Out of the ashes of the Fed: commodities melt-up underway

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Perhaps it was no surprise with a pivotal US Federal Reserve interest rate decision pending, but hard assets were taken down 'hard' last week. Copper, gold, silver, platinum and oil crumpled heavily, and reached oversold conditions not seen in months, even years. However, experience suggests whenever multiple commodities hit the ground hard in unison, it is really an opportunity cloaked in panic. When I studied my own forecasts and saw they lined up well with this panic bottom idea, I began to focus on some resource stocks with star power.

Last week, with platinum at its most oversold levels in four years, I highlighted producer Platinum Group Metals (PTM) to my Hedgehog Trader newsletter subscribers recently as a contrarian opportunity. The stock was smashed to pieces, sentiment in platinum was worse than awful and yet, the company is working to reach commercial production in the next month or so. I also note that platinum usually trades at a 20% premium to gold, and right now, that ratio is upside down, and gold is trading at a 20% premium to platinum. So given those factors, I see tremendous upside for Platinum Group Metals both long and short-term. A 10% holder, Liberty Metals and Mining added 293,616 shares on January 20th at $2.03.

This month silver plunged to its most oversold levels since last October. Out of the ashes, we initiated coverage on a demolished but delightfully undervalued Endeavour Silver (EDR). That's because the Mexican silver producer has three mines in production and will have 3 new silver mines entering production over the next 2 years. In addition, their largest producing mine Terronera will have a very low AISC of about $10.50/ounce and will produce 4-4.5 million ounces of silver annually. I also like that CEO Bradford Cooke stepped in and bought 20,000 shares at 4.48 in early March as it corrected.

A number of uranium stocks appeared to bottom and rebound before oil did, a good sign going forward; and I continue to favour a number of stocks in the sector. One uranium play I forecast good things for is Uranium Energy (UEC*US) which has seen more than 12 insiders buying shares over the past year, including 6 different insiders buying between December and January. A second high-upside uranium play is Mega Uranium (MGA) which owns 19.4 million shares of white hot Saskatchewan uranium explorer Nexgen Energy (NXE) and 405 million shares of near-term producer Toro Energy. In addition, Mega holds a promising joint venture with Cameco (CCO) in Australia. Mega's CEO Richard Patricio has added $366,000 worth of shares this year. My signals indicate we should expect Cameco to begin its next rally up very soon, so it's well worth watching.

With this new inflationary move underway, I outline a couple of tiny resource stocks (from my microcap advisory High Roller) which may benefit.

I should start by saying I have speculated on Twitter that lithium stocks may about to see a resurgence as the Global X Lithium & Battery Tech ETF (LIT*US) has broken bullishly out of its recent trading channel and now quietly trades near all-time highs.

My favourite lithium play is International Lithium (ILC) both from a fundamental and relative strength point of view. What's new since my last mention is they just reported a maiden resource estimate on their Mariana lithium brine project in Argentina- and huge Chinese producer Ganfeng Lithium their JV partner which owns 18% of International Lithium will be spending $12 million on exploration over the next year. So I see International Lithium as a great buy and hold- as the Chinese drilling will unlock a lot of value and add significant amounts of lithium resources. The other news literally just out is that their North American joint venture with Pioneer Resources has concluded drilling at Mavis Lake near Dryden, Ontario and results should be out this month. Insiders own over 50% of International Lithium. Many lithium juniors have been blasted, but the company's shares have been consolidating for months and have just seen their two largest volume days since June.

Another way to leverage the success of International Lithium is through tiny explorer TNR Gold (TNR). That's because TNR owns 15.9% of International Lithium. What's more, there are some nice added bonuses for patient speculators buying TNR. For one thing, TNR has a deal with McEwen Mining (MUX) where TNR will receive 1% of the sale of Los Azules, a world class copper project in Argentina holding 19 billion pounds of copper. That figure is expected to climb as McEwen Mining is drilling on it right now. The sale of Los Azules, more likely in this inflationary environment where copper continues to be strong, could yield $400 million conservatively. Of that, $4 million would go to TNR Gold and that would equal its current market cap.

There are a couple of other major assets TNR owns: for one thing, a 0.36% NSR on the entire Los Azules project that could yield worth millions in a sale. Lastly, TNR owns a very prospective gold project called Shotgun in Alaska. The last time TNR drilled it several years ago, results impressed Novagold Resources (NG) founder Greg Johnson so much he joined TNR's board of directors the very next day. (Novagold used to own Shotgun but sold it to TNR when they needed cash.)

Shotgun which both Novagold and TNR Gold believe holds multi-million ounce potential, has geological markers identical to Donlin Creek, a 50 million ounce gold project being advanced by a joint venture between Novagold  and Barrick Gold (ABX). In fact, only about a dozen drill holes on top of a large hill on the project known as Shotgun Ridge generated a substantial 700,000 ounce gold resource. What's interesting is insiders are heavily invested and own 60% of TNR Gold. And shareholders include Novagold and Barrick. TNR is looking for a JV partner to develop Shotgun and it could be Barrick who steps up.

Writer owns: ILC, TNR, MGA, EDR, MGA.

This article appeared on INKResearch.com before the market open on March 17th.

 

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