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December 13, 2019

Gold: The Swamp is Draining

President Donald Trump won office by promising to change the economic rules in favour of America. In making “America Great Again”, he scrapped trade agreements, introduced tariffs and imposed financial sanctions. At home, he points to the 40 percent rise in the stock market since he took office as vindication for his economic leadership. To date, however, victories are few. USMCA won’t be signed until next year and the US-China talks, “Phase One” is “Pause One”.

A discordant note is that next year will be dominated by the American presidential election, maybe impeachment and a global slowdown. Each is interconnected and the slugfest is likely to be ugly, reflecting the polarisation of the times. After all, Mr. Trump has staked his re-election campaign on the health of the economy.

Despite an 18 month trade war with China, America's trade deficit with China is almost 12 percent larger than when Trump took office. American exports have fallen by $7 billion while imports grew by about $18 billion. Farm bankruptcies are at the highest since 2011. Household spending and capital spending both declined. Domestic companies faced with higher tariffs, have cut back

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workers and laid off some to offset losses. Plus, back to back trillion dollar deficits have ballooned the national debt to $22 trillion bringing the debt to GDP over 100 percent, the highest since World War II. Yet, amid the uncertainty, the US stock market reached another all time high.

Friends One Day, Become Foes the Next But, the swamp is draining. Only the ugly frogs remain. Consider first, that over much of the past decade, investors endured one mess after another, from the sub-prime mortgage bust, the Great Recession, Middle East crises, Brexit, and today, trade wars. Mr. Trump’s brutish “bull in a china shop” stance has altered the postwar multilateral international order, resulting in the scrapping of alliances and institutions set up after the Second World War. America’s trading partners are driven to protect their financial and monetary sovereignty against the US administration’s weaponizing of the dollar and the president’s unilateralism.

His “Art of the Deal” negotiations unsettled markets as he ditched agreements from the Paris Climate Accord, to NAFTA, to the nuclear deal with Kim Jong Un and of course, the Iran nuclear deal. The Tariff Man has opened up new fronts imposing tariffs on Europe, Brazil and Argentina. Already, Europe is proposing a tax on digital services aimed at America’s multinational icons, causing the Trump administration to counter with a 100 percent tariff on French champagne – a slippery slope indeed. Now that foreign politics has invaded the Washington swamp, Mr. Trump has become the face of an America that no longer bothers with diplomacy. Friends one day, become foes the next. Frog number one.

Trade Truce – For Now Second, raising investors’ angst is the president’s negotiation style of threats, insults, and tweets, which have become so transparent and predictable that everyone is calling his bluff. First, there was the war-like “fire and fury" threat that was to be wrought against North Korea but soon after Mr. Trump was calling the dictator “a great man”. Then when a US drone was downed and later a ship attacked in the Straits of Hormuz, Trump was “locked and loaded”, but nothing happened. And of course, investors tired of the whipsaw of the on and off again China-US talks have retreated to the sidelines. Trump’s fury seems to be all bark and no bite.

Third, threatened by the growing economic might of China, America is locked in a winner-take-all battle erecting a Bamboo Curtain in a new cold war with China. In reality, both have much to lose. The United States and China are fighting over everything from trade, patches on the moon, technology and economic supremacy. Resolving the impasse will be hard. Such scenarios rarely end well. Ironically, Trump withdrew from the Trans Pacific Partnership, which would have isolated China’s might. Instead, he settled for a bilateral agreement with Japan. And, while withdrawing from those agreements and in retreating from the world’s stage, his administration watches as China and others fill the vacuum created by America’s retreat.

For the most part though, a trade truce would allow a more orderly unwinding between the world’s two biggest economies, but a truce would not end the race to 5G, or the technology war or the financial or cultural war with China. At one time, China found itself overly dependant on America’s markets, technology and supply chains. Today, Beijing has built a separate system of Chinese technology, supply chains and infrastructure with its state-owned enterprises (SOEs) a key pillar of China’s economy. And as in the Thucydides Trap, when the United States, an incumbent nation faced a challenger to its dominance –historically this did not end well. And today, China has become a military behemoth.

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Since establishing a new Bamboo Curtain, the president has used America’s titanic commercial clout and a combination of sanctions, tariffs, blacklists and embargoes to wage war with China. But in “Making America Great Again”, his cornerstone tariffs are pushing the world economy to the brink of recession. While, a ceasefire would allow this president to fix domestic issues and unwind the cost of his tariffs in time for the upcoming election next year, the elusive US-China talks appear to have hit another wall when Congress passed the Hong Kong Democracy Act, which could cause Hong Kong to lose its special status. Both superpowers remain divided over core issues and with an election less than a year away, Mr. Trump is running out of time as each passing month favours the Chinese, weakening Mr. Trump’s hand. In truth, it will be difficult to put Humpty Dumpty back together.

On Borrowed Time Fourth, the Fed has become part of the problem. For much of the past half century, the dollar was as good as gold, but in 1971 the Fed abandoned the gold standard and unfettered by the gold backing, the Fed created so many dollars that much of the world’s commerce trades in greenbacks. America’s fiat financial hegemony also allowed the US government to print money to wage wars, pay its bills and consume more than it produces. The US as a result has been living beyond its means for over a half century. America was allowed to borrow from abroad forever, contributing to the Great Inflation of the 70s, the financial crisis of the 80s, and the dot-com bubble in the 90s. And, America racked up more debt to fight wars ($7 trillion for Iran and Afghanistan alone), exacerbated by the 2008 financial subprime crash which led to the need for Wall Street’s bailout that cost billions and now trillions of fiscal stimulus.

That easy money created by the rounds and rounds of quantitative easing was supposed to fund growth after the financial collapse in 2008, but instead caused the Fed’s balance sheet to explode from 6 percent GDP in 2008 to over 18 percent this year. Wall Street is less concerned about America’s troubled public finances and that government debt has spiraled out of control. Investors too seem unconcerned about whether they will be repaid. Yet the stock market posts new record highs, again and again.

In inflating asset bubbles, the Fed became a creator of money rather than a steward. The Fed’s experimental tools like quantitative easing, meant massive multi-trillion bond-buying programs to bring about near zero rates. Recent developments have laid bare the problems of this experimental program. Deficits don’t seem to matter, although as a percentage of GDP it is more than 4 percent now. However the present system is breaking down, while deficits keep rising.

There is a cost, a tipping point. The US has become the largest debtor in the world, jeopardizing the dollar’s status as the world’s reserve currency, particularly at a time when the US and China are going in different directions. China has become the world’s largest buyer of energy, most commodities and is doing more business in euros, rubles and yen, but not the dollar. China is setting prices and its dedollarisation has shifted to gold. Of note is that China is also the largest foreign holder of US debt. We believe the president’s spiraling trade and currency wars threaten to topple the dollar’s supremacy, which depends upon not just America’s economic or military prowess, but also the strength of its institutions. It is precisely these pillars that Mr. Trump is eroding.

US Repo Market Meltdown – Déjà vu Negative interest rates began in Sweden in 2015 when the Riksbank lowered interest rates and the sugar rush of lower rates sparked a housing boom with prices climbing 15 percent. Inflation too

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picked up, but debt rose faster. Four years later, however it is a different story. Prices are off some 10 percent and inflation too has declined from two percent to 1.5 percent. The honeymoon is over and left is a bigger debt. The Swedish Central Bank has reversed course, ending the negative rate experiment. Negative interest rates, like cheap money was not the panacea. Yet negative rates have spread from Sweden to Europe to Japan as governments pressure their central banks to lower rates or intervene in currency markets to gain a competitive advantage. This time the next financial crisis, we believe will be triggered by the central banks.

Particularly worrisome is a decade after the financial crash of 2008 when some ten million homeowners lost their homes, the $2.2 trillion US money market is again at the epicenter of a cash shortage. The system is breaking down. Markets were stunned in September when the cost of borrowing cash overnight spiked to nearly 10 percent form the usual level of 2 percent. The repo market is the keystone of a well functioning financial system and the canary in the coal mine. What was once thought to be a overnight intervention has now become monthly injections or a QE4 as the Fed in its lender of last resort role, pledged to purchase up to $60 billion of Treasuries each month to push liquidity into the cash short money market. Last month, the Treasury injected almost $100 billion and to date the Fed has pumped hundreds of billions to shore up a broken repo market.

Liquidity Crisis Exposes Vulnerabilities We believe that the Fed was forced to step in because the money market players, Wall Street banks and hedge funds were reluctant to replace their short-term Treasuries because some held higher yielding paper, which resulted in a liquidity squeeze amid the repo market turmoil. In addition, with some 90 percent of the reserves held by the big five Wall Street banks, there may be a counterparty problem. Of note, at the current rate of injections, the Fed will soon own 12 percent of U.S. Treasury bills, monetizing America’s debt.

All the same, negative rates are a financial stability risk and with some 25 percent of high-grade government bonds trading at negative yields, the years of cheap rates has put the portfolios of savers, life insurance, pension funds at risk. Savers are penalized and borrowers are rewarded. To no surprise total household debt has reached almost $4 trillion in the third quarter, surpassing the previous peak in 2008. Negative yields force holders to take a loss when held to maturity. Bond returns traditionally provided the offset for liabilities but today, savers face fading returns from mainstream bonds, forcing them to borrow or chase returns from riskier investments. This leaves the pension system the choice of paying more or cutting benefits. Corporate credit quality too has steadily deteriorated for decades. In the 1990s the debt ratings of median corporate debt was investment grade. Today

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they are a notch above junk, making it more difficult for large investors who can hold only investment grade paper. Despite the Fed\s efforts to calm the repo market, investors may find themselves in the eye of the storm again just as the swamp drains.

The Swamp is Draining At the same time, we now see the ugly frogs. Years of cheap money and riskier markets have caused a growing number of businesses to borrow more, to levels not seen since the global financial crisis, creating bubbles of epic proportions. Gigantic unicorns WeWork and Uber have seen investors erase $100 billion of value this year. Woodford Investment Management in the UK, a huge hedge fund started in 2014 suddenly collapsed when Woodford's misplaced bets caused investors to liquidate their holdings. SoftBank Group has poured billions into WeWork which was once valued at $47 billion and was forced to pour good money after bad, to rescue WeWork after abandoning its IPO. SoftBank put almost $10 billion into WeWork to keep it afloat but the rescue has brought SoftBank's total commitment close to $20 billion, for a business currently valued at less than $8 billion.

Both so-called investments were driven by the endless upward climb in stock prices as investors bought shares at higher prices in the belief that they would go higher. Amid the illusion of ever higher prices, no one thought of losses and like a game of musical chairs, the music continued. Until now.

Billionaire Bashing Against this backdrop, billionaire bashing has become de rigeur in these populist times. In the United States, the vilification of billionaires and soaking the rich surfaces every four years as part of the election cycle. However, this time, Senator Elizabeth Warren has the super-rich fuming over her threat to impose a general wealth tax on the wealthiest Americans that has resonated globally. In fact, it is not that they are billionaires, but it is the 70,000 page tax code built up over the last half century that everybody should be attacking. Every few years, the system is stoked by politicians in a “them versus us” and with public trust in Washington at record lows, the rich make great scapegoats. Part of the reason for the unpopularity is not the rhetoric, but when these politicians become legislators, they create the very loopholes that everyone and billionaires included, take advantage of.

In other times, billionaires or even millionaires were put on pedestals as achievers, but today, Senator Warren and others believe that those who “have” should be taxed more than those who “have not”. The income disparity includes eliminating borrowings on investments which are tax deductible, including mortgages. In addition, tax brackets between states are disparate, such that billionaires often shift residences in order to shelter or lower their tax bite as the current president did, leaving New York for Florida. Québec and Canada once tried surtaxes as well as the federal government but proved to be ineffective and subsequently were scrapped. Wealth taxes were tried in Sweden and Germany, but they too were scrapped. The record is simply that wealth taxes do not work.

In fact, it is not only in the United States that billionaire bashing is a popular sport but in the UK, Labor leader Jeremy Corbyn started his campaign promising to make the 0.0001 percent pay. However, billionaires do not leave their cash in banks. Many countries tax income higher and of course there are just so many different type of taxes from capital gains to inheritance taxes. The point is that the tax code needs to be changed. For billionaires to pay more, legislators need to get

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together. And, many legislators cannot even agree to sit, let alone follow through on their promises. Taxes, it seems is largely for others to pay.

America’s Achilles’ Heel is Its Debt Worrisome, is that with the swamp draining, the sky-high debt hangover remains. America’s Achilles' heel is that almost one third of America’s debt is held by foreigners. The big concern are the credit markets. Far too many of us have too much debt. America’s “go it alone policy” leaves few friends and fewer reasons to hold America’s debt. The only thing that ever underpins a fiat currency is trust that governments are credible. That is being tested to the limits. In fact, foreigners possess huge economic leverage over the United States and already, some are losing confidence in the dollar or hedging their bets by buying gold. Others are balking at participating in the Treasury auctions because of lower returns and the repo market implosion is a warning.

During the past decade, easy money caused investors to chase alternative assets such as real estate, private equity and it is this boom that is vulnerable as the underpinnings of tariff wars and macro-geopolitical tensions erode confidence in the markets. We believe the economy is much more sensitive to a downdraft in valuations and the risk of contagion from the collapse of former unicorns like WeWork or the pot bubble in Canada or the repo debacle is a prelude to a return to earth.

Another major headwind is the securitisation of markets where the derivatives market has grown larger than 2008, estimated today at 20 times the world economy. Of concern is that the world’s largest pension fund, Japan Government Pension Investment Fund (GPIF) will no longer allow its shares to be lent out from its portfolio sending shockwaves through the derivative world’s plumbing. Short sellers borrow and pay pension players a stipend to bet on a fall in prices, particularly index players. The potential damaging aspects is that without the shares, the markets could freeze or like a muscle, atrophy. Similarly there is the rush into index exchange traded funds (ETFs) where there are duplication in portfolios that could exacerbate any market exodus in an illiquidity crises as these funds dump holdings causing a cascading effect. The system is vulnerable to any downturn and the capital markets are riskier today. As the swamp drains, gold is a good thing to have.

All That Glisters is Gold Gold climbed to 6-year highs, as a haven and barometer of financial uncertainties. Also there is a strong correlation with the amount of $12 trillion of negative yield sovereign debt or one third of the global bond markets and gold. Unlike these bonds, gold retains its value. Concerns of America’s deteriorating financial position, particularly with an election around the corner, has also spurred central bank purchases. We believe foreign investors are increasingly unwilling to fund out of control federal deficits. Without confidence in the dollar, the world has no reserve currency.

A deeper problem is that investors are increasingly concerned that the world will stumble again into a cycle of competitive devaluations and tariff morass. Just as America displaced Britain as the world’s pre-eminent economic power after World War II, so, too, do the large debt and fiscal pressures confronting the West, the rise of China and other economic entities, change the dynamics of the international monetary system. The problem is not a new one.

With half-century-old relationships severed, countries are retreating into regional economic blocs. As such, it is hard to believe that our leaders would repeat the economic disasters of the past, particularly when the world’s financial system is more leveraged, unstable and more dangerous

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than on the eve of the Lehman crisis. Quantitative easing, zero and negative interest rates have pushed investors to take on more risk as they seek better returns. Of concern is that the confluence of factors echoes the blunders of the 1930s. The longer the search for yield, the greater the probability of another financial crises. Gold is a good thing to have. Consequently we expect gold to record new highs, reaching $2,200 an ounce within 18 months.

As Good as Gold For much of the past five years, gold was stuck in a 2 year trading range but traded up to $1,500 this year on concerns over the impact of the US-China trade war on global growth. Demand for gold remains strong particularly from central banks, while supplies remain uncertain. China remains the world’s largest consumer and producer of gold as gold moves from the West to the East. Both Russia and China have moved out of dollars for reasons both economic and political. They have bought gold every month this year becoming the fifth and sixth holder respectively.

Central banks have become net buyers for the second year in a row as many hedge their bets on American hegemony. Last year 22 central banks bought gold as a hedge against the dollar as well as to build up their respective reserves. Germany purchased gold for the first time in 21 years, joining Russia, China and 14 other central banks. Geopolitical forces will continue to support safehaven buying. After all, a year from now, the Americans will elect an inflationary president. Gold is a good thing to have.

This bull market is only beginning.

Recommendations

The gold mining industry has undergone a consolidation with greater scale, less debt and better control of spending. While, AISC have fallen from $1,200 to under $1,000 an ounce, due in part to the deferment of development and exploration, we believe that the lack of success and the need for replacing declining reserves has reinforced the “peak gold” scenario. Supplies are limited. The lack of reserve growth is an industry-wide problem and since the majors have adopted a free cash flow model, reserve replacement will be a problem for the entire industry. As such, we believe that development plays are the next sweet spot particularly since they could be in production shortly. Lundin Gold, a 310,000 ounce producer in Ecuador, Eldorado’s Lamaque, McEwen’s Gold Bar and Victoria’s Eagle are but a few new producers that have come on stream this year. We have added Lundin Gold to our coverage list.

With the mining industry’s financing pipeline running dry, miners have spent some $30 billion on mergers as a means to save costs, attract institutional money, grow reserves and production. Barrick-Randgold, Newmont-Goldcorp, Kirkland Lake’s bid for Detour, and Endeavour’s bid for Centamin are classic examples. And, the Chinese are coming with state-backed Zijin buying Continental Gold in Columbia, as the industry consolidation accelerates. While, equity and bond investors are shunning the smaller exploration companies, preferring the more liquid senior producers, we believe the exploration players possess “ten bag” potential. Development plays are also favoured, needing only financing which will come as gold surges through $1,600 an ounce. We continue to favour seniors like Barrick and Agnico Eagle as well as mid tier B2Gold.

Agnico Eagle Gold Mines Ltd. Agnico Eagle had a record quarter posting peak quarterly gold production, generating free cash flow from core asset LaRonde, Canadian Malartic, Kittila, and Meliadine, with the ramp up of

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Amuruq in Nunavut. The company also focused attention on encouraging exploration results at Canadian Malartic and Upper Beaver in Kirkland Lake. Agnico has a strong balance sheet with $350 million of cash. The miner has paid a dividend for 36 consecutive years. We continue to recommend the shares for Agnico's rising reserve and production profile.

Barrick Gold Corp. Barrick reported a strong quarter and with the sale of 50 percent owned Kalgoorlie in Australia, the company is well on hand to raise $1.5 billion in asset sales. Barrick’s Kalgoorlie sale to Saracen Mineral Holdings achieved top dollar because of Saracen’s need to replace declining production and an offside hedge position.

Barrick continues to focus on operations and next year will see a full year production from Bulyanhulu, after coming to an agreement with the Tanzanian government. At the Nevada Joint Venture, results were strong, particularly from Cortez in Nevada. The Nevada Joint Venture is already spinning off efficiencies with the combination of assets and is on track to deliver almost $500 million per year of efficiencies. In West Africa, Barrick extracted value selling the Massawa project in Senegal to Teranga for cash and shares, giving Barrick a strategic stake in Teranga. In Latin America, Barrick’s joint venture Pueblo Viejo in the Dominican Republic had a strong quarter and 800,000 ounces a year of production is expected from this long-life operation. Barrick is also working with Shandong of China in optimizing Veladero in Argentina and another review of the giant Pascua Lama operation. Barrick’s huge cash flow, asset sales and cost savings could generate a net zero debt position next year. We continue to recommend the shares here.

B2Gold Corp. B2Gold had a stellar quarter with major contributions from flagship Fekola in Mali, Masbate in the Philippines and Otjikoto in Namibia. B2Gold also sold off its Nicaraguan assets for about $120 million in cash and shares, retaining a 30 percent stake in Calibre. The Nicaraguan assets were sold because B2Gold is focusing on lower cost mines generating positive free cash flow. At Fekola, cash costs were under $400 an ounce, while Otjikoto was about $394 an ounce. B2Gold has $146 million in cash and a strong balance sheet. The company is one of the fastest-growing intermediate gold producers in the world generating free cash from almost one million ounces of annual production. The company is working on a feasibility study at 50 percent owned Gramalote JV which is expected sometime late next year. B2Gold enjoys an all in cost of less than $800 an ounce and repaid $75 million of the company's revolver. We continue to recommend the shares here for its growing production profile and low-cost mines.

Centamin PLC Egyptian-based Centamin rejected a surprise $1.9 billion bid from Endeavour Mining. Centamin has no debt, no hedges and a strong balance sheet with almost $300 million in cash and a profitable long life gold mine. For the nine months, Centamin had produced 330,000 ounces with a cash cost of $700 per ounce and all in cost of $950 an ounce. Centamin operates the Sukari open pit, a world-class asset that produced 3.7 million ounces in the past but importantly, still has long life reserves of 7.2 million ounces. Centamin also has a healthy dividend policy and the only downside is a single asset located in Egypt. We would hold the shares here.

Centerra Gold Inc. Centerra had another rock fall at the Kumtor waste rock dump in the Kyrgyzstan. Two employees are missing and the company has suspended operations. Kumtor is an open pit and this is the second time that there has been a problem. Also at the same time, Centerra wrote down Mount

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Milligan, its copper gold mine in British Columbia. Mount Milligan has been problem prone due in part to the lack of water in the past and reduced reserves by a whopping 20 percent. Consequently, Centerra has begun a technical review of the mine and a new updated 43 101 is expected but further writedowns are expected, casting a cloud over the shares. Centerra is an intermediate gold producer and the two strikes have put a lid over the stock, particularly since the outlook is uncertain as to when they will be up and running again. Sell.

Eldorado Gold Corp. Eldorado had a positive quarter with a solid contribution from newly commissioned Lamaque in Québec which produced 32,000 ounces at a cash cost of under $500. Eldorado is working on a PEA to expand production. Meantime Eldorado's Kisladag and Efemcukuru mines in Turkey made a contribution, although leaching at Kisladag is uncertain. Eldorado has about $320 million of liquidity but total debt stands at $403 million so the company’s finances are tight over the near-term. In Greece, the company reported progress, receiving the installation permits for both Skouries and Olympias in September. Further permits are needed and Eldorado still requires ministerial approval to finalize. The new government could be of help. Nonetheless, Eldorado’s need to pay down debt, Greek uncertainty and flat production profile makes the shares an opportunistic speculative tidbit in this active M&A market. Hold.

IAMGOLD Corp. IAMGOLD had a disappointing quarter as production at Rosebel in Suriname was down. IAMGOLD is a mid tier gold producer with four mines but production was off due to lower grades at Rosebel which was a major disappointment. At flagship Essakane in West Africa, a feasibility study for the CIL heap leach facility looks favorable. However, in Suriname, the security and government uncertainty is a disappointment, holding up expansion plans for Saramacca. At Westwood in Québec, the operations are waiting for a new mine plan. Execution has been a problem at IAMGOLD. Cote Lake is still on the shelf. Ore from Saramacca to the Rosebel mill along the main hall road will be completed by the first quarter but the ramp up at Saramacca won't be done until later on in the year. IAMGOLD has been in negotiations with the state owned Chinese producers however IAMGOLD’s high costs, together with their uncertain operations likely caused a breakdown in discussions. Sell

Kinross Gold Corp. Kinross had a strong quarter with all in cost (AISC) around $1,000 an ounce from three core operations, Paracatu in Brazil, Kupol in Russia and Tasiast in Mauritania. At Paracatu, throughput and recovery was strong. Bald Mountain and Round Mountain had disappointing quarters. To no surprise, the LaCoipa feasibility study was delayed until next year but we expect that LaCoipa is too far off in the future to matter and will require big bucks. Kinross’ acquisition of Chulbatkan for $238 million ($US) is an open pit, high grade, heap leaching operation with 1.8 million ounces of reserves in Russia Far East. The acquisition increases Kinross’ Russian footprint with Kupol and Dvoinaye producing almost 500,000 ounces last year. Kinross has a $1.5 billion revolving credit facility to 2024 enough to build out phase 2 at Tasiast where detailed engineering is about 65 percent complete. Kinross sold its stake in Fruta del Norte to Lundin Gold for $150 million as Lundin successfully poured its first gold bar in Ecuador. We prefer Agnico Eagle here.

Kirkland Lake Gold Limited Kirkland had a strong quarter due principally to a major contribution from its high grade Fosterville mine in the Australia. Kirkland has $600 million in cash and cash equivalents as the company

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produced free cash flow. Kirkland owns four underground gold mines, Macassa, Holt, Taylor in Canada and the rich Fosterville in Australia. Kirkland Lake shares dropped 20 percent on the announcement of acquiring Detour for almost $5 billion because the all share transaction would raise Kirkland Lake's overall costs. Detour is not making much money here and has a problem prone pit. However, importantly is that the deal would boost Kirkland’s in situ reserves to 20 million ounces from 5 million ounces. We believe Kirkland Lake’s short reserve life has been a major negative for Kirkland and that the Detour reserves were bought cheaply. We thus favor the acquisition, particularly since the excess premium has been erased, bringing Kirkland more in line with its peers.

New Gold Inc. New Gold had a disappointing quarter due to Rainy River in Ontario and New Afton in B.C. where new life of mines plans (LOM) are expected in the first quarter next year. New Gold still can’t make money. Unfortunately New Gold has too much debt due to the disastrous buildout of Rainy River where it didn’t just rain, but poured. Despite a $100 million debt repayment, New Gold still has too much debt and Rainy River faces an uphill battle. Production again was a disappointment due largely to heavy rainfall. At New Afton in BC, the mine produced 52,000 ounces (gold equivalent) but grade remains a problem. Blackwater in B.C. will require capital and New Gold does not have excess capital or cash flow to develop the open pit. New Gold is a low grade, high cost operation and the difficulty to make money and poor balance sheet are good reasons for a sell.

Newmont Goldcorp Corporation The world’s largest gold producer had a disappointing quarter due to operations at Penasquito, Eleanore, and Cerro Negro formerly held by Goldcorp. These mines will be the focus as Newmont intends to turn around these problem prone operations. Newmont produced 1.64 million ounces in the quarter with all in cost under $1,000. Importantly, Newmont reported positive free cash flow and has a strong balance sheet. Newmont also sold its 20 percent equity stake in Continental Gold which was acquired by Zijin Mining of China. The key for Newmont's management is to turnaround Goldcorp which we believe will take a couple of years. In the interim, Newmont’s mill expansion at Ahafo and the Quecher Main project will fill the gap. To improve its numbers, Newmont plans to repurchase up to $1 billion of its common shares. We prefer Barrick in the interim.

John R. Ing jing@maisonplacements.com

(Please refer to the Legal Section of our website (maisonplacements.com) for our Research Disclosures for an explanation of our rating structure (click here).

MAISON PLACEMENTS CANADA INC. 2019-12-13

John R. Ingjing@maisonplacements.com

Price$/oz All in Market Market Stock

Symbol 12-Dec High Low 2018 2019 2020 Cost 2019 2020E 2019 2020 Cap $Mil Cap/oz RankAgnico Eagle AEM 79.95 86.39 51.39 235.0 1600 1800 2000 910 0.90 1.75 88.83 45.69 18,788 10,438 5Barrick Gold ABX 23.12 26.69 15.365 1,751.5 4500 5400 5600 900 0.50 1.00 46.24 23.12 40,495 7,499 5B2 Gold Corp BTO 4.92 5.36 3.24 999.9 953 950 1000 870 0.20 0.35 24.60 14.06 4,920 5,178 5

Centamin PLC CEE 2.14 2.53 1.39 1,154.7 472 490 500 900 0.25 0.35 8.56 6.11 2,471 5,043 4Centerra Gold CG 10.22 13.01 5.31 291.9 729 750 810 840 0.65 0.80 15.72 12.78 2,983 3,978 2 ↓Detour Gold DGC 25.16 25.62 9.91 175.3 621 585 600 1175 0.35 0.45 71.89 55.91 4,411 7,539 2Eldorado Gold ELD 9.55 13.34 3.36 158.8 349 400 500 1100 0.10 0.35 95.50 27.29 1,517 3,791 3

Iamgold Corp IMG 4.49 5.55 3.080 467.9 822 785 780 1200 (0.05) 0.05 (89.80) 89.80 2,101 2,676 1Kinross Gold K 5.74 7.25 3.72 1,250.3 2500 2500 2500 1100 0.22 0.35 26.09 16.40 7,177 2,871 2Kirkland Lake KL 56.11 67.87 31.340 209.7 720 980 990 700 2.40 2.55 23.38 26.62 11,766 12,006 3 ↑Lundin lGold * LUG 7.95 9.05 4.59 223.3 - - 310 700 - - - - 1,775 - 4 *

McEwen Mining MUX 1.42 2.84 1.39 344.9 175 172 170 1100 0.15 0.20 9.47 7.10 490 2,847 5New Gold NGD 1.10 2.03 0.82 579.1 425 400 400 1400 (0.05) 0.05 (22.00) 22.00 637 1,593 1Newmont Goldcorp NGT 54.16 54.87 40.01 822.6 5100 6700 7000 975 1.40 2.00 38.69 27.08 44,552 6,650 3Yamana YRI 4.83 5.11 2.41 949.3 920 1050 1000 950 0.10 0.15 48.30 32.20 4,585 4,367 1

5,463

2017 $1,3002018 $1,3002019 $1,5002020 $1,700

Gold Price

* Note: We have added Lundin (LUG) to our coverage list

Per Share Earnings

average market cap/oz

Shares (Mil)

52 Week Range PE MultipleProduction oz (000)

Rating: 5 – Strong Buy 4 – Buy 3 – Hold 2 – Sell 1 –Strong Sell

Analyst Disclosure Rating: 5 – Strong Buy 4 – Buy 3 – Hold 2 – Sell 1 –Strong Sell

Company Name Trading Symbol *Exchange Disclosure

Code Rating

Barrick Gold ABX T 2 5 Eldorado Gold ELD T 2 3 McEwen Mining MUX T 4 5

Disclosure Key: 1 = At the end of the month preceding the date of issuance of the report or the end of the second most recent month if the issue date is less than 10 calendar days after the end of the most recent month, Maison Placements Canada Inc and its affiliates collectively beneficially own 1% or more of any class of the issuer’s equity securities. 2= Analyst or any associate of the analyst or any individuals directly involved in the preparation of this report hold or are short any of the issuer’s securities directly or through derivatives. 3=Any partner, director or officer of Maison Placements Canada Inc or any analyst involved in the preparation of the report during the preceding 12 months provided services to the issuer for remuneration other than normal course investment advisory or trade execution services. 4=Maison Placements Canada Inc has provided investment banking services for the issuer during the 12 months preceding the research report. 5=(employee name) who is a partner, director, officer employee or agent of Maison Placements Canada Inc is an officer, director or employee of the issuer, or serves in an advisory capacity to the issuer. 6=Maison Placements Canada Inc is making a market in an equity or equity related security of the issuer. 7=In the previous 12 months the analyst received compensation based on Maison Placements Canada Inc’s investment banking revenues. 8=Analyst has paid a visit to review material operations of the issuer with the past 12 months. 9=Analyst has received payment or reimbursement by the issuer for the analyst’s travel expenses within the past 12 months. T-Toronto; V-TSX Venture; NQ-NASDAQ; NY-New York Stock Exchange

Disclosures Rating Structure: Number Rating: Our number rating system is a range from 1 to 5. (1=Strong Sell; 2=Sell; 3=Hold; 4=Buy; 5=Strong Buy) With 5 considered among the best performers among its peers and “1” is the worst performing stock lagging its peer group. A “3” would be market perform in line with the TSX market. UR is “under review” and is given to companies dealing with either a new issue or is waiting to clear. NR =we do not have an opinion.

Analyst’s Certification: As to each company covered in this report, each analyst certifies that the views expressed accurately reflect the analyst’s personal views about the subject securities or issuers. Each analyst has not, and will not receive, directly or indirectly compensation in exchange for expressing specific recommendations in this report.

Analyst’s Compensation: The compensation of the analyst who prepared this research report is based upon in part; the overall revenues and profitability of Maison Placements Canada Inc. Analysts are compensated on a salary and bonus system. Some factors affecting compensation include the productivity and quality of research, support to institutional, investment bankers, net revenues to the equity and investment banking revenue as well as compensation levels for analysts at competing brokerage dealers.

Analyst Stock Holdings: Equity research analysts and members of their households are permitted to invest in securities covered by them. No Maison analyst, or employee is permitted to effect a trade in the security of an issuer whereby there is an outstanding recommendation for a period of thirty calendar days before and five calendar days after the issuance of the research report.

Dissemination of Research: Research is distributed via an email marketing service in pdf form. Electronic formats are available upon request.

General Disclosures: This report is approved by Maison Placements Canada Inc. (“Maison”) a Canadian investment dealer and a participating organization of the Toronto Stock Exchange and TSX Venture Exchange. Maison is a member and shareholder of Neo Exchange. Maison is a member of and is regulated by, the Investment Industry Regulatory Organization of Canada (IIROC). Maison is also a member of the Canadian Investor Protection Fund (CIPF).

The information contained in this report has been compiled by Maison from sources believed to be reliable, but no representation or warranty, express or implied, is made by Maison, its affiliates or any other person as to its accuracy, completeness or correctness. All estimates, opinions and other information contained in this report constitute Maison’s judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility or liability.

Maison and its affiliates may have an investment banking or other relationship with the company that is the subject of this report and may trade in any of the securities mentioned herein either for their own account or the accounts of their customers. Accordingly, Maison or their affiliates may at any time have a long or short position in any such securities, related securities or in options, futures, or other derivative instruments based thereon.

This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction.

This material is prepared for general circulation to clients and does not have regard to the investment objective, financial situation or particular needs of any particular person. Investors should obtain advice on their own individual circumstances before making an investment decision. To the fullest extent permitted by law, neither Maison, its affiliates nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained in this report.

For more information, please visit our website: www.maisonplacements.com to access the legal page for our Research Disclosures . For further information please see IIROC Rule 3400 RESEARCH RESTRICTIONS AND DISCLOSURE REQUIREMENTS .