David Coffin: Buy these 8 Junior Miners on Dips
Michael Campbell: David could we just start and give the broad brush first of all where you see sort of that precious metals complex. I’m talking now the bullion itself and then we’ll move to the stocks.
David Coffin: Basically I think right now the factors are consolidating after a long run. I try not to fix a date on that, but with January approaching it is profit-taking time for a lot of people and institutions. We think you have to assume the consolidation for the metals continues into January.
Michael: With 1,300, $1,400 gold it makes a lot of properties very commercial or potentially commercial. Do you see a lot of amount of money moving into the junior sector?
David: Without question. A lot of institutional money is available if you have the right project. Raising $100 million for a gold or a silver project right now is not difficult. Advanced projects especially, the money is there looking for a home.
Michael: A big difference compared to going back a few years?
David: Definitely, it’s making our life much easier by keeping it simple. In recognizing the consolidation coming, we sat down and did a lot of major number crunching on most of the companies we've talked about, particularly the more advanced ones. The reality is if you factor in $1,300, $1,400 gold and $25 to $30 silver they are not actually overpriced. Even though they’ve had big runs.
Michael: Let’s talk about some of those. You're looking for dips when market then presents better opportunities. Can you give us a few names that people can put on their radar screens?
David: Sure, what we deal with is very early stage exploration companies through development and I'll start with some development level stories. People should be looking for consolidation and depth. Companies like Silver Quest TSX -V SQI who are developing a gold/silver mine in Mexico. It’s a small mine and they have had a decent run lately. They have started exploration on a new project and they will be doing exploration on the mine development project. We like them quite a bit. They are trading around two dollars, not a high number relative to their cash flow projection that’s coming. Again have had a strong run so look for a dip. Similar situation Nevsun Resources Amex NSU in Eritrea, they are groundbreaking because of where they are working. Again they’ve had a strong run, their cash flow on large scale will output as expected next quarter. After they have done a couple of years of high output in gold they will move into copper, and copper of course is also favored right now.
Another which has just recently financed to put itself in production is a company called Bear Creek Mining TSX-V BCM. They are working in Peru where they have two projects lined up, one of which is in permitting stage and is funded to go into production at about 4.5 million ounces. Their second project would be a larger scale that would bring them up to 20 million ozs by about 2014, 2015. The study is being done right now and I expect it to be a go. They have also started drilling a third project. It’s not a new belt, it’s new because these are build tonnage silver projects which historically haven’t had a lot of focus. But they’ve done very well with them.
If you got into more exploration-oriented stories, companies like East Asia Minerals TSX-V CVE has had a big run but it’s been consolidating for the last few months. They are working in Indonesia on a big scale project, and if they pull back in early next year we definitely are still interested in them.
In Burkina Faso in Africa, a country that we like and are quite focused on, I’m going to mention two. One called Riverstone Resources TSX-V RVS, the other called Orezone TSX ORE. Orezone’s just financed enough to take them into their pre-development study stage. In our view they have both as they are sitting at their current resource levels as they continue to drill and expand resources. That’s the upside there.
At a more early phase level a company in a similar situation is GoldQuest Mining Corp TSX-V GQC who are working in the Dominican Republic. They have outlined about 400,000 ounces there. They aren’t drilling right now; we expect that to start soon. When they do that their expansion potential is there to bring them up to threshold scale. So it’s an exploration story that looks quite good and we expect the market to be interested.
At a still earlier stage a company called Mirasol Resources TSX-V MRZ working in Argentina, this is a silver pit. Mirasol had a good run up, they’ve made one drill hole discovery and they’ve started drilling a second. Now the reason their price has moved up is that there's been quite spectacular results from their surface sampling that indicated a potential for a very large and high grade silver resource. That said, drill confirmation is still needed though they've been getting confirmation along most of the length of the vein system that they’ve discovered. They still have a lot of upside so we are telling subscribers that after the big run up they’ve had, look for some consolidation. That’s the kind of story that you would expect to consolidate earlier.
Michael: How would you rank countries in terms of political risk?
David: Political risk is important and when you get to situation. East Asia is a good example of an area that, I think when we started talking about it, most people thought was risky. We didn’t because I’ve spent a little bit of time there. On the whole, political risk factor has changed there, people are now comfortable with it. A company like Nevsun working in Eretria is still considered a test case. Our due diligence from talking to various people, not just the company who worked there, is that they are comfortable with the way the government functions. But there is a higher political risk. When you get into places like Peru, the same thing was true of Peru 12, 15 years ago when it was still considered a risky place. Now it’s considered a comfortable place to work, in fact it’s one of the best in the world. What we like to do is get in ahead of the perception of political risk falling. When you go to countries like Argentina you need to look at it province by province, very similar to Canada. You need to do your homework in Argentina and make sure you’re in a part of Argentina that’s friendly to mining.
Michael: What are the other things you're looking for within the category of early stage production?
David: Another important one is financing risk. That’s partially a timing element, in other words is the market willing to find speculative money for a given metal? That is also tied to a separate risk — management risk. Are we talking to people in the company who know how to move it from one stage to the next? Are there people who have a history of doing that? And in order to do the financing, particularly the higher price financing service. Those are critical risks, then of course there is also project risk. We look at whether there are maybe elements in the geology or even the location of a project that might make it difficult to finance it once the discovery has been made. You pull those together and that’s your basic risk parameters, on top of the country risk which we’ve already talked about some. From risk you go to the benefit. It’s simply true that some areas are more popular than others, usually for good reason. In other words rather than simply doing a risk evaluation, see if there are bonus points. Places like Burkina Faso that I mentioned with a couple of companies, that’s a popular spot right now, it’s the extension of the gold belt in Ghana. And it’s had five mine developments now by Canadian companies.
Michael: I might add by the way that you gave us eight companies in 2009 and I think you are up 252% on average. You know I’ve been around a bit, I think that’s pretty good. What are you telling your subscribers now?
David: My message to subscribers right now is simply the bottom line on the editorial this month. We think that gold and silver both have good futures. We’re expecting more gains post consolidation but you have to make some decisions about your portfolio regularly. Paper gains aren’t actual games until you’ve realized them, so you've got to sell and take the profit when the opportunity arises.
Michael: David Coffin has arranged an exclusive discount for the Money Talks audience for their Premium Service, the HRA Special Deliver Alert Service. David has discounted the price from $2,000 a year to $1,700. Just go HERE to subscribe. I remember talking to you about Bear Creek Mining in 2003/2004 and when it was a penny stock and now it’s trading at $10.00. Your whole strategy about recognizing value early in a tough business requires you to have experience. This is a different side of the analytical game where market timers are going to be looking at the charts and using their own methodology. I really like the homework that you and Hard Rock Advisories does.
David: My pleasure Michael.
* David Coffin, the “geology side” of HRA, has been active in prospecting, resource calculation, and feasibility studies for resource companies for 29 years. He attended the Haileybury School of Mines, authored numerous qualifying reports for resource companies, and managed and designed field programs for over 15 years. & Hard Rock Advisories: Full Track Record HERE
* Michael Campbell of MoneyTalks was founded by the well respected Canadian business analyst Michael Campbell, MoneyTalks has remained committed to providing investors with world-class financial information and analysis for 28 years through its radio, event and online platforms. Michael Campbell reaches 400 thousand people every week and that audience continues to grow. Mr Campbell started his career at Merrill Lynch as a stockbroker, was the top performing new account opener in North America 4 years in a row. He then became editor of Equity Magazine. Shortly after he started Western Waffles which he sold to Ralston Purina for 120 million. He is independently wealthy and only continues Money Talks for altruistic reasons.