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Resource Juniors hunker down to weather the storm
The resource junior uptrend which began in December continued through February despite growing alarm about the spread of Covid-19, the coronavirus which emerged in early December in a Wuhan market. The KRO 2020 Favorites Index peaked with a gain of 22.4% on February 21, 2020, but during the last week of February all hell broke loose as senior equity markets began to understand the economic implications of the supply chain disruption created by China's containment response in mid January when the Beijing leadership stopped pretending that the virus was a hoax perpetrated to embarrass the Communist party. That week the market also started to ignore Trump's dismissal of the coronavirus as a China problem that American sunshine will vanquish in April. By the end of the first week of March the market fear was no longer about how badly the Chinese supply disruption would hurt the US economy, but about how much harm America's own response to Covid-19 will cause.
After the February 28 resource junior selling climax, which dropped the Favorites Index to negative 2.4%, the resource junior market has gone very quiet. TSXV resource listing daily traded value which during February climbed into the $30-$40 million range has sagged below $20 million and will likely fade further into the $10-$15 million range that prevailed during the gloom of November 2019. All eyes are now on Italy, which has imposed a Chinese style lockdown on the northern half as infections took this western nation into second place. The US government story has gone from "containment" to "mitigation", an acknowledgement that the virus is now undergoing "community spread" where nobody has any idea from whom they might have got a covid-19 infection. It is unclear what will happen if the United States attempts to impose an Italian style lockdown. Given how covid-19 is now popping up in every state, it is safe to say that for the next two months we will hear nothing but news about more infections and deaths. It's not a question of if the Dow Jones Index will hit 20,000, where it was when Trump assumed office in 2017, but how soon.
The question has been raised whether the panic will cause more damage than the pandemic. The CDC in its Weekly Influenza Surveillance Report reports that for the current flu season, which began October 1, 2019, as of February 29, 2020 34 million Americans have caught the flu, mainly the H1N1 variety, of whom 350,000 were hospitalized, and 20,000 resulted in death. That is roughly 10% of the US population with a 0.05% fatality rate. Most people neither know this fact nor care. As of this writing the number of confirmed global covid-19 infections is only 113,579 with 3,995 deaths (John Hopkins CSSE - Mar 8, 2020). That is a fatality rate of 3.5%, though the actual number is likely in the 1%-2% range because many infections will not have been reported and tested. Covid-19 so far is estimated to have a transmission rate of 2-4, meaning that each infected person will likely infect 2-4 other people. The diagram published by the NYT in How Bad will the Coroavirus Outbreak get? plots fatality rate on a log scale against transmission rate, with the red box representing the range within which covid-19 is expected to settle. It is easy to be dismissive when you see what the fatality rate is for ebola and small-pox, but when you see where the Spanish flu sits, one has to become concerned. In November 2017 the Smithsonian Magazine published an article by John Barry, How the Horrific 1918 Flu Spread Across America, which is a must read. 670,000 Americans died in 1917-1919 from the Spanish flu, with 50-100 million deaths estimated worldwide. If that fatality rate of about 3% is correct, pretty much the whole planet caught the Spanish flu, which started out with a modest fatality rate, mutated into a deadly form that targeted young adults because of their robust immune response to the virus, and eventually mutated into a more regular flu form. In contrast covid-19 so far is a relatively mild flu for most people, but is lethal for older people with underlying health issues (and unlucky outliers such as Dr Li who sounded the alarm in Wuhan in early December and was punished by the authorities for smearing China's good name). It is a very big problem that the fatality rate is much higher for that demographic segment. If covid-19 in its current form gets into an assisted living or nursing home facility, as it did in Washington state, the fatality rate may surge above 50%. It also appears to have an asymptomatic period of up to 14 days before symptoms develop but during which the infected individual is contagious. If you are young and healthy you have little to worry about personally, but if you do not know you have it or refuse to self-quarantine once you do you become a potential death vector for older people with health issues. With community spread now underway in the United States, a lot of people will catch covid-19 before a reliable vaccine becomes available a year from now. If you are a narcissist who doesn't care that covid-19 kills older people, keep in mind the mutation path of the Spanish flu which ended up sparing older people with an enfeebled immune response. Covid-19 could burn out without turning into something like the Spanish flu, but until it does, panic and its disruptive impact on economic activity will be an unavoidable reality.
So far the market has not really embraced gold as a safe haven while government bond yields plunge towards zero or into negative territory and the stock market gives up its tax reform fueled paper gains. But there has been steady buying of the GLD ETF which has accumulated 2 million ounces since the start of 2020. The current holdings of 30.7 million ounces is still off 29.4% from the 43.5 million oz peak on December 7, 2012 when gold bugs were in a tizzy about how quantitative easing will lead to fiat currency debasement and hyper-inflation. Covid-19 will unleash a massive socio-economic crisis in the United States during an election year which Trump will be hard-pressed to blame on Obama. So far the Republicans are not yet embracing fiscal stimulus other than in the form of proposed cuts to payroll and investment income taxes, neither of which will overcome an escalating End Times mentality. More money in the pockets of the rich and poor is not going to dispel a growing sense that Trump was right, America is no longer great, and the revamp of MAGA into Keep America Great as a campaign slogan will sound rather plaintive. If Trump wants to get re-elected he needs to start working on the one 2016 campaign promise he has neglected, namely making America great again by renewing its infrastructure. Take advantage of near zero interest rates to raise the capital to start rebuilding America for the Post Boomers so that the End Times plague gets vanquished. There really isn't any scenario other than what magical thinking can generate that stands in the way of a rapid repricing of gold into the $2,000-$3,000 range.
Namibia Critical Metals Inc announced a potentially very important new rare earth discovery on February 4, 2020 for its 95% owned Kunene project in Namibia located 340 km north of the Lofdal heavy rare earth deposit the junior farmed out up to 74% to JOGMEC on January 27, 2020. The market reacted negatively to the Lofdal farmout which in Tracker January 31, 2020 I explained is a very positive development for the junior. The new relationship with JOGMEC makes the Kunene discovery especially impor...
VR Resources Inc was assigned a Bottom-Fish Spec Value rating on December 13, 2018 based on its focus on the Bonita copper-gold porphyry prospect in the northwestern part of Nevada and the Danbo low sulphidation epithermal vein play in the Walker Lane near the Round Mountain deposit. Based on new developments in 2019 VR Resources Inc has been upgraded to a Fair Spec Value rating and made a 2020 Favorite effective February 6, 2020. Bonita hosts a large alteration system within which management ho...
Osino Resources Corp is a Fair Spec Value rated Favorite effective December 31, 2019 based on the company's emerging Twin Hills gold discovery at the Karibib project in Namibia and its use of an innovative geochemical method to explore under cover in Namibia. Osino is headed by Heye Daun, a Namibian engineer who played a key role as president of Auryx Gold Corp which B2Gold acquired at the end of 2011 for stock that valued Auryx at $125 million. Auryx emerged in mid 2010 when Bay Street raised $...
Galway Metals Inc is a Fair Spec Value rated Favorite effective February 18, 2019 based on the company's flagship Clarence Stream project in New Brunswick which Galway is working to turn into an important gold district, and on the Estrades polymetallic VMS project in Quebec where Galway hopes to establish additional ore sufficient to bring that former mine back into production. Galway Metals emerged as one of two entities spun out on a 1:1 basis when Eike Batista acquired Galway Resources Ltd fo...
Endurance Gold Corp is a Bottom-Fish Spec Value rated Favorite effective December 31, 2019 based primarily on its orogenic vein Reliance gold project in the Bralorne district of southern British Columbia optioned 100% in late 2019, and secondarily on the 100% owned intrusion related gold system Elephant Mountain project in Alaska held since 2012. The stock is a market orphan despite just over 50% of its 110.4 million shares (57 million shares) being held by 2 wealthy Americans, Ross Arnold and R...
Galway Metals Inc attracted market action on February 25, 2020 with the latest batch of assays from Clarence Stream which included the best intersection yet. Hole #20-87, drilled at 82 degrees into the Richard zone, yielded 25.6 m of 10.6 g/t gold after adjustment for true width between 153-200 m. This interval included a high grade spike of 495 g/t gold over 0.3 m at 189 m, but there were 6 additional short intervals of 0.3-0.5 m true width with grades of 35.7-67.8 g/t gold so this is not an ex...
NuLegacy Gold Corp reported results on February 18, 2020 for a winter drill program completed late 2019 on the Red Hill project in Nevada which did not signal a new discovery but which did bolster the case for a potential Goldrush scale discovery in Q4 of 2020 when a plan of operations allowing drilling of the Rift Anticline target gets approved. The program involved 5 core holes for 2,230 m, four on the eastern flank of the Rift Anticline target where expectations were not overly high, and one ...
Forum Energy Metals Corp announced on January 21, 2020 that Rio Rinto had received a permit to construct a winter road to the Janice Lake project, and on February 26, 2020 announced that the road was half-way complete with Rio Tinto now preparing to move in an 80 person exploration camp via the winter road. The course of the 99 km road has been plotted to allow eventual conversion into an all-weather road. Forum CEO Rick Mazur figures Rio Tinto will have until mid April to move its equipment to ...
FPX Nickel Corp announced on February 25, 2020 that it has decided to complete an updated PEA for the 100% owned Decar nickel project in central British Columbia. At the same time it announced a $1.5 million private placement of 8,333,333 shares at $0.15 which will boost fully diluted to 176 million and working capital to $2.4 million after making an early repayment of $675,000 on one of the underlying loans. Insiders will participate, and when I spoke with CEO Martin Turenne on February 27 afte...
The question has been raised whether the panic will cause more damage than the pandemic. The CDC in its 
