Looking at the Monthly Close on Precious Metals and the PDAC Conference with David Erfle, The Junior Miner Junky

Trevor Hall [00:00:05] Happy Friday, everybody. Welcome back to Mining Stock Daily. This is Trevor Hall and this is going to be my last show of the week in leading up to PEDAC up here in Toronto, wishing everybody safe travels as they do depart and spend the next few days in lovely Toronto, Ontario. Look forward to seeing as many of you there as we can. Today, we have a wonderful interview with David Erfle he's the Junior Miner Junky. Just a side note, we did record this interview on Wednesday. Boy, I tell you what, we didn't have any clue what was going to happen yesterday. A huge sell-off, and basically every market, including the junior miners. It didn't make sense whatsoever. But, you know, there's things you can control and things you can't. And sometimes what we saw yesterday was things you can't control. So I did want to give you that side note that we did record that Wednesday. So we talked a lot about the importance of the monthly close, which will happen at the end of the trading day today on Friday. We also talked a little PEDAC and where to find some of that low hanging fruit. Turns out there's a little bit more low hanging fruit out there now after yesterday. Before we get started, I do want to thank our sponsors. That's Pacific Empire Minerals, Western Copper and Gold, Corvus Gold and Integra Resources. Thank you so much for your continued support of Mining Stock Daily. So without further ado, here's my conversation with David. And once again, safe travels, everybody. We'll see you up in Toronto.

Trevor Hall [00:01:41] And a happy Friday to you all. This is Trever Hall with Mining Stock Daily and once again joined by the junior miner junkie, that's David Erfle. As we not only wrap up the week, we are wrapping up the month and also having a little pre-PEDAC special with Dave. Hey, it's good to talk to you once again.

David Erfle [00:01:59] Good to talk to you again, Trevor, thanks a lot for having me.

Trevor Hall [00:02:02] We've got a lot to discuss because obviously we're seeing lots of volatility in the market over the Coronavirus fears. There are some economic policies that I'm sure the Fed and the administration are definitely contemplating right now, I would assume. But we're here to talk about precious metals and some miners. Let's talk about gold, first off, David, as we kind of start wrapping up the week and the month. We had a nice run-up in gold, it's still hovering around it as we recorded Wednesday afternoon, still kind of hovering around that 16.40, 16.50 futures price. But as we wrap up the month, what is the, where would you like to see gold end up?

David Erfle [00:02:43] Well, Trevor, I'd love to see the gold price remain above 16.20. I don't want to see it close above 16.20, especially on the monthly. That would not be good. But it's really interesting how everything is shaking out here as far as how the panic is ensuing in the equities. And it's also affecting the gold stocks as they're about to break out. You look at the GDX, you know, that's that monthly close also is very important. And I'd really like to see a monthly close above 31 on the GDX because it's if we see that and that's a breakout of a seven-year base. It's really interesting how it's playing out.

Trevor Hall [00:03:26] Well, gold has definitely I mean, it's moved up higher and then when it had some selling off earlier this week, but it appears like we're getting a little bit of a nice bounce from the low here midweek. But silver is still lagging. It's not performing well. Give us your thoughts.

David Erfle [00:03:44] Yeah, that's it looks to me like it's created a short term double top there at 18.90. We'll bring up the chart here. It's hit 18.90 about I think it was about a month and a half ago, and it hit it again just recently on this move. And if you look at the monthly, it's forming a little, it's forming a little handle of a cup and handle. And if we get a monthly close above 18.50, that would be encouraging. But it's gone way back down below that right now. So we'll see how it all plays out here by the end of the week.

Trevor Hall [00:04:21] All right. Well, we'll definitely keep an eye on that. Again, we are recording this on Wednesday. So, I mean, the way these markets have been moving each day, David, this conversation could be obsolete by the time it airs Friday morning. But you did kind of mention the GDX and looking for a $31 monthly close. Well, let's move over to the GDXJ. You know, that, too, saw some selling off, but it's been it's kind of been holding in there nicely.

David Erfle [00:04:50] Yeah, it has been. I'd like to see a monthly close above 50 on the GDXJ. That would be really nice. But yeah, I mean it's you know, it's called the GDXJ, but should really be called the GDXM shouldn't it? I mean it's mostly mid-years with a smattering of majors. There are not very many juniors left. And so it's really not a barometer for the junior gold stocks.

Trevor Hall [00:05:14] Well, probably for a good thing, right. Because I mean you and I were chatting a little bit before. A lot of the juniors, especially the small-cap explorers, just haven't gotten any legs even at this 16.50 gold price.

David Erfle [00:05:28] Yeah, it's amazing. It really is. I mean, if you had told me a few years ago, hey Dave, gold's going to be at seventeen hundred dollars an ounce, the juniors are still gonna be, you know, lagging, and not getting very many bids. I would have laughed. But on the flip side of that, there have been a handful of, more than a handful of juniors, that have performed very well. So it's still very much a stock pickers market. You still have to watch your entry points. You know, the bull market is not going to bail you out here. I mean, during the last cycle, I can remember, you know, getting entry points on things, saying, "Oh, gee, I missed that, but it looks like the bull market is probably going to bail me out". And it usually did. But this time around, that's not happening. There's a lot of these juniors still aren't participating.

Trevor Hall [00:06:18] Do you wonder if maybe that's largely due in part because the overall market is basically still in an uptrend and people haven't necessarily jumped ship yet into junior mining?.

David Erfle [00:06:29] Yeah, I do. I do. I think that has a lot to do with it. And also the last bull market in gold was based off of the weak U.S. dollar. So now we have the U.S. dollar and gold safe havens in tandem. And also we had the U.S. stock market as a safe haven along with the U.S. dollar and gold up until the past week or so. So investors are saying, "Hey, look, why should we bother investing in these high-risk juniors when the U.S. stock market's going up and these gold miners and royalty players are doing really well. So why should we go into these risky gold stocks if there's still opportunities in the U.S. stock market?"

Trevor Hall [00:07:15] And what kind of questions or inquiries are you getting? You know, personally about, you know, convincing others that maybe are not playing in this sector yet. But interest may be dabbing their toes in a little bit. Have you started having more of those conversations and what are those questions like?

David Erfle [00:07:33] I get a lot of questions of what we're talking about right now. Why haven't some of these juniors performed? If you look at some of these things, especially these optionality plays. These juniors that hold huge deposits in really good jurisdictions, but other deposits need a fifteen hundred dollar gold price. We're well above fifteen hundred dollars here and they're still not moving. And management of these a lot of these companies have done the right thing. They've kept the share structure tied, they haven't overspent, they have an over drilled, they know what they have, they know they're an optionality play, they know they need a rising gold price for their project to be economic. And that's happened, yet their share price still hasn't moved. And on the flip side of that, you've got some other projects that are in good jurisdictions that only need thirteen or fourteen hundred dollar gold and they haven't moved, and they're in the orphan stage and they're maybe in the finance stage and they need to get finance in capital markets, really haven't stepped up to the plate to finance a lot of these projects yet. So that's another reason. So it's been very, very frustrating, but it has been rewarding. If you've been able to pick the right stocks at the right time.

Trevor Hall [00:08:51] I'm just curious, David, I guess, you know, obviously, I receive your newsletter every week and I know you have been a seller in some of your positions. Have you been, what have you been doing with some of the money you've taken off the table? Have you been reinvesting it or have you taken it in to really hold on to more of a cash position as this looming unknown within the markets continues to hang over our heads?

David Erfle [00:09:15] Yeah, that's it right there. Trevor, I sent out that alert on Sunday that I'd be selling, that I'd be taking some profit in a few positions that we're really overextended. So I've done that, and I'm going to hold the cash here for a while to see how this shakes out. I mean, if you take a look at that sell-off in the Dow, that's gone down over, Dow's gone down over 7 percent here in just three days. And the gold stocks had been acting like stocks. Which is what happens when you have panic, that when you have panic moves in equities, gold stocks become stocks and they get sold right along with equities. So if you take a look at at at the Dow, I would not like to see a monthly close below twenty-seven thousand. And it's, I think it's trading there right now. And if we see that, I wouldn't be surprised if we see a move all the way down to the twenty-one to twenty-three thousand area. So I'm going to hold my cash to see how this plays out for while.

Trevor Hall [00:10:17] Do you think that some of those miners that people like you and I hold can move down with it?

David Erfle [00:10:23] Absolutely, absolutely they could. The ones in the minors that are the most overbought, the ones that are the most extreme overbought can be sold off the most. So a lot of these juniors, they won't be sold off because they haven't moved very much.

Trevor Hall [00:10:39] Not much further for them to go.

David Erfle [00:10:45] Right? Exactly. Those I'm not worried about. Some of the ones that I picked up recently, I've taken you know, I've taken a shot, a bottom tier shot at a few things here recently. I'm not worried about those going much lower.

Trevor Hall [00:10:55] You know, that actually reminds me of some of the stories. And I know in 2000, 2009, 2010, before the big bull market in the junior exploration really moved. I was not a participant at that time, but I did hear stories of those positions in those mining companies. Their share prices dropped and dropped and dropped. I mean, in the way you had to iron hand those positions was really a test to patience at that time. You say we could maybe re-enter into a similar situation?

David Erfle [00:11:26] No, I don't. I really don't think so because of that situation is it is a different, it's not really comparing apples to apples here, Trevor. It's when you had that situation happen in 2008 to the gold stocks, they already made a massive run. They were already, a lot of those were extreme over-bought, the sector was extreme over-bought. And like I said, they had made a massive run. So when we had that plunge, that lasted about six months, you know, a lot of those things were really overbought. And the sector had enjoyed, you know, I think it was from 2005 to 2008, the sector had really, really done well. So a lot of that was being worked off. But, yeah, I mean, it's a totally different situation here. The things that are extremely overbought are royalty plays and low-cost producers, and also a few of the juniors that have done really well. So I would just be careful with those. If you have a lot of profit in something that's extremely overbought, I would definitely be taking some off the table.

Trevor Hall [00:12:46] OK. Good point.

David Erfle [00:12:48] But definitely maintain your core position. I'm not, I'm definitely not advising selling core positions.

Trevor Hall [00:12:53] OK. And how about allocation as we continue to move this an unknown. Do you still recommend not having one position? I think your target was about 10 more, being more than 10 percent of your portfolio.

David Erfle [00:13:06] Well, yeah, I mean, it all depends on your risk tolerance. It all depends on your own personal financial situation. You know, I'm not a financial advisor. I can't really give out advice like that. As far as my junior portfolio, I have my own my own risk management rules and I just adhere to one of them here. Recently, one of my positions became over 10 percent for the second time in the last two years. The same position became over 10 percent of my portfolio. So I took some profits and things like that. And I don't hold any more than 25 to 30 juniors at one time. I don't put any more than two to four percent into any one junior my investment capital. So, you know,  just you have your own risk management rules and definitely adhere to them.

Trevor Hall [00:14:04] Okay. So we've got a big event coming up next week. That's the Prospectors and Developers Association of Canada event. We always look forward to PEDAC up there in Toronto. Lovely paradise of Toronto there, in early March in Ontario. So as we head into PEDAC, David, I was just kind of curious. Obviously, I think there's going be a lot of optimism. There's going to be a lot of excitement there on the floor. But how are you approaching this year that maybe is different for you than obviously in past years?

David Erfle [00:14:38] Well, first of all, I'm going to be interested to see it to see how much this Coronavirus scare is going to affect the attendance because talking to a lot of people, the industry, some of them aren't even going. I mean, I heard through the grapevine that Eric Sprott wasn't even going because he's scared of the virus. So it's going to be interesting to see how much it attendance is affected, number one. Number two, I do have a lot of one on one meetings scheduled, and I'm looking forward to speaking to management, as always and catching up with the companies that I'm already invested in for myself and my subscribers. But I'm not looking to buy anything here, but I'm looking to get to know some of these management teams that I'm not familiar with.

Trevor Hall [00:15:25] Any of those companies that you have meetings with that you want to know better, that you maybe want to throw out there and say you're just looking forward to chatting with them?

David Erfle [00:15:34] Well, a couple of them that I'm looking forward to maybe taking positions in later, so I don't think that would be fair to my subscribers if I told you that.

Trevor Hall [00:15:42] Fair enough.

David Erfle [00:15:44] But you know that the one company in my portfolio that's really exciting right now and I think is getting close to being in a sweet spot is Alexco Resources. Looking forward to catching up with them. They have a water license permit that's very important that's about to be issued. And they just sold their environmental business to pretty much fund their ramp-up to production later this year. But all they need is this water license. I'm looking forward to getting an update on that.

Trevor Hall [00:16:13] Yeah, that was an interesting plot, actually, because there's a couple of different turns in that. I mean, obviously, Alexco divesting from, well, I guess their environmental service companies now in Cerro, which I was not aware of, but is now in Cerro. Then roughly the same time EMX Royalty actually announced that they took a position in Cerro as a private company. So that was very strange. So it just makes you wonder, well, it makes you wonder if Alexco is really starting to plan on ramping up that project. And I think the writing's on the wall there. But don't take me for you know, don't hold me to it.

David Erfle [00:16:55] Yeah, it's I think I think, you know, they'd been discussing selling this environmental business for a while now. And I think it goes a long way to say that they're very confident to get this water license because now that they've sold this business, they are pretty much fully funded. The production and the environmental business was paying a lot of their GNA. So they don't need that anymore. But they do need the capital to ramp up production. So it's going to be interesting to see once they get this water permit, which I think water license, which I think is probably going to be sometime in late March or early April. But I'll find out like I said, I'll get an update from the company at PEDAC. So that's a very exciting story because if they are able to ramp up  production in late Q3 or early Q4, I'm thinking the silver price will at least on the $20 floor by then. And they can be ramped up for that too,  production with the silver price at 20 bucks while all their competitors have been bad, been pretty much losing money on selling their silver. All Alexco's high-grade silver has been sitting in the ground. That's going to be very bullish.

Trevor Hall [00:18:10] Yeah. And I'm with you there. I think the timing of that play could be very fortuitous for Alexco and their shareholders for sure. Also fortuitous for the Yukon, actually, because that would put in another mine in production for the territory.

David Erfle [00:18:25] Absolutely. Yes. Yes. So that would be very good. Very good for the Yukon. Absolutely.

Trevor Hall [00:18:31] All right. So let's continue to move on, because I actually want to talk to you about some low hanging fruit. And we mentioned this earlier, but there are, I mean, the juniors and explorers really haven't moved even with 16.50 gold. We're kind of baffled and shocked by it. I know you and I both are, but there it remains. There's still opportunities for buying out there. Where do you look for low hanging fruit in this stage of the cycle, David?

David Erfle [00:18:58] Well, you know, it's it optionality plays. You know, the companies that I talked about before, I mentioned the attributes of the optionality play that you want to look for, and you want to look for a type of share structure, you want to look for a safe jurisdiction, you want to look for a big project that's got a lot of ounces with blue sky. And that's a sector that's extremely undervalued right now. And also, you know, there's early stage exploration plays. You know, they have strong targets within district-scale land packages and good jurisdictions. And they're cashed up, and they've got a management team that is a seriously successful management team that's done this before. They have access to capital. So companies like that, and there's also development plays, developer explorers that are kind of in the orphan phase right now, that they're looking to finance their production or they're looking to finance their projects or they're getting close to finance. And they have the same attributes as I discussed before, so that's an area. There are growth-oriented producers now. A lot of them have already had nice moves, the low-cost ones, but the higher cost ones are still lagging. So if you've got maybe a high cost, a growth-oriented producer like all in sustaining costs of twelve hundred dollars. You know, if the gold price is creating, if you think the gold price is creating the floor here at 16.50, then you might want to start scaling into those. But as far as what's overvalued here, I think royalty plays variable value. And I think lower-cost producers, some of them are very valued. So it's still you know, it's still a stock pickers market. I think it's going to be that way for a while.

Trevor Hall [00:21:01] Right. Well, David, I'll look forward to catching up with you at PEDAC up there in Toronto. I appreciate your time and safe travels. And best of luck to you, my friend.

David Erfle [00:21:12] Same to you, Trevor. Thanks very much at all. I'll see you there. I look forward to seeing you.