Bizarro World Podcast
with Nick and Gerardo
May 23, 2022
0:51 Vancouver Resource Investment Conference Recap
6:24 Gold, Yields, Dollar Action
10:14 Top Junior Mining Stocks for 2022
15:35 Update on the Uranium Bull Market
18:30 American Lights Going Out as Power Grids Fail
22:43 Bear Market Assessment
Gerardo Del Real: Bears, bears, bears, bears everywhere. Bears in the Dow? Getting there. Bears in the S&P. Bears in the NASDAQ. Bears in the TSX. Crypto bear traps. Dollar reversals. We're going to talk Johnny Depp and Amber Heard. The fuck we are. We got better things to talk about. All sorts of stuff going on as usual. I am Gerardo Del Real. This is episode 170 of Nick Hodge and I's therapy session, otherwise known as Bizarro World. Nick, did you have monkeypox on your 2022 bingo card?
Nick Hodge: I did not have monkeypox on my 2022 bingo card, but I had macro bear hungry for golden lollipop with uranium center.
Vancouver Resource Investment Conference Recap
Gerardo Del Real: Let's get right into it because we want to make this one an expedited episode, and there is quite a bit to talk about. You were just at the Vancouver Resource Investment Conference. I was looking forward to attending. Due to the personal circumstances with the loss in the family here recently, I decided the best move was to stay close to home. I did miss being able to chat with people and see people face to face. How was the conference? I know you presented.
Nick Hodge: Bifurcated, let's say. So the professional part of the conference, meeting with the companies, getting some one-on-one time with executives, getting updates about the projects and the goings-on of things, that was really good. Lots of brokers there. Lots of companies there. Unfortunately, not a lot of retail investors there. And of course, it's a retail investment conference, so sentiment is not so good from that perspective. And also sentiment not so good from the perspective of a lot of the presenters. A lot of, as you say, bearishness, and I won't say depression, but a lot of consternation, let's call it, about the current state of the markets for sure. So what do you want to know specifically?
Gerardo Del Real: Let's talk about your presentation. How was that received?
Nick Hodge: I think the presentation was well-received. Met some subscribers of yours, met some subscribers of mine, met some subscribers of Mr. Dines. Saw some familiar faces in the crowd. And what was sort of weird with the talks was the rooms for the talks were were relatively full, in fact, mostly standing or sitting room only. And, of course, the conference trick is to reduce the number of chairs, which I'm not sure if they did or not. I counted 50 chairs in each room. It was five rows of 10. And in most rooms, those were full. But again, I think they were full with a lot of professionals from other companies trying to get the perspective of the panelists who were talking. Just to toot my own horn, I guess, each room has a moderator for the whole day that introduces all the speakers. And at least for the room I was in, my moderator told me that he enjoyed my talk the most of day one.
And so my talk was about, again, Macro Bear Hungry for Golden Lollipop with Uranium Center. And the point of that was to say that we're in a bear market. It could get worse, especially for tech stocks, and that tech stocks could go lower, and that gold would likely hold up in the face of both a recession and a bear market as long as rates didn't get much above 3%. And we can talk about that in a bit. They seem to have turned around a little bit. And how gold stocks are not gold. So I talked about how the golden lollipop was pure gold for right now, until we get on the other side of this recession and earnings contraction, which people are starting to finally believe is real now, right? You mentioned at the top of the talk that the S&P is now in a bear market.
So that was the gist of it. And then coming out of the backside of this recession and earnings contraction, how gold stocks and uranium were going to do well. I talked about what's held up so far here in the bear market, energy being one of the things. Metals and mining are now down for the year, but it's still one of the best performing S&P sectors. And I talked about how that would be one of the best performing on the upside swing after what's going on right now. So I think it was well-received.
Gerardo Del Real: Excellent. Let me ask you about the subscribers that you saw. Do they understand where the market is? And I don't know if you had an opportunity to speak at length with them, but what was their take on the opportunity? Are they looking at some of these companies and the market caps as opportunities? Or are they just lamenting having a portfolio that, depending on how you allocated your capital and when you allocated your capital, is likely down this year, right?
Nick Hodge: I think they're excited about what they own and they're cautiously optimistic. They don't or they can't put their finger on when the upside is going to come. So I'll just use one guy that I talked to. He came with a list of stocks that he's bought since he was a subscriber of both of ours at another publisher. So, I looked at that list of stocks, and there's stocks that you and I all own, right? I won't list them all here, but junior resource stocks. Right? And there were only two on the list that I told him, "If it were me, I likely wouldn't wouldn't own or add here."
And then he was telling me the prices at which he owned them. And I mean, he's done well. I mean, he was in Azarga before it became enCore, for example. So he was a happy camper and he had put six figures into these stocks total, right? Like, 10 stocks, taken six figures, and splitting across. He was wondering, I guess, if they were all going to zero or if he had made good selections. And I told him that he made good selections. Again, we just have to get through the current market downturn because the resource stocks are separate from the underlying resource, especially gold.
Gold, Yields, Dollar Action
Gerardo Del Real: Absolutely. Let's get into rates and treasuries. The ten-year is now at 2.78% it closed, today being Friday. We're recording on Friday today, publishing of course on Monday. It was interesting. And I was wrong. I didn't think it would go above that 3% yield. It didn't do so for very long, but the bottom line is, this U-turn seems pretty pronounced. Do you think it continues? Is this kind of the top or the bottom, depending on how you want to look at it?
Nick Hodge: No, I think you're in maybe the middle of the range for the ten-year. And of course you got to wait and see what the Federal Reserve does, but I could see it bouncing back and forth, going back up to three, becoming sort of a range-bound thing. What I was saying in my talk is that I had drawn a line right to three and said that, look, if it goes much above this, you're going to have trouble elsewhere in the market. And you're sort of starting to see that already, like delinquencies, like subprime delinquencies for auto loans are already ticking up, for example. People that have lower credit scores aren't able to handle these interest rates that are rising.
And so you said you didn't think they were going to go much above three. And I don't think they are either. We've talked about how Jerome thinks he's the new Volcker. And the difference is that Volcker didn't have the debt that we have to deal with now. So I talked about how the debt that we're dealing with in the United States, not just the federal debt, but total non-financial sector debt, is over three times GDP, and how things will start to break in the market if rates tick much higher. So it's good, I guess, to see that the market's sort of reflecting that, right? Because I had been saying that for a while that the rates had to turn around and they have softened up a bit. And that's what's allowed gold to tick back up a little bit as well, combined with the dollar pulling back a little bit. But I don't think that's the definite turnaround. I just think you're ... let's call it a transitory period. I think both the dollar could go back up as well as bond yields over the course of the next three, six months.
Gerardo Del Real: US dollar index above 103, but below 104. Gold below $1900, but well above $1800. $1800 and 1900 once again seems to be the new levels, right? Low end of the range, top end of the range for the time being. I, for one, would not be surprised if we see a breakout. I also would not be surprised if that takes another couple of months. And just to crystal ball the whole thing, I actually think by the time 2022 is out, we see brand-new, all-time highs in the price of gold. I think we break that. But I do think there's a little bit more pain to be had in the junior space. And then for the gold stocks, as you mentioned in your presentation, gold stocks are not gold, right? They're very different asset classes. One does provide more leverage than the other. But that works the same way to the downside. A knife cuts in both directions, right?
Nick Hodge: Oh yeah, absolutely. And so you have your thesis about gold going up with the dollar and potentially with rates. But I just think so many inputs right now, and I think that's what sort of contributed to the lackluster attendance at the conference. I think there's so much for the consumer and the retail investor to analyze, that they’re sort of like a deer in headlights right now. Right? I mean, you mentioned it all at the top, the crypto crashing, the rates rising, all of that stuff. So yeah, I mean, range-bound — lots of things for the next couple of months. And then I certainly see gold going to new highs and then the next cycle of the market.
Top Junior Mining Stocks for 2022
Gerardo Del Real: Excellent. Let's get into companies. You said you met with several CEOs there who stood out?
Nick Hodge: I mean, I sell this stuff.
Gerardo Del Real: And let me provide better context for my question. Given the state of the overall markets, where very few things are holding up, I'm very fortunate that I was here a week ago talking about how my two largest holdings had dropped 30% one day, and then were up 40% the next day. Luckily, both of those continue to do well, just for the simple fact that they keep adding to the discoveries that they each have. That's Patriot Battery Metals (CSE: PMET)(OTC: PMETF) and Nevada Sunrise Gold (TSX-V: NEV)(OTC: NVSGF). But aside from that, look, there's been a lot of picks of mine that have gotten taken to the woodshed. Chakana Copper just announced the diluted financing that I don't think had to be done for $7 million. I don't think we had to dilute by 60%. I say we as someone that supports the company and likes David Kelly and what he's done with the asset. But it's dilutive. I don't particularly like the amount of money that was brought in. I understand the reasoning for it. But again, as a shareholder, you look at that and you have to think, well, could we have taken two or three million dollars as opposed to seven? We'll see if they come back out and get back to drilling and add some value and prove that up and we may be proven wrong. But I say all that to say, which CEO, given the present conditions, did you walk away thinking, "Yeah, I could just go to sleep and own that stock for the next couple of years, not worried about the price today?"
Nick Hodge: Oh, well, that's Aldebaran. I mean, I talked to John Black for the first time and it got a much deeper understanding of the level of support of their key shareholders as Sibanye and RouteOne and how they communicate and arrange things for the long term benefit of the company. I got a better perspective of the portion of the project that they're drilling out now, the Radio deposit, which is not included in the current resource, which is obviously already huge. And got a good perspective of the green field or the blue sky targets that have not been tested yet, as well as mineralization that's sort of outside the current pit shell, if you will, as well as what could lie underground for a bulk underground scenario.
So that's a company or an asset that I think will be owned by a major mining company. Again, it was Sibanye's asset. Of course, Gerardo, you know all this. But Sibanye paid over $400 million for that. And Aldebaran has an option to earn up to 80% for much less, and they're well on their way to earning in. What else? Very supportive shareholders. Like, they're exercising warrants, we've discussed this, at 70 cents with the stock at 55 cents. And despite that stock going down to 55 cents in the past couple of weeks, that was very brief. That was during a period of super high volatility.
Gerardo Del Real: No coincidence we're back to 81 cents, right?
Nick Hodge: Exactly right. And so, yeah, to answer your question specifically, go to sleep at night, everything's relative… We're still talking about a junior mining stock. But I would be confident doing that. And then I'll mention two more, I guess, if it's okay with you.
Gerardo Del Real: Absolutely.
Nick Hodge: One is a Aguila Copper (TSX-V: AGL)(OTC: AGLAF), and now this is obviously highly speculative. Super tiny market cap, Canadian five million dollars, but ... And it's a big but, because they got over a million dollars to drill an untested copper project in Nevada, an un-drilled copper project in Nevada, that's showing 2% copper at outcrop at surface. They're defining targets now and they'll drill in the second half. And so I'm excited about that drill program, especially because they're funded for it and also because that's not even the flagship, though it will be pro providing the bulk of the news flow for this year. I'm excited because it's a five million market cap, a shot on goal with a copper drill program, and they got a resource in Manitoba and a second project. So, very cheap. That company, of course, will have to raise more money after this drill campaign. And obviously, it would be an exploration story. The idea is to raise money at much higher prices after that first drill campaign. Right? So, that would be one.
And then I had a lot of good conversations, but I think Skyharbour is in a really good place, given the current pullback in price, not just across the entire uranium space, but with Sky Harbor specifically. Just a lot of irons in the fire to generate news with partner-funded projects, and now with the news that they had this week, that they've got a Rio Tinto project strategically located with over 200 drill holes in it. I think that's just a really cheap uranium stock headed into the back, call it, two thirds of this uranium bull market. Sorry, I'm going to hog the mic for one more second.
Update on the Uranium Bull Market
Gerardo Del Real: No. This is exactly what I wanted. The Vancouver Resource Investment Conference recap. Right? I wasn't able to make it. A lot of the people that are listening or watching this, not able to make it. So I think this should take up the bulk of this episode here.
Nick Hodge: Yeah, well, so I was going to segue into the uranium panel, which I also sat on. And that was standing room only. It was Rick Rule on the panel. It was GoviEx uranium, which is an African developer that's headed up by Robert Friedland's son, and Fabi Lara, who is a Brazilian young lady who's made a name for herself in the financial blogosphere. So anyway, Rick Rule delivered all the classic lines. Either the price goes up or the lights go out. All that sort of stuff. But the sentiment was that we're a third of the way into this bull market, which still leaves a lot of runway. You're in the middle of a classic pullback in a bull market that people should be taking advantage of.
And then some of the more interesting points in the conversation is that the effects of this Ukraine/Russia stuff haven't played entirely out yet. We still haven't banned Russian imports of uranium, but perhaps more importantly, the world is realizing, especially Europe and Germany, the precariousness of their energy supply. And it's just shone a really positive light on nuclear and uranium and the need to get it from other places outside of Russia. And the thing I noted, that actually didn't occur to me till I was on stage, is I compared it to the rare earth space, right? Because not only do we not produce any uranium here in the United States. We actually will soon. A company that you and I both own is headed into production later this year, and in full production early next year.
But that we've exported the expertise as well. So not only does all this Russian and Russian satellite state uranium from Kazakhstan and other places, all that uranium still goes through St. Petersburg, right? Because of the enrichment and the other facilities that they have there. And so just like we outsourced all the purification and the refinement of rare earths to China, we've done the same thing with uranium to Russia. And I think the catalyst to bring that back has just materialized. And again, once we get through this recession and bear market, you're going to see, I think, fervent support for Western uranium, not only production, but investment in reactors, alternative technologies, and refinement. And, well, that's why the center of the golden lollipop was uranium, right?
American Lights Going Out as Power Grids Fail
Gerardo Del Real: Not a coincidence that I'm going to bring up the power grid warning. Me living here in Texas, it's a big issue. And I tell you what, nothing motivates citizens who otherwise wouldn't care at all about a uranium investment or speculating in the uranium space or clean energy or any of that, nothing gets the citizenry removing like the threat of not having lights for days on end, especially here in Texas, where we had a situation last year where it happened and over a hundred people died. And so to live in one of the most prosperous states in the union, a state that produces so much energy, it's an embarrassment to this state to be in the precarious situation that we're in, getting power grid warnings on an almost weekly basis, preparing everybody for what should be a shit show of a summer if it comes true the way I think it's going to come true.
No excuse for that in 2022. I realize it's not a flip of the switch to get it on and get it going, but we absolutely, in this country and around the world, it's not just Texas and it's not just the US, have to get a lot more aggressive about clean baseload energy that is sustainable and scalable. And there's no better answer than nuclear. That's just a fact.
Nick Hodge: Yeah, that was one of the themes at the conference. And it's not just Texas. So let me start there. You know, there was a big exposé, I guess I'll call it, in Bloomberg this week. It was more than an article because it's a big topic. So they were warning North America. I mean, they were talking about rolling brownouts all the way up through Canada this summer, right? For multiple reasons: natural gas supply disruptions, record high temperatures earlier than they've been… they even were mentioning hacking by Russians due to the US intervention in that war.
Gerardo Del Real: No way.
Nick Hodge: And we've talked about how it was going to be a hot summer in more ways than one. So yeah, there's no excuse for that in 2022. And you say it's not the flip of a switch. And yeah, that's precisely the point. It takes time to build CapEx projects and infrastructure projects and mines and distribution, which is why they're already caught on their heels. By they, I mean, all the leadership: Congress at the federal and state level, all the way through to the grid operators. They're behind. And it's why, when you hear me talk about solar roads and concentrated solar, I mean, that's what I mean. Like, we got to get onto real solutions here and stop pussy-footing around, is the right word, right? Make real decisions and push forward.
And the second part of that is the double speak that's coming out of the government. And we've mentioned this a little bit before, but on the one hand, talking about how these critical metals are important, and we've got to get more supply online, and we've got to get these projects going, and then literally out of the other side of their mouth, not approving projects and not moving things forward. And that was a big theme at the conference. I heard more than one presenter talk about the conflict, the inherent conflict between ESG investing on the one hand and nimbyism and not getting things approved on the other hand. And I say Rick Rule throws out the classic lines, but you're literally getting to that point. Like, either you guys do these projects or the lights go off. And that's a cute phrase, but now the lights are actually going off.
And so they've got to get on their horse. And I think that's why we're in the right sector. Right? So I guess that's the book-end I would put on it. If we are in this transition period, and we're going to do this electrification thing, then has it been delayed by a year? Two? Three? I'm not sure. Probably. Is it going to be an absolute investment of the decade over the next 10 years? Yeah, I think so, Gerardo. Because where else is the copper and the uranium and the nickel and the zinc going to come from?
Bear Market Assessment
Gerardo Del Real: I agree 100%. With that being said, what are you watching in the market here this next week? You mentioned a big copper gold play with Aldebaran. I mentioned Patriot, Nevada Sunrise Gold. Both of them had excellent news this past week. I expect that news to continue. Extremely biased, extremely bullish, have a bunch of each of them. They're my top two holdings — substantially — quite a bit of my portfolio. What are you looking at this week?
Nick Hodge: I'm looking at what I've been looking at. Still the bond yield. Still the volatility, which is quite elevated and causing the price swings that you're seeing. So I'm interested to see how low can we go. It's sort of like a limbo thing. I've mentioned March 2020-
Gerardo Del Real: How low can we go? How low can we go?
Nick Hodge: Right. More than a couple of times now. And-
Gerardo Del Real: It's a twerking-ass market.
Nick Hodge: Just like I was saying, nobody was wanting to click on that bear market stuff in February and March and April. The retail public, for better or worse, is generally last one in, last one out. And what I see is the general public getting scared now that we're down 20% could send shares down even further as people truly get a handle on understanding the bearishness that we face. And so macro bear, Gerardo. I think stocks go lower. I'm keen to see these T-ball dads tonight and tell them so.
Gerardo Del Real: I think you're right. Let me share a story from a friend and mentor of ours, and I'm sure you probably heard it this week, though you were traveling, so you may not have. He was at an institutional conference with a lot of the big fund managers and some very smartest-people-in-the-room types. And he noted a couple of things for me. I said, "What was the sentiment? Like, what are you hearing? What, were your main takeaways?" He said, "Gerardo, it was two things. The age of these traders that are managing these funds?" He said, "They're all younger than you." I'm 43, by the way. He said, "They're all in their mid thirties at most. They've never seen a bear market. They've never traded a bear market."
He said, "The second thing that stood out to me is most of them are all in. They believe the bottom is right around the corner and they're all in. There's not a lot of cash on the sidelines waiting to be deployed." Both of those things tell me that unless Powell does his pivot, which I don't think comes yet, I know it happens eventually, just not yet, then I believe the broader indices are going to deliver some more pain. And I think people should absolutely be ready for that. And look, if you have a 401k or a retirement plan, and you can't afford to see it down another 20%, it might be worthwhile to pull a little bit of that, even if you're already down 20%, 30% and have a little bit on the sidelines in cash, because it may prove prudent.
Everybody's risk profile is different. I tend to be more high risk, high reward. Sometimes that pays off in spades and sometimes I got to make a phone call and line up some cash really quick to make sure that everything is buffered up the way it should be and that the moat is protected. But it's different for everybody. You got to have that conversation with yourself, folks, and ask yourself, what do you need in the next three, six, nine months? And you know, if what's in there goes to money heaven, as Rick Rule likes to say, is that sustainable for you? Would that be okay? Would that change the way that you're living? And again, it's a painful conversation to have after already being down 20, 30% for most people in the broader indices, but you could find yourself down another 20, 30%. That compounds really, really quickly.
Nick Hodge: Yeah. It's, I would say, probable.
Gerardo Del Real: I know you have T-ball. I know it's been a week of travel. I wanted to make this a VRIC recap. I think you did a phenomenal job capturing the mood and the hesitancy in the market and the sectors that should receive the first bulk of speculative capital when that comes back. And you mentioned uranium. I think we both can say that we love the lithium space. Anything battery metals, I think, is going to be ... The trends that are mega trends that have to continue on, despite what happens in the Dow, despite what happens to Tesla or Twitter or Elon or Amber Heard or Johnny Depp, right? These are motions and trends that are in motion, that are not going to make a U-turn any time soon. They may slow, but they're not making a U-turn anytime soon.
I had a subscriber that wrote in and I haven't been able to respond. I will. But if you're listening, you asked about silver versus uranium stocks. And what I would say is this. Silver is trading, rightfully so, as an industrial metal. Silver is going to require more of a U-turn in the broader indices and in the economy globally before it turns back up, because it's not trading the way that gold's trading. It's trading as an industrial metal. Uranium is a lot more volatile, but I think it recovers a lot more quickly because of those underlying fundamentals and that big mega trend that we're experiencing. And I think you mentioned in your presentation you thought we were in the third inning of the uranium bull. Is that accurate?
Nick Hodge: Yep.
Gerardo Del Real: I agree 100% with that. It's two steps forward, one step back. I think we just took one step back. I think we have a couple of steps forward coming here in the next couple of weeks.
Nick Hodge: Yeah. And you mentioned Elon Musk. I did want to mention something about that that just follows on with what I was saying about the loggerheads that we're at with ESG versus mining and things like that. He was going off this week about a lot of things.
Gerardo Del Real: Elon went Elon.
Nick Hodge: Yeah. But the ESG stuff, he's spot on with, right? Like, Tesla was taken out of some ESG index — environmental and social governance — and Exxon remained in. Right? So when you just think about that on its face and how illogical that is, to have Exxon in an ESG fund and not an electric car company, it just shows you the dumbness that's in the market and the way that people are thinking about this, it just doesn't make any sense. And it's not going to last forever. I mean, he's been one of the early ones out there saying these auto makers are going to have to become miners. You just wait. You just wait, everybody, until Ford and Volvo and GM are saying the same things and my "I told you so’s” grow louder.
Gerardo Del Real: And taking 20% stakes in junior mining companies with massive deposits and stable jurisdictions and funding the CapEx, and all of the beautiful things that I think are going to happen here in the next couple of years. And I think if you're positioned well, we're going to have a fun, fun, fun time profiting from those trends. I think that's a good stopping point, Nick. I'm going to say we'll talk Madison next week. We'll have less entertainment on a weekly basis because Madison, of course, lost his primary race, so we're not going to get anymore videos anytime soon. But yeah, there's a lot I want get to next week on the social side. We had the shooting in Buffalo. Horrific hate crime. Condolences to everybody out there. I want to talk crypto with you next week and the potential bear trap. I'll be looking for that this week to see if it breaks above $30,000 or breaks down closer to $20,000. Real potential for that to happen. But for now, I think it's a good stopping point. Anything else you got to say, Nick?
Nick Hodge: No, that's it. Careful out there, man. Hedge funds are shutting their doors. It is an environment that you should be very defensive in. So just caution to everyone out there.
Gerardo Del Real: One last word on Chakana Copper, though I do not like the dilution on the financing, you're probably seeing a bottom here, folks. Still a great copper gold asset. Still phenomenal exploration upside. Still some great, great geos on that property and a great partner in Goldfields. So I think better days ahead. Painful to see it at these levels. Painful to see the dilution. But I think you're likely near or at a bottom. That's all I got this week, everybody. I am Gerardo Del Real, along with Mr. Nick Hodge. This was number 170 of Bizarro World. Say something nice to the people and have fun at T-ball, Nick
Nick Hodge: Macro bear waves goodbye.
This transcript is unedited. Please excuse grammatical errors and run-on sentences.