Post-Election Market Trends: How Long Will They Last?
Contributed Opinion

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Metalla Royalty & Streaming, Lara Exploration Ltd., Franco-Nevada Corp., Barrick Gold Corp., Altius Minerals Corp., Orogen Royalties Inc., Midland Exploration Inc., and Fox River Resources Corp., and Agnico Eagle Mines Ltd.
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The election victory of President Trump led investors to reassess their views on the economy and inflation, and with that, a reassessment of assets to buy.

• There is optimism about future growth (lower taxes, less regulation). This is positive for stocks and negative for bonds and gold.
• Many think the Trump agenda will increase inflation, leading to a more cautious pace of rate cuts. Overall, this is neutral for stocks and negative for bonds and gold.
• Greater growth and higher rates will be positive for the dollar and negative for gold.

The markets acted that way, as one would expect. After election day, stocks jumped over 5% (before giving some of that back in the last couple of days). The dollar jumped over 3%. Bonds fell over 4%. And gold is down 6.6% (9% from the end-October high).

This is all pretty much a replay of the 2016 election aftermath. I'll offer a few thoughts on the outlook for the next period.

Renewed Strength for Stocks, at Least for the Near Term

Though stocks are stretched, the enthusiasm may continue for several more months. At a minimum, investors will likely want to hold off taking gains this year but rather will defer to next year and possibly lower rates. Tax-loss selling, however, could be more aggressive than usual.

Over the past 100 years, stocks have typically done well in the first year of the presidential term, up 11% on average. In the last four presidential cycles, these returns have been higher, in the upper 20% level. So, absent some unknown, stocks will likely have a positive return for the next period, even if there is rotation among the leaders (oil stocks are up, pharmaceuticals are down).

Gold's Decline Modest in Context

As for gold, the election-induced selling came while the central bank and Chinese buying remained soft. We should emphasize, however, that after going up for two years, gold fell only back to where it traded near the end of September.

After appreciating 72% since the low two years ago, to fall back less than 10% is a modest correction. Gold also declined after Trump's 2016 victory. That decline lasted little more than a month before a strong recovery. If history rhymes, we are half way through the pullback already.

The Reasons To Buy Gold Remain

Fundamentally, the reasons various groups have been buying remain.

• Central banks want to continue to diversify their foreign reserves; despite the sharp declines in the percentage of reserves held in dollars, a majority of global central bank's foreign reserves are still in dollars. And central banks have good reason — arguably increased reason — to be concerned about the weaponization of the dollar.
• Chinese investors have good reason to be concerned about the vulnerability of their economy and yuan. They continue to be concerned about the fragility of their banking system, wanting to preserve wealth in other assets. Perhaps at the margin they feel a little more moving into their stocks, but they will continue to avoid real estate and are prohibited from owning crypto, so gold will continue to see buying from this source.
• Though there may be good reasons to cheer on efforts to cut government waste, government debt levels and ongoing deficits are an enormous burden. The drive for government efficiency won't be sufficient to eliminate the deficit, at least not in the near term. The economy is heading rapidly towards recession in any event, with unemployment rising. So, I suspect that the Federal Reserve will continue to lower interest rates, for the former if not for the latter reason. Maybe by 2028, the U.S. will have a balanced budget, sustainable debt levels, and a healthy, growing economy, but in the meantime, investors will want to some gold.

So, the various reasons that different groups have purchased gold over the past two years remain. We may see further declines in the coming weeks to the $2,500 level before gold finds a base and turns around. This is not the time to abandon gold.

Metalla's Revenue Begins To Pick Up, With Significant Growth Ahead

Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American)  reported third-quarter results with deliveries a tad light, with the new mine Tocantinzinho having customs issues selling the gold, and therefore delayed revenues to Metalla. Another new mine, Amalgamated Kirkland, generated no revenue for Metalla during the quarter, though a third new mine, La Guitarra, did commence generating revenue for Metalla. These mines should have improved cash flow during this quarter as they ramp up and solve start-up issues. Costs, including G&A, were down. The company still expects to hit its annual guidance, with revenue from five mines by year-end.

Next year, Tocantinzinho should ramp up to full commercial production, while the Endeavor mine in Australia is expected to re-start operations in the first half of the year. Further out, several significant mines on which Metalla holds royalties, are expected to come on stream over the next five years.

Metalla's cash balance increased modestly to just over $10 million; there is just over CA$19 million drawn on the Beedie convertible loan facility. As we have said many times, Metalla is undervalued on an asset basis, while cash flow is beginning to pick up as new mines come into production. CEO Brett Heath calls this "a pivotal moment" for the company. The end of the ATM stock-issuance program, plus the near-term potential for reducing debt and buying back stock, along with a new president working alongside Heath, are all positives.

At this price, Metalla is a strong buy.

More Revenue for Lara, as Investors Eye Major Copper Project

Lara Exploration Ltd. (LRA:TSX.V) announced that mining and processing have resumed at the Celesta copper project in Brazil. The company expects to start receiving royalties this quarter and to have back royalty payments caught up in the coming months. Lara has two royalties on the project, a 2% net smelter, and a 5% net profits.

Lara remains a Buy, primarily for its Planalto Copper Project, though this news reminds us that there are other assets in the company.

TOP BUYS this week, in addition to the above, include Nestle SA (NESN:VX; NSRGY:OTC), Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), Barrick Gold Corp. (ABX:TSX; GOLD:NYSE), Altius Minerals Corp. (ALS:TSX.V), Kingsmen Creatives Ltd. (KMEN:SI), Orogen Royalties Inc. (OGN:TSX.V), Midland Exploration Inc. (MD:TSX.V), and Fox River Resources Corp. (FOX:CNSX).

ERRATA Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) is trading at less than 10 times price-to-cash flow multiple (and not free cash flow as mentioned); still undervalued . . . The Eagle Mine in the Yukon, on which Osisko holds a royalty, was closed after a tailing failure, with a landslide and cyanide spillage.

Questions From Readers

Q. The collapse in the share price of i-80 Gold Corp. (IAU:TSX; IAUX:NYSE) this week gives me perhaps my largest-ever loss on a mining stock. What is your prognosis, and should I buy more? - C.C., Nevada

A. I-80 built a group of strong gold projects in Nevada but there were two fatal issues, in my mind. The company was far too ambitious in trying to build all mines simultaneously; and the company did not come out with a clear, holistic financing plan. Rather, it undertook a steady series of small financings, always leaving the market wondering what was next.

In September, the CEO who built the company, was replaced. And this past week, the new management presented a new development plan along with its quarterly results. The release read as though management wanted to paint as dark a picture as possible, likely with input from the lawyers. A working capital deficit and ongoing operating losses, it said, cast "significant doubt on the company's ability to continue as a going concern." They need to raise some capital to deal with near-term liabilities, and also to restructure existing debt and obtain additional financing.

The plan is to stagger mine development over a longer period of time, building all five mines by the end of the decade, though the Lone Tree open pit project will "likely" be deferred for another decade. The costs of building each mine and how they plan to finance them is not known. The company said that it was "well advanced on finding financing solutions" and promised a comprehensive financing plan by the end of Q1 2025. A joint venture for the base metals at Ruby Hill was canceled. The stock fell 62% after the release, from an already weak level.

There Is Great Value in the Assets

Assuming that the company can recapitalize in an orderly manner and without onerous terms, then the company is cheap. Even if all debt had to be converted to equity, thus diluting shareholders, the NAV per share would still be over CA$3. In the worst case, with a poor valuation multiple, there should be a double from here once a plan is announced and a recapitalization is successful.

The CEO has a record with distressed companies. He came into Argonaut and orchestrated the sale of assets to different parties, increasing the stock price, though not back to where it had been. On the conference call, he denied the plan would be to sell the company, but that is his history.

I would not buy here, given that the stock will likely be soft until there is concrete news on the refinancing and financing plans. The stock will also be vulnerable to tax-loss selling. (Everyone who has ever bought the stock has a loss.) If tax losses are not a consideration, I would not sell. I would wait to reassess after the strategic plan has been announced. We should not ignore the fundamental factor that i-80 has an attractive package of projects, in a top mining jurisdiction, with, so far, 14.6 million ounces of gold equivalent (plus base metals at one project). That is a prize not to be casually discarded.

Q. I was listening to an interesting interview the other day, where the speaker said that the new gold mine supply is only about 1.5% of the total above-ground gold. All the gold ever mined is potential supply in the right circumstances. So, the new mine supply simply does not matter. - M.C., Texas

A. Yes, new annual supply is a very part of total gold in existence; gold famously does not decay over time, and very little is actually used. Your conclusion that new mine supply "simply does not matter" is not valid, however. Most of the existing gold is not potential supply in any near-term, practical sense. Mine supply must (usually) be sold as it is mined, but other gold supplies do not have to be sold, so supply sets the price.