Personal Finance

Investing With Humility

In the midst of COVID-19, this year has presented many moments for us to reflect upon our health, our work, our human connections, and life in general. Six months ago, it was unimaginable that a novel virus could cause modern civilization to nearly stop on a dime. We have been humbled by mother nature and the idea of what was permanent or certain in our lives has been tested. This experience certainly challenges us to take a few steps back and look at the bigger picture in terms of life and our priorities. But despite these challenging times, the world will adapt as we always have, and this too shall pass.

The COVID-19 pandemic has no doubt created unprecedented times and much uncertainty with respect to our health and the global economy. Countries and governments around the world are having to balance between public health and the economy. It is natural to feel some level of discomfort investing in the current environment given the amount of uncertainty we are facing. Indeed, we are in a global war against a novel virus that the world is not well equipped to fight. Many lives have been lost to COVID-19, millions have lost jobs, businesses are at risk of shuttering, the travel and entertainment industries have come to a halt, and our social lives have been put on pause. There is considerable uncertainty about the duration and severity of the pandemic, including hotspots such as Brazil and India, a resurgence in several U.S. states (Florida, Arizona, Texas, California, and Georgia), and a potential second wave in the fall. Under these circumstances, it is easy to focus on the negatives, extrapolate forward, and formulate a pessimistic case for the markets.

Despite the dire state of the global economy, the market is not the economy. They are related, but not the same. The economy reflects the current reality, whereas the market is a probabilistic, forward-looking mechanism that balances both negative and positive aspects of the future. To have a balanced viewpoint, we must also consider the positives going forward.

So, what could the market be seeing as the positives?

  • A record amount of monetary and fiscal support from governments and central banks around the world is buying us time, while COVID-19 vaccines are being developed. As long as governments and central banks are willing to do whatever it takes to support their economies, the market will have a counter force against economic shutdowns.
  • COVID-19 vaccines are being developed at record pace, with several vaccine candidates (such as Moderna’s mRNA-1273) entering phase 2 or phase 3 human trials in the second half of 2020. Dr. Anthony Fauci reiterated recently that based on current trial data, a vaccine is expected to be available at the end of 2020 or early 2021. The goal is to have multiple vaccines available to address the enormous demand globally.
  • While vaccines are in development, therapeutic drugs, such as Remdesivir and Dexamethasone, which have been proven to be relatively effective in lowering case fatality rates and reducing recovery times, are being used to treat COVID-19 patients currently.
  • Economies are slowly reopening in stages, giving rise to improving economic data. In particular, Asia and Europe have contained the coronavirus relatively well and are seeing economic activity normalize. The market tends to do well when economic data goes from very bad to less bad. Realistically, the reopening process will be a two-step forward, one-step back scenario as we monitor, learn, and adjust to the new normal.
  • Market data indicates that a lot of cash is still on the sidelines and many institutions are underweight equities.
  • Sentiment surveys show that many investors are not believing in this rally and are still bearish, which is often a contrarian indicator.

After experiencing the fastest bear market in history in the first quarter of 2020, financial markets, particularly in North America, produced the fastest recovery on record during the second quarter on the back of extraordinary stimulus and support from governments and global central banks (i.e. cutting interest rates and injecting trillions of stimulus money into the economies). The fact that the markets have been able to recover much of the decline in such a short period of time is telling us to keep an open mind for a better than expected future.

Please keep well and stay safe!

Ethan Dang, Portfolio Manager

McIver Capital Management at Canaccord Genuity

 

Economy Won’t Recover Until 2023

I’ve argued that we’re in a new depression. The depth of the new depression is clear. What is unclear to most observers are the nature and timing of the recovery.

The answer is that high unemployment will persist for years, the U.S. will not regain 2019 output levels until 2022 and growth going forward will be even worse than the weakest-ever growth of the 2009–2020 recovery.

This may not be the end of the world, yet it is far worse than the most downbeat forecasts. Some sixth-grade math is a good place to begin the analysis.

Show me that math…

 

Everybody Is Wrong

Depression or Roaring 20’s. Everybody is wrong.

I’ve been pondering all the “analysis” out there on the current economic and investment landscape and can only shake my head. That’s SMH, for you youngsters. What I see are coexisting comments for a Depression and the Roaring ‘20s at the same time. Again, for you youngsters, I am making a convenient comparison to the economic boom time of the 1920s, yes, before even I was born. Everybody is wrong.

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Where Is The Next Generation of Profitable Gold Mines?

The new gold bull market is getting underway but there is an almost complete dearth of build-ready projects that will produce the shiny yellow metal.

In today’s global gold market, trade and economic worries have created strong demand at the very worst time. That’s because the precious metal’s supply is dwindling. In fact, gold output in key producing countries, such as Australia and Peru, is set to slump to generational lows in the near-term.

The world may have reached its moment of “peak gold.” Supply is maxed out. From now on expect production to steadily decline. Overall economic factors also remain in gold’s favour. “Gold is expected to remain supported on the back of the weaker dollar, protests on the streets of the United States, souring US-China relations and inflation worries because of widespread stimulus,” explained CMC UK Chief Market Analyst Michael Hewson.

That tightening supply could send gold prices soaring. A classic setup that favors companies that can feed the voracious demand.

So the million dollar question for investors – where to find the next generation of profitable gold mines? The high-grade Cerro Blanco gold project in Guatemala may provide one of the answers.

Goldcorp owned Cerro Blanco for years and advanced the asset towards production. They defined over a million ounces of high-grade gold, permitted and developed 3 km of production-scale underground workings, drilled 19 geothermal wells, and permitted a 50MW geothermal project. They completed drilling, metallurgy and engineering, and initiated a robust social outreach program – everything needed to get Cerro Blanco ready for a construction decision.

But then Goldcorp’s outlook on Guatemala changed. Cerro Blanco was intended to be a second operation, a sister to the Marlin Mine that Goldcorp had been operating for years. But exploration at Marlin didn’t pan out, and the Marlin Mine was ultimately closured and reclaimed. At the same time the bear market in gold shifted focus to streamlining operational assets rather than building new ones.

By 2017 Goldcorp decided to exit Guatemala completely, and with Marlin closed Cerro Blanco wasn’t considered big enough for the major producer to maintain a presence in the country. After putting over US$200 million into Cerro Blanco, Goldcorp put the project up for sale.

That’s where the renowned exploration geologist John Robins, founder of the Discovery Group, came into the picture. The Discovery Group (www.discoverygroup.ca) is a collection of companies and likeminded individuals who specialize in identifying and developing projects like Cerro Blanco.

As a young man Robins was drawn to mineral exploration by the sense of adventure. It was really about the ability to travel anywhere in the world and see places nobody else has seen. At the core of me, that’s why I love prospecting, exploration and mining.”

And, what an adventure it has been. While most explorers pray to find one “mine in a lifetime,” Robins has already found three.

Which brings us to his latest great “adventure.” Robins was able to negotiate a deal with Goldcorp and acquire Cerro Blanco for US$18 million, a 1% NSR, and some stock and payment upon production. The deal led to the formation of Bluestone Resources.

Robins partnered with the Lundin Family, one of the world’s best known mining investors, to raise the funds for the acquisition.  In mining circles, the Lundin stamp of approval carries tremendous weight with peers and the market alike. The Lundin family has been a major force in mining and oil and gas exploration for more than 50 years.

Today the Mineral Resource division of the Lundin Group includes Lundin Mining, Lucara Diamonds, NGEx Resources, Lundin Gold, Filo Mining, Josemaria Resources, and Denison Mines. One of the pillars of the Lundin Group of companies is their sustainability and responsible mining initiatives supported by the Lundin Foundation.

So beyond the sterling reputation of Bluestone’s founders, what do the numbers say about Cerro Blanco?

An updated Feasibility Study completed by Bluestone in 2019 highlighted an annual production of 112,000 oz/yr over an initial eight-year mine life and 146,000 oz/yr production in the first three years at an all-in sustaining cost of US$579/oz, putting Cerro Blanco in the lowest quartile of the global cost curve.

With an initial capital investment of US$196 million, the project yields an after-tax internal rate of return of 50% and after-tax net present value of $519 million based on a $1,700/oz gold price and $18/oz silver price.

“We acquired the project barely 36 months ago and have done a lot of work in a very short period of time to de-risk and get ready for construction. The feasibility demonstrates Cerro Blanco will generate more than $125 million in free cash flow in its first year of production” said Robins.

In January 2020 Jack Lundin joined as CEO & Director and was instrumental in arranging a $92 million over-subscribed bought deal financing to advance the project. This was a remarkable vote of confidence in the project and team, especially with the deal closing in the midst of the COVID-19 pandemic.

Jack is also tasked with optimizing all areas of the project design, execution plan, and basic engineering, which is expected to be completed in Q4 2020, along with an updated resource estimate from an extensive drilling program.

To return to the key question for investors, where can you find the next generation of profitable gold mines?

Consider putting Cerro Blanco and Bluestone (TSXV:BSR | OTCQB:BBSRF) on your watch list. This asset could be in profitable production within two years, an incredibly rare opportunity in today’s gold sector.

Household Debt Tops $14.3 Trillion In The United States

Credit card debt is soaring, but banks aren’t attracting anyone to new deals as COVID-19 proves to be less of a boon for creditors than they might have thought.  Weaker personal income growth and rapid job losses are pushing Americans into more debt, while banks are simultaneously tightening lending standards to reduce risk.

A survey by CreditCards found that nearly half of U.S. adults are carrying debt on their credit cards, up from a month ago, while 1 in 4 of those already in debt have piled on more.

The Federal Reserve Bank of New York reported that with a total of $14.3 trillion, U.S. household debt rose by $155 billion in the first quarter from the previous three-month period, or 1.1%.

Alarmingly, that’s also $1.6 trillion higher than the previous peak of $12.7 trillion reached in 2008.

Overall, the number of people with credit card debt has increased to 47% from 43% since early March…CLICK for complete article

The “costliest claim ever”

The challenge is huge for insurance companies.

The COVID-19 pandemic will be “the most costly event in history for the insurance industry” and represents “without a doubt the greatest challenge our industry has ever faced,” says the director. General of Lloyd’s of London, John Neal.

In an interview published Friday with the Financial Times , the leader judges that the coronavirus will cause “tens of billions, even hundreds of billions of dollars of damage”. As a result, he adds, the compensation paid to businesses and individuals will far exceed the roughly $ 50 billion that insurers had to pay after Hurricane Katrina …Click for full article.