brixton with talk of “pennies” and low volume when the facts are objectively bullish. It is 50% above its low after correcting from 77% above its low and all the big UP days came with by far the biggest volumes. Down or flat days like today routinely have about one-fortieth the volume which is nothing but a good thing.
https://stockcharts.com/h-sc/ui?s=BBB.V&p=D&yr=1&mn=1&dy=0&id=p15622496831
I was looking at the US sanctions on “gold” in Nicaragua. Appears they don’t want the Gov of Nicaragua to be supported by proceeds from gold mining. Do they grow bananas or coffee or Maple Syrup. It begs the question as to why only Gold …. Until you get to the part about freezing assets under US control. That begs the question of does the US hold any Nicaraguan Gold. Which begs the question if we do have Nicaraguan Gold, is it still available or has the US rehypothecated it 100 times over. I wonder if Nicaragua asked for their gold/assets back and the banks somehow misplaced them????
Maybe we should have an audit of US Gold Holdings
From the general discussions I’ve had with folks, they had targeted the gold mining because Calibre’s operations and taxes to Nicaragua represent somewhere close to 4% of the country’s GDP, and Mako is nearly an additional 1%, so gold mining is like 5% of national GDP.
That should also underscore how important those 2 companies are in providing good paying jobs for the people in their local communities Disrupting the few foreign run Canadian companies providing the locals opportunity and their daily bread is not helping the “poor oppressed people” that the US claims it wants to help rescue from their strongman leader. Like normal, the US intervening will only make things worse.
This is the standard playbook of politics instead of reason, and they are just targeting extractive industries to try and disrupt the tax flows to Ortega. Of course, they don’t think it through or if they have, then they show no compassion for the local communities that need those operations humming along for jobs, training, and so many side benefits of the companies operating there and bringing capital into the region.
If they push so hard that these operations get impeded, then many of those employed workers, that lose their jobs, will leave Nicaragua on caravans up to find work elsewhere and some will likely cross US borders becoming our tax liability. I’m sure the current administration would be fine with that though, as their idiocy knows no limits.
It’s just mind-numbing to watch some of these policies play out and hurt people on both sides, without achieving the stated goals. We saw this on display the last 2 years in the energy sector when all the green initiatives and black-listing of fossil fuels for years, and killing of pipelines, blew up in the face of Western nations politicians, and only hurt the citizens of so many countries with higher energy prices. We saw it with the Russian sanctions only escalating inflation higher on so many raw commodities and food, while giving them better prices to export into. We’ll also see the same thing with the recent sanctions against Chinese semi-conductor companies and key personnel, when it backfires and creates even more supply chain disruptions for tech companies, and could possibly escalate their actions to retake Taiwan (which makes up 85% of the semi-conductor manufacturing). What a mess…
Now – back to Calibre in specific (and in sympathy Mako Mining)… so far there is not an impact to their operations based on these sanctions, and thus, CXB has rallied back over 30% in the last 2 trading sessions.
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(CXB) (CXBMF) Calibre Provides Update and Confirms no Material Impact on Operations
27 Oct 2022
“…following discussions with its advisors relating to the sanctions imposed on the Nicaraguan General Directorate of Mines by the United States Treasury Department on October 24, 2022 (the “Sanctions”) and an internal review of its current and future planned operations, the Company confirms that the Sanctions do not have a material impact on its Nicaraguan operations. The Libertad and Limon complexes are operating to plan, and the Company is on track to meet our 2022 consolidated annual production guidance of 220,000 – 235,000 ounces gold.”
https://ceo.ca/@globenewswire/calibre-provides-update-and-confirms-no-material-impact
And then some more icing on the cake… how about this positive permitting news that synchronistically broke today. It’s a shame this sanctioning charade cast a negative light on a company like Calibre that is continuing to outwork and overachieve almost all their mid-tier gold producing peers. They are one of the few companies I follow that consistently hit or exceed their production guidance, achieve development milestones regularly on time and under budget, and have just been killing it with the drill bit at multiple projects, showing 99% of the companies out there what exploration success looks like.
They’ve already moved 3 spokes into their hub over the last few years, and here comes spoke #4 – Eastern Borosi.
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(CXB) (CXBMF) Calibre Receives Environmental Approval for Development and Operation of the High-Grade Eastern Borosi Gold Project, and Achieves Zero Scope-2 CO2e Emissions in Nicaragua
28 Oct 2022
https://ceo.ca/@globenewswire/calibre-receives-environmental-approval-for-development
Ex:
Good arguments and info. Thanks. Every time I see some political action that appears to hurt people, I assume it helps the Banks or Corporations in some way. Probably Nicaragua is not part of the Western Central Banking Cartel.
Thanks Lakedweller2. No Nicaragua is definitely not “in” with the Western Banking Cartel, as a more rogue nation. To be clear, I have no love for Ortega or some of the bad stuff he’s done, but this is clearly a politically motivated stint regarding the US sanctions, because he gave them the middle finger on the last few years of directives they tried to lay on Nicaragua.
It’s just unfortunate to try and hit the 2 gold mining companies that are doing good work operationally and on the exploration front, providing jobs, roads, medicine, training & skill sets, and helping their local communities, in a back-handed way of trying to hurt Ortega financially since they are such a big component to GDP. It screws over the locals so that the US can force their will upon yet another country… As is often the case with “do-gooders” in life, convinced they have the high-ground through their rose-colored glasses, they feel their means justify the ends, regardless of the reality that it usually makes things worse.
Hi Ex, I don’t think you can compare the deliberate actions of The US as “do-gooders”, with rose colored glasses, they know exactly what they are trying to do, and it doesn’t include being do-gooders, as you suggest. The US has always been aggressive and mean spirited since the end of The Second World War. The Nicaraguan’s already have it bad enough without being screwed over. DT
Yeah, agreed. I only meant they will package up their actions and message to the media that they are doing this for good of the Nicaraguan people, and for the world at large due to Ortega’s actions, when nothing could be further from the case.
It’s not unlike many other interventionist episodes that we’ve seen over the years, that always are branded as imperatives for global democracy or for world stability and trade, and all these things do is further screw things up and blow tons of money causing more strife and division. There are plenty of examples over the last 6-7 decades as you point out.
Shades of Gaddafi and preemptive strikes. Sounds more and more about Central Banking and Gold.
We probably get more refugees from Venezuela escaping from poverty and violence than Nicaragua.
But we also get oil. Who is running the Show in US? Goldman & Exxon?
Anyone care to give an educated comment on Pure Gold Mining since it put the mine on care and maintenance this week ?
Is it possible for shareholders value to go to zero even though the experienced Mark O’Dea is running the show there ?
Am I too naïve in thinking that the financiers could not take everything and leave zero for shareholders?
Thank you !
B, the name of the game is diversification, in case you are new to the playing field, and you are not, the head cheerleader is Ben Dover. LOL! DT😀
I have no knowledge to help you out but the situation is not good. There are many options available but the environment of inflation of expenses with price suspension is not a good thing either. Warrants are up around .18 and that isn’t going to happen. Possibly The Fed could waffle the wrong way or things in the metals market could actually become positive. In any event they have $2 mil cash vs $13 mil in debt or something like that. The math has to change. There is more to it as some are secured creditors and some not etc…Maybe go to ceo.ca Pure Gold site and maybe that will help some. I don’t know much that retail can do to alter the situation or protect themselves at this point. Care and maintenance does not sound like continued production will offset the costs. ????
With regards to Pure Gold there are a few different paths forward:
1) Bankruptcy / Insolvency – Shareholders get nothing – It’s happened before with both Sage Gold and Red Eagle Mining.
2) Takeover by “white knight” company that would have to pay off the debt and take over the mine. Shareholders get pummeled at a 40% higher share-price than current price, but at least have shares in new company to keep journeying.
3) Dilutive financial restructuring – company survives but there is extreme dilution where current shareholders are still pummeled. It’s possible they go into credit protection for months or even a year as we’ve seen previously with other companies in this scenario.
4) New strategic shareholder – Injects capital into project to deal with debt, but reduces down investors share in ownership of the company – so a different version of dilution, but could be the best outcome of these variants.
Elon Musk could buy it with .0001 of his net worth
B, the market clearly expects PGM to go to zero. The last press release paints a dire situation and it looks like Sprott will end up with the assets.
Thanks for your opinions but the situation is not that there is no gold there.
Pure Gold mining has a producing mine of 9,000 oz last quarter. just getting a multi year mine life started with lots of exploration remaining, maybe thehighest gold grade in Canada , a fully built mine, $118M in debt, they just needed that $40M from the 18 cents warrants to get to self sustaining production.
I don’t understand how there will be zero shareholder value once the debtors are made whole.
Seems like they need an a angel investor to give then $50M cash and problem solved and shares are slowly back to 10 cents?
How can shares go to zero and then forget about a producing gold mine?
Mark O’Dea appears to be a very competent professional and probably has access to high net worth individuals ?
Some good points B, and yes Mark O’Dea has been serially successful in the past with selling True Gold, Frontier Gold, being a Director of NexGen during the growing years, and initially 4 solid companies in the stable of his Oxygen Group Capital.
However, aside from Discovery Silver, the other 3 Oxygen companies have struggled. Liberty Gold has 2 great projects, but it’s shareprice has been decimated over the last 2 years. Sun Metals was a flop, and eventually merged with Serengetti to form NorthWest Copper, but it has been lifeless.
With Pure Gold, there was fantastic exploration work done, then a great period of value creation as a developer during the “Golden Runway” into first gold pour in Dec of 2020. However there have been a series of problems their team failed to execute on after going into production, and Darrin was the wrong choice as CEO (he knew geology but not operations), and shouldn’t have been the one at the helm for a producing company. This caused Mark to have to recently come in as CEO, and I’ve got far more confidence in him to find a solution, but at this point the value has been destroyed.
Above I laid out 4 potential paths forward, and only one of them resulted in shareholders getting 0, and was insolvency/bankruptcy. The other 3 scenarios offered a way for investors to escape with some of their capital, but even if a white night company or investor comes in, it will not make 99% of investors anywhere close to whole. I was rooting for a key strategic investor to come in and take partial ownership, or a flat out takeover, as those would be the best outcome… but overall PGM became another black eye for the mining sector. I am hoping for the project’s sake and for investors that they can still get capital in one form and save some of their capital, but the stock still could zero out if a solution is not found.
Re: “How can shares go to zero and then forget about a producing gold mine?”
Bad management (incompetence and/or criminality) is the main reason PGM can go to zero.
There’s nothing like poorly managed debt to destroy businesses, households and individuals. Of course in mine development mother nature can throw mean curve balls too. I don’t know how much that applies to PGM’s situation since I quit following it years ago but poor management is still the number one cause of its problems.
Agreed Matthew. In this case Pure Gold excelled as an explorer, then really shined and did fantastic as a developer until first gold pour in mid December 2020, but then belly-flopped into the pool as new producers. They failed to get escape velocity as a new producer due to over-break issues (with too much waste rock for the first 2 quarters), so grade put through the mill was nowhere close to as projected, and then they had a series of teething issues, water issues, mining strategy issues, not enough stopes, and other challenges. By the time the team was cleared out and replaced it was far too late, the market punished the stock, the warrants the company expected to come in to fund things were underwater, and they ran out of capital just as things were recently turning up…. a day late and more than a dollar short.
It’s a sad story of the wrong management team being in place to guide operations once they moved into being a producer, and if Mark O’Dea had the been the CEO and assembled the right team from the get go, their trajectory could have been much different.
What is really a shame is that they were hitting it out of the park exploring at depth in that “8 Zone” with bonanza high-grade intercepts, and that could have been a bright future for the mine. Maybe it still can be if a strategic partner comes in, or if a different company takes it over, or buys it off the creditors. What made the Red Lake Mine next door such a huge success for Gold Corp, was when they hit similar bonanza high-grade at depth, just like what Pure Gold was seeing in that 8 Zone. Unfortunately PGM ran out of runway with their capital and never got true lift off at their mining operations. We’ve seen this happen to other companies before, and we’ll see it again.
Thank you again for educating me.
I agree with all the past issues you highlighted.
The question is , what will happen the stock price when they announce whatever solution they come up with, be it additional dilution, Sprott financing , angel investor, another financing, or a takeover.
I agree that it will take a long time for the stock to go to $1.00 but why won’t the stock go to 10 cents on the announcement (a 7 bagger from current price)
I cant’ see Mark O’Dea accepting a 100% loss on his 17 million shares.
Won’t the stock price sooner go to 10 cents than to zero or worst case remain at it’s current price until production gets up to speed again ?
Isn’t the current price of 1 1/2 cents greatly undervalued?
Is my reasoning just too naïve to mining investing?
Elon Musk is a South African/Canadian so he certainly is well aware of precious metals. He’s also an engineer so he could probably figure out what is wrong with that company and sort it out quickly.
No doubt he’s got a substantial stash of Krugerands and Maple Leafs somewhere along with some big bars. He’d love to be making his own gold coins with his smiling face on one side.
B it very well could go to $.10 quickly on the news of some solution from an angel investor, but it could also languish snd go to a fraction of a penny over time, or $0. We’ve seen that before.
More likely, if there is a financial restructuring, they’ll roll the shares back in a consolidation which could result in a lower number of shares, and then the slow climb out of the hole it’s in.
Excelsior, thanks for your advice and this will be my last question to bother you on Pure Gold topic.
Please explain exactly a possible scenario how it could go to zero and I am asking this as an investor relatively new to the mining space?
Exactly how can a bankruptcy/consolidation/takeover/dilution result in the share price going to absolute zero with a Sprott, O’Dea, Anglogold Ashanti etc. owning many millions of shares and bought in at much higher prices? These heavy hitter fat cats are extremely motivated to make sure their share price does not go to zero in this potential 10M+ oz gold mine.
Granted, it is a disaster for the previous investors who bought in at much higher prices and their solution may take 1-2-3 years to play out for everyone to recoup and profit.
Why is today’s share price not a screaming buy with limited downside for someone who can wait 1-2 years for their solution to play out for maybe a 10 – 200 bagger ?
Thank you !
So Japan just announced a huge fiscal stimulus, lol.
I would wager that today’s US stock market move is benefiting quite a bit from the yen carry trade, which looks like it is a one way street now. USD is likely headed much, much higher if the status quo remains.
Folks, you cannot compete with central banks. The Dow is doing far better than gold and silver in yen terms, so there is every incentive for people to go there instead of gold and silver for safety.
Interest rate differentials are 100% controlled by world central banks, and they are clearly interested in seeing the USD head to the moon to keep a lid on commodities, at least relative to the Dow.
The irony of the BoJ and ECB printing is that commodity prices go down in USD terms, and sometimes even in Yen and Euro terms too, or at least remain flat in those currencies.
I’m sure some day this all blows up. But bugs have been saying that since 1971. For now its heads I win, tails you lose.