Who's operating? Who's closed? It's all random
With all the chaos caused by COVID-19 and mine closures, the CEO of Sandstorm Gold, Nolan Watson, said he is thankful he runs a streaming business.
Kitco spoke to Watson on Monday.
While Watson noted that mines have been switching to care and maintenance, there are still significant costs. Many employees can't be laid off. Watson said mining companies often don't run with a lot of working capital, and many have debt.
"Those working capital balances across the board are starting to go low or negative for many mining companies. Most mining companies have tripped their debt covenants, although the banks are being patient with them so far, because they understand COVID-19 is a game-changer," said Watson.
"I'm just glad I'm not a CEO of an operating mining company right now, because it is never a good place to be to in while you have debt covenants and have a mine shut down."
Who Is Closed, and Who Is Open?
Last month Sandstorm (TSE:SSL) withdrew its guidance in the face of COVID-19 uncertainty. Watson said his company was one of the first to do so.
Sandstorm had some good news. Its asset in Argentina, Cerro Moro mine, was turned back on yesterday. The mine is run by Yamana Gold.
Regarding which countries are allowing mines to operate, Nolan says it's random.
"There is no real theme. It's almost politician by politician and what they feel like--which is political risk at its finest. [Some] are turning off and some are turning on, and you don't know which countries are which," said Watson.
When the world gets past COVID-19 and mines can start up, Watson worries about base metal miners. When the mines can finally turn on, base metal prices will likely be depressed. Year to date copper has fallen nearly 20% to just over $2.20 lb.
Tough Market for Juniors
Watson can't imagine many retail investors will be taking a flyer on a junior anytime soon. With the steep market fall due to COVID-19, high net worth investors are going to be worried about the rest of their portfolio.
"It's actually quite surprising how many high net worth individuals are getting margin calls right now, because they've been been a little too aggressive in their financial planning and investing," said Nolan.
Where juniors end up is all a matter of timing.
"If you're a well-financed exploration company, then you've got enough cash to make it one or two years. You're in a great place, because by the time this runs its course, you'll be able to raise money again. But if a company needs to raise money now or in the next two months, I think those companies are in a lot of trouble. I think those CEOs should be proactively trying to merge companies or just hunker down and stop all expenses."
Precious Metals Heading Higher
Precious metal is looking better, said Watson, who believes that all the quantitative easing is going to devalue the currency and drive people towards precious metals. Watson said he is “highly confident” that gold will be over $2,000 ounce three years from now.