February 21, 2018 // Our bi-weekly interview series with the Mercenary Geologist, Mickey Fulp.
– Oreninc Index
– State of the market
– PDAC Plans
– Dow Jones, US-Dollar
– Lack of Seasonality
– Mickey Fulp, Mercenary Geologist
– Kai Hoffmann, CEO Oreninc
Kai: Hello, everybody, and welcome to the 19th episode of the Oreninc podcast series. I’m joined again by the Mercenary Geologist, Mickey Fulp. Mickey, welcome on the show today.
Mickey: Thanks a lot, Kai. Good to be here.
Kai: And we’ve got something to celebrate here today. It is actually our one year anniversary of recording the Oreninc podcast series.
Kai: Yeah. No, I appreciate you taking the time every other week, and I think it’s been quite successful. We’ve got a continuous or a steady group of listeners here. And I think our content separates us a little bit from the rest of the pack as well.
As always, I’m going to start us off real quick with a brief overview of the Oreninc Index, and what’s been happening here over the last two weeks, and what we’re seeing in the markets before Mickey and I discuss the overall developments, mainly in the metals market, and also this resurgence of the Dow Jones or the U.S. capital markets in general.
And as I said, actually, I want to start us off real quick looking at the Oreninc Index. As you might have heard in my voice, it’s still very subdued. It’s like I’m close to crying here, because seasonality is usually an indicator, or it used to be a great indicator, over the last few years, but this year, not so much. And when people tell me “History repeats itself,” I’m starting to call BS, especially in the metals and mining market, because this is a market of its own.
Oreninc Index, just last week, without one financing, we would have seen the lowest scores since probably this summer, if I’m not mistaken, of 2017. So our index score of 41.75 points last week or this Monday is a…it’s just terribly low for this time of year. We’re leading up to PDAC in 10 days’ time here. The number of financings has dropped to 17, which is terribly low. We’ve only seen three brokered financings, and of that, one financing sort of saved our index score, which is the BonTerra financing. They opened a financing of $21.5 million, and it’s led by Sprott Capital Partners out of Toronto. It’s a flow-through financing, even at that… So it’s even not that ridiculous. If you take that out, our score would have been in the low 20s, in the very low 20s, and that’s very depressing.
And Mickey, we have discussed this before, just before hitting the record button here. I’m not seeing a logical explanation here. It’s like I refuse to believe that it’s investors fleeing into the bitcoin pot or crypto space that’s taking away all the money and interest from the space. I refuse to believe that. What else is at play, in your opinion?
Mickey: Well, the only thing I know would be the cryptos and the weeds in the Toronto big board and the venture market. I don’t have any good answers. We still see a lack of institutional financings, other than specific, you know… Sprott seems to be very active right now. Not a lot of retail, although I’ve got a broker at Canaccord that tells me that he’s getting a lot of U.S. retail interest. But if we look specifically at the Venture Exchange, which is my sweet spot, the U.S. market correction also, which was a 10% correction that we have recovered, about 4% of that, plus or minus, but that correction took the Toronto Venture Exchange to the tax loss-selling lows that we saw in mid-December, around 800 for that index. That index has since recovered, what, about 3%.
I’m just not seeing a lot of interest. Of concern to me would be the financings that you just mentioned. And once again, a flow-through financing, which punishes, essentially punishes, anybody that does not live in Canada. Because that, in my opinion, in my honest opinion, is not real speculative money because it can be used for tax losses very easily, so…
Mickey: I think one of the things that’s very encouraging to me is the volatility in the markets, especially the U.S. markets. A lot of people are not comfortable with volatility, but I certainly am. In fact, in 2012, I wrote a piece in February, it’s on “My Musings” page for anybody interested, and it was that we should embrace volatility because that gives us entry and exit points in markets. The VEX is…it’s all over the place, but it’s still above 20, which is double what it was before the correction. Now, we have to put this into context that before the correction, it was at historic lows since it was first invented in 1990.
Kai: So, in your own opinion, do you think you think we’ve seen a sort of…or a belated seasonality this year? Like with a resurgent now or a resurgence of the TSX Venture Exchange or the index itself. It bounced back from the 790 level back to 833 today. Do you think seasonality is starting to kick in now, or are we just [inaudible 00:05:42]?
Mickey: I think that’s very hard to answer, because it’s been so skewed by the crypto and weed sectors, which have gone into bubble range, you know. I don’t know what the cryptos are today, but, you know, bitcoin, which reached a high of over 19,000, then went down in…below 7000. Last I checked, it was somewhere around 10,000. But those sort of corrections have really skewed that venture index. So I don’t know what to say.
Kai: [inaudible 00:06:22] benchmark right now, yeah.
Mickey: It’s not the benchmark that it was before the crypto and weed bubbles. It was generally determined by resource stocks, and it still is, you know. Something around 60, above 60% to 70% range would be still resource stocks. And another thing we have going on is we had quite a rally in gold. Gold has been quite volatile. And all the commodities basically are inversely, strongly inversely, correlated with the movements of the U.S. dollar lately. When the dollar goes up, the metals and energy market commodities go down, and vice versa. Gold keeps bumping against that 1360 resistance. It hasn’t made it there quite, and it…until it goes above that resistance level. I think it’s gonna be ranged down.
Kai: [inaudible 00:07:32] It’s definitely hanging [inaudible 00:07:35], I think…
Mickey: Yeah, 1330, but 2 days ago, it was 1355. And then the U.S. dollar, at that point, the U.S. dollar was below 89. And as we speak right now, it’s almost at 90. So that explains the $20 drop in gold.
Kai: No, I read in the newspaper or in the media this morning that we’ve seen the biggest drop in the gold price in the last 12 months yesterday with a $17 drop. It closed… I was kind of surprised to read it, because it felt like we’ve seen that a bunch of times last year, but I couldn’t shake that feeling that…
Mickey: Well, let’s put that into… Yeah. Sorry to interrupt, but let’s put that into context. A $17 drop in gold is less than a percent and a half.
Kai: Oh, yeah. No, no. That’s why I was so surprised to read that.
Mickey: Yeah. Just no volatility in the gold market, because currencies do not move that much. A half-a-point move in a currency in a day is big. And so, you know, look back at the days of the gold bull market, 2011, 2010, 2011, and the gold price would fluctuate wildly from $50 to $100 within a session, depending on what the market anticipated that Bernanke was gonna say or were pleased or disappointed after Bernanke said what he was gonna say. So from that point of view, the gold, the precious metal markets, are not exhibiting a lot of volatility, very ranged down.
Kai: Yeah. In comparison to the bitcoin…or to bitcoin in the U.S., well, I’m actually happy not to see that kind of volatility, to be honest.
Mickey: Yeah, well…
Kai: It’s comforting.
Kai: No. Shall we talk about the other metals, and what they’ve done over the last couple of weeks here, and how they have developed? But I think you’ve touched on many points that are sort of influencing the prices right now.
Mickey: Yeah. So right now, gold’s at 1330. Silver is still mucking about well below $17. We should mention that the gold-silver ratio is the highest it’s been in nearly 2 years. It was above 81, or right at 81, on Friday. I don’t have the exact calculation right now, but that’s a strong buy signal for silver. The predicted normalization of platinum-palladium ratio, which I think we talked about a month ago at the Vancouver conference a bit, platinum has exceeded the gold…or the palladium price a couple of times over the last 10 days. It’s at 1005 right now with palladium at 1032.
Copper had a big surge last week. It’s now up above, or right at, 320 once again. That’s a bit counterintuitive because the Chinese New Year started on Friday, and that’s generally the lowest time of year for demand for metals. So the fact that metals, all the base metals, have done very well—Iron ore has done very well—during a time during the Chinese New Year when generally they do not, is very bullish for metals going forward.
Kai: No, it’s interesting. And they’re coming back to the market, I think, tomorrow. It’s Thursday, so… From what I hear. So that should be quite interesting to see if we can see a reversal in the gold price perhaps, to see them again more active in the markets. Let’s end our little podcast session today with our “Number of the Week,” and I’m sure you’ve picked an interesting one again for us here, Mickey.
Mickey: Well, my number, and we didn’t talk about it just now when we talked about commodities… Love to mention oil, and oil has had a very volatile couple of weeks. Went down below 60 bucks, now is at 61.50, a nice little rebound. But get this, it’s all about U.S. shale oil right now. There are over 7000 U.S. shale oil wells that are drilled and uncompleted, which means they have been drilled vertically, they have been drilled horizontally into pay zones, and they have not yet been fracked and completed. And that process can happen very quickly. So going forward, we’re going to see, in my opinion, a great increase in U.S. shale oil production.
Kai: And I’ve read somewhere the other day, and correct me if I’m wrong, that U.S. production succeeded or has surpassed actually the Saudi Arabian oil production. Is that correct?
Mickey: That is correct, and if you actually… You know, these are oil numbers specifically, but so much of the U.S. production is, what, is light oils from condensate, from natural gas wells, and what is called natural gas liquids, which would be essentially oil. You add all those in, and the U.S. is, by far, the world’s greatest producer of petroleum at this point.
Kai: Interesting. It’s been coming. Everybody’s been [inaudible 00:13:19], you know, forecasting it, but now it’s out and it’s really interesting to follow that actually. So…
Mickey: What’s your number?
Kai: What’s my number? Actually, it’s like I’m gonna do a little bragging here on behalf of my country. It’s 12, and that’s the number of gold medals we’ve won so far at the Winter Olympics in South Korea. And the reason why I picked it, because Germany won against Sweden today in hockey, which is a sensation in itself.
Mickey: Wow. That’s very [inaudible 00:13:51].
Kai: We’re in the semifinals. Like for our German hockey team, that’s like winning the gold medal by itself. Like that was big news here in Germany. That’s why I looked at the overall score. And we’ve been in the lead for a long time, which hasn’t happened in a long time as well. So I’m quite proud, because we’re right ahead of Canada. So…
Mickey: Well, congratulations. I did not know that.
Kai: Well, that’s why it’s gold. It’s 12 gold medals, 7 silver, and 5 bronze medals. So it sort of has to do with what we’re discussing here anyway. So…
Mickey: Absolutely. Athletes just wish that their gold medals actually were gold and not gold-plated silver medals, so…
Kai: Yeah, exactly. If they were only…yeah. Their real weight in gold would be interesting, but no, it’s just fake. So, no. Your number was 7000, if I’m not mistaken. Mine was 12.
Kai: Mickey, I thank you so much again for your time. It’s always insightful to chat about the metal price and developments and the underlying drivers of them. And if I’m not mistaken, we’ll see each other or we’ll speak again at PDAC in only like 10 days. I’m flying out next Friday. I’ll be in town for a whole week. We’ll have a booth with Oreninc. Come by and visit. It’s booth number 3010 in the Mining Marketplace. Come say hello. And Mickey, we’ll probably record our next interview, our next podcast, live at the…from the conference floor.
Mickey: I’m sure we will, Kai, and I’m gonna do a little self-promotion, too, here. I will be presenting at the Newsletter Writers, Investors Symposium on Sunday afternoon at the beginning of the conference, and the title of my talk is “What Trumps Dollars and Gold?”
Kai: Oh, very good. I like the title. It’s very suggestive. I like it. No, everybody, go see Mickey’s talk. It’ll be very good and insightful. I’ve seen a bunch of his talks, and I can only recommend it. And thanks for listening, and stay tuned for the next episode, which we will record live at PDAC.
Mickey: Thanks a lot, Kai.