Markets and Metals Navigator (August 16th, 2020)

Silver & Gold Check Back After a Scorching Run

Gold suffered its worst week in five months down -4% (silver down -6%).  The rise in U.S. bond yields drove real yields higher as well, additionally the news of a potential vaccine for COVID-19 from Russia lifted the markets risk appetite – the S&P 500 was up +1% and copper was up 2%.

Uncle Warren & Berkshire Hathaway Take a Liking to Barrick Gold

The biggest news of the week for gold equities was a filing that showed Berkshire Hathaway had added Barrick Gold (NYSE:GOLD) to its portfolio in the second quarter – they added 20.9 million shares or $565 million in current market value.

Barrick shares shot up 8% after-hours Friday on the back of the news. We view this as a very positive development for precious metals mining companies as Warren Buffett has been a long-time bear of gold, this signals two key messages to the market:

  1. Berkshire is concerned about the current monetary environment (money printing) and the tail risks related to inflation.
  2. Berkshire sees the value of buying a gold mining company over owning gold itself.

Barrick Gold has lagged gold bullion by -70% over the last decade.

This is not Warren Buffett’s first foray into precious metals, in 1997 he bought 3,500 tons of silver when silver was around $4.50, silver rose 84% in the following year.

Lumber Prices Highlight Inflationary Pressures, Akin to Copper

U.S. Lumber futures have exploded +200% higher since April this year, on the back of strong demand and supply bottlenecks – resulting in the highest prices on the record.  We believe similar demand and supply dynamics exist for copper as well.

Sierra Metals Reported Strong Q2 2020 Results & Solid Production Guidance Despite COVID-19 Headwinds

Sierra Metals (TSX:SMT, NYSE:SMTS) released solid Q2-2020 results despite a challenging operational environment related to COVID-19.  As Capital 10X highlighted in July, the company’s production was down only -10% on a copper equivalent basis to 22.7 million pounds produced.

In the face of the operational challenges the company was remarkably able to keep EBITDA (earnings before interest, tax, depreciation & amortization) flat relative to 2019 at $12.6 million.

Sierra Metals also provided revised full year 2020 production guidance, anticipating copper equivalent production that will be in the range of 110.1 to 122.3 million pounds. An impressive outlook that could potentially see the company grow overall production by 9% at the top-end during a volatile operational year.

U.S. Cannabis Enjoying the Spotlight

As we identified in our weekly on August 2nd, we saw a clear breakout of the U.S. cannabis names relative to their Canadian peers.

Trulieve (CSE:TRUL) had a stellar performance week (+32%) on the back of strong Q2 earnings results.  Revenue came in at a record $120.8 million an increase of 26% quarter-over-quarter, and +109% year-over-year.  Free cash flow for the quarter was $40 million.

Nevada – The Value Opportunity in U.S. Cannabis

Last week we launched the “United States of Cannabis” series with a spotlight on the state of Nevada.  On a per capita (per person) basis, Nevada has the highest sales in the U.S. at this stage in its legalization.

We believe Nevada is the COVID-19 Catch Up Trade in cannabis.  Las Vegas is still not operating at full capacity, as the virus recedes investors should expect Las Vegas to return to peak demand driven by tourism.

There are three publicly traded cannabis stocks with significant exposure to the Nevada market:

  1. 1933 Industries (CSE:TGIF, OTCQX:TGIFF)
  2. C21 Investments (CSE:CXXI, OTC:CXXIF)
  3. Planet 13 Holdings (CSE:PLTH)

 

 

 

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Sierra Metals is a market awareness client of Capital 10X.

1933 Industries is a market awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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Capital 10X gets down to the real money business, actionable financial insights for traders and investors. We analyze company earnings, interview management teams and help teach the fundamentals of financial analysis and options trading. Our mission is to hunt for genuine 10 baggers.
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