SCS: What's Happening on November 22, 2021
Jerome's second term will include more "easing" and media arguing semantics. Jay Lutz doesn't love Canada Nickel's strategy.
In a news release from the Whitehouse this morning, it was announced Jerome Powell would be getting a second term as Chair of the Federal Reserve. One of the biggest critics was Senator Warren who says she will vote against the nomination and released a statement:
Powell’s failures on regulation, climate, and ethics make the still-vacant position of vice chair of supervision critically important. This position must be filled by a strong regulator with a proven track record of tough and effective enforcement - and it needs to be done quickly.
Somehow the guy whose mandate is to use monetary tools to keep inflation stable and unemployment low is now responsible for climate change.
I suppose Senator Warren really just wants Powell to be more dovish.
The Austrian School of Economics’ folks are pulling their hair out watching a Fed president who added 40% to the M2 Money Supply over 18 months get called hawkish.
The next term will mostly involve people arguing over what the term "'transitory” even means. Should inflation go back to its normal level by 2023, the transitory folks will say, “see it happened” and the alarmists will of course say “what about all the price increases from 2020 to 2022?”
How Independent is the Fed at this Point?
The Fed is supposed to be independent. None of us really know what goes on behind closed doors. Whoever is more likely to make it easier for politicians to pass their pet projects to get their donations or fees is likely to stay in the good graces of the President.
It’s talked about ad nauseum. But as they say, “it is what it is”
I take a similar viewpoint as Sven Henrich. There was more than likely negotiation that went on to make this decision. “Hey Jerome? What are you going to do for us?”
God help us if the alarmists are right, and inflation proves to be persistent past 2023. Our world will start to look a lot different. One day a straw will break the camels back, but trying to guess the timing is a fool’s bet.
Macro: The Macro Themes Surrounding Equities
US intel shows Russian plans for potential Ukraine invasion (BBG)
The Financial Times tells us that COVID has generated a surge in retirements (FT)
Large-Cap News We Can’t Ignore
Ford and Rivian cancel plans to jointly develop an EV (CNBC)
Hedge funds trim Amazon, Facebook stakes; jump into Robinhood, Blend Labs in Q3 (SA)
Compass: Canaccord Reiterates $80 Price Target After Study Data (TDD)
NIO Raises US$2 Billion From At-The-Market Offering Of American Depositary Shares (TDD)
Small Cap News
North Shore News breaks down a Vancouver man who has alledgely ran over a billion dollars of pump and dumps (NSnews.com)
Uber enters booming cannabis market with orders in Ontario (Reuters)
India’s Paytm Tumbles Another 13% After First-Day IPO Flop (BBG)
Stone Gold: The Potential of the Batchewana Bay Copper Project (TDD)
What Were Watching out For:
Not much exciting stuff in earnings this week from Earnings Whispers:
Canadian Small Caps With Jay Lutz
Canada Nickel Company (TSXV: CNC) is having a day today, with the equity rising 8.8% as of the time of writing, after climbing as high as $3.58 during the morning hours. The move is in connection with the announcement that the firm has acquired additional property in the Timmins, Ontario camp.
Collectively, the company acquired a further 13 properties in the region, through a total of 18 agreements, as it looks to lock up prospective nickel projects in the region.
Investors have rejoiced today at the theory that the company has “locked up” the region, despite the fact that these properties are scattered throughout the district, with only three properties being contiguous with one another.
One property, referred to as Sothman, reportedly has a historic resource of 190,000 tons of 1.24% nickel, but other than that these properties appear to be very early in development, with a handful having drill history while the others were simply acquired based on untested geophysics.
Despite investor sentiment in the name, the properties did not come cheap. Cash consideration for the assets was low, at ~$371,500, however 2.0 million shares were also issued in connection with the purchases, good for a further $6.14 million, bringing the initial outlay to the equivalent of $6.5 million.
That’s just the start though. If the company wishes to hold on to the assets past the next twelve months, at least an initial $1.0 million in exploration must occur across the properties, with clarity on the timing for expenditures on one property in particular unclear. Work commitments over the next handful of years is pegged at at least $4.2 million, plus additional drilling meterage. And at Sothman, perhaps the best prospect among the new properties, the company owes a cool $10.0 million in cash or shares to Glencore in the event any resource beyond 10,000 tons is established.
Honestly, such funds would likely be best spent at the firms Crawford property, where the company earlier this year released a PEA that outlined an after-tax NPV of $1.2 billion based on an 8% discount rate, and nickel priced at $7.75 per pound. While at the time nickel was actually priced lower than $7.75, it has since soared to $9.13 today, adding additional value to the property. Offsetting this partially is the price of iron, which has seen the bottom fall out of it, dropping as low as $92 today, despite the report based on a $290 price level per tonne.
With that project however currently undergoing a feasibility study, the problem for Canada Nickel, is that it doesn’t generate much for news to keep investors excited. And considering the last reported quarter closed out with $11.5 million on the books in cash despite a $12.0 million financing closing four days prior to quarter end, Canada Nickel quite frankly needs to keep investors entertained if it wishes to be able to raise funds down the road.
And what better way to do that, than to talk about “district scale potential.”
MEMEs of the Day
Full Disclosure: CanaCom Group is long StoneGold. Steve Hyland owns a minority position in CanaCom Group.