Despite some rotten
apples in the past, good, ethical promoters are "essential to the life
cycle of public companies," according to James West, author and
publisher of the Midas Letter. The best of them tell a credible story
about the company's structure, finances and deposit. When promoters do their
jobs and investors do their homework, everyone stands to benefit from the
legendary "tenbaggers," such as those
that West shares in this exclusive Gold Report interview.
The Gold Report: Not so long ago, mining
promoters—larger-than-life personalities who revved up retail investors
about stocks—were an essential part of the junior mining business. But
the NI 43-101 limits how much company presidents and CEOs can tout their
stocks. Do promoters still have a role or have they disappeared from the
James West: Promoters have not
disappeared from the scene. Yes, the NI 43-101 puts a filter on how public
companies communicate with the market, but promoters are essential to the
life cycle of public companies.
There was a time when
promoters were infiltrated by a larcenous element that would create and
promote deals that could at best be described as very optimistic. Back then,
these misleading statements could be distributed almost clandestinely. Thanks
to the Internet and the NI 43-101, that larcenous element has largely been
unable to operate as freely. People hear "promoter" and they
immediately think "con artist," which is wrong-headed and a
throwback to the pre-Internet era. Promoters now are legally responsible for
the statements they make on behalf of a company. As a result, promotion is a
lot more respectable.
Today, because the level
of sophistication has gone up with the proliferation of chat rooms and
discussion groups, information considered "overly promotional" is
discounted by the audience. People are a lot more savvy
about promoters and promotional language than they used to be.
"A great stock
promoter can credibly and convincingly convey the technical aspects of a
project and the merits of the management team, and can honestly indicate who
the other investors are and what the exit strategy is to as broad an audience
as possible. He also needs a great Rolodex."
Promoters are still there,
they are just more transparent. Today, promoters are part of the management
team. They go to the meetings, presentations and trade shows. Excellent
promoters attract capital and investors. A company without a good promoter on
the management team is a company with few investors, that
nobody has heard about and that can't raise money.
TGR: Given the transparency
and availability of information, would investors be better off if the NI
43-101 rules regarding resource disclosure were relaxed to allow greater
JW: No. It is thanks to the
NI 43-101 that the Toronto Stock Exchange (TSX) and the Toronto Venture
Exchange (TSX.V) are the No. 1 destination exchanges for resource stocks.
Those rules create a level of investor trust such that investors expect that
any legitimate resource-oriented public company raising money must have an
exit strategy that involves the TSX or TSX.V.
However, I believe NI
43-101 enforcement should be undertaken more carefully. For example, look at
what happened to Orbite Aluminae Inc. (ORT:TSX) last year. Orbite extrapolated a rare earth estimate between holes
two kilometers apart. The geologist at the Ontario Securities Commission took
exception to that and halted the stock. Later, the Autorité
des Marchés Financiers in Québec did
the same thing on the same grounds. Additional NI 43-101 reports were ordered
by both agencies. Eventually, 11 independent geologists concluded that Orbite's approach to the assumption was sound and that
the estimate was accurate. While it was halted, the stock built up a short
position of 11 million (M) shares. When it was finally unhalted, it got
hammered, and is now trading at nowhere near where it should be trading.
TGR: Do the recent poor
performances of resource equities and the difficulties companies have raising
money make a good promoter more valuable?
JW: Absolutely. Some
promoters are raising millions of dollars. That is the result of a
combination of good projects and good management, which includes a good
TGR: What makes a good stock
JW: A great stock promoter
can credibly and convincingly convey the technical aspects of a project and
the merits of the management team, and can honestly indicate who the other
investors are and what the exit strategy is to as broad an audience as
possible. He also needs a great Rolodex.
TGR: How do today's
promoters differ from your dad's junior mining promoters?
JW: They do not drink or
smoke nearly as much, and they probably do not make as much money. Back in
the day, you could promote 10 or 15 deals. If just one took off, you would be
off to the races financially.
Today, if you are on
more than one management team, your attention is assumed to be divided and your
effectiveness is perceived to be limited as a result. Promoters cannot have
as many balls in the air as they used to. Promoters are a visible part of
management and are accountable.
TGR: Who would you consider
to be a good, or even great, promoter active today?
JW: A great promoter,
without saying too much, gets you so excited about the deal that you buy
stock in the market or you participate in a private placement. Without being
promotional, he paints the picture and leaves you to read between the lines
if it's a truly remarkable project.
I would put Richard Whittall from Newstrike Capital Inc. (NES:TSX.V) in that category. He
does not shout from the rooftops. He diligently goes about the business of
credibly articulating the structure and financial condition of the company
and the deposit. The fact that Newstrike's share
price is holding where it is in this market is testimony both to the quality
of the deposit and to Whittall's effectiveness as a
president and promoter.
TGR: Some might consider you
a stock promoter. How do you straddle the line between being a promoter and
JW: Arguably, anybody who
speaks positively about a public company is promoting it. In our newsletter,
we are happy to promote the stocks we invest in because we own them in our
fund, and we think they have value. When we write about these companies, we
try to articulate a company's merits in terms of structure, financing,
projects and management without being too promotional. The idea is to say,
"This company is good enough for me to invest in it, and here's why I
like it." It is third-party endorsement in its most sincere form.
TGR: But you also try to
create a story and use language that people can easily understand and relate
JW: The role of a
newsletter writer in mining is to convey complex technical concepts in simple
terms that a layperson can understand and use to decide whether an investment
is appropriate for them. We aid in the function of promoting the stock, but
we are not promoters.
"The best time to participate in a high-risk
venture is before a junior makes a discovery."
Increasingly, I have
been invited into deals as a founding shareholder. In that instance, I do
become more a part of the promoting function, and in most of those cases, I'm
proud to be a promoter because I believe in the deal, the project and the
team. But you rarely see a newsletter writer on a management team or a board
There are exceptions,
like John Lee, who was a fund manager and newsletter writer with Prophecy
Coal Corp. (PCY:TSX; PRPCF:OTCQX; 1P2:FSE) and Prophecy Platinum Corp.
(NKL:TSX.V; PNIKD:OTCPK; P94P:FSE); Victor Goncalves, who stopped writing to become president of Threegold Resources Inc. (THG:TSX.V); and Jim Sinclair,
who has a huge audience and is the president of Tanzanian Royalty Exploration
TGR: Institutional investors
and investment banks are quite active in the junior mining space today. Do
you think the space will be reclaimed by retail investors?
JW: First, the sheer size
of the investment banks gives them an advantage over individual investors.
Second, because the investment bank's business model relies on transaction
volume, they are only in it for the structure, not the story.
So, yes, retail
investors are reluctant to participate, especially in this kind of market and
because of the mercenary nature of the investment-banking model. That being
said, the earliest stage of the public company lifecycle is exclusively the
domain of retail investors.
TGR: The best times to get
into an equity position are at the seed capital stage and at an IPO. But many
of our readers do not have those opportunities. What is the next best time in
a company's life cycle to invest?
JW: I will start by saying
that for the average investor whose portfolio is less than $100,000, the
high-risk portion is the only portion that should be allocated to investing
in junior mining.
"The best thing you
can do in this market is look for companies that have made discoveries but
whose share prices do not reflect the value of the deposit."
The best time to participate
in a high-risk venture is before a junior makes a discovery. For individual
investors that typically means after an investment bank has done a financing
and the stock price drops below where the financing was done, and when all
signs point to a discovery. At that point, you are in cheaper than the
institutions and the share price is unlikely to be driven down lower. After
the discovery moment, the stock price goes parabolic for a brief phase.
TGR: The discovery phase is
when investors are most likely to tap into the legendary "tenbagger." Can you tell us about some names that
may or may not be tenbaggers?
Mining Corp. (GQC:TSX.V) comes immediately to
mind. On May 23, 321,000 shares of its stock traded at $0.075. The company
announced the Romero discovery at the Las Tres
Palmas project in the Dominican Republic; drill results were 230 meters (m)
grading 2.4 grams per ton (g/t) gold, which included 160m grading 2.9 g/t
gold and 0.62% copper. In textbook fashion, the stock tripled, closing at
$0.31 on 16M shares of volume. It touched a high on June 1 of $0.74. From
$0.075 to $0.74, that is a tenbagger, a 10-times
return investment if you sold it on June 1.
Apart from promising
preliminary geology and geophysics, there was no way for an investor to know
that GoldQuest was going to pop out a hole like
that. That really speaks to one of the keys behind successful resource
TGR: Yes, but investors can
reduce their odds through due diligence and listening to people like you.
JW: Yes. A good management
team and a great geologist can look at a piece of ground and render an
opinion about what might lie beneath it. Reinforce that with geophysical and
geochemical data, and they might be able to improve on where they would drill
a hole. But it is still largely a puzzle.
TGR: Shortly thereafter GoldQuest closed a $6.6M private placement. Could it have
done that if it had not made that discovery hole?
JW: It might have been able
to do that, but certainly not at $0.45 a share, and
I doubt it would have been able to raise $5M prior to that discovery.
TGR: What is GoldQuest's next step?
JW: To keep drilling now
that it has the money, and hope that hole is representative of the ground it
owns at Las Tres Palmas.
TGR: What other names do you
JW: The best thing you can
do in this market is look for companies that have made discoveries but whose
share prices do not reflect the value of the deposit.
My first example would
be Hunter Bay Minerals Plc (HBY:TSX.V; HTBNF:OTCQX). Hunter Bay completed its
first drill program on the Sela Creek project in
Suriname and announced 42m of 1.2 g/t gold as initial results. Artisanal
miners have worked the surface of this area for 50 years. This is a discovery
in the sense that modern exploration techniques have discovered the source of
all that surface gold.
The nearby Rosebel mine belonging to IAMGOLD Corp. (IMG:TSX; IAG:NYSE) is at 14 million ounces (Moz). Newmont Mining Corp.'s (NEM:NYSE)
Nassau deposit is 4+ Moz. Both of these discoveries were found under similar
Yet, Hunter Bay trades
at just $0.20/share. Nobody understands the implications of the initial drill
results, and it is not generating the broad market appeal that GoldQuest did. But that is what makes it an opportunity
for investors. Hunter Bay will continue drilling. Chances are it will continue
to prove up this kind of drill intercepts, indicating the existence of a
TGR: In our last interview,
you talked about Tinka Resources Ltd.
(TK:TSX.V; TLD:FSE; TKRFF:OTCPK) and Seafield Resources Ltd. (SFF:TSX.V). What is happening with
already has 20 Moz silver in combined resources at
its Colquipucro deposit in Peru. On May 1, it
announced 20m of 86 g/t silver. That is almost 3 ounces per ton silver. There
have been other positive announcements as well. This is an existing resource
where drilling continues to prove out intercepts that demonstrate the
potential for an economic deposit. The company has been beaten down by
general market aversion. However, as an investor, if you buy into the idea
that the silver price is rising incrementally, it is excellent exposure to
silver at an excellent price.
TGR: There have been recent
concerns about the viability of mining projects in Peru. What is your view?
JW: Peru's president, Ollanta Humala, was elected on
a platform of making sure more money from Peru's resources goes to the poor
people who need it most. Now that he is president, he has to deliver on that.
Peru's revised tax system for mining does give the government more money.
But the problem with the
specific deposit that is causing trouble for Newmont is that it is in an area
where the people do not want mining at all. The local people are convinced
that a mine will destroy the water they rely on for agriculture. That kind of
problem can happen anywhere; it is not specific to Peru.
Now there are questions,
because President Humala has been forced to side
with the people, that the mine may not move forward.
That has created a general sense of enhanced risk that needs to be priced
into anything happening in Peru.
TGR: How is that likely to
affect a company like Tinka?
JW: It should not affect Tinka. You have to ask yourself: Is this an economic
deposit that a major will want to acquire and add to its production
portfolio? If the answer yes, Newmont's problems are not relevant to Colquipucro unless it, too, is an agricultural community.
The indications are that the people of Colquipucro
are open to a mine for economic reasons.
TGR: What about Seafield?
JW: This is a story with
great geology. It has continuous excellent intercepts since its announcement
of 449m of 1.25 g/t in December 2010. The stock took off. But Seafield had been financed at very low levels after the
2008 crisis, so there was a lot of stock out there. Insiders ended up killing
the momentum in the share price because they had been starving for so long.
TGR: But then management
changed, did it not?
JW: Yes. The new management
team is led by Cesar Lopez, who was somewhat successful with Apoquindo Minerals Inc. (AQM:TSX.V),
now AQM Copper Inc. Seafield has an NI 43-101
coming and the drill results are great. But the sentiment is so negative that
is very hard for the stock to move forward.
TGR: This is Seafield's Miraflores property
in Colombia. The company just put out a preliminary economic assessment that
demonstrated a 50% internal rate of return and a net present value of $249M.
What did you think of those numbers?
JW: The proof is in the
pudding. If a reputable engineering firm could draw that conclusion, it
TGR: You are moving more
into the energy space. What oil and gas plays do you have positions in?
JW: My top oil and gas
position is in Terra Nova Minerals Inc. (TGC:TSX.V) in Australia's Cooper
Basin. It will start drilling in October. The Cooper Basin is a rich
hydrocarbon field, so the chances are that at least one of the four holes
Terra Nova plans to drill will lead to an oil well.
Corp. (AOI:TSX.V) is the poster child for
the tenbagger in the oil and gas space. The company
had a low share price; investors did not care about it or were selling it.
Then it discovered a
major oil find at its Ngamia-1 well in Kenya. The stock went from below
$2/share up over $10/share and today is still trading around $8/share.
Then there is EFL Overseas Inc. (EFLO:OTCBB), a big gas play in the
north of Canada.
TGR: Is it publicly traded?
JW: It is on the OTC right
now, at $2.50/share. It has a land position in the Liard Basin in the Yukon.
This is a huge field that could be larger than Papua New Guinea. The company
will be listed on the TSX within three months if it succeeds in this undertaking.
TGR: James, you are
by-and-large a positive person. Why should retail investors be optimistic
JW: Arguably, we are in a
continuation of the 2008 crisis, which was offset temporarily by a massive
injection of quantitative easing and easy fiscal policies.
A crisis is an
opportunity. This is a great time to accumulate as long as you do not put a
timeframe on your exit. In many cases, the high-quality juniors have been
pulled down along with the lesser quality companies. That is the opportunity
and the reason for optimism.
Midas Letter is the journal of investment strategy of the
Midas Letter Opportunity Fund, a Luxembourg-based special investment fund
that specializes in Canada-listed emerging companies in the resource sector
with a focus on precious metals explorers and miners, and the Midas Letter Securitisation Fund, also Luxembourg-based, which
provides secured capital to advanced development projects across all
commodities and energy. James West is the portfolio and investment advisor to
the fund. Every month, West's Midas Letter Premium Edition deconstructs
the economic and political events of the past and upcoming week, and
identifies risks and opportunities to investors seeking to profit while the
majority of investors are losing money.
Want to read more
exclusive Gold Report interviews like this? Sign up for our free
e-newsletter, and you'll learn when new articles have been published. To see
a list of recent interviews with industry analysts and commentators, visit
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: Orbite Aluminae
Inc., Newstrike Capital Inc., Prophecy Coal Corp.,
Prophecy Platinum Corp., Hunter Bay Minerals Plc, Tinka Resources Ltd. and Seafield
Resources Ltd. Streetwise Reports does not accept
stock in exchange for services. This interview was edited for clarity.
3) James West: I personally and/or my family own shares of the following
companies mentioned in this interview: Orbite Aluminae Inc., Newstrike
Capital Inc., Prophecy Coal Corp., Prophecy Platinum Corp., Hunter Bay
Minerals Plc, Tinka
Resources Ltd., Seafield Resources Ltd., EFL
Overseas Inc., Terra Nova Minerals Inc., IAMGOLD Corp., Newmont Mining Corp.,
and GoldQuest Mining Corp. I personally and/or my
family am paid by the following companies mentioned
in this interview: None. I was not paid by Streetwise Reports for
participating in this interview.