It's so outrageously simple that few investors can actually do it: buy
low and sell high. The manic highs and lows of the market are actually good
news for those investors who have mastered the discipline of buying low and
waiting, according to Louis James, the senior editor of the International
Speculator and Casey Investment Alert. In this
exclusive interview with The Gold Report, James talks about how
not to be fooled into timing the market and how he finds value in precious
metals by scouring some knock-out jurisdictions like Mexico and China.
The Gold Report: In a recent Casey
Research article you asked investors if they are brave enough to buy low.
It's difficult to be a true contrarian and have the guts to buy when everyone
else is selling. What guidelines do you give people who need reassurance in
markets like these?
Louis James: It's good news and bad news.
There really aren't reassurances. No matter how far down something has gone,
until it hits zero, it can still go down farther. The good news is that
precisely for this reason, markets tend to overdo things. They are volatile.
They fluctuate. They get manic and go too high, and get depressive and go too
low. But that's actually good for those with the discipline to buy.
So, when's the right
time to buy? The answer is that there is no right time. You don't try to time
the market. That's the fool's game. You look for value. If something you'd be
happy to own at $1/share is now at $0.50/share—that's a great buy. Can
it go lower? Yes. But it can also go higher and is a better deal than when
you first liked it. If you buy value, you increase the odds of coming out
ahead of the game, regardless of whether or not the stock goes down before it
I hate to say it, but
really there's a reason why it's hard to buy low and sell high. It's so
logical. It's so simple. But so hard for most people to do.
TGR: Money manager Adrian Day
recently suggested in an interview that investors should
buy quality juniors and hold them for what could be a painful six months
before things start moving up. How long do you think investors have to make
the plunge before what you've called "stupid prices" are gone?
LJ: I just said I
wouldn’t try to time the market, so the real question, if there are six
months of pain ahead, is why would I buy today? The answer is that we don't
know if it's going to be six months of pain ahead. The global economic
situation is surrounded by a swirling cloud of black swans. Which one of
these is going to land first and upset the apple cart? It could be any of
them, and it could happen tomorrow. That's the reason not to wait six months
or whatever number of months you think it is. Things could reverse very
sharply, sending certain assets upwards again, particularly precious metals.
TGR: You travel the world
doing site tours. Are there some countries that are overlooked because of
mistaken risk profiles?
LJ: It's great to buy things
in Ontario and Québec where you feel very safe, but you pay a premium
for that. That's where everybody else feels safe, too, so it makes it harder
to buy low.
However, there is no
place in the world, even in Canada, where things can't change all of a
sudden. Even Québec increased its royalty a while ago. You have to
expect that. When miners are making money, governments are going to want a
bigger pound of flesh. It can happen anywhere.
reverse very sharply, sending certain assets upwards again, particularly
There are countries that
are extremely high risk and visibly getting worse. Argentina would be one of
those, which is a real shame because it has a tremendous mineral endowment.
The good news is that regulation of mining and minerals is largely the domain
of provinces down there and some provinces are better than others. Depending
on your temperament, that could be an opportunity. If the place crashes, it
could be a great opportunity to pick up related stocks cheap. I wouldn't want
to buy in advance of that, though.
Another good mining
jurisdiction that's turned kind of scary is Peru. There is a lot of
anti-mining sentiment. There have been riots and violence; mine camps have
been burned down. The government is actively trying to help the miners now
with the military and other options.
It is a dangerous world
out there, but there are overlooked jurisdictions. I like the Guiana Shield
in Venezuela, Guyana, Suriname and French Guiana. The big gold deposits in
Venezuela are on the same greenstone belts that stretch from Venezuela to
French Guiana. It's the same rocks that have big deposits across the ocean in
West Africa. They are making discoveries in the Guyanas.
Companies have been able to come in and make progress on various projects.
The governments seem quite supportive.
TGR: Are there any specific
companies you like there?
LJ: I like Columbus Gold Corp. (CGT:TSX.V) in French Guiana. There
was a scare in the country when a project on the edge of a river didn't get
permitted due to environmental concerns over caiman habitat. Meanwhile, other
projects are going. There's gold production in the country and the government
has been visibly supportive, eager to see legitimate mining replacing illegitimate
mining, which is devastating to the environment.
There are mines
operating across the border in Suriname. In Guyana, two high-profile projects
have gotten mining agreements with the government.
Guyana Goldfields Inc. (GUY:TSX) is an interesting story,
a real deposit, both high-grade and large, and the company has a mining
license. I think it's going to pull that one out of the slump it's in.
Sandspring Resources Ltd. (SSP:TSX.V) also has a
multimillion-ounce gold deposit, but at bulk grades. Sandspring
may be lower grade, but it's all open pit, and
that's cheaper to mine.
TGR: Are there any catalysts
coming up for Guyana Goldfields that could pull it up in the foreseeable
LJ: That's hard to say. The
company did disappoint the market. It came out with a full feasibility study
and the numbers weren't as robust as the market was expecting. There were a
number of planned steps that couldn't be included in the feasibility study
and that would have changed those numbers for the better. The study had
already been delayed so the company went with what it had, which wasn't the
best that it could be, and that was a mistake.
However, the project is
better than it seems now. The company is already retooling in ways that will
have a positive material impact on the net present value and rate of return.
I don't know how well those changes will be received by the market. In a time
when investors are scared and circling the wagons, great numbers are often
completely ignored. If that happens, it could be a tremendous opportunity. If
a company adds material value and the market just yawns, those are the times
to sit up and pay attention.
TGR: Are you still a fan of
LJ: I am. The violence in
Mexico is real and alarming, but it hasn't turned into a broader predatory
war against the civilian population the way it did in Colombia. And it's not
government violence; it's private sector violence. It's a risk that companies
in Mexico can mitigate, primarily by not operating in the hot areas.
TGR: What companies would
LJ: We like some Mexican
silver producers, such as Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A), First Majestic Silver Corp.
(FR:TSX; AG:NYSE; FMV:FSE) and Endeavour Silver Corp. (EDR:TSX;
EXK:NYSE; EJD:FSE). Those are all companies
with growth on tap and cash flow in hand.
TGR: Where have you been
LJ: I just returned from
China. The jurisdiction is actually quite solid. The Chinese have not expropriated
any foreign companies that have invested in mineral resources. Foreign
companies have been able to build mines and some of them are even making
money doing it.
Silvercorp Metals Inc. (SVM:TSX; SVM:NYSE) is the main example of a
company doing well in China. However, it's funny how China scares people. The
ridiculous accusations against Silvercorp that were
circulated on the Internet by short sellers wouldn't have worked as well if it
weren't in China. If it had been a company in Québec, investors
would've said, "Oh, that's ridiculous! It's NI 43-101 compliant. The
regulators would've caught this." But it was China, so investors were
willing to believe the accusations without researching them and the stock
sold off in a big way.
"I like the Guiana
Shield in Venezuela, Guyana, Suriname and French Guiana."
I've been to those
projects and have seen the mining operation. I know that it's real. It's
making real money and paying shareholders dividends.
The problem with China
now is that while the government welcomed Western companies to explore and
build mines in the past, it seems that was for technology-transfer reasons,
and lately, China has not been giving new mineral concessions to foreign
It's still a stable
jurisdiction, but there aren't a lot of opportunities for new companies going
TGR: You mentioned that the
market is ignoring good news. How can a company get its attention?
LJ: A market turning bearish
for a time is not a reason to be out of the market. It's a reason to invest
differently. Even in a bear market, a takeover or drill results, for
instance, can add value.
There are a couple of
recent instances of phenomenal drill results driving shares way higher. A
favorite story along these lines is Pretium
Resources Inc. (PVG:TSX; PVG:NYSE), Bob Quartermain's
gold play in British Columbia. It announced 41.5 kilos—not grams, not
ounces, kilos—of gold over half a meter in a drill hole. Over
the wider interval of 10 meters it's only 2.3 kilos. But those are still
out-of-the-ball-park drill results. The share price responded strongly. The
market always likes a discovery.
What's going on with Inter-Citic
Minerals Inc. (ICI:TSX; ICMTF:OTCQX) makes a really
interesting point, too. There are no details yet, but it had a takeover offer
and the stock went through the roof. The company has a multimillion-ounce
gold deposit in China that keeps getting bigger. A takeover can produce
enormous gains from one day to the next.
TGR: Could low stock prices
encourage more mergers and acquisitions?
LJ: You would think that.
The producers, by their nature, are depleting their assets and needing to
replace reserves. Yet, companies have essentially gone on sale and there's
very little buying out there.
TGR: Why do you think that
LJ: Majors are much more
cautious than junior explorers.
The most aggressive of
the bigger companies in recent years has been Kinross Gold
Corp. (K:TSX; KGC:NYSE). It bought Aurelian
Resources Inc. at the time when the government made mining and exploration
illegal in Ecuador. That was a very gutsy move.
For the same reason,
Kinross has troubles now. It's had a big breakdown in Africa from the Tasiast mine fiasco. Its assets in Russia make people
nervous. Its portfolio, on average, is much higher risk than most of the
other majors and that makes investors very nervous.
So, while I admire management's courage, and I hate to praise excessive
caution, one has to wonder if the more cautious majors were right to be so.
Those cautious majors
don't really care if something goes on sale because the market is down. They
care about making sure that they mitigate risk and make no mistakes.
"Blue light specials" aren't going to attract the majors.
What's interesting is
that there could be more buying from Asia. When I was in China, I got a lot
of questions from Chinese investors about projects that they could buy and
countries that they should be investing in. They're very keen on South America,
in particular. If Asian investors start picking up assets
the Western majors have their eyes on, they might get off their
collective rears and start acting to secure assets before Asia grabs them.
important to diversify internationally."
It could also be that
the start for the new wave of purchasing and building doesn't come from the
top, but from the bottom. Look at Osisko Mining Corp.
(OSK:TSX). It managed to finance
and build a giant mine in Québec on its own.
It just went to the market and raised the money. Detour Gold Corp. (DGC:TSX) is also building a huge
world-class mine in Ontario.
Neither of these
companies needed a takeout from a major. If they're successful, they'll
evolve from junior exploration companies into midtier
producers and have the wherewithal to go after other mining projects and
potentially become new majors.
Osisko is clearly not just
interested in mining its one mine. It's intent on becoming the next large
TGR: Are there are still
bargains to be had in jurisdictions like Canada, the U.S. and Europe?
LJ: Yes, but investors have
got to be very careful. They have to do due diligence, because sometimes
there's a reason why something cheap is on sale that may not be readily
apparent. If you don't research beyond just the numbers, you can miss fatal
flaws—some not even all that hidden.
TGR: Are there some
established areas, like Nevada or the Abitibi in Canada, where there are
fewer risks, but still are companies that aren't overpriced?
LJ: Yes. This is a good
market to go shopping for those. I'm not sure there's one that I can give you
as an example. There are some on my radar screen, but I need to do more due
diligence of my own before I discuss them. They have significant discoveries
in hand in solid pro-mining North American jurisdictions, but are completely
discounted by the marketplace. I'm doing my own homework on those, but
they're certainly there in the Yukon, Québec, Ontario and Nevada.
TGR: Would you put a Pilot Gold Inc. (PLG:TSX) or a Balmoral Resources Ltd. (BAR:TSX.V;
BAMLF:OTCQX) in the bargain category?
LJ: No, but I do like both
companies. Balmoral doesn't have a clear
company-maker in the bag yet, but it does have an excellent track record of
exploration success for a brand new company.
Pilot has a lot of wind
in its sails as Fronteer Gold's spinout, so it's
not as cheap as some others, but it's a great company.
Premier Gold Mines Ltd. (PG:TSX) is an example of a
company that's not exactly cheap, but is cheaper than it has been. It's got
several large high-grade gold deposits in safe jurisdictions. They're all
within sight of a head frame of some large mining company's gold operations,
which increases the odds of a takeover. It's also spinning out a royalty
business. Several ways to win with that one.
TGR: Do you consider Pretium and Inter-Citic to be
bargains, or have they been priced up too high?
LJ: I would hesitate to
speculate on Inter-Citic, because it has doubled in
recent weeks. We're glad that we told our readers to average down. We told
them that a takeover was likely. Even shareholders who bought an initial
slice at $2/share a couple of years ago should come out with measure of gains
if they followed the tranche strategy and averaged down. For whatever its
worth, I do think that the final deal is likely to be higher than its current
Pretium is back up again. We
bought that right after the initial public offering in the $6/share range. It
nearly tripled, so we took profits and we're glad we did because it
retreated. And we were happy to buy back in again at lower prices.
Why sell if you're only
going to buy back in again? Well, a) you make a bunch of money so take it, b)
you don't know what's going to happen next, so you've got to recover your
initial investment and c) the company delivered more results and became a
better story than when we took profits. We have more confidence in the
resource model than we did before. It's bigger and it's more solid then when
we took profits and it's cheaper. That's a better deal.
Pretium is a billion dollar
company, so people wonder if it could really double or be taken over. The
answer is yes. A deposit like this is as rare as they come. It's like
Aurelian. It's got the best of all worlds—extremely high-grade and very
large—but it's not Ecuador, it's in British Columbia.
It's too rich not to
become a mine, but it's unlikely that Pretium will
build it. I think another company will build it. There's takeover potential
in the play.
The stock jumps every
time Pretium puts out drill results with kilos of
gold per ton while others are reporting grams. As gold resumes its northward
march and the market gets more positive again, those kinds of drill results
should propel these shares much higher, regardless of the endgame for the
TGR: What's your feeling about silver versus gold right now?
LJ: Silver is an industrial
metal, as well as a precious metal. If there's a big economic correction,
such as in 2008, silver will get hit harder than gold and it will take longer
to come back.
On the other hand,
silver does move with gold. If there is a big breakout in gold, silver will
move as well. If you're bullish on gold, you have to be bullish on silver.
And these silver companies are making money. The best can even handle lower
TGR: Could a Great Panther or
a Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) take advantage of a
rising silver price to make an acquisition?
LJ: Great Panther already
has its hands full. It's got a new mine it's trying to build. That one, by
the way, has more of a gold credit to it as well. We like that a lot. It has
permits. We don't see any showstoppers there. We think it will achieve its
goals. But it's more likely to be bought by another company than to be an
Fortuna, on the other
hand, has always been on the lookout for new purchases. It started out in
Peru, but then purchased the San Jose mine in Mexico. Its Caylloma
mine in Peru hasn't been affected by the trouble in that country. We're happy
for that. The company is generating lots of cash. I wouldn't be surprised to
see it take something else on, but it's very cautious. For a small company,
Fortuna acts like a major. It doesn't want to make any mistakes. It's willing
to wait until something's right for it.
TGR: You have forecast a
pretty dire economic outlook for the future. How can investors take advantage
of any opportunities that might come out of this, or at least protect what
they already have?
LJ: That's a short question
with a long answer. If things really go off the deep end, the transition to
something new is going to be messy. That doesn't mean you just throw up your
hands and go home because there's nothing you can do. For financial assets,
gold is without question the way to play that. It's the safe-haven
metal and the best way to protect yourself.
But don't buy gold as a
speculative vehicle. That's what gold stocks are for. Buy gold for prudence.
Buy gold because it is gold. Whatever happens in the world, gold remains
gold, whereas gold stocks or the pieces of paper in your wallet issued by the
government may not remain what you hope they would.
The other thing is that
it's extremely important to diversify internationally. There are crazy things
going on in Greece, but the trouble is global. Who knows how various
governments will react as the crisis deepens? What will it be like in Spain
if they leave the European Union? Or if the whole EU ceases to exist? How do
you protect yourself against that? Well, having investments outside the EU
would be one way.
The more extreme the
crisis gets, the more governments will tighten the thumbscrews on anybody who
has anything they can tax. Finances aside, for personal reasons, it's
important to diversify internationally and have the option to be elsewhere if
things get very unpleasant wherever you were.
TGR: Thank you for your
LJ: Thank you.
Louis James will be
speaking at the Casey Research Summit: Navigating the Politicized Economy in
September. You can learn more here.
Louis James' background in physics, economics, and
technical writing prepared him well for his role as senior editor of the International Speculator
and Casey Investment Alert. Like Doug Casey, James constantly travels the world,
visiting highly prospective geological targets, grilling management and
company geologists, and interviewing natives in a variety of languages to
find out what they really think (he's fluent in French and Spanish, and speaks
a little German and Russian). Whether it's days of back-to-back meetings with
mining company executives in Vancouver, pounding on rocks in the Democratic
Republic of the Congo, examining drill core in Argentina or eating food with
names he can't pronounce with local miners in China, James is constantly
looking for the next double-your-money winner. He evaluates dozens of
companies every month, conducts due diligence of only the best and then
compares notes with Doug Casey in order to bring only those most likely to
provide rapid high returns to their subscribers' attention. James also reads
all the press releases, financial statements and an enormous quantity of
related information to keep track of all of our mineral companies and has
become something of a walking database.
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1) JT Long of The Gold Report conducted this interview. She personally
and/or her family own shares of the following companies mentioned in this
2) The following companies mentioned in the interview are sponsors of The
Gold Report: Guyana Goldfields Inc., Great Panther Silver Ltd., Pretium Resources Inc., Inter-Citic
Minerals Inc., Detour Gold Corp., Pilot Gold Inc., Balmoral
Resources Ltd., Premier Gold Mines Ltd. and Fortuna Silver Mines Inc.
Streetwise Reports does not accept stock in exchange
for services. Interviews are edited for clarity.
3) Louis James: I personally and/or my family own shares of the following
companies mentioned in this interview: Silvercorp
Metals Inc. and Endeavour Silver 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.