AGORACOM Small-cap Investor Relations Blog

SPONSOR: American Creek Resources (TSX-V: AMK) owns a 20% Carried Interest to Production at the Treaty Creek Project in the Golden Triangle. 2019’s first hole averaged of 0.683 g/t Au over 780m in a vertical intercept. The Treaty Creek property is located in the same hydrothermal system as Pretivm’s Brucejack and Seabridge’s KSM deposits. Click Here for More Info

After spending three years in a $250 trading range (between $1,121 and $1,375), spot gold has erupted since late May and is up 18.01% YTD as of last Friday’s (8/15) close at $1,523.34. At the same time, gold mining equities, as measured by Sprott Gold Miners ETF (SGDM) are up 39.52% YTD.

To us, the operative questions are:

1) What factors ignited gold’s breakout from a three-year consolidation?
2) Are these fundamentals likely to persist in future periods?

We offer the following answers. Gold is clearly responding to a global pivot by central bankers back towards concerted monetary easing, and the intractable nature of excessive global debt levels suggests we are in the very early innings of the developing easing cycle. In short, for gold this is the real deal and we suspect things are just getting started. …for gold, this is the real deal and things are just getting started.

At Sprott, our investment thesis for gold rests largely on the unsustainable nature of global debt levels. While investor consensus recognizes that debt levels are a daunting structural dilemma, the inability to predict either timing or method of inevitable resolution has long relegated debt concerns to the back burner of investor priorities.

In this post, we develop the possibility that global asset markets may finally have reached the point at which excessive debt levels are overwhelming longstanding relationships in normally functioning capital markets such as interest rates, time preferences and capital formation. Named after Austrian economist Hyman Minsky, the global economy in 2019 may be entering a “Minsky Moment,” at which the cumulative distortions of a long period of debt-fueled growth are finally coming to bear.

Interest Rates Cannot Rise

Throughout 2018, we made the case that outstanding debt levels precluded the possibility of rising interest rates (long or short) without inflicting severe pressure on reigning financial asset valuations. On the short side of the ledger, we warned that the Fed’s dual policy agenda of simultaneous rate hikes and balance sheet reduction was far too aggressive in the context of still egregious U.S. debt levels. Contrary to popular perceptions of U.S. deleveraging since the financial crisis, the Fed’s Q1 2019 Z.1 Report disclosed that total U.S. credit market debt now stands at $73.1 trillion, up 33% from Q1 2009. Importantly, as shown in Figure 1, the U.S. debt-to-GDP (gross domestic product) ratio still measures a bloated 347%, not far from its Q2 2009 peak of 382%.

The prior century of U.S. financial history suggests healthy capital formation in the U.S. economy hinges on reducing the debt-to-GDP ratio to roughly half its current level. Of course, this would require either extinguishment of roughly $30 trillion in debt without impacting GDP, or doubling GDP without incurring an incremental dollar of debt, both exceedingly remote possibilities. Remaining options are debt default or debasement, and we are certain global financial stewards will do everything in their power to choose the latter over the former.

Figure 1. The Ratio of Total U.S. Credit Market Debt-to-GDP (1916-Q1 2019)

Source: BEA; Federal Reserve.

To us, the Fed’s eight years of zero interest rates and QE (quantitative easing) asset purchases served as tacit admission that the U.S. financial system requires artificial liquidity to forestall the devastating debt rationalization inherent in rebalancing paper claims (debt) to underlying productive output (GDP). Indeed, the serendipitous and largely unquestioned evolution of the Fed’s congressional mandate from “stable prices” to a self-appointed “2% inflation target” serves as proof-positive that the Fed’s paramount concern is avoiding debt deflation at all costs.

Given the awkward messaging in maintaining rates at the zero bound, we are not surprised that the Fed began the process of “normalizing” the fed funds rate back in December 2015. After three full years, the Powell Fed notched in December 2018 the Federal Open Market Committee’s (FOMC’s) ninth rate hike, to a 2.5% upper bound. In all honesty, we did not expect that the U.S. financial system could sustain a 2.5% fed funds rate without significant dislocation of asset prices. Low and behold, financial turbulence arrived with a vengeance in Q4 2018, when the S&P 500 shed a startling 19.63% between Chair Powell’s October 3 “long way from neutral” comment and Treasury Secretary Mnuchin’s convening of the President’s Working Group on Financial Markets on Christmas Eve.

A precis of Fed behavior since the 2018 Christmas Eve miracle of reversing asset markets would best be characterized as one of the sharpest Fed policy U-turns on record. Short-circuiting months of debate over whether the Fed’s January 2019 tonal change merely represented a “pause” in an ongoing tightening cycle, the FOMC cut the fed funds rate 25 basis points on 7/31/19. After declaring in December that the Fed’s balance sheet reduction program was “on autopilot,” “working well” and “not subject to review,” Chair Powell shuttered the program completely on 7/31/19. Needless to say, we can only smile at Chair Powell’s seemingly earnest assertion that the Fed’s 7/31 rate cut was a “mid-cycle adjustment” and “not the beginning of a long series of rate cuts.” Mark our words, just as with early 2019 arguments for a “pause in the Fed’s tightening cycle,” current prognostications for a “one and done insurance cut” belie shallow understanding of what is truly troubling the Fed.

A quick survey of economic conditions, in fact, is hardly supportive of a Fed rate cut. Q2 GDP measured 2.1%, with personal consumption leaping at a 4.3% annual rate (fifth strongest quarter during the past 13 years). The 3.7% unemployment rate rests at a five-decade low and U.S. equity averages were setting fresh all-time highs in late-July. Come to think of it, when did “sustaining the expansion” even become a consideration in the Fed’s congressional mandate? (Answer: gross mission creep.) To us, it is patently clear that despite respectable output growth, full employment and record financial asset valuations, the Fed now believes it has strayed too far from the zero bound to guarantee against incipient debt deflation. Consequently, we expect fed funds to retreat toward the 1% level and beyond in very short order.

Negative Interest Rates

On the long end of the rate spectrum, we have maintained that excessive debt levels absolutely mandate ever-declining interest rates. We have repeatedly cited Stephanie Pomboy’s annotated graphic of 10-year U.S. Treasury yields (Figure 2). On every occasion since 1981 when 10-year Treasury yields have backed up significantly, a financial crisis has invariably ensued. Therefore, we are always amazed when consensus begins to project rising Treasury yields without repercussions, such as during the fall of 2018, when consensus extrapolated Chair Powell’s hawkish resolve all the way to a sustainable breakout in Treasury yields. Very simply, if rates have been unable to rise for 37 years without catalyzing financial distress, why do investors EVER conclude they might magically be free to rise in the future, especially since aggregate debt measures only continue to deteriorate?

Figure 2. 10-Year Treasury Yields with Financial Crises Annotated (1975-8/7/19)

Source: MacroMavens. 

Boiling things down, we view gold’s prospects as inextricably linked to consensus recognition that global interest rates not only cannot rise, but must continue to decline to keep the ever-burgeoning debt pyramid from toppling.

Along these lines, we attribute gold’s accelerating performance since October 2018 to broadening recognition that global rate structures are once again crashing through the zero bound. As shown in Figure 3, the global total of negative yielding sovereign credit has literally skyrocketed in recent weeks to a mind-numbing $16.7 trillion as of 8/15/19. For perspective, this total represents a rough triple from the $5.7 trillion total as recently as October 2018. And it goes without saying, this total is quite the departure from the absolute zero total for negative-yielding bonds during the 5,000 years of financial history prior to 2015 (thank you Bank of Japan for the clever innovation).

Figure 3. Aggregate Total of Negative-Yielding Sovereign Debt (2015-8/15/19)

Source: MeridianMacro. 

Perhaps inured by lofty equity averages, general investor consensus remains relatively unconcerned by the global explosion in negative-yielding debt instruments. Especially for U.S. investors, there is a pervasive sense that ramifications of negative rate structures are just “not our problem.” Sidestepping for the time being the profound implications of negative rates for capitalism itself, we wanted to provide a bit more detail on the composition of the oft-cited negative-yielding sovereign debt total.

In Figure 4, we have compiled. what we believe to be a comprehensive snapshot of global rate structures as of the close of trading on 8/15/19. We were amazed to discover that the entire yield curve for six EU countries now trades at negative yields (Switzerland, Germany, Netherlands, Finland, Sweden and Denmark). French and Austrian curves are negative through 20 years; Japan and Belgium are negative through 15 years; and Ireland, Slovakia and Slovenia are negative through 10 years. Indeed, we were only able to identify three developed economies with entirely positive rate curves: United States, United Kingdom and Canada.

Figure 4. Sovereign Rate Structures for Selected Countries (8/15/19)

Source: http://sprott.com/insights/minsky-moment/

We have no special insight into the impact of negative interest rates on future valuations for traditional asset classes such as stocks, bonds and real estate. But as we stated earlier on, we believe that for gold this is the real deal and we suspect things are just getting started.

Source: http://sprott.com/insights/minsky-moment/

• Initiated 2000m Drill Program on 100% owned Dunwell Mine project
• Located in the heart of the Golden Triangle a few kilometers outside of Stewart, BC
• Dunwell has multiple bonanza grade vein systems found scattered over several kilometers around the mine itself.

Cardston, Alberta–(Newsfile Corp. – August 12, 2019) – American Creek Resources Ltd. (TSXV: AMK) (“the Company”) is pleased to announce that a drill has been mobilized to the Dunwell Mine project and drilling has now commenced. As part of an overall exploration program it is anticipated that Phase I will include up to 2,000 meters of drilling on several targets.

The 100% owned Dunwell Mine project is located in the heart of the Golden Triangle a few kilometers outside of Stewart, BC.

Darren Blaney, CEO and President stated: “We are very excited to begin drilling on this project. We have had our eye on this property since 2006 and now we finally get to start showing the market what we have. The Dunwell is an incredibly prospective property and has everything going for it from amazing access and logistics to multiple areas with past high grade production. All indications are that these multiple bonanza grade vein systems found scattered over several kilometers around the Dunwell mine itself are all related and form part of a much larger system underlying the property.”

Property Description and History

Through a series of strategic acquisitions American Creek was able to purchase the past producing Dunwell Mine as well as several adjoining very prospective properties, combining them into one large land package that encompasses the best gold and silver mineral occurrences and historic workings in the Bear River valley. The amalgamated property spans 1,655 hectares covering the northern portion of the Portland Canal Fissure Zone, an area first prospected in the late 1800’s and hosting some of the earliest producing gold and silver mines in the Stewart area.

The property is located 8 km northeast of Stewart with a road right to the mine site and a major highway and power line also running through the property. The Dunwell Mine adit itself is located only 2 km from Highway 37A and the power transmission line. Stewart hosts a deep sea port including modern ore loading and shipping facilities.

Unlike the majority of mineral properties located near Stewart and within the Golden Triangle, the Dunwell is relatively moderate and at low elevation (600m and lower). These features allow for year-round work which typically isn’t the case for exploration programs conducted in the Stewart region where projects are typically at higher altitude in very rugged terrain, are accessible only by helicopter, and lack critical infrastructure such as roads and power. The Dunwell project may just have the best logistics of any project in the Golden Triangle.

Although there has been a substantive amount of small-scale historic work (pre-1940) in this area given its close proximity to Stewart, very fractured ownership of individual mineral claims greatly hampered meaningful larger scale exploration resulting in very little modern exploration being conducted on the property or in the immediate region.

The Dunwell Mine is the most significant mineral occurrence within the Portland Canal Fissure Zone. Production at the Dunwell occurred between 1926 and 1937. From historic reports, it appears that a total of 45,657 tons averaging 6.63 g/t gold, 223.91 g/t silver, 1.83% lead, 2.43% zinc and 0.026% copper (approximately 11.3 g/t gold equivalent) were produced. In one such report (#23345 summary report) the Dunwell shows initial production of 4,872 oz gold, 102,855 oz silver, 1.2M lbs lead, and 1.64M lbs zinc from 27,067 tons of ore milled. A further 23,231 tons was milled in 1941 yielding 4,878 oz gold, 233,017 oz silver, 511,082 lbs lead, and 789,854 lbs zinc.

Strong potential exists to develop more reserves along strike with the present workings and at depth below the No. 4 level. A drill program conducted by prior owners in 2010 revealed a zone at least 300 metres long and 200 metres along dip with a true thickness of 6-7 meters, suggesting an extension of the ore body vein system previously mined. Eight holes drilled 150 meters underneath and to the north of the old underground workings resulted in the discovery of a wide quartz breccia zone with strong sphalerite, galena, pyrite and chalcopyrite. Due to unfavorable market conditions at the time, the work was never followed up on. Significant reported results from the 2010 drilling are displayed in the table below:

The 2019 Phase I drill program is designed to confirm the promising results from the 2010 drilling and also to expand the known extent of the vein system with step out holes. Drill hole D4-2010-09 returned an impressive 14.27 g/t gold over 6.7 meters and along with similar results in adjacent holes, partially delineated a new high-grade vein system. The first hole to be drilled in the 2019 program will be located in close proximity to D4-2010-09. A series of holes will then be drilled to extend the known extent of this new vein system.

James McCrea, P. Geo for the Dunwell project, commented: “The historic Dunwell Mine workings straddle a large shear zone that is interpreted to be part of the Portland Canal Fissure Zone. The shear has a surface expression of up to 3 km with a series of known vein showings, along the shear, north and south of the Dunwell, that have an extent of 2 km. The potential for further discoveries exists adjacent to the shear in the area of the Dunwell Mine.”

In addition to the past producing Dunwell Mine itself, the property package also contains other high-grade gold and silver occurrences and historic small-scale gold/silver high-grading operations along a several kilometer north/south trend that correlates to the fissure zone and major faulting. A search of old reports produced an impressive number of such occurrences on the property. The reported grades are even more impressive. Some of these include the following:

Ben Ali: 5,000 tons yielding 3,000 ounces gold. 4,500 tons at 21.6 g/t gold.

Lakeview: 60 tons grading 4.7 g/t gold, 2,734 g/t silver, and 11.5% lead.

Tyee (Mother Lode): Produced 8.2 ton of ore grading 124.4 g/t gold and 4,478.8 g/t silver.

Mayflower: produced a few tons of ore running about $60 a ton in gold values (1918 values). An adit sample assayed 78.2 g/t gold and 1,961.2 g/t silver.

Silver Ledge: Quartz veins with up to 0.36 ounces per ton gold, 5.04 ounces per ton silver, 5.4% lead and 0.65% zinc.

Goldie: Historic grab sample from 2 tons of galena assayed 2,880 g/t silver and 80% lead.

Victoria (Main Reef): Two separate numbers reported; perhaps an initial 6 tons of 20.6 g/t gold, 1028.6 g/t silver, 35% lead, and 10% zinc ore was shipped, later totaling 11 tons grading 20.15 g/t gold, 775 g/t silver, 25% lead, and 5% zinc.

Mimico: Historic grab samples of galena have assayed up to 5,345 g/t silver and 87.2% lead.

Rock sample from the Dunwell property grading 14 g/t Au, 46 g/t Ag with Cu, Pb, and Zn.
To view an enhanced version of this graphic, please visit:
https://orders.newsfilecorp.com/files/682/46848_3d4a5951a4219a46_001full.jpg

For a summary about the Dunwell Mine project please click here: Dunwell Summary

Qualified Person

The Qualified Person directing the Dunwell exploration program is James A. McCrea, P. Geo., for the purposes of National Instrument 43-101. He has read and approved the scientific and technical information that forms the basis for the disclosure contained in this news release.

About American Creek

American Creek holds a strong portfolio of gold and silver properties in British Columbia.

In addition to the 100% owned Dunwell project, the portfolio includes two other gold/silver projects located in the heart of the Golden Triangle; the Treaty Creek and Electrum joint ventures with Walter Storm/Tudor Gold.

A major drill program is presently being conducted at Treaty Creek by JV partner and operator Tudor Gold. There are now two drills working on the Goldstorm zone with the objective of defining a significant maiden gold resource. The last hole reported included a 780 meter intercept of 0.683 g/t gold including a higher grade upper portion of 1.095 g/t over 370.5 meters.

For a summary of the Treaty Creek project click here: Treaty Creek Summary

Other properties held throughout BC include the Gold Hill, Austruck-Bonanza, Ample Goldmax, Silver Side, and Glitter King.

For further information please contact Kelvin Burton at: Phone: 403 752-4040 or Email: [email protected]. Information relating to the Corporation is available on its website at www.americancreek.com