Eric Coffin, editor and publisher of the Hard Rock Analyst newsletter,
has never heard so much negativity from investors. "Everybody thinks the
world is coming to an end," he tells The Gold Report. As a
contrarian, all the doom and gloom tells him the market is about to pull out
of its tailspin. In this exclusive interview, Coffin talks about the hard-hit
juniors in the Yukon and why it's an area play he still believes in.
The Gold Report: Eric, the gold bears
recently outnumbered the gold bulls in Bloomberg's weekly Gold Bull/Gold Bear
Sentiment Survey for the fourth time in a year. Are you a bull or a bear?
Eric Coffin: I think the gold price
is going to end the year higher, so I guess that makes me bullish, but I
think of myself as agnostic.
There needs to be a
return of calm to Europe for the gold price to move much higher. The currency
pair trade between the euro and the dollar is going to be a big determinant
to the gold price. There's been more noise about the EU providing stimulus
funds to offset all the government budget cuts in Europe. All of those
countries have to deal with their debt loads. But it's not realistic to think
that they can cut their deficit and 3% off their gross domestic product year
after year and realistically get any net growth.
The other side of that
equation is that the U.S. has slowed down. That'll help the gold price
because a lot of goldbugs are riding on there being
another round of quantitative easing. I'm not sure it's going to happen. But as long as Federal Reserve Chairman Ben Bernanke keeps saying it
might happen, that's good enough.
TGR: Stagnant gold prices
are translating to equities. Canaccord reports that
"sector weakness in the gold equities over the last six years has
typically ended with 'V'-shaped corrections to the upside." Do you
believe that's what will happen this time?
EC: I sure hope so because
I'm on the buy side, not the sell side. I'm going to feel pretty dumb if it
doesn't happen. We're still in a bull market for gold. In a secular bull
market, generally speaking, coming out of a dip tends to be an impressive
TGR: Many Yukon junior
mining companies are starting their 2012 exploration programs after
completing off-season financing on buyers' terms. What types of companies are
EC: The only financings
I've seen in the past five months are either relatively new deals where
investors have a lot of respect for management—which is a roundabout
way of saying that investors figure management will figure out a way to make
money regardless—or companies that have something pretty definitive
with a bunch of drill holes. Companies that didn't take the opportunity to
raise money last year are going to have to pull a rabbit out of their hat.
The Yukon is an expensive place. There's no getting around it.
Outside of companies
with discoveries, like Kaminak Gold Corp. (KAM:TSX.V), ATAC Resources Ltd. (ATC:TSX.V) and Golden Predator Corp. (GPD:TSX), nobody's really done
large financings and that's going to be tough. About 60% of the companies are
going to have a hard time undertaking any significant programs this year. If
the market gets better, which I think is going to happen, they still have a
shot, but it's at buyers' terms.
I suspect a lot of
companies are going to say, "Let's just wait and see if next year is
better." You haven't seen many announcements. Quite a few of those
companies that were talking last year about doing $4, $6, $8 million
exploration programs—many of those programs aren't going to happen.
TGR: Desjardins Capital
reports that 26 mergers and acquisitions worth a combined $30 billion (B)
took place during 2010 and 2011. There are about 120 more companies operating
in the Yukon. Are other junior explorers going to be forced to merge?
EC: I think there will be
merger activity at the junior level. There are a lot of companies with decent
but not spectacular projects where they haven't done enough work and are not
in a position to raise money. A merger is one way out for them.
TGR: What did you think of
the recently announced merger between Prosperity
Goldfields Corp. (PPG:TSX.V) and Smash Minerals Corp. (SSH:TSX.V), which both have projects
in the Yukon?
EC: It was our idea, so we
liked it. It's a really good combination of management teams and a
good-looking project. The first set of results from this year's drilling at
the Kiyuk project should be out any time. [Ed.
note: results are available here.] I'm expecting good
things from it.
TGR: Is it still fair to
call the Yukon an area play when the shares of most of the juniors operating
there have declined considerably, often by more than half? Even good results
often don't tangibly move share prices.
EC: It still is an area
play. This is a fairly common path even for a successful area play. The easy
money has been made or, as is the case here, the market's just lousy and
there is a lot of consolidation. The Yukon is getting to that point. The few
companies that have done well will have the ability to pick up a lot of
projects. In any area play, anywhere from a third to a half of the companies
involved are piggybacking on the play to help raise money. Those companies
tend to disappear quickly if they don't find something large right away or if
the financing environment gets difficult. The bad market has exacerbated
things but a large number of drop outs from an area play at this stage is not an unexpected development.
TGR: Let's talk about some
of the contenders. What would be some of the biggest exploration programs in
the Yukon this summer?
EC: Contenders will be the
big spenders. ATAC is probably going to be the biggest up there at around
$30M. Kaminak isn't very far behind. Both of those
are funded new discoveries.
ATAC is particularly
interesting because it looks like it could have a camp. It's Carlin, which is
something new to the Yukon. There's not a lot of doubt that it will have a
lot of ounces to work with, especially if they have some luck with new drill
Kaminak's Coffee project is the
same model as the original 1.5 million ounce (Moz)
White Gold discovery, but it'll probably be larger. Kaminak
is probably past that already, although it won't have a number out until
early next year.
Both of those companies
will probably get resources out at the end of the season.
Resources Ltd. (SNG:TSX.V) has projects all around
the old Faro mine. It has a very large land position and is drilling large
bulk tonnage silver base metals zone. It also made a couple of high-grade
silver vein discoveries late last year with similar mineralization to Keno
Corp. (ECC:TSX.V; ETHOF:OTCQX) has about $7 million
budgeted for its Betty project, which is adjacent to Kaminak's
Coffee project. This will be the first drill test at Betty that has generated
some good high-grade numbers from trenching and test pitting, so that will be
closely watched. Ethos is fully funded for that program with quite a bit to
TGR: Since we last talked,
your brother David, your best friend and co-editor, passed away. He was a
very fine geologist and a great human being. Our condolences for your loss.
EC: Thank you. We are going
to hold a dinner and fundraiser for the University of British Columbia
geology department in honor of Dave on June 4 after the Cambridge Conference
in Vancouver. Everyone can get together, have a meal and a few drinks, and
tell stories about Dave.
TGR: David often spent more
than 200 days a year traveling to mining projects around the world. He helped
start a new mining company before he passed away. Can you tell us about that?
EC: We were meeting with Strategic Metals Ltd. (SMD:TSX.V) about its projects. Doug
Eaton, who runs Strategic, showed us a different project set that got our
Gold Corp. (PRG:TSX.V–pending) was formed to explore 15
projects optioned from Strategic in the southeastern Yukon and northeastern
British Columbia plus four other 100%-owned projects. After the initial
public offering, which should be later this month, Strategic will become a
significant shareholder and Precipitate gets 100% of the projects.
The lead project is the
Reef project, north of Northern Tiger Resources Inc.'s (NTR:TSX.V)
3Ace project. A couple of large gold arsenic anomalies have been found at
Reef, but they have not been drilled yet. There's some hard rock numbers
there, but it will take drilling to figure out what it is. It's quite early
Dave also picked and
staked four other projects. We got a nice cluster of fairly high gold in silt
numbers on the Gemini project in British Columbia. Part of the reason Dave
liked this area was because it has very little exploration history, but
that's actually what makes it interesting. It's not an area that's been
written off. It just hasn't been looked at. And the logistics are pretty good
by Yukon standards. The property is fairly flat, which makes it easier to
work in the winter and it's a short hop from the Alaska Highway.
We went around and
tapped on the shoulders of some really good people to work on this. Adrian
Fleming, who was running Underworld Resources before it was taken over by
Kinross Gold Corp. (K:TSX; KGC:NYSE), is the
chairman. Quinton Hennigh, who was largely
responsible for turning 600,000 ounces into 5 Moz
at Gold Canyon Resources Inc. (GCU:TSX.V), is the geologist. Gary
Freeman, who was president of Pediment Gold Corp. until it merged with Argonaut Gold Inc. (AR:TSX) and who is a really good
market person, is on the board. Darryl Cardey, who
was the chairman of Underworld Resources [acquired by Kinross], is on the
board. Darcy Krohman, who has exploration and
regulatory experience, has come in to be the CEO. Mike Moore has come on as
vice president of exploration.
Like most early-stage
stories, it's a management story. We might trip over something amazing on one
of the properties right away, but we've got the right guys—that's the
important thing. Strong management is the best Plan B you can have with an
TGR: It's a compelling story
with all those names involved, Eric. You follow companies all over the world,
not just those in the Yukon. What are some of your favorite stories outside
of the Yukon?
EC: I like Prosperity
Goldfields, which is run by Adrian Fleming and Quinton Henning. The project
is in really good hands and has a fair amount of room to grow. Results from
the spring drill campaign should start arriving any time now.
Gold Corp. (CGT:TSX.V) picked up the Paul Isnard project, which was drilled about 20 years ago in
French Guiana. It's got about 1.9 Moz on it.
Columbus is fairly comfortable that it can double the ounces, and based on
the drill results it's had so far, I'd say it probably can. As a company that
has a 4 Moz deposit with a $60M market cap, it's
Another one that we like
is Riverstone Resources Inc. (RVS:TSX.V). It's got very good
management and projects. The last resource was 3 Moz
and it's still expanding. It's got a good bank account. It optioned the Yaramoko project to Roxgold
Inc. (ROG:TSX.V) and sold the remaining
40% for $17M and 17M Roxgold shares.
TGR: What are your thoughts
on Riverstone's Karma project?
EC: Karma probably has room
to get to 4–5 Moz. It is still open and has gotten a lot bigger than we
thought it would. The ounces are in several separate areas, but none of them
are very far apart. It even has several trends that haven't been drilled much
I'm very interested to
see what happens with its Ligidi project. It is a
really large target—one of the biggest I've ever seen in West Africa.
What are the grades going to be when it starts putting holes in it? There are
a lot of investors who have owned that stock for five years waiting to see Ligidi get drilled. It's one of the reasons Dave and I
wrote it up. The company hasn't been able to work on it until now because of
arguments with the vendor from whom Riverstone
acquired the property. They've made peace now. It's just a matter of getting
the exploration permits.
TGR: Majescor Resources Inc. (MJX:TSX.V) hit some interesting
results recently on its Blondin project in Haiti.
What do you know about that?
EC: We started following Majescor for its diamond mining a long time ago and kept
it on the list. The project in Haiti looks pretty interesting. It has nice
copper grades of a good width and a supergene zone. Supergene is the oxide
just above the water table. Recirculating water creates blankets of
high-grade material, be it copper, gold or whatever. In this case, it appears
to be silver. Majescor doesn't have a lot of holes
in that yet so it's hard to get our arms around it. However, the few holes it
has drilled were getting 10–20 meters of 5–10 ounces silver. It's
Of course, Haiti is
Haiti. The country is a mess; that's not a secret. However, it's a place that
wants to get this industry going. Resources are probably one of the shortest
routes to Haiti getting foreign currency reserves and direct investment.
There are a few companies there now, including Eurasian Minerals Inc. (EMX:TSX.V) and Newmont Mining Corp. (NEM:NYSE).
TGR: Bear Creek Mining Corp. (BCM:TSX.V) in Peru has had some
permitting issues. It seemed to be an up-and-coming company until the new
government came into power and changed the landscape. What are your thoughts
on what's happening in Peru and on companies like Bear Creek that are being
EC: The political landscape
has shifted a lot in Peru. It's made it very difficult for anybody outside of
Peru—and maybe even inside Peru—to get a handle on what's a good
spot and what isn't. There are a lot of South American countries where mining
companies just shouldn't go because they're bound to face a political or
indigenous population problem and they won't get permitting. Bear Creek has
been there a long time and knew the good and bad areas and followed the laws.
It stuck to areas where it didn't expect any problems and we didn't think it
would encounter any either. Now no one seems to know what the good areas and
the bad areas are. That's going to make it tough for everybody in Peru until
this stuff gets clarified.
TGR: The problem is with a
mining permit at Santa Ana, which isn't its primary project. The world-class Corani silver project is its main project, but it can't
develop that without getting the cash flow from developing Santa Ana.
EC: Santa Ana was always
going to be the lower capital expenditure (capex)
project that would start spinning cash flow and increase the company's
valuation in order to raise money for Corani. This
has messed up its whole pipeline.
TGR: Is it too late to
modify that game plan?
EC: The locals don't want
the company there. Unless Bear Creek can go back into Santa Ana, it has to go
back to square one and develop Corani first. That
probably means bringing in a partner because it's a big capex
project. There are Asian companies that are pretty active in Peru and Chile
that may have enough political clout to be able to sit down with the
government and say, "Look, we can come in and spend $1 billion to build
this thing, but we've got to know now. No surprises."
TGR: The Chinese don't tend
to be all that interested in silver though.
EC: They would be more
interested in the base metals, which Corani has a
lot of. There's a lot of zinc and lead. Lead is not a politically correct
metal and it's got environmental issues, which doesn't make it an easy sell.
However, it still gets used in a lot of areas, one of them being China.
If a company can deal
with the base metals, Corani could be a very big
silver producer by world standards for a long time.
TGR: Do you have some
parting thoughts for us on the market and how it translates to the retail
EC: I'm fairly comfortable
that the U.S. is going to do OK over the next couple of years. It's going to
have another political fight at the end of the year when tax cuts die. Europe
has the capability to pull itself out of its problems. In a large measure,
it's political decision-making. I certainly appreciate northern Europeans and
Germans that don't really see why they should be footing the bill, but they
can afford to foot the bill.
We're not particularly
worried about China. It's trying to rebalance its economy. China's in a
different boat from Europe or the U.S. in that it's got $3 trillion in
reserves and can open the taps anytime it wants. China will increase the
growth rate when it feels it's the right time to do it.
The world economy will
do OK as well. I know it feels like the end of the world for investors that
own a lot of resource stocks as I do. The secular bull market hasn't ended.
Ironically, all the political problems in different producing regions are
going to extend that secular bull market in metals because it's that much
harder to grow production to a point that knocks metal prices down.
I'll just leave you with
a contrarian thought: Everybody's so negative right now because this is what
bottoms look like. Everybody thinks the world is coming to an end. Everybody
thinks it's the worst market they've ever been in. Everybody thinks nothing
is ever going to go up. That's what a bottom looks like. It's not fun to go
through. There's so much negativity everywhere that it's telling me as a
contrarian that there's probably not a lot more pain to go through before
things start getting better.
If readers would like to
download HRA's new company report on Precipitate Gold Corp., HRA has set up a
special free report offer for a limited time. Simply click here and they will send you the report.
Eric Coffin is the editor of the HRA (Hard Rock Analyst)
family of publications. Responsible for the "financial analysis"
side of HRA, Coffin has a degree in corporate and investment finance. He has
extensive experience in merger and acquisitions and small-company financing
and promotion. For many years, he tracked the financial performance and
funding of all exchange-listed Canadian mining companies and has helped with the
formation of several successful exploration ventures. Coffin was one of the
first analysts to point out the disastrous effects of gold hedging and gold
loan-capital financing in 1997. He also predicted the start of the current
secular bull market in commodities based on the movement of the U.S. dollar
in 2001 and the acceleration of growth in Asia and India. Coffin can be
reached at email@example.com or the website www.hraadvisory.com.
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1) Brian Sylvester of The Gold Report conducted this interview. He
personally and/or his family own shares of the following companies mentioned
in this interview: None.
2) The following companies mentioned in the interview are sponsors of The
Gold Report: Ethos Capital Corp., Argonaut Gold Inc., Gold Canyon
Resources Inc., Golden Predator Corp., Majescor
Resources Inc., Prosperity Goldfields Corp. and Roxgold
Inc. Streetwise Reports does not accept stock in
exchange for services.
3) Eric Coffin: I personally and/or my family own shares of the following
companies mentioned in this interview: Kaminak Gold
Corp., ATAC Resources Ltd., Prosperity Goldfields Corp., Precipitate Gold
Corp., Northern Tiger Resources Inc., Columbus Gold Corp., Majescor Resources Inc., Riverstone
Resources Inc., Roxgold Inc., Argonaut Gold Inc.
and Ethos Capital Corp. I personally and my family are not paid by any of the
companies I follow in the HRA Advisories newsletters. I was not paid by
Streetwise Reports for participating in this story.