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In this article,
the third of a three-part interview in The Gold Report,
Greg McCoach, editor of The Mining Speculator,
gives us his top choices for mining equities. Learn why Greg believes we need
to do some comparison-shopping right now in the junior market and why,
although he's bullish on uranium, there are just a few uranium miners he
recommends.
Greg is an entrepreneur who has successfully started and
run several businesses the past 22 years. For the last eight of these years
he has been involved with the precious metals industry as a bullion dealer (AmeriGold), investor, and
newsletter writer
.(See Part I
and Part II).
TGR: Tell us about some of the stocks you like.
MCCOACH: At The Mining Speculator, which I've
been writing since about June 2000, I don’t cover lots and lots of
stocks. I believe in covering and reporting on about 20 to 25 stocks at any
given time. Since June 2000 I have only recommended 71 stocks, and out of
those 71 stocks, we have had 7 losers. We have had 16 stocks that have had
over 1000% return. We have had 41% of all the stocks at least double while
they were recommendations, and it’s been a good track record. We’re
enjoying it right now.
The market has been volatile for the mining stocks. Right
now we’re on the down side of the volatility. It’s been a little
bit frustrating for people, but I try to tell people that these metal prices
are going nowhere but higher. Under the current circumstances, sooner or
later mining stocks will run again. And each time they run, they seem to go
to new highs. I am one of those people that like to take a little bit of
money off the table when profits are running. I firmly believe you should
take 25% to 35% of your core positions out because you make such big gains
when the markets are running. Then hold some more cash until the market comes
back and you can buy back those companies, or you can get some new stories
you’re interested in.
TGR: At what point do you take your 25% to 35% off
the table? Let’s say you buy a stock at a $1.00; it goes up 50% or a
100% or—?
MCCOACH: Right. I don’t take profit; I want at
least a double. At 100%, I will take 25% off the table. Sometimes when these
markets run, these junior mining stocks can go up or down for absolutely no
reason. That’s how volatile they are. We’ve been in this bull
market for a long time and our stocks have been all over the place. There are
periods of times when they’re absolutely boring, right? Then, all of a
sudden they catch fire again. So whenever we run and we get a double or a
triple, I usually take 25% off the table, and try to pay myself back. I try
to get my original money back. Once I get my original money back, then I feel
like I am playing with the casino’s money, right? So, I like to try to
do that as quickly as possible. You may have to weather a few downturns
before you get to those ultimately higher levels. Take Excellon Resources Inc. (TSX:EXN) for example. We
recommended it and I think it was at 18 cents or 20 cents. The stock recently
hit $1.95. That’s over a five-year period. It’s done very well
for us, and I still believe that Excellon is a
great choice because it’s a production story that has a great cash
flow, and I think for these juniors cash flow is going to become more and
more important.
In the last six years we have been able to raise money very
easily for these exploration stories, but moving forward, with the liquidity
crunch and risk capital starting to get much tighter, I think it’s
going to get harder and harder for these exploration juniors to raise money. Most
of them don’t have cash flow.
That’s why I am leaning more towards production and
near-term production stories in the juniors. At this point, do you still want
somebody who has cash flow that still has metals and that has great
exploration upside, or do you want someone with great exploration upside but
no cash flow? I think we need to do some comparison shopping right now in
this junior market, and I am leaning more and more towards companies that
have cash flow or near-term cash flow.
And I am getting more oriented towards precious metals; I
like uranium still. There are over 550 uranium companies, but in my opinion,
there are only 15 of them worth investing in. Those 15 can make people a lot
of money in the next three to four years. And as long as you’re
committed to the long term of this market and you choose the right companies,
I think you can do phenomenally well in uranium. These prices are not going
to stay where they are. Supply and demand is becoming grossly imbalanced at
this point. That’s going to have to be reflected in higher prices, and
that’s going to be very good for a near-term producer or producer of
uranium. I am bullish on uranium.
TGR: Do you want to give us a couple of uranium
companies?
MCCOACH: I like Bluerock Resources Ltd. (CA:BRD); they have two
properties in Utah
that as a junior you can buy at 80 to 85 cents right now. And they’ve
already got their toll-mill agreement with the White Mesa Mill, which is
owned by Denison Mines. Now, there are very few people who can bring any new
uranium production to market. All of the big players like Uranium 1 and Cameco—they’ve been talking about it, but it
keeps failing. . .Cameco's
Cigar Lake, for example. If it happens, it
will be in 2012. Well, that’s four years away, and to me, that’s
not going to happen. Uranium 1 was supposed to have all this uranium
production, and now they’ve fallen massively short on what they were
projecting their production to be. So, that stock has been pummeled.
There are a few companies doing ISR [in-situ recovery],
where instead of underground or open pit mining to get the uranium out of the
ground, you flush water through certain uranium systems and extract the
uranium through water extraction. It's less harmful to the environment, and
it’s very low cost, but it’s highly technical so you need a very
experienced team of people who know what they’re doing. There are only
seven or eight teams that really have the technical knowledge to do that
effectively. Two to look at on the ISR side here in the U.S. are Uranium Energy (UEC:AMEX) and UR Energy (URE) .
They are the only two ISR projects that I know of who have already filed
their permits. In other words, they could be the first two companies to be in
production using ISR to produce the uranium in the U.S. in the next couple of years.
It is about an 18-month process, and they both have submitted their
applications for those permits in August, September of last year. So, the
clock is running — by 2009, both of those companies could be producing.
So, those are the prettiest girls on the block, so to speak.
I like those, and as far as precious metals stocks, the
number-one stock at this point is Pediment Exploration Ltd. (PEZ:TSX-V,
P5E:FSE), working in Baja, Mexico.
That’s a major gold discovery in the making. Look at the most recent
press release for Pediment regarding their Las Colinas Project. Echo Bay
back in the '90s drilled this out, and when gold prices went low, Echo Bay
basically went bankrupt and got taken over by Kinross. Kinross didn’t
want the properties; they let them go. Pediment picked them up, wisely, when
they were cheap, and now they’re drilling them, and they’re adding
to the work that Echo
Bay did back in the
'90s. They have made some major discovery holes on top of what Echo Bay
had. And this resource is growing quite rapidly.
In April of last year I recommended it at 75 cents. It has
hit as high as $3.65 here in the last 10 months. I think it is around $2.50
right now. I clearly see this as a $6 to $7 stock when the market kicks back
into gear. And I believe they have should have some sort of 43-101 resource
later in the summer when they finish up some more rounds of drilling. I think
they easily have two, three, four million ounces of gold.
Back to Excellon, who I mentioned
before and really like. I think they have about 150 million shares
outstanding, but they are a production story. They’re making money; they
just paid off their bank loan. And it looks like now they’re going to
build their own mill. They’ve been shipping their ore to one of Penoles' mills (Penoles is a
mining company down in Mexico), but now I think Excellon’s
ready to take the next step of building their own mill at the Platosa Project down at Durango, Mexico. I like it
because not only is it a cash flow story, but also they are onto what is
called a carbonate replacement system in the largest, most prolific silver
district in the world, down in North Central Mexico.
Excellon
has a property right in the middle of this, and these carbonate replacement
systems in this area tend to be somewhere between 55 and 65 million tons, and
they’re very high grade. They’re still in the early stages of the
discovery; once you get onto these systems, you just follow them. I think
it’s just a matter of time before they start getting into some really
big chunks of ore that is going to greatly add to their tonnage.
And as far as Penoles, which is a
major silver producer, they were a 50 cent stock years and years ago, and
they got onto one of these carbonate replacement systems, and it kept getting
bigger and bigger and bigger as each year went on. It really made Penoles what they are today. I think Excellon
has been shopping around in those areas.
It’s still a great value, even though it has a large
number of shares outstanding. I think at some point it’s going to have
so much cash that they can start buying their own shares back. I think
that’s a very solid story.
TGR: What do you think about Vangold Resources Ltd. (TSX-V:VAN)?
MCCOACH: The thing that I am most optimistic about
is this holding they have called International Beryllium Corp. (TSX.V:IB).
Beryllium is a metal used in flat screen TVs and computer
monitors. It has gone from a very cheap per pound price to thousands of dollars
per pound. I like the idea of this because Vangold
wisely got involved with somebody who had gobbled up a lot of the beryllium
assets in the world, and Vangold now owns 25
million shares of International Beryllium; I think is one of the largest
stockholders, if not the largest. International Beryllium opened up at 50
cents when it first started trading; it’s now trading close to 95
cents. I think that’s a good story.
TGR: How about Terraco Gold, Inc. (TSX.V:TEN) ?
MCCOACH: Terraco is a very
interesting story on the downside right now because of the first round of
drilling that they had on their Moonlight project in Nevada. They didn’t hit what they
were hoping to find. Well, this is only first stage; they only put in 18
holes so they have a lot more drilling to do before we know what we have or
don’t have there. What is interesting to me about the Moonlight Project
is that it butts up against the Spring Valley
project of Midway Gold Corp. (AMEX/TSX.V:MDW;MDWGF.PK) . I have been
out on these projects sites twice myself, and the
reason I like Terraco is this property has never
been drilled until this recent round of drilling by Terraco,
which we just got the assays back from. And the mineralization that Midway is
finding with Spring Valley is high-grade
gold, half-an ounce gold. They have a lot of drill holes in, and they have Barrick, who I think has come in and put in $10 to $12
million in the Spring Valley project. They
like it. And the more drilling they do, the more they like it. So,
eventually, I think Midway could be taken out or at least Barrick
could take out the Spring Valley project. I
like the people. Ken Snyder, who discovered the Midas Mine for Newmont years
ago, is working on the project. He’s been hired as a consultant to come
in and look at this. He’s excited about it; he believes that
there’s something there. But, again, until we get more drilling done,
we’re not going to know. That’s basically Terraco.
TGR: And Terraco and
Midway are kind of connected.
MCCOACH: Yes, I have been covering Midway for a long
time. I like Midway; I recommended it when it was around 80 to 85 cents. It’s
been as high as $4 recently. I think it’s a $10 stock or higher, as
they keep doing their drilling. They’re going to do a lot of drilling
this summer. It is definitely an economic mine in the making, whether it gets
bought out or Midway puts into production themselves.
TGR: Time will tell. I see you also follow PolyMet Mining (TSX: POM, AMEX: PLM) and
Duluth Metals Limited (TSX:DM).
MCCOACH: Yes, PolyMet
Mining has been my longest-term recommendation. It’s hard to believe,
looking back, that I actually recommended this at 5 cents Canadian and 3
cents U.S.
People ask me, “Well, Greg, how could you recommend this stock so
cheap?” I said because I knew the people involved; I understood that it
wouldn’t go bankrupt. So, I figured at this point there was only way
the stock could go. And I figured we’d get involved, and it’s
been our biggest performer to date in the last couple of years. It’s
hit $5.40; it’s back down to the $3.20 level recently.
But PolyMet has an amazing
deposit called the NorthMet deposit, which is a
huge PolyMetallic resource — copper, gold,
silver, palladium, cobalt — all in one rock. The in situ value of the
metal is in the neighborhood of $65 billion. It was
discovered by U.S. Steel back in 1969 when they were looking for iron ore. There’s
a big iron ore belt up there, and they were drilling and they came across
this very strange ore. It turns out it is a very large resource for PolyMetallic metals. And so, we’ve done well on
that one.
Once PolyMet has the permit
they've applied for, they could be in production within nine months, and they
would be producing 1.5 million in revenue a day out of that mill. That’s
a major story.
Now, another company in this area I like is Duluth Metals
Limited. I recommended Duluth
in December '06. I’ve been covering the stock now for about 15 months,
and we recommended it at 60 to 65 cents, somewhere in there, and it’s
hit as high as $3.85. Basically, Rick Sandry, who
is a sharp mining guy with lots of experience, became president. I met with
Rick one night at the Denver airport as he was
flying through Denver,
and he told me the story and I decided that I wanted to get involved. I
recommended the stock. And his job basically was to put drill holes
in-between existing drill holes there to make this a 43-101 required
resource.
Well, he not only did that, but he started stepping out,
and he now has a much, much larger resource than we originally started with,
and this is an amazing story. It’s a big, big mineralization—the
same as NorthMet. This thing is worth a lot of
money in in-situ value.
One of the problems with Duluth, on the downside, is that it’s
close to what is called the Boundary Waters. The Boundary Waters is a very,
very environmentally sensitive area that the State of Minnesota wants to protect and guard at
all costs. Instead of an open pit like PolyMet can do
down at NorthMet because they’re much further
removed from the Boundary Waters, and fortunately, the water table drains
away from the Boundary Waters, not towards the Boundary Waters, Duluth would
have to have an underground mine. They couldn’t do an open pit, but the
grades are higher, and the tonnage that they’re getting looks like
it’s going to be much bigger than NorthMet's.
So, can you imagine as big as NorthMet is, it looks
as if Duluth
could be even bigger and worth even more.
TGR: How about one speculative equity, Riverside Resources Inc. (TSX:RRI), then we'll
wrap up?
MCCOACH: Riverside
Resources is a different story than I normally get involved in, but in this
business, like any business, it’s all about the people. I never get
into any project unless I trust the management team and look at their
background. I always like to look for people who have at least 15 to 20 years
experience working for one of the majors—AngloGold, Barrick,
Newmont, etc. When I see those kinds of people, that’s someone you want
to pay attention to. Well, the guy who’s running this company,
John-Mark Staude, is a guy who has lots of
background and experience, and has been involved with another discovery.
John-Mark Staude is topnotch, and he decided, instead of working for a major,
to go out and work on his own. At the time I got involved with him, we
recommended this at 50 cents at the IPO stage. It has done well; it
hasn’t even been a recommendation for a year I think, and it’s at
$1.10 to $1.15. It recently got a big endorsement from Rick Rule, who is, of
course, one of the largest, most successful mining stock speculators in the
business. Rick recently came in and took a big chunk,
I think almost 10%, of the outstanding shares.
So, when you see someone like that getting involved,
that’s obviously another good plus, another good sign. They recently
have started to put some projects into the portfolio. They’ve got
plenty of money. They’re drilling one in Alaska called the Scheelite
Dome Gold Property. It looks like they’re having some success there,
but more importantly, they have a project in Mexico that
recently got my attention. It’s a very good story, and I know John-Mark
is very excited about it, and it looks like they will get working on it. So,
there are a low number of shares outstanding, a very tight share structure,
money in the bank, and lots of good people to run the company. So, when you
see a guy like that running the show, believe me, most of the money is going
to go into the ground looking for a discovery, and he’s committed to
that. I like that story; I will follow it. We’re up right now. I
haven’t sold any shares yet. Normally, I would take some money out. But
this one looks so strong, and when I saw Rick get in, I thought, well, this
looks like a triple; I think I will wait for the triple before I sell 25% to
30%. You get a triple, you pay yourself 35%, you
have your original money back. You let the rest see how high it can go.
TGR: Greg, this has been great. Thanks for all your
input.
The Gold
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