Silver Breaks Out, Tungsten Tightens, and Juniors Run: Feneck Explains Why

KitKo Mining's Digging Deep with Paul Harris - December 11th, 2023 - Summary

Key Concepts:

• Federal Reserve Rate Cuts: Impact on precious metals and mining equities.
• Silver-Gold Ratio: The dynamic relationship and potential for silver to catch up to gold.
• Naked Shortselling: Predatory practices impacting junior mining stocks.
• Critical Minerals: US policy, supply chain security, and investment opportunities (Tungsten, Antimony).
• M&A Activity: Anticipated consolidation in the mining sector.
• Permitting Challenges: Obstacles to bringing mining projects into production.
• RSI (Relative Strength Index): A technical indicator used for identifying potential selling opportunities.

1. Macroeconomic Context & Federal Reserve Policy

The discussion began with the US Federal Reserve’s recent interest rate cut of 0.25% (25 basis points), the third cut of the year. John Fenick noted that rate cuts were initially slow to materialize in 2024 but have accelerated recently. He attributed this shift to concerns about softening non-farm payroll numbers released on August 1st, as highlighted by Jerome Powell’s comments. A key point was the delay in the October and November job reports until December 16th due to the US government shutdown, which Fenick had predicted weeks prior. This delay introduces uncertainty, prompting Powell to adopt a “data-dependent” approach. Initially, Powell’s “hawkish” tone caused a dip in gold and silver equities (GDX, GDXJ), but a subsequent more nuanced stance led to a rebound on December 11th. Fenick anticipates only one further rate cut in 2025 as stated by Powell, but believes a change in Fed leadership with a potential Trump administration appointment could lead to more aggressive rate reductions, particularly if the US economy improves. Investors can track Fed expectations using the CME Fed Watch tool. A humorous observation was made about potential interview questions for Fed Chair nominees focusing on desired interest rate levels rather than salary.

2. Precious Metals – Silver’s Outperformance

Silver has experienced a significant surge, breaking above US$60 per ounce to reach all-time highs. This has garnered attention from conservative voices like Ronnie Sturgill, who predicts triple-digit silver prices. Unlike gold, central banks do not actively purchase silver due to volume and logistical challenges. Fenick explained silver’s rise as a “catch-up trade” driven by a historically high gold-to-silver ratio (reaching over 100 earlier in the year). He emphasized that silver’s gains haven’t necessarily been due to a gold sell-off, but rather silver independently appreciating in value, with gold trending between $2,000 and $2,250. He highlighted the thinly traded and short nature of the silver market, creating potential for volatility. With a gold price of $4,200 and silver at $60, the gold-silver ratio currently stands at 70:1.

3. Silver Equities – Opportunities and Recent Gains

Fenick believes silver stocks are poised for substantial gains. He cited examples of significant returns achieved in companies like Core Mining (CORE - up from $4-5 to $18), and New Pacific Metals (NEWP - from $1.15-1.30 to $330+), with partial profits taken. He recommended focusing on silver equities, specifically mentioning:

• Aftermath Minerals (AAF/AAM): Recently reported 122 million ounces of actual silver (not silver equivalent) in the M&I category, despite an initial negative market reaction.
• Silver 47 (SVRLF/AGA): Projects in Nevada, New Mexico, and Alaska, with 250 million ounces of silver equivalent identified.
• Black Rock Silver (BKRF): 108 million ounces of silver equivalent in Nevada, trading at a low valuation relative to the current silver price (under $2/ounce equivalent).

4. Market Manipulation – Naked Shortselling

The conversation addressed the issue of naked shortselling, a practice that allows short sellers to create artificial downward pressure on stock prices. Fenick highlighted the website saveadianmining.com and the work of Terry Lynch (Power Metallic) and Eric Sprott in raising awareness about this issue. Naked shortselling is difficult to detect due to reporting delays (twice monthly). He provided examples of companies like Power Metallic (PNPNF) and Triumph Gold (TIGF/TIG) experiencing suspicious selling activity, potentially linked to naked shorting. He emphasized the disadvantage faced by small investors against institutions engaging in these practices.

5. Critical Minerals & US Policy

The US Exim Bank’s commitment of $100 billion to secure critical mineral supplies and recent agreements with Kazakhstan and China (excluding tungsten) were discussed. Fenick noted that the US-China agreement on critical minerals is unlikely to be sustained into 2025. The exclusion of tungsten from the agreement has led to a price increase, while tungsten stocks have declined sharply. He identified several tungsten-focused companies as potential investment opportunities:

• Alcane Resources (ALK): Largest North American producer of antimony.
• IMetal Resources (IMRF/IMR): Acquired an antimony exploration project.
• Triumph Gold (TIGCF/TIG): Holds significant tungsten resources.
• Guardian Metals (GMTLF): Backed by Stan Druckenmiller, with US government funding.
• American Tungsten (TUNGF/TUNG): Received a $25.5 million LOI from USXM.
• Sydney Resources (SDRC): Idaho-based project with strong local support.

6. M&A Activity & Permitting Challenges

The merger between Contango Ore and Dolly Varden Silver was analyzed. While not a typical “takeout” scenario, Fenick acknowledged the potential benefits. He also highlighted the challenges of permitting mining projects, using AngloGold Ashanti’s struggles in Colombia (Kerodona project) as an example, questioning whether the company should continue investing in the country after two decades without production. He predicted increased M&A activity in 2025, driven by rising metal prices. He suggested that Paramount Gold (PZG) is a good example of a company that could be acquired.

7. Investment Strategy & Technical Analysis

Fenick discussed his approach to taking profits, utilizing the RSI (Relative Strength Index) as a key indicator. He typically trims positions in small increments when the RSI reaches 70 or higher, recognizing potential overbought conditions. He emphasized the importance of due diligence and understanding the fundamentals of each company.

8. Notable Quotes:

• “Trump is not going to put someone in there that is, you know, pro hawkish, uh, you know, activity in my opinion.” – John Fenick on potential Fed Chair appointments.
• “Real estate does not like higher rates.” – John Fenick on Trump’s likely preference for lower interest rates.
• “Silver has to catch up to gold.” – John Fenick on the driving force behind silver’s recent price surge.
• “It’s crazy. Silver’s got to catch up to gold.” – John Fenick on the gold-silver ratio.
• “You can’t flip a switch and turn on silver production.” – John Fenick on the supply constraints in the silver market.

9. Synthesis/Conclusion

The overall takeaway is that the mining sector, particularly silver and critical minerals, presents significant investment opportunities in 2025. Falling interest rates, rising metal prices, and potential shifts in US policy are creating a favorable environment. However, investors must be aware of risks such as market manipulation (naked shortselling) and permitting challenges. A focus on companies with advanced projects, strong fundamentals, and exposure to in-demand metals is crucial. Fenick emphasized the importance of conducting thorough due diligence and utilizing technical indicators like the RSI to manage risk and maximize returns. The junior mining market is finally getting some love, and those who do their homework can potentially reap substantial rewards.