Streetwise Reports: Ralph, thanks for joining us today. 2020 has been a year that no one predicted. What lessons have you learned from the last year?
Ralph Aldis: Remain calm is what I would tell investors. We've gone through probably some of the most unusual political situations, and of course that has affected the markets and the Federal Reserve. I think investors just generally need to settle back down because I think we're going to be coming into a more focused, less fractious environment. Hopefully that means we may get some infrastructure builds done. That could be good for natural resources. We also have things that could be good for gold: interest rates remaining low and potential inflation that could be in the works. So remain calm. I think there are good opportunities that we're going to be faced with in the coming 2021.
SWR: Over the last year, what companies have been some of your best performers?
RA: Well, there's been a number of them, and they come from some different themes. Two of the best performers that probably the whole natural resource space has seen this year have been De Grey Mining Ltd. (DEG:ASX) and Chalice Gold Mines Ltd. (CXN:TSX; CHN:ASX). They're companies that have been around, but they've made great exploration discoveries and ended up with the right metals. De Grey Mining is up more than 20-fold this year. Chalice is up like 16-fold. Now, we didn't capture all of those gains ourselves in the funds, but we did do actually pretty well on De Grey and Chalice.
K92 Mining Inc. (KNT:TSX.V) is another great name. That's been up about 158% this year. That's been one of our biggest exposures and has done very well.
A name that's been around, a management team from the past that found some interesting things in Mexico, is GoGold Resources Inc. (GGD:TSX). It's had a very good year, up 213%.
The group Calibre Mining Corp. (CXB:TSX; CXBMF:OTCQX) has done very well. That's been a real good winner. These things are up around 150 and some odd percent for the year.
Metalla Royalty & Streaming Ltd. (MTA:TSX.V; EXCFF:OTCQB) has had a real nice finish for this year. It's getting close to like a 112% gain for the year with several indexes adding the name to their portfolio.
So in our gold funds—World Precious Metals Fund (UNWPX) and the U.S. Global Investors Gold and Precious Metals Fund (USERX)—those have been some of ones we've had the bigger exposure to. There are lots of small mining companies in the junior space that are up 300%. I mean, I have 10 of them right here that I'm looking at, but they're ones that the average investor would not have probably caught. But we have them in the fund, so that's been a nice little addition.
And outside of the gold space, in the natural resources area where we also have some exposure with our U.S. Global Natural Resources Fund (PSPFX:MUTF), we did have Chalice in there because it made this big nickel-platinum-palladium discovery in Australia that is not too far out of Perth. Probably the most important thing is that it's in a major jurisdiction that the world would say is politically safe and has low economic risk; we can mine this thing and develop it. Chalice seems to be on the early stages of discovery, and we don't know how big this could be.
But other companies in that same area include Centaurus Metals Ltd. (CTM:ASX), another one out of Australia. It has a good nickel discovery in Australia for the clean metals; stock price up 331%.
Clean Air Metals Inc. (AIR:TSX.V; CLRMF:OTCMKTS) is in Canada, and it has platinum group metals exposure not too far from the deposit that Impala Platinum Holdings Ltd. (IMP:JSE) bought, the Lac des Isles deposit.
One that you probably wouldn't have expected me to talk about is Plug Power Inc. (PLUG:NASDAQ). This is one that's related to the hydrogen energy space. The most amazing charts were put up on Bloomberg this year showing Exxon Mobil Corp.'s (XOM:NYSE) market cap going below the market cap of various utilities in the U.S. And the same thing happened in Europe. You were seeing Royal Dutch Shell Plc's (RDS.A:NYSE; RDS.B:NYSE) market cap fall below Iberdrola SA (IBE:IBEX35; AGR:NYSE: IBE:ADR) in Spain. What that's telling you is the major international oil companies are going to earn utility returns for the future. At least, that's what it's saying at the moment. Clean power, clean metals, batteries, electric vehicles, hydrogen fuel cells—people are going to say, aw, that's really expensive. But you know what? That's going to create a lot of jobs in the future, too. I think that's where the new administration is going to be trying to push some of its efforts, and hopefully there is a resource bill that helps with the infrastructure of this country.
SWR: Looking ahead, what do you feel investors need to keep in mind as we move into 2021?
RA: I think in the gold space, consolidation may become a little bit more visible or a little bit more of a topic. Two years ago we had the seniors consolidate and shed assets. Then last year we did see some of the seniors and some of the midtiers make some investment stakes, like Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) made an investment in Reunion Gold Corp. (RGD:TSX.V). It also made an investment in Japan Gold Corp. (JG:TSX.V). Some of the majors actually went down and kept some of their toeholds in the juniors.
But we didn't see really any mergers in the midtier space. Earlier this month, we just saw Premier Gold Mines Ltd. (PG:TSX) and Equinox Minerals Ltd. (EQN:TSX; EQN:ASX) figure out a consolidation. That's a consolidation theme at the midtier level. It may still be a little bit early, but I think we're going to see more consolidation maybe at the midtier level, companies trying to create a bigger gold company, seeing if they can get that growth through resources and acquisitions. Hopefully, that will also be better for the juniors because I look at some of these junior stocks and say, oh, wow, it's up 300%, well you look at some of the older charts of the same name and there's probably a lot more potential still in some of these junior ones. They have not really been bid up that much yet, not to where they likely would go in a normal cycle.
SWR: What's your outlook for precious metals and precious metals stocks for the next year?
RA: The metals have actually done pretty well, as we all know. It's been the metal stocks that have been lagging behind. Some could argue it's because of dilution through share issuance, and certainly in some cases that is true. But I feel like the precious metals prices are going to continue to just grind higher. I don't think they're going to just shoot like rockets or anything, which is not really good for anybody. I think gold continues to move along, but one thing that we've seen late in this past year is the other precious metals outperform gold during a certain week or during a certain month, silver in particular a couple times and palladium many times during last year.
I think what we're going to see next year is platinum actually get a little bit more attention. Platinum was up 9% or 10% several weeks ago and then it backed off a little bit. But platinum has a new use, well it's not so much a new use, in hydrogen fuel cells. Platinum is what they use for the catalyst in that. So that is going to provide a whole new avenue for platinum use to expand as its demand beyond diesel engines as an exhaust catalyst but has been losing market share with the VW emissions scandal and as big rigs go electric in the future.
The one that worries me just a little bit, and I think it's still way too early, but with palladium, you want to keep your eye on what's going in that market. Palladium is usually used in gasoline combustion engines. If electric vehicles take off, that could be a difficulty perhaps for palladium. But it's early. Right now what we do see happening is platinum playing catch-up to the other precious metal prices on a relative basis.
Now, with the stocks I think what we're going to see is finally some good earnings out of some of these companies, and that hopefully will begin to get investors believing that the metal prices are going up and the companies are responding. The companies learned some tough lessons in the past decade just not financially performing, and investors have basically complained. I think they're hearing it. I hope that message gets through.
SWR: What kind of precious metal companies do you feel will do well in the next year?
RA: The silver and gold companies will do very well. And there are very few silver plays out there that you can get in, but there are some out there, more so in the junior-tiered miners. Even on the platinum-palladium side, it's very difficult to find a single company that just has exposure to one single metal or something like that. But if you're looking for platinum-palladium, you certainly have the South Africans, Impala, that whole suite over there, but you may not want that political risk. In that case, maybe you're trying to play some of these other names, and there are various ways to get after this, such as Ivanhoe Mines Ltd. (IVN:TSX; IVPAF:OTCQX) for its platinum, palladium, copper, zinc and nickel exposure.
In the gold space, you're probably going to be better off in the juniors to midtiers to get more bang for your buck. The senior companies like the Barricks, the Newmonts, those companies are actually great companies, but they pretty much have flat production profiles for the most part. So they're going to be always faced with the need to make another deal, or another acquisition, if they don't have a good discovery themselves. They do make good discoveries over time, but I think a lot of times there are so many other junior companies out there working that they can find something better and quicker and it's cheaper for the majors to just go ahead and do the acquisition. I think in this window, when markets start to heat up, it's the guys that already have found something that are going to get bought up.
SWR: So far we really haven't seen much in the way of acquisitions by the seniors of juniors, have we?
RA: Yeah, that's been the drought. That's what I think is coming for 2021 and 2022. The seniors have talked a good game and done a lot of bluffing in saying we don't need anybody else, we have everything we need. I think these juniors right now are going to start showing some good results. They've raised some money. Companies like Major Drilling Group International Inc. (MDI:TSX) are starting to get a real bid onto them because they're doing a lot of drilling to help the juniors. I think there will be some discoveries along the way that are going to be very positive. So I think acquisitions are going to resurface.
SWR: Aren't the seniors at some point going to need to add ounces to their resources?
RA: Yes. My whole valuation system is based on the resource statements, and when I go through them every year, a lot of times it's fewer tons and lower grade. And you can see the resource statement deteriorating. Occasionally, you'll get some higher numbers there, but that's how you can tell if a company is doing really good research and development, if that resource statement is showing improvement year after year.
SWR: Do you have names that you think investors should look at that might do well in the next year or so?
RA: Yes, there are some names, for sure. K92 is a name that's done very well this year. It's been trailing off in the last couple weeks, the reason for which is public information. We actually had to sell it out of our GO GOLD and Precious Metal Miners ETF (GOAU:NYSE Arca) because it didn't meet the model on this particular run. It caught it earlier, ran up with it. It's picked it up a couple of times before and kicked it out. But we're not selling it out of our active funds. I can still see at least probably another 60–70% gain because our gold ETF model is only looking at the actual financial statements and financial metrics. It doesn't go and look at resource statements. It doesn't factor in go and look at the forward or anything like that, which is what I'm looking at to have more of an active approach. I think K92 is going to be one of the world-class ore bodies. It's one of these management teams that you can trust. John Lewins, the CEO, goes to the site every month and spends weeks there. It's not some guy in Vancouver living a lifestyle, that is for sure. I think K92 still has a lot left in it.
Roxgold Inc. (ROXG:TSX) is another one, with its most recent update it did for Séguéla in the Ivory Coast. People always complain that it's a one mine company. Well, you can see its third mine beginning to materialize there because with the resource that it currently has, there's enough gold and enough grade there to pay for the capital to put a third mine into production. The second mine portal is Bagassi South, which is 1.8 kilometers from the 55 Zone and its facilities.
You can talk about management teams and their past successes, but it's not always the management teams that have done it before. It's management teams that you know you can sleep at night and not have to worry about them doing something stupid. Now, Revival Gold Inc. (RVG:TSX.V; RVLGF:OTCQB) is an exploration company. It's operating in the U.S. It has the Beartrack property. Hugh Agro is its CEO. I think it's doing all the right things there to get that project going in the U.S.
Another company that we own is Magna Gold Corp. (MGR:TSX.V; MGLQF:OTCQB). This is a new one that's been put together over the past year or so, but it has good people in it. That's one that I own.
One that I've mentioned before to you is Barksdale Resources Corp. (BRO:TSX.V; BRKCF:OTCQB), which is a little bit of a sleeper because some of its land is on forestry land, and it's taking longer for permitting for drilling. But with this one, you may not want to own a ton, but you probably want to have some in your back pocket. That one is going to surprise you one of these days.
As for some of these other ones, Brixton Metals Corp. (BBB:TSX.V) has been putting out some good results as of late. It actually had a deal it worked out where one of Robert Friedland's companies has come in for an earn-in on the Hog Heaven Project. So that's positive stuff happening there.
Some laggards from last year that should re-emerge as winners include Maverix Metals Inc. (MMX:TSX.V; MMX:NYSE.American), a royalty company. It has that royalty on TMAC Resources Inc. (TMR:TSX). And then obviously TMAC had many problems, went up for sale, the Chinese have bought the property and now Canada after reviewing the deal has taken it off the table for Chinese taste. So Maverix has money tied up in this deal, it's been punished this year and really hasn't done very much. This thing should get put to bed at some point, and Maverix should actually come out of this thing I think pretty well.
Another laggard this year has been Southern Gold Ltd. (SAU:ASX). This is an Australia-listed company. Investors probably need to contrast Southern Gold against Japan Gold. Just look at the market cap differential between the two companies and also look at what the two companies have been able to achieve so far. I mean, Southern Gold already has made a discovery in Korea. Both companies have been impacted by COVID-19, and I think that's why Southern hasn't put out much in results after raising some money earlier in the year. But the valuation gap between the two is very significant.
One company that is not necessarily a gold company though we do have it in one of the gold funds because we picked it up on the lithium side is Nano One Materials Corp. (NNO:TSX.V). We do also have it in our natural resources fund because this relates to the battery cathodes for electric cars. It's based in Vancouver. It just released the durability test results on its high-voltage cobalt-free battery. It operates at 4.7 volts, which is 25% higher than any other conventional battery cell. That means you can go farther and you can pack greater energy density into it. It just finished the high temperature stress testing on this for charging and discharging, and it passed that hurdle. So it's probably the next leading candidate for the solid state lithium battery. So this is a big deal. I think this is one of these ones that you probably still want to be sticking to. I think this one's going to be a winner in the longer term. It just entered into a cathode evaluation agreement with a U.S. based multinational auto manufacturer.
I'm going to transition a little bit over to the natural resources side, to look at what's happening in the food industry. This whole health thing in the U.S. relates to food and better health outcomes. But all these sugar junkies in the U.S. that's all they do is like sugar or they want highly processed carbohydrates and protein food from plants? That may actually only be meat based for this group. But with some of these companies out there, you're seeing a lot of changes that are pretty interesting. Burcon NutraScience Corp. (BU:TSX) is a protein-based food company. It has big partners in the food industry. Just go to the website and look at its slide deck. You'll see the major players in the food industry all are looking at Burcon. They're looking at how do we find other nutritional means that are actually healthier for our consumers. I think consumers are beginning to pay attention a little bit.
The last new company I would leave you with is Deterra Royalties Ltd. (DRR:ASX). This is a new company out of Australia that was spun out of Iluka Resources Ltd. (ILU:AXS). Iluka Resources is a heavy mineral sands company, and Deterra Royalties has a vast collection of iron ore royalties over the Australian iron ore fields. And it's the biggest market cap royalty company in Australia and you almost got it for free by just owning Iluka. Iluka spun it out of its market cap, and Deterra's market cap is now on par with Iluka's now.
SWR: Last thoughts for our readers?
RA: I probably should mention one other company, Menē Inc. (MENE:TSX.V; MENEF:OTCMKTS). In keeping with the theme of love, Menē has some of the best offerings of jewelry. Look at its Nov. 30, 2020, press release of this recent quarter. It has turned a profit. It made its first operating income, record revenue. Menē is the growing disruptor in jewelry sales by selling only 24kt pure gold or platinum based on the gram weight of the piece. The one thing that's really cool about its model is Menē sells it jewelry at only 10% over spot, and it will buy it back from you at 10% under spot if you want to sell it. It has great designers and great collections. It's a nice website, really nice.
SWR: Ralph, thanks for your insights and all the best for the new year.
Ralph Aldis, CFA, CFA, portfolio manager of U.S. Global Investors, is responsible for analyzing gold and precious metals stocks for the World Precious Minerals Fund (UNWPX) & the Gold and Precious Metals Fund (USERX) and for managing the Global Resources Fund (PSPFX). Aldis serves as co-portfolio manager for the rest of U.S. Global Investors’ mutual funds and two ETFs. In 2016, he was named Best Americas-Based Fund Manager by the Mining Journal. In 2011, 2015, 2018 and most recently in 2020, Aldis was named a U.S. Metals and Mining "TopGun" by Brendan Wood International. Aldis received a master's degree in energy and mineral resources from the University of Texas at Austin in 1988 and a Bachelor of Science in Geology, cum laude, in 1981, from Stephen F. Austin University. Aldis is a member of the CFA Society of San Antonio.[NLINSERT]
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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3) Ralph Aldis: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: N/A. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: N/A. My company has a financial relationship with the following companies mentioned in this interview: N/A. Funds controlled by U.S. Global Investors hold securities of the following companies mentioned in this article: Chalice Gold Mines, K92 Mining, GoGold Resources, Calibre Mining, Metalla Gold Royalty and Streaming, Centaurus Metals, Clean Air Metals, Impala Platinum Holdings, Plug Power Inc., Barrick Gold Corp., Reunion Gold, Equinox Minerals Ltd., Ivanhoe Mines Ltd., Major Drilling Group International, Roxgold, Revival Gold, Magna Gold, Barksdale Resources, Brixton Metals Corp., Maverix Metals, Southern Gold Ltd., Nano One Materials, Burcon Nutrascience, Iluka Resources Inc., Mene Inc. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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