Ninepoint Gold & Precious Minerals Fund

August 2018 Commentary

The Ninepoint Gold and Precious Minerals Fund ended the month of August down 8.8% while the S&P/TSX Global Gold Index declined 13.4%. In our July commentary, we brought to your attention the record short interest in gold and silver. August saw a continuation of this trend as non-commercial speculative short interest in gold peaked at 222,210 contracts – an all-time high.

Source: Bloomberg

On a similar vein, speculative silver shorts also increased to a record 112,035 contracts earlier in September. Net speculative interest in gold is now lower than at any time since 2001 while net speculative interest silver is at an all time low.

If the record levels of short interest and astoundingly low levels of net speculative interest were not not enough, August marked the fifth consecutive month of decline for gold. We were unable to find five straight monthly declines for gold in over 20 years.

While the rest of the world continue to shun precious metals, companies in our portfolio continue to operate profitably with a healthy margin and some are even paying a healthy dividend. Explorers and developers in our portfolio have projects which would be profitable at today’s gold price of circa $1200 per ounce. The last time we saw an opportunity in precious metals similar to what we are seeing today, was in the late 1990s as the dot com bubble was beginning to ripen and gold was about to embark on a decade long bull market.

The takeaway here is simple. The bear market which began in the precious metals space in 2011 has transitioned to a point where most participants are now in a crowded short trade. Precious metals equities which were richly valued in 2011 are now considered value stocks.

The August outperformance of our fund was carried by Skeena Resources, Northern Empire Resources and Contact Gold. All three names are exploration companies. Skeena reported high grade assay results from their Phase II underground drilling program at their Snip gold project in the Golden Triangle of British Columbia. The Company added confidence to areas that were not fully sampled during previous operators’ historical drilling programs in preparation for a maiden resource estimate. Northern Empire entered into a definitive agreement with Coeur Mining pursuant to which Coeur agreed to acquire all of the issued and outstanding shares of Northern Empire. The transaction represented a 40% premium to Northern Empire’s 20-day trailing volume-weighted average share price. Contact reported a new gold discovery at their Pony Creek project in Elko County, Nevada.

The top three detractors from the fund performance in August were Kirkland Lake Gold, Newmont Mining and Dacian Gold. Kirkland Lake had a brief period of underperformance in August as it gave up some of its gains due to expectations of the stock being deleted from the GDXJ junior gold index in September (due to outperforming and getting too large for the index). This phenomenon is normal as hedge funds try to preposition themselves by shorting a stock that is going to be deleted. Newmont suffered in the general gold stock sell off – as it is the largest component of the GDX gold index, it took the brunt of the pain. Dacian also corrected after raising A$48 million in new equity in July. While the financing was very well-received, the market became nervous about the company’s ramp up of its Mt Morgans mine in Australia.

¹ All returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at August 31, 2018; e) 2001 annual returns are from 11/15/01 to 12/31/01. The index is 100% S&P/TSX Global Gold Total Return Index and is computed by Ninepoint Partners LP based on publicly available index information.

The Fund is generally exposed to the following risks. See the prospectus of the Fund for a description of these risks: commodity risk; concentration risk; currency risk; cybersecurity risk; derivatives risk; exchange traded funds risk; foreign investment risk; inflation risk; liquidity risk; market risk; securities lending, repurchase and reverse repurchase transactions risk; series risk; short selling risk; small capitalization natural resource company risk; sub-advisor risk; substantial unitholder risk; tax risk; uninsured losses risk.

Ninepoint Partners LP is the investment manager to the Ninepoint Funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), other charges and expenses all may be associated with mutual fund investments. Please read the prospectus carefully before investing. The indicated rate of return for series F units of the Fund for the period ended August 31, 2018 is based on the historical annual compounded total return including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction.

The opinions, estimates and projections (“information”) contained within this report are solely those of Ninepoint Partners LP and are subject to change without notice. Ninepoint Partners makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Ninepoint Partners assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Ninepoint Partners is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Ninepoint Partners. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Ninepoint Partners is or will be invested. Ninepoint Partners LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. Ninepoint Partners LP and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, Ninepoint Partners LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.

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