A Perfect Storm for Commodities

Rick Mills, the founder of Ahead of the Herd, a newsletter that explores moves in the market as well as a select list of stocks, sat down with us to discuss the stock market and three companies he believes are on the cusp of greatness.

A Perfect Storm for Commodities 

Mills thought it was pertinent to describe his method of looking at things. He described himself as a big-picture writer, saying, "I fly to a 40,000-foot view and get the macro view of the global economy. I do a top-down and then a bottom-up approach, and right now, I see a perfect storm forming in commodities in 2024."

"There's a convergence of so many factors," he said before listing the possible accelerators. He mentioned global warming as one factor. "The Panama Canal is drying up," he said, citing how this will force ships to go through the Suez Canal and around the horn of Africa. This will cause "dire need for more ships," he commented. " You've got heat, water shortages, rivers are drying up, so transportation, power generation, and processing will be a problem, and this is basically just the start of the list."

Federal Reserves Program Is Working

Then, Mills went on to discuss the political and economic factors that will impact commodities. 

"One of the things that is interesting is the Federal Reserve's program to lower interest rates, or lower inflation by raising interest rates, is actually working," he noted. "I've been following the input costs for the manufacturing sector and the service sector, and the input costs are coming down. So that's going to trickle through. And the Feds program has been so effective, they think it's working so well that they've actually paused rate increases."

Mills also opined that Altman, a Federal Reserve governor, who is probably one of if not the most hawkish, said that hat the programs are working so well that it looks like they can actually start to lower interest rates in March, which Mills said was "quite a statement from one of the Fed Hawks."

"The other thing that we need to look at is if interest rates are already falling," Mills continued, "and inflation is now well below 4%, and the dollar has lost 4%. We can see that gold reacted quite strongly. "

Mills noted this is all good news for commodities.

The Impact of the U.S. Election on Commodities 

Now, Mills also stated that the upcoming U.S. election is also imperative. He noted that, most likely, it is going to come down to Biden versus Trump. 

He commented that once the election begins, "the economy is going to be in fine shape. The stock market's going to be good. Jobs are going to be good, and overall, you're going to have a very strong economy, and inflation is going to be coming down.  So basically, all the GOP [Grand Old Party aka Republicans] has to run on is immigration."

On the other hand, Mills pointed out that the Democrats have a myriad of things to run on, from abortion rights to Obamacare. Mills also touched on current approval ratings.

"Trump's approval rating never reached over 50% during his presidency," he stated. "Then, in the final three weeks after January 6, his approval rating was down to 28%. Biden's approval rating is the lowest it's ever been at 40%." This is due to younger voters attacking him for his handling of the current Isreal-Hamas war. However, he believes that at the end of the day, the younger generation will end up voting for Biden over Trump and that there will be a Democrat sweep for the presidency and in the House. 

"This means we're gonna go back to printing money," he said. "Democrats believe in modern monetary theory, also known as MMT. So they will be starting to print. I actually believe that in 2024, we're going to see a huge, huge influx into commodities. There's $6 million sitting in accounts now money, you know, interest-bearing accounts, and it's getting 5%. They're in brokerages and stuff like that. But when interest rates start coming down, that money is going to be taken out of those, and it's going to be put to work. I believe a lot of it. Even a small portion of 6 trillion coming into our resource markets is going to help fuel the commodities boom. I'm not talking about supercycle, but I'm talking about a pretty damn good bull market in commodities. So we've got all that. And it's also it's, it's just a perfect storm coming. So, I'm quite happy to talk about junior resource companies and where I'm positioning myself.

Dolly Varden

With this in mind, the first stock Mills touched on was Dolly Varden Silver Corp. (DV:TSX.V; DOLLF:OTCQX). Dolly Varden is a Canadian mineral exploration company with a primary aim at the advancement of its 100%-owned Kitsault Valley Project.

According to the company, "The 163 sq. km. project hosts the high-grade silver and gold resources of Dolly Varden and Homestake Ridge along with the past producing Dolly Varden and Torbrit silver mines. It is considered to be prospective for hosting further precious metal deposits, being on the same structural and stratigraphic belts that host numerous other on-trend, high-grade deposits, such as Eskay Creek and Brucejack. The project also contains the Big Bulk property, which is prospective for porphyry and skarn-style copper and gold mineralization, similar to other such deposits in the region (Red Mountain, KSM, and Red Chris)."

The first thing Mills praised Dolly Varden for was the impressive backing the company has. 

"You've got quite a collection of big names in the resource industry, Fury Gold Mines Ltd. (FURY-T), from whom they acquired Homestake the Homestake Ridge property when they consolidated the Kitsault Valley Project, they own 22%. Hecla Mining Co. (HL:NYSE) owns 15%. Eric Sprott, legendary resource investor, owns 9%, and high net worth individuals own 7%."

Mills also noted that he believes "Hecla is all in on Dolly Varden and their property," as they have increased their shareholdings from 10.6 to 15.6 million, and they are the largest silver producer in the United States. All of this comes down to Mills' faith in the management at Dolly Varden, especially President and CEO Shawn KhunKhun.

"Hecla just increased their holdings from a little over 10% to 15%. It tells me a lot about the quality of management in Dolly Varden and the quality of its project," he said. "It's a quality company with a quality project, and it is one of my favorites in the silver space."

Dolly Varden reports a number of institutional investors. The company reports that Fury Gold Mines Ltd. owns 22%, Hecla Mining Co. owns 15%, and Eric Sprott owns 9%.

Other institutions own another 47%.

The rest is with retail investors.

Market Watch reports that Dolly Varden has 255 million shares outstanding with a market cap of CA$229.21 million. It trades in a 52-week range of CA$0.58 and CA$1.24.

Graphite One

Next, Rick Mills recommended Graphite One Inc. (GPH:TSX.V). This Canadian graphite company is proud to note that it owns America's largest high-quality graphite deposit, Graphite Creek, a deposit in the Seward Peninsula about 60 kilometers north of Nome, Alaska.

Graphite One currently has the aim of becoming the "dominant American producer of high-grade Coated Spherical Graphite (“CSG”) integrated with a domestic graphite resource."

Mills let us know that he has quite a few shares of Graphite one both through shares in the open market and through private placements. 

"The reason I like Graphite One so much is because they have a circular economy. They're going to have the mine, an Anode/ graphite product manufacturing facility, and a recycling facility for lithium-ion batteries." He pointed out that currently, China is dominant in both the mining and processing of critical metals, which allows them to "bully end users and raise prices." Last month, Bejing declared it would require export permits for graphite projects in order to protect China's national security. However, Mills believes this was actually done in retaliation to the United States widening the curbs on Chinese access to semiconductors. 

"I'm not sure how much effect the ban will have on graphite exports in the short term. But Bloomberg did say with these new graphite export curbs, South Korean firms that rely heavily on China for graphite imports would need to seek alternatives such as mines from the United States or Australia," Mills stated, expecting graphite deficits to kick off by 2025 when new mines fail to meet demand. And the demand will be there, as Mills points out "graphite is the largest component batteries by weight, it's 45% of the cell, it's more time, four times more graphite feedstock and each battery cell and lithium and nine times more than cobalt."

This leads to his optimism for Graphite One, a company that sits just outside Nome, Alaska. "It has been set out by the USGS as the largest highest grade graphite mine in the U.S.," he said.

Plus, Mills pointed out that Graphite One has the backing of the local Alaskan Strait Native Corporation and the U.S. Department of Defense. The company has been granted a US$4.7 million contract from the Defense Logistics Agency to develop graphite-based foam fire suppressants. Graphite One has also been given a US37 million grant from the Department of Defense. 

All in all, Graphite One has a lot going for it, but as with Dolly Varden, Mills is incredibly impressed by the company's management as well.

He stated, "Anthony Huston is the founder, CEO, and director. He has assembled one of the strongest, if not the strongest, boards in the junior resource sector." Mills praised his hardworking passion and vision and said. "He's assembled a group of people to move forward. It's got political help and backing from the highest in Alaska, the governor and senators. It's real, and it is something that people need to keep an eye on as the movement toward clean energy pushes forward."

According to Reuters, about 0.08% of the company is owned by institutions, and about 27% is owned by strategic investors. The rest is retail.

Top shareowners include Taiga Mining Co. Inc. with about 27%, Chief Executive Officer Anthon Huston with 0.42%, Executive Chair Douglas Hampton Smith with 0.21%, Purpose Investments Inc. with 0.08%, Director Patrick R. Smith with 0.04%, and Kevin Greenfield with 0.04%, Reuters reported.

Market Watch notes that Graphite One has a market cap of CA$123.94 million and 131.85 million shares outstanding. It trades in the 52-week range between CA$0.87 and US$1.97.

Max Resources

Last but not least, Rick Mills touched on MAX Resource Corp. (MAX:TSX.V; MXROF:OTCBB). Max is a Canadian mineral exploration company that, according to it, is currently exploring "the world's next sediment-hosted copper district."

As with Graphite One, Mills shares come from both private placements as well as shares from the open market, and these purchases have come with complete faith in the company. "I believe that what Max Resource has is a once-in-a-generation property," he told Streetwise and showcased Max Resource's Cesar Copper-Silver Project, calling it "absolutely massive."

Alongside the massive project, the company also has the infrastructure already in place, according to Mills, resulting from past oil and gas operations in the area. 

"Their land package spans more than 11,150 kilometers square kilometers of geology, and its perspective for sedimentary holes had copper and silver. So far, Max's field teams have identified 27 targets across three separate districts of the 120-kilometer-long Caesar belt," he commented. "Now they've got more in early in November when they announced 12 more applications for mining concessions covering over 132 square kilometers. So not only are they adding more land, but they're also finding more targets."

While the company has massive potential, Mills understood that working on a property of this size takes a lot of capital and that the company should be in the process of searching for a partner. Once they find such a partner, Mills stated Max Resource Corp. would be able to ramp up. He urged investors to focus on the scalability of a project they are investing in and stated, "The Caesar boggles the imagination on 132 kilometers and 27 targets so far."

Mills also touched on Max's other projects, including RT Gold in Peru, which Max has 100% ownership of.

"There's gold-bearing massive sulfides on historical drilling and in the turn of the century returned values ranging from 3.1 to 118 grams per tonne gold over core lengths anywhere from 2.2 meters to 36 meters," Mills said. 

According to Reuters, 1.98% of the company is owned by management and insiders.

8.84% is held by institutions, including Merk Investments LLC, which has 4.99%, with 8.20 million shares. 

The rest is in retail. 

Market Watch reports that Max Resource Corp. has a market cap of CA$21.04 million and 161.88 million shares outstanding. It trades in the 52-week range between CA$0.10 and CA$0.30.

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Important Disclosures:

1. [Dolly Varden Silver Corp.] is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000. 
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of [Dolly Varden Silver Corp.].
3. [Katherine DeGilio ]wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. 
4. [Rick Mills]: I, or members of my immediate household or family, own securities of: [All]. My company has a financial relationship with [All]. I determined which companies would be included in this article based on my research and understanding of the sector.
5. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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