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Will The Current Rally In Gold And Silver Turn Into A Big Move?
With respect to the economy, the hard reality on Main Street is the opposite of the propaganda and lies pitched at us by Wall Street, Capitol Hill and the mainstream financial media. Most sectors in the economy are in recession. At some point the Fed will either have to let financial and economic system implode or it will be forced to crank up the money printing press again. In some ways this has already occurred in response to the regional bank crisis last spring. Kai Hoffman and I discuss economic reality and the precious metals sector.
If you are interested in learing about some junior project development stock ideas with 5-10x upside potential, click here to learn more about my Mining Stock Journal
Brutal Banking Crisis To Launch Gold And Silver
Liquidity in the primary dealer Treasury market is drying up. Deposit outflows from the big banks continue unabated. The outflows at the small, regional banks haveg abated but some banks continue to draw on the Fed’s Bank Term Funding Program, which hits a new high almost weekly. The facility matures in March but it’s doubtful the debtor banks will be in a position pay back the loans. Just like the “temporary” repo program that began in September 2019, the BTFP will continue to hit ATH’s and the Fed will extend the maturity of the facility. This is de facto QE.
In my bi-weekly Arcadia Economics podcast, I discuss the indicators that point to a large-scale banking crisis percolating. The day after I recorded the podcast, Citigroup announced 10’s of thousands of layoffs – another sign of the onset of financial distress.
The mining stocks are historically undervalued relative to the price of gold and to fraudulent, fiat securities, especialy in the junior microcap project development stocks. If you interested in ideas to capitalize on the re-instatement of QE, check out my mining stock newsletter: Mining Stock Journal information
Carvana: Deceptive Earnings – It’s Headed For Bankruptcy
The following analysis is from my latest issue of the Short Seller’s Journal. Follow this link if you would like more information on this newsletter: SSJ info
Carvana (CVNA – $31.96) – CVNA reported its quarterly numbers Thursday after the close. Of course the headline report announced that the Company beat the Street. But as is always the case with CVNA, a look under the hood reveals both heavy use of accounting gimmicks and the continued deterioration of CVNA’s business model. This includes a 52% plunge in the number of vehicles listed on the website at the end of the quarter and a 28.6% decline in average monthly unique visitors to the website vs Q3 2022.
Revenues declined 18% YoY and 6.6% from Q2. Retail vehicle unit sales plunged 21% YoY for Q3. YTD thru nine months revenues are down 22.4%. While the Company was boasting about a big jump in the gross profit per vehicle sold, a significant contributor to the reduced cost of sales was the result of the Company playing games with the auto loan volume it originates and sells. CVNA reported $5.95k GPU (gross profit per unit), an increase of $2.45k GPU vs Q3 2022. But of this $2.45k, $1.8k (or 73.5%) is attributable to the gain on loan sales that resulted from an unusually large reduction in auto loans held for sale. In all probability, this source of GPU benefit will be non-recurring or greatly reduced going forward. In addition, it admitted in the footnotes that it took a non-recurring accounting “allowance,” meaning a non-cash credit applied to the cost of sales.
In reality, CVNA lost $108 million for the quarter:
Moreover, this gain is fictitious. It provides zero economic benefit to the Company other than two years of reduced cash interest expense. However, as I detailed in the July 23rd issue of SSJ after the transaction was announced, after two years of the PIK feature the amount of debt will be back to where it was before the exchange and the rate of interest on the debt will be higher:
CVNA also announced a debt restructuring that will involve exchanging $5.6 billion in debt that matures between October 2025 and May 2030 for $4.3 billion of new notes that mature in December 2028 through June 2031. The new notes have a PIK feature for up to two years (pay-in-kind, meaning the Company can pay the interest expense for up to two years in more bonds rather than cash).
However, the PIK feature comes at a steep cost. The existing debt carries an average coupon roughly of 8.9%. One tranche of the new notes has a PIK coupon rate of 12% and 9% cash thereafter while a second note tranche carries a PIK coupon of 13% and 11% cash thereafter and the third new tranche has a 14% PIK and 9% cash thereafter. The weighted average cost of the PIK debt payments is roughly 13.1%. If CVNA chooses to PIK the notes for the first two years, after two years there will be roughly $5.6 billion in notes outstanding ($4.3 billion compounded 13.18% over two years). The same amount of debt outstanding before the debt restructuring!
The reason CVNA is able to claim that it produced positive net income is because the Company reduced the total outstanding amount of bonds via the debt exchange along with the issuance of $452 million in stock. Because of this, GAAP entitles the company to recognize a one-time non-cash gain of $878 million, which represents the amount of the discount to par value of bonds that were eliminated from the debt exchange.
Ironically, the one-time “gain” from the extinguishment of debt will be erased after two years. The problem with the GAAP treatment of this matter is that CVNA gets the optical benefit of the “gain” but will not have to reverse that “gain” despite the fact that the debt level will be back to where it was before the exchange.
One skeleton that will pop out of the closet for CVNA is its liquidity. Cash at the end of Q3 was $616 million, down slightly from the end of Q2. But this included the $453 million from the sale of shares during Q3. $213 million of the cash provided by operations in Q3 was the result of inventory drawdown (i.e. selling more inventory than was replaced). CVNA can’t continue with this rapid inventory reduction much longer or it risks the loss of potential sales.
Another $500 million of the cash provided from operations came from selling more car loans than originated. In most quarters, the amount of proceeds from the sale of loans is roughly equivalent to the amount originated. As with the inventory drawdown, this is not a sustainable source of cash. The amount of finance receivables held for sale declined to $650 million by the end of Q3 vs $1.098 billion at the end of Q2 and $1.334 billion at the end of 2022. There may be a little more “juice” to squeeze out of the sale of finance receivables in excess of originations, but it becomes more difficult as unit sales continue to decline. Also, the credit quality of some percentage of these loans is likely to be too low to dump into ABS bond trusts.
I wanted to show the comparison of the Q2 and Q3 asset side of the balance sheet because it’s a good visualization of what I mean when I say that CVNA’s business model is deteriorating in size. CVNA’s cash provided from operations was $599 million. But $713 million is attributable to the extraordinary reduction in finance receivables and inventory. This means that, on balance, the cash provided from operations outside of those two items was negative $114 million.
As mentioned earlier, the overall scale of CVNA’s business model is contracting. At some point in the next couple of quarters, CVNA will need to raise cash. It is authorized to sell up to $547 million more worth of shares via at-the-market offerings. This means that the Company can sell shares at any time without announcing it to the market until after the shares are sold.
Carvana is insanely overvalued on its own but also relative to Autonation and Carmax (note: I think AN and KMX are also good shorts). It’s tough to do a full comparison of the respective valuation metrics because both AN and KMX generate operating and net income while Carvana generates neither. But CVNA trades at a price/sales ratio of 0.32x. KMX trades at a P/S of 0.39x and AN trades at a P/S of 0.22x.
Carvana is much smaller in terms of revenues, which means its business risks are higher. And of course there’s the debt load, which substantially increases CVNA’s riskiness as an investment. The amount of debt CVNA has outstanding and the cost of that debt is obscenely higher than the amount of debt, and the cost to service that debt, that is carried by KMX and AN relative to the size of their revenues, profitability and total assets. As such, CVNA should trade with a P/S that is lower than the P/S’ of KMX and AN.
Applying Autonation’s P/S ratio of 0.22 to CVNA’s trailing twelve month revenues of $11.18 billion results with an implied market cap of $2.46 billion, or roughly $1 billion lower than the current market cap. That translates into an implied price per share of $22.85. But that’s just a starting point. CVNA’s revenues are quickly trending lower and will for the foreseeable future as household finances become increasingly strained and the economy continues to atrophy. In addition, based on CVNA’s current level of cash flow generation and likely further reduced cash flow from operations, at some point the Company will be unable to service its debt. The bondholders kicked the can down the road with the last debt exchange.
Given the continued deterioration in CVNA’s operations, it is likely that the bondholders will not tolerate another deferment of bankruptcy while the assets depreciate in value. In a strict bankruptcy restructuring scenario, CVNA’s equity is worthless, though the court would likely toss warrants to the shareholders. In a strict liquidation scenario, CVNA’s equity is completely worthless.
CVNA, which is heavily shorted (38% of the float was short at the beginning of November), experienced a sharp bounce along with the stock market on Thursday and Friday. I am also certain that there was some momentum-based price-chasing as well as panic-short covering on Friday in response to CVNA’s headline “beat.” Unless the market rally continues, I plan to press my short positions in CVNA over the next few weeks. Ultimately I believe CVNA will trade under $5 within the next 12 months.
Gold And Silver Will Go Parabolic As The U.S. Government Hyperinflates
The prices of gold and silver and the valuations of mining stocks – from the largest cap producers to the cash-consumer junior project developers – will go parabolic along with the money supply and issuance of Treasury debt. Holding dollars will be the equivalent of financial suicide. Converting cash into physical gold and silver will be the most effective hedge against hyperinflation. The Central Banks will be powerless in their effort to control precious metals prices.
If you like what you heard, consider subscribing to the Mining Stock Journal. I refuse to take compensation from the companies I recommend and I invest both personally and professionally in most of them. Currently I’m featuring a few juniors that have a high probability of making 5-10x moves: Mining Stock Journal information
The BIS Spearheads Gold Market Intervention
Anyone who does not admit that the Central Banks actively manage the price of gold is ignorant of the facts. If they are ignorant of the facts, they are too lazy to look for the truth. But GATA makes it easy. Robert Lambourne is a GATA consultant who scrutinizes everything published by BIS.
(the graphic is from a BIS presentation to Central Banks that advertised the BIS’ services)
“As far as we can determine, only one person in the world outside central banking — GATA’s consultant Robert Lambourne — reviews the BIS monthly reports and does the calculations necessary to discover what is happening. The interventions, accomplished in large part through gold swaps and leases, are not stated plainly in the BIS monthly reports, though they easily could be. The interventions are stated plainly, if obscurely, only in the bank’s annual report. But recent BIS annual reports have confirmed the stunning accuracy of Lambourne’s monthly calculations.” – Chris Powell, GATA
From Lamourne’s dissection of the latest BIS monthly report:
The BIS’ gold swaps had fallen to zero as of December 31, 2022, and reached their peak for 2023 so far of 188 tonnes as of May 31.
It remains likely that the BIS has entered these swaps on behalf of the U.S. Federal Reserve. There is no evidence to suggest that any other major central bank is actively trading this much gold, and so far in 2023 many central banks have been accumulating physical gold.
The basic transaction that the BIS is believed to undertake is to swap dollars for gold transferred from a bullion bank, then to deposit this gold in a gold sight account at a central bank, presumed to be the Fed but almost certainly being the central bank that is using the BIS to execute the gold swap on its behalf.
The basic transaction that the BIS is believed to undertake is to swap dollars for gold transferred from a bullion bank, then to deposit this gold in a gold sight account at a central bank, presumed to be the Fed but almost certainly being the central bank that is using the BIS to execute the gold swap on its behalf.
Given the recent volatility in the levels of BIS gold swaps, it seems likely that most are of short duration. Why a central bank needs the BIS to undertake gold swaps isn’t clear, but the swaps are likely connected with short-term trading needs, which could include suppressing the gold price.
Read the full GATA dispatch here: BIS gold swaps fell in September as bank’s substantial trading continued
Treasury Debt Is Going Parabolic – Will Gold Follow?
Interest payments on Treasury debt will soon exceed $1 trillion annually. With rising interest rates, the cost of interest is increasing at an increasing rate – i.e. going “parabolic.” Andrew Maguire and I discuss the U.S. Government’s hyperinflationary spending and the implications for the price of gold (and silver). I also discuss one of my favorite junior mining stocks which I believe has 5-10x upside potential. To learn more about my mining stock newsletter, follow this link: Mining Stock Journal information.
The Perfect Recipe For A Bull Market In Precious Metals
The following commentary, published by Kinesis Money, also was the intro to the latest issue of my Mining Stock Journal. You can learn more about this newsletter here: Investment Research Dynamics
I am firm in my conviction that the current market and political environment is quite similar to the third quarter of 2008. In that prior period of time, the financial system was headed toward a complete melt-down and the price of gold was mercilessly manipulated lower by western Central Banks in advance of the introduction of massive money printing, which was propitiously labeled “Quantitative Easing.”
While the rest of the financial system headed lower at the end of October 2008, the precious metals sector took off in a torrid bull cycle. The ensuing three years produced jaw-dropping investment returns. I believe that we are on the cusp of a similar move in the financial markets and the precious metals sector. The caveat is that I also believe, with a high degree of conviction, that the implosion of dollar-based financial assets will be worse than 2008.
I recently spent a considerable amount of time examining, and trying to poke holes in, the precious metals sector investment thesis. The first concern is that perhaps the thesis that the gold and silver represent both a wealth preservation asset and a total rate of return investment opportunity is wrong. That might be the case except that the price of gold (and silver) is historically undervalued relative to financial assets (stocks and bonds). In isolation this makes the sector an inordinate value investment proposition.
In addition, the major (and many “minor”) countries and Central Banks in the eastern hemisphere have been accumulating physical gold at a record rate on an annualized basis. Away from the well-known gold accumulating countries, Turkey, Singapore and Poland have been notably buying large quantities of gold this year. In addition to increasing the percentage of gold in their currency reserves, the biggest foreign buyers historically of U.S. Treasuries – China, Japan and Saudi Arabia – have been reducing their Treasury holdings as well as reducing the amount of dollars held in their respective reserves.
The chart on the next page from Incrementum’s 2023 “In Gold We Trust” report (with my minor cosmetic edits) shows the amount of Treasuries sold and gold purchased by official foreign entities (Central Bank primarily) between Q4 2014 and Q4 2022:
The majority of this buying and selling has occurred over the last few years, with a record amount of gold purchased in 2022 by foreign Central Banks (predominantly eastern hemisphere/Asian Central Banks).
Also consider that, away from Japan, the eastern alliance bloc of countries, which now includes Saudi Arabia, is working to advance a non-dollar trade settlement currency, thereby removing the dollar as the world’s only reserve currency. The eastern hemisphere bloc of countries are thus clearly preparing for a world in which the reserve currency is not the U.S. dollar. This is highly bullish for the precious metals sector. If this thesis is wrong, why have these countries been stockpiling large quantities of gold and “de-stocking U.S. dollars?”
I thus conclude that the rationale for investing in gold and silver as both a wealth preservation asset and an alpha-generating rate of return investment is intact. But what about the constant effort by western Central Banks and Governments to suppress the price of gold as a means of preventing the gold price to act as a signal that official economic and financial policy implementation is headed toward catastrophic failure?
Based on the information conveyed in the chart above from goldchartsrus.com (with my edits), the manipulation view is correct because it has been confirmed by the market. The chart segments the 24-hour trading period into the hours in which the eastern hemisphere bullion markets are open, with the Central Banks of those countries as well as the investor cohorts buying physical gold, which generally pushes the price higher, Conversely, during the trading hours in which the western markets are open and active, led by London and New York, very few investors are buying physical gold and silver and the price action is dominated by paper-based gold and silver derivatives trading action, which are used to drive the price lower.
The data used in the chart is what it is: actual point of trade price data derived from transactions in which ownership of physical gold bars is exchanged. Clearly, bona fide price discovery reflecting legitimate supply and demand for physical gold is corrupted when the western markets take control of the trading price action in the precious metals sector using counterfeit derivative forms of gold that are traded digitally with complex computer systems and opaque standards of accountability.
Fortunately, it’s possible to manipulate markets only over short periods of time. Eventually “water finds its own level.” And just like the fourth quarter of 2008, I believe that the precious metals sector is percolating for a move that will end up being much bigger percentage-wise than the move from late 2008 to late 2011.
The trading action across all of the markets is quite similar to 2008 as is the economic environment. I’m certain that some type of credit market/banking system disruption is developing, similar to 2008, but that this time it will be more severe. Just like the collapse of Bear Stearns was the early warning sign that big problems in the credit market were unfolding – particularly in the derivatives markets, the collapse of the three big regional banks earlier this year is the market’s signal that bigger problems lie ahead. In addition, widespread political corruption along with economic and financial uncertainty in the U.S. and escalating global geopolitical instability has presented the perfect recipe for a bull market in the precious metals sector that should dwarf historical bull moves in the sector.
Gold And Silver Holding Up Well Despite Tightening Financial Conditions.
The Fed’s reverse repo facility has declined 51% since March 31st, which is when the RRP facility started drawing down quickly. Without having access to the Fed’s inside books, my bet is that the drawdown in the facility is a result of money market funds redirecting cash from the RRP facility into Treasury Bills. In early April the rate on the three-month T-Bill began to quickly rise above the RRP rate, which would have incentivized MMFs, which are a large percentage of the RRP facility, to reallocate cash from the Fed’s overnight facility to slightly longer duration, higher yielding Treasuries. For MMF’s, gaining 20 basis points of yield is like winning the lottery.
This is how the Treasury was able to fund the massive issuance of T-Bills used to finance the rapidly growing spending deficit after the debt ceiling was removed. But what happens when the RRP facility is largely drained? What entities will emerge to fund the coming flood of new Treasury issuance given that the U.S.’ largest financiers – the Central Banks of China, Japan and OPEC – have been selling down their Treasuries as means of reducing their dollar reserves? I believe the precious metals sector is holding up well in the face of rising interest rates and tightening financial conditions because it is starting to “smell” that the Fed will likely have to reverse QT and re-start QE. While this will be highly inflationary, if the Fed refrains from intervening in the interest rate market, rates will continue climbing relentlessly higher.
In my latest Arcadia Economics podcast, I lay out my thesis and explain why I think the precious metals sector is on the cusp of a big move higher:
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In my mining stock newsletter, I look for junior project development stocks that are not well followed but have projects that I believe have a good probability of advancing into an operational mine. Most of the stocks I cover, recommend and invest in with my own money have 10-bagger potential. A couple of the companies may be actually producing gold within the next 12 – 18 months but have unreasonably low valuations given the degree to which they’ve been de-risked. Follow this link if you would like to learn more about my newsletter: Mining Stock Journal
Delta Resources: A Junior Explorer With Huge Upside Potential
The following analysis is from the September 21st issue of my mining stock newsletter. I want to emphasize that I do not receive compensation from any of the companies that I cover and recommend and I invest my own money in several of the ideas I present. I have a fairly large percentage allocation to Delta Resources. You can learn more about my newsletter here: Mining Stock Journal
New idea – Delta Resources (DTARF, DLTA.V – US$0.11) – My friend and colleague, Trevor Hall (Mining Stock Daily), showed me this idea. DLTA is advancing two early-stage exploration projects, Delta-1 in Ontario, Canada and Delta-2 in Quebec, Canada. I think DLTA has merit as a highly speculative junior play because, after a deep-dive that included a conversation with the CEO (Andre Tessier), I believe the potential upside outweighs the downside risk if DLTA-1 can not be advanced successfully to an operating mine.
DLTA changed its name from Golden Hope Mines to Delta Resources in July 2019. In October 2019 the Company signed an option agreement to acquire 100% interest in the Eureka Gold Discovery property in Ontario, renaming it the Delta-1 project (as the first project acquired under the new name). Shortly thereafter it signed an agreement to acquire 100% interest in the property named Delta-2. The Company also had the Bellechasse-Timmins project in Quebec, which it sold to Yorkton Ventures in 2022 for C$1.7 million, retaining a 1% NSR on the project.
The Delta-1 project is located in Thunder Bay, Ontario in the Shebandowan Greenstone Belt. Greenstone belts are composed of volcanic rock and interspersed with sedimentary rock. They typically contain high mineral content and are likely to contain high quantities of gold, copper, iron, zinc, silver and nickel. The project is located in the same geologic setting as Goldshore Resources’ Moss Lake gold project, which is currently estimated to have 4.17 million ozs of gold at 1.1 gpt (open pit). Historically 42 holes were drilled to test for copper-nickel targets. The property had been dormant since 2003 (the price of gold was $300 – $400 back then).
DLTA began exploration activities on Delta-1 in 2020. Geochem surveying, sampling and mapping confirmed the presence of a gold-mineralized “halo.” The 2021 drill program returned wide intercepts of economic-grade gold, similar to the Moss Lake deposit, located to the west of Delta-1 on the same geologic structure. The highlight assay showed 1.25 gpt Au over 18 meters. The 2022 drill program results drew investor attention. Visible gold was intercepted and all nine holes intersected the gold-bearing zone. Assays from the headline drill hole intercepted 14.8 gpt Au over 11.9 meters within a broader interval of 5.92 gpt Au over 31 meters. Keep in mind that the Delta-1 mineralization is near-surface, open-pit style with drilling to date going down only to 200 meters. This drill program gained the attention of potential strategic partners.
At the beginning of 2023, DLTA announced a 5,000 meter program. The Company continued to hit broad zones of near-surface visible gold and high-grade intercepts. 100 meter step-out holes to the east also encountered wide intervals of gold mineralization along with visible gold. The Company raised C$10 million through flow-through and standard units. Subsequently it acquired additional claims to expand the size of the property, announced a new 20,00 meter drill program and added a second drill.
The first drill results, though they looked good to me, disappointed the market. This where i think the opportunity lies to acquire “cheap” DLTA shares. The stock ran from 4 cents US$ in late 2022 to 41 cents by April 26, 2023. It then started selling off along with the rest of the sector, particularly juniors. It closed at 26 cents the day before the 1st drill results from the 20k drill program were announced but dropped down to 14 cents after the results were announced.
The Delta-2 project is located 35km southeast of the town of Chibougamau. Optioned in 2021 from Cartier Resources and fully-acquired in 2022, Delta-2 is a VMS formation with gold-copper mineralization. Recall that VMS deposits- volcanic massive sulphide ore – host poly-metallic mineralization, typically copper, zinc, gold, silver and lead. They generally host moderate-sized, moderate-to-high grade deposits. Canada hosts several large VMS camps.
The 2021 exploration program produced a gold discovery in which two drill holes encountered two mineralized zones with visible gold identified. Additional drilling in 2022 encountered four areas of interest that included a gold-enriched target area, a copper-enriched target area and two zinc-enriched target areas.
I had an in-depth conversation with Andre Tessier, the CEO, who came to the Company in 2019 along with a change-over in upper management and the Board. Delta-1 was acquired from a prospector, who still has 1.75% NSR which can be acquired by the Company. The Company was attracted to Delta-1 because of the size of the geologic alteration package. The plan is to advance an open pit resource before spending the resources to explore the underground potential.
Drilling to date has focused on defining the overall “footprint” of mineralization and under-standing the control structures and geometry of the mineralization and potential deposit. “Control structures” are the geologic attributes and hydrothermal alteration that control the formation of mineral-bearing veins. Understanding of the specific control structures of a mineralized area affects the understanding of the technical aspects of exploration and mining, including grade control, resource estimation, targeting, etc.
I asked about the big sell-off in the stock after the “game changer” holes described above from the 2022 drill program were released. At the start of the current drill program the Company announced that it was going to do 100 meter step-out holes to the east of the known mineralization to test a 200 meter, on-strike geophysical attribute (magnetic low) like the one that produced the existing assays. It sounds like retail piled into the shares on the assumption that the first step-out results would produce the fat assays from the 2022 drill program. Andre said the anticipation took on a life of its own.
The assays released apparently disappointed the market despite one assay that intercepted 1.79 gpt gold over 128.5 meters starting at 25.5 meters below the surface and 2.16 gpt gold over 97.5 meters starting at 25.5 meters below the surface. For an open pit configuration, these are home run holes. The market did not like holes further to the east that returned grades generally below 0.5 gpt – grades but that would be considered sufficiently economic in a Carlin trend project. We had a chuckle over that. But these are “first pass” holes testing the targets. Andre believes that the Company will hit higher grades in targeted areas with follow-up drilling.
With respect to the Delta-2 project, I asked why Cartier Resources was willing to sell the project. He said that Cartier has decided to sell ancillary projects in order to focus on advancing its 8.8 million gold resource Chimo Mine project into a mine. DLTA management has elevated Delta-1 as the flagship project and will put Delta-2 on the back burner. That said, the Company raised flow-through money in the last financing that needs to be spent on exploration activities by year-end and will use some of it to do some exploration drilling on Delta-2.
Bottom line – I need to stress that both Delta-1 and Delta-2 are very early stage exploration projects. The series of drill results at Delta-1 are very encouraging. The Company is convinced that Delta-1 hosts an economic deposit. The objective now is to define the scale and grade. The Company’s game plan is to de-risk Delta-1 enough to attract a strategic acquirer to take it over the finish line with DLTA management possibly spinning-off Delta-2 and moving on to develop that project.
Andre said that the Company has several non-disclosure agreements with strategics who want access to data the room to monitor the project. I think Wesdome, Alamos and Agnico Eagle are potential acquirers. That said, it will take a strong, extended bull move in the sector before strategics move to acquire projects until they’ve become almost completely de-risked.
In my opinion, DLTA is worth using some high-risk/high-return capital for a potential 5-10 bagger. I believe the recent sell-off, which appears to have come from the retail momentum chasers, provided a good entry level to minimize the downside risk. While Andre said there’s a seller from the last financing that stripped the warrants and is now selling the stock, a couple of DLTA’s largest shareholders who want to own more shares are buying those shares and Coremark (the deal underwriter) makes sure that they get first look when the shares become available.
The biggest shareholders are 1832 Asset Management (owned by Scotiabank) and some big Quebec funds. Management and insiders own 9%, after taking C$1.4 million of the last $10 million capital raise. The Company has not spent much on promotion. When it does I believe the shares will attract a much wider base of shareholders.
There’s 98.5 million primary shares, with 35 million warrants and 7.8 million stock options, for a total of 144 million fully-diluted shares. However 17.4 million of the warrants are struck too high to be considered relevant (40 to 63 cents C$, with the stock at 19 cents C$). Most of the stock options are in the money or near-money. For purposes of my valuation and potential upside analysis, I’m using 123.9 fully-diluted shares. At the current price this gives DLTA a US$17.3 million valuation.
Assuming we get a sustained rally that takes gold over $2,000 and silver into the high $20’s, I think DLTA could double or triple quickly. Especially if more holes from the current drill program hit good grades. Forty-four holes from the current ongoing drill program have been completed with 23 reported so far. This means there will be a lot of potential positive news flow coming. I have started a position in my personal account, leaving room to add shares opportunistically.
Could Market Crash Drive Gold & Silver Lower? (Hint: NO)
I will be updating and analyzing two junior development gold project companies in next week’s Mining Stock Journal with 10x upside potential. Both companies do not promote themselves, preferring to put their capital into project advancement, and thus neither is on the radar screen of investors. Insiders own a big percentage of the shares in each company and participate in all equity financings. One of the companies has a 10% strategic investor. You can lean more about my newsletter here: Mining Stock Journal (FYI I do not get paid any compensation from the companies I research and present and I own shares in both).
The sell-off in the precious metals sector – which I will argue vehemently is primarily an officially sanctioned, bullion bank market intervention with some help from momentum-based hedge fund algo programs – is startlingly similar to the September/October 2008 decline. Incredibly, the financial markets, banking system and economic backdrop is also remarkably similar, except this time adverse variables that could lead to a system meltdown like 2008 are more powerful and likely will lead to more severe stock and credit market melt-down.
Despite the sharp decline in gold and silver over the past several weeks, relative to 2008 both metals are holding up remarkably well:
The chart above shows the price of gold from 2001 to present on a weekly basis. The price declines in 2006, 2008, late 2011 to late 2015 and early 2020 were much bigger on a percentage decline basis than has been experienced in the recent price decline. To be sure, it’s impossible to know if there will be more pain in gold and silver or if a bottom is forming.
While the current condition of the economy, credit markets and banking system – all three of which are transitioning into a state of distress – is remarkably similar to 2008, there are factors helping to support the precious metals sector which are present now but not in 2008. The most significant factor is the enormous demand for physical gold from eastern hemisphere Central Banks and investors. Eastern hemisphere Central Bank gold buying hit a record high in the first half of 2023. Moreover, the largest historical financiers of the U.S. Treasury’s new debt issuance are now selling down their holdings at an accelerating rate in advance of a de-dollarized world. These two factors will drive the dollar-based price of gold and silver to all-time highs (gold is already at all-time highs as priced in several other currencies).