Streetwise Reports: Ralph, thanks for joining us today. Looking back at 2019, what were some of the trends in precious metals that impressed you?
Ralph Aldis: I think gold's relentless grind higher has been very impressive despite the dollar maintaining some strength. Obviously, the Federal Reserve has cut rates three times now, and that has been positive. But it hasn't been a straight line up, of course.
In the third quarter we seem to have a little bit of a broadening out in the precious metals trade. Gold got to the $1,500 level and stalled around there, above it and below it, maybe establishing a new base.
But we did get rotation into silver. I think that was the best performing precious metal for the third quarter, up around 10%. And platinum got some money into it, started catching up and was up for the quarter. But palladium has been extremely hot related to catalytic converters to control auto emissions, and platinum has been left on the sidelines because that's used more in diesel engines, whose market share has certainly dropped, particularly in Europe.
But that bottoming out of the trade says investors are getting positioned across multiple precious metals assets.
And then at U.S. Global Funds more recently, what we've seen that gives us a positive slant is that on some of these days in the past couple of weeks where we've had gold getting knocked down, we've actually seen some of our biggest inflows coming in. So there is a buy the dip attitude out there on gold price. It's like people can see what's coming. They hear the trade talks with China maybe are going to solve things, although I don't think that's the case. But this ball that's rolling at us is getting bigger, and gold and the other precious metals seem to be getting some traction.
And it doesn't hurt also that countries like Serbia, Poland and Hungary have been buying gold. If you look at people who understand money, central banks are continuing to buy gold. That's probably going to continue to happen here.
SWR: Your fund, the U.S. Global Investors Gold and Precious Metals Fund (USERX), is up about 43% over the 12-month period ending at the end of October. What stocks were your top performers?
RA: The one that had the most impact was Wesdome Gold Mines Ltd. (WDO:TSX), up around 137% over the past 12 months. The management team at Wesdome, led by CEO Duncan Middlemiss, has done an excellent job in unlocking the potential at its Eagle River operations and the Kiena Complex where the future opportunities await.
Silvercorp Metals Inc. (SVM:TSX; SVM:NYSE) was another one that was a good performer for us. It was up 155%. Silvercorp definitely had a strong bid driving its price higher with silver bullion rallying coming into the fall.
And Centerra Gold Inc. (CG:TSX; CADGF:OTCPK) was up 121%. That actually helped us up quite a bit, too. Management has delivered above average returns on invested capital, and investors have been consummately rewarded.
Positions that were a little bit smaller but still in the Top 10, Top 20 area were K92 Mining Inc. (KNT:TSX.V), which did great. That was up 164%. John Lewins, K92 Mining's CEO, is a real hands-on leader and very much has been the driver for performance at the operations. John understands capital markets and has the technical skill set to push the value drivers for the company.
We've had Alacer Gold Corp. (ASR:TSX; ALACF:OTMKTS; AQG:ASX) in there for the past year. It's not as big a weighting, but it's up 207% over the trailing 12 months. Alacer Gold has also been a strong deliverer of consistent returns on invested capital.
We had North American Palladium Ltd. (PDL:TSX; PAL:NYSE), but also added Impala Platinum Holdings Ltd. (IMP:JSE) earlier in the year. I haven't owned Impala the entire trailing year, but it's up 275% over that trailing year. In the last six months it's done pretty good, too.
Silver Lake Resources Ltd. (SLR:ASX) out of Australia is another one that was in there that actually helped us out. It purchased Doray Minerals to get control of the Deflector operations where it has expanded the resources boundaries and added to reserves.
SWR: This is the tax-loss selling season. Are there stocks that have been beaten down that investors should be looking at in the next month?
RA: Chakana Copper Corp. (PERU:TSX.V) has been hammered down much further than I think it should. In my opinion, it should have been named Chakana Copper and Gold because the gold content is just as rich as the copper content. It has something like 2% copper, 2 grams gold in many of the holes that it is drilling in Peru; there are tourmaline breccia pipes there that host the mineralization. But Chakana did attract Gold Fields Ltd. (GFI:NYSE) to invest $8 million into that name recently. So it has money; it's not going under.
The purpose of this money is to start drilling the 15 or so of these tourmaline breccia pipes on its property. It hasn't tested all of them to find out where it should be starting. It's on the side of a big hill, and you could actually drill from there and maybe find the ones that are interesting. Then you could get in there from an adit, from the side of the mountain, and basically cave the ore down through these pipes.
But the first drill holes that Chakana put out on its probe were just done from an engineering standpoint rather than a promotional standpoint. It was just like, hey, this is the one that we drilled first, yes it has some grades that are not the best but now we know this is probably not the one that we want to continue to do a lot more work on. So it is doing a systematic work program on the pipes to try to identify really where is the opportunity.
So Chakana is one stock to consider. I own it. It's down below where I paid for it, but I'm still sticking with that one because I think because it is exploration focused the Street is ignoring it, but there is some money starting to come.
SWR: Looking ahead, what's your outlook and forecast into the next year?
RA: We don't necessarily have a black box model that tells us what the gold price is going to be. So we try to look at the macro, distill it down and try to think about what are the likely scenarios that could play out in front of us.
Obviously, for 2020 we have the U.S. elections coming up, which are very contentious. You can read the news and see all the opinions out there in terms about what's going on. But I would say though it's not so much whether a Democrat wins or whether a Republican wins. I mean, there are going to be differences, but I think the key thing that you are still going to see is either party is going to spend money. Right now, what we're seeing with the U.S. debt issuance and the availability of cash to the overnight repo market, the primary brokers who buy it don't even have the cash on the books to buy the debt. And that's where we got out of whack on interest rates and why the Fed has come in with these measures on the repo market to try to stabilize it. In the Republican scenario, we're issuing debt, and we're probably going to have the same thing happen if a Democrat takes the White House.
Now, one thing that makes me wonder on this Republican-Democrat divide, and I'm not trying to sidestep here, but in 2016 gold was rallying and when we had the election and Trump won, it seemed like the market said, hey, we're going to have good stock markets now. People who are rich are just going to get richer because we're going to make everybody even richer with this market by keeping it going. And then gold slacked off these last three years and has been going kind of sideways. But as we're getting closer to the elections again, gold seems to be picking up and holding up here, and I'm wondering if that's just related to whether this race is going to be very tight.
You see lots of stress around the world. You almost wonder if 2020 might be the year of civil unrest. It's like it's coming to a city near you because there just really seems to be a lot of tension out there in the world, whether it's Chile, Iran or Hong Kong. Environmental, social and governance (ESG) concerns are becoming very significant. ESG seems to be at the heart of a lot of these protests. And a lot of political leaders are very nationalistic. So it looks to me like a world that's going to have a lot more conflict next year than peace. So I think it makes sense again that this precious metals trade probably should be part of your portfolio, whether it's in stocks or whether it's in the precious metals themselves. Some part of that should probably be in your fund at this point in time.
Central banks around the world are buying gold. Individual investors are absent from the party. They're looking at Apple, they're looking at Google and thinking who knows what, but I don't think they're thinking about all the risk properly.
SWR: People thought that with the Republican administration coming in in 2016, government would be more fiscally responsible and instead the debt has gone up.
RA: Yes. It's really been a wall of debt coming. All of this could be good for precious metals, but I don't want to see it at the expense of my brothers and sisters.
SWR: Thank you, Ralph, for your insights.
Ralph Aldis, CFA, portfolio manager of U.S. Global Investors, is responsible for analyzing gold and precious metals stocks for the World Precious Minerals Fund (UNWPX) and the Gold and Precious Metals Fund (USERX). In addition, Aldis serves as co-portfolio manager for the Global Resources Fund (PSPFX), Holmes Macro Trends Fund (MEGAX), All American Equity Fund (GBTFX), Emerging Europe Fund (EUROX), Near-Term Tax Free Fund (NEARX), U.S. Government Securities Ultra-Short Bond Fund (UGSDX), the China Region Fund (USCOX), and the U.S. Global Jets ETF (JETS). In 2011, and again in 2015, Aldis was named a U.S. Metals and Mining "TopGun" by Brendan Wood International. In 2016, he and Frank Holmes were named Best Americas-Based Fund Manager by the Mining Journal. Aldis received a master's degree in energy and mineral resources from the University of Texas at Austin in 1988 and a Bachelor of Science in Geology, cum laude, in 1981, from Stephen F. Austin University. Aldis is a member of the CFA Society of San Antonio.
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1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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3) Ralph Aldis: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: N/A. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: N/A. My company has a financial relationship with the following companies mentioned in this interview: N/A. Funds controlled by U.S. Global Investors hold securities of the following companies mentioned in this article: Wesdome Gold Mines Ltd., Silvercorp Metals Inc., Centerra Gold Inc., K92 Mining Inc., Alacer Gold Corp, North American Palladium, Impala Platinum Holdings, Silver Lake Resources Ltd., Chakana Copper Corp. and Gold Fields Ltd. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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