The fundamentals at many junior mining companies have improved, yet
their stock prices continue to languish. In this interview with The Gold Report,
market guru Peter Grandich gives his thoughts on when
this may end and where gold is headed in 2013, and names some of his picks in
Report: Peter, when we talked in the
spring, you were essentially all in on a number of junior resource equities
that were trading at what you believed were at or near their lows. Have you
changed your course of action or are you still all in?
Peter Grandich: I am still on course. While
2012 may not have been the worst junior resource market by percentage losses,
given the prices of metals now versus other markets and other market
conditions compared to last year, it was the worst bear market since I
entered Wall Street in 1984.
in this market since the late 1980s, when it felt that if gold could just get
over $400/ounce (oz), all would be well in the
junior market. Now gold is at an average price of $1,600-something for the
year, yet most companies did not do well. It is befuddling.
TGR: We are
not far from exiting 2012. What is your perspective on the junior precious
metals sector heading into 2013?
PG: I have
believed since midsummer, as much as I would like the market to have a V- or
U-shaped recovery, the recovery will look more like an L, at least into the
early part of 2013. There are still some excesses in the junior market that
have to be worked through.
still favor gold over silver."
we will see by early 2013 announcements of restructuring, rollbacks, etc.,
and repricing of options. Then we will have all the
classic signs that the worst bear market in some time is behind us. It will
take a number of months before the junior market can not only go up, but also
TGR: Are you
more bullish on the higher-beta, high-volatility silver or gold?
PG: I still
favor gold over silver. Silver is really a base metal, but because it's part of the precious metals family, it gets the tagalong
and does not get separated.
investors tend to like silver over gold because they tend to like quantity
over quality. But at the end of the day, gold is money and will eventually be
money again. One of the reasons gold has done what it has in recent years is
because some investors want real money and not paper currencies.
TGR: You're a
quality over quantity guy?
PG: Yes, in
terms of the metals themselves. When it came to shares this past year,
quality was also better. The further you went up the food chain toward
emerging producers, producers and significant producers, the damage was less
expensive than it was when you went down the food chain to pure explorers or
early-stage explorers where that market was creamed.
owing to the risk-off sentiment on a large scale.
PG: I am not
the first to say that juniors are burning matches, producers aren't.
Producers have the luxury of not only borrowing a substantial amount of
money, but also doing secondary offerings and getting cash flow out of
assets. Juniors continually have to raise money.
Nonetheless, you are still heavily invested in the junior space.
PG: It is
where my expertise lies. Many juniors have just gone too far on the downside.
Many of their total market capitalizations don't come close to their
perceived value now. If they are not already off their bottom, they are
starting to build substantial bases. That may not thrill people, but share
prices have been trading within a fairly tight range now for several months.
That is base building. It may not be ready to take off, but it's far too late
to be a seller now.
TGR: How would
you characterize your approach? You seem to have great faith in these stocks.
PG: Since I
got involved in the junior resource market, there have been probably 10 or 11
bear markets where there has been a decline of 20% or more. At least half of
them were 40%, 50% or more. Each time the market rebounds. Each time many
investors think that maybe this time it will be different and it won't
rebound. But eventually markets go from one extreme to the other.
have the luxury of not only borrowing a substantial amount of money, but also
doing secondary offerings and getting cash flow out of assets."
year was as extreme as you can get on the negative side. Even the most
optimistic bulls were beaten up and have retreated to the safety of hedging
their views, if not outright turning bearish. That is just a contrarian
investor's dream come true.
is based on everything in life is like "ferry" investing. People
will say the boat is going to sail without you. My response is that there is
no such thing as a boat. There are just ferries. When one goes out,
eventually another one comes in. It is just a matter of being diligent to
stay long enough and be diversified enough. That way even if some stocks
don't rebound, the rest of them should more than make up for it.
be straight back up, but as bad as this bear market has been, we'll
eventually have a bull market again. It will probably be in the middle part
of next year when we really see it take hold.
TGR: That is
certainly good news. Are you willing to predict a breakout for either silver
PG: For gold,
it is only a question of when, not if, it gets to a magical number. That will
dramatically ramp up interest in metals as well as in the juniors and
producers. The magical number is the $2,000/oz gold
A $2,000/oz gold price will be the same as when the Dow Jones
Industrial Average first crossed 10,000 and what that led to—the
average person getting deeply involved in the market at that point. It
allowed a speculative fever to take hold.
bad as this bear market for juniors has been, we'll eventually have a bull
see something like that when gold crosses $2,000/oz. That will bring enough
players back into the market that we can finally have a speculative run. That
is something we have not seen in several years in the junior market.
still amazing that something can go up the percentage that gold has over the
last decade and still 99% of North American investors have little or no
exposure to it. Every time I hear the gold permabears
talk about the end of the bull market, I ask how it could be an end when 99%
of people are still not in it.
TGR: Do you
think there could be a breakout among juniors in H2/13?
can rebound and stay up but, again, it will not be a V-shaped or a U-shaped
recovery. There will continue to be base building into the early part of
2013. The substantial up-move and ability to hold the gains will coincide
with gold getting above $2,000/oz.
TGR: Did you
read Paul Van Eeden's comments where he
said that gold is overvalued right now and that he doesn't see the dire
inflation that so many goldbugs are predicting?
PG: I have
respect for Paul Van Eeden that I don't have for
other gold permabears. He's just expressing his
honest opinion. Unfortunately, he has had that opinion for as long as I can
recall, from maybe $500–600/oz gold. So he
has not been on the right side of the market, to my knowledge, for over
$1,000 of the gold price increase.
gold and silver, in what subsectors of the junior mining space do you see
some value or some opportunity?
PG: One of
the things that always happens in bear markets is
the classic saying, "The baby gets thrown out with the bath water."
The iron ore market is one segment that clearly got overdone to the upside,
but now is way overdone to the downside.
won't see a rally back to its all-time highs of $180/metric ton (Mt), those
who have stated that it won't be able to ever keep itself above $100/Mt again
are likely to be sadly mistaken. I already see the early signs of a rebound.
Iron ore should stabilize, and many of the shares that have been very hard
hit, especially the emerging market group ones, can rebound.
TGR: What are some
iron ore juniors you're following?
PG: My second
largest personal holding is in an iron ore play, Alderon Iron Ore Corp. (ADV:TSX; AXX:NYSE.MKT). As a
soon-to-be producer, it's a bellwether stock of North America.
has delivered on everything promised, but was caught in this downdraft. There
was a tremendous, overdone reaction to a very slight delay in a crucial
report. Management is not delaying it because of a problem, but to actually
maximize shareholder value. Alderon Iron Ore is a
leading candidate in the sector if you believe that iron ore-related issues
have seen their worst days and will rebound.
TGR: Kami is Alderon's project. It has over 1 billion tons iron ore.
There are a number of small iron ore plays out there
with significant iron deposits. Why did you choose Alderon
over some others?
PG: I have
met dozens and dozens of top executives in the junior resource or even the
major producer segment of mining in almost 30 years in this business. I can
literally count on my hands the number of them that I would entrust my
family's fortune to.
those is the executive chairman of Alderon, Mark Morabito. Management is so
critical in the junior area as it greatly influences the potential success or
failure of a company. When you look at the entire management team at Alderon, it is nothing but a who's who of success in the
industry. It's a group of people who not only come from the iron ore business
but also from major mining. That is one of the reasons I feel I can make a
major bet on it and not have it spread out among others.
iron ore group, there are more speculative plays that have been beaten down
including Cap-Ex Ventures Ltd. (CEV:TSX.V) and Ridgemont Iron Ore Corp. (RDG:TSX.V). Even the
Labrador Trough itself and many of the players there have come to a point
where their stocks are very appealing for speculators who envision a
stabilization in the iron ore price. That stabilization should come from the
ever-increasing demand for steel, not only in China, but also in the
inevitable rebound that should come worldwide, maybe not in 2013, but
certainly in the foreseeable future.
TGR: Do you
have to believe in a global economic recovery to make money in the junior
iron ore space?
PG: You have
to believe in at least a price of $100/Mt or more for iron ore. I believe we
can count on that because of what continues to come out of China.
also like about the situation is that most people have discounted any real
economic strength anywhere else. People have already built into their minds
and their models that economic malaise will still grip most of the world. But
if we get a little blip up, if the European economy ends up not being as bad
as forecast, then it's only good news for the iron ore plays. The bad news
has been priced into them, but not much potential good news has been priced
in and, therefore, they have a lot of upside future potential.
TGR: In a
recent post on www.grandich.com, you took
issue with a Raymond James report on Geologix Explorations Inc. (GIX:TSX; GIXEF:OTCQX). Why did
you feel compelled to challenge the analysis done by Raymond James?
PG: I felt
that the report was not as accurate as it could be and misinterpreted a lot
of things. Therefore, I felt the need to respond and not just because it's a
I saw a
similar story like this with another client of mine, Timmins Gold Corp. (TMM:TSX; TGD:NYSE.MKT), which
got impacted negatively in its share price by an analyst with whom I and
others, including Timmins, strongly disagreed with. I was scoffed at for
responding and was told the only reason I was responding was because it's a
Timmins ended up proving how wrong that analyst was and recently traded at an
all-time high. Timmins Gold started its road to riches during the worst
financial crisis ever and is near an all-time share price high in a market
where most companies have gone the opposite direction. It continues to come
out with good news of advancing resources and higher production.
similar traits in the Geologix story, and that's
why I took the time to respond to the analyst report.
TGR: Geologix has meandered around sub-$0.40/share for a
while. What's going to bring Geologix back and
allow shareholders to make money on this stock?
PG: Geologix is not much different from a lot of other
companies that continue to have success on the corporate side but have seen
their share prices languish and/or deteriorate.
company has made great progress with advancing its resource projects. The
analyst's report ignored a very large deposit and when the company releases
an economic report soon, that can demonstrate it is a very viable project.
of the things that can eventually lift the juniors market; majors are in
great need of replenishing resources. Many deposits like the ones that Geologix has, which are well advanced, are likely to be
taken over. They may not be taken over at prices that people paid a year or
two ago, but they should be at a decent premium to where they are now. That's
a reason why I continue to hold my position in Geologix.
TGR: What did
you make of the recent drill results from prospect drilling at Tepal?
results weren't barn burners, but I've never owned it for just those drill
results, but for the many more to come. What was lost in the news is how its
results have moved from raw to Measured and Indicated and how much closer to
viable the deposit has come.
TGR: Mike Bandrowski at Clarus Securities
said, "Geologix could see a rerating once it
publishes its prefeasibility study." Do you share that opinion?
more of a realistic view by an analyst. I would hope that if such a report
demonstrates the true viability of this project, people will pay up for the
stock. But one of the things we'll see next year is the Geologixes
of the world, and a lot of these mid-development-moving-into-production type
companies, merge and be acquired. They've moved so far along in achieving
their corporate goals, but their share prices have gone in the other
companies have derisked, but their share prices
haven't really shown that. You now have a lower risk at a great price.
That stinks for those who are already all in, but for anybody who isn't, Geologix is a classic example of where the share price
hasn't represented the advancement that the company has seen in the last
another post on www.grandich.com, you talk
about your accumulation of shares of Oromin Explorations Ltd. (OLE:TSX; OLEPF:OTCBB). You pull
up a technical chart to help make your case. You strongly believe it will
receive a takeover offer. Why is that a reasonable thesis?
PG: It's my
single largest holding ever in any company, period. Oromin
has the footprint of a company that's heading in that direction. To begin
with, the company has made it known multiple times for almost a year now that
it has engaged an investment banker to explore all sorts of strategic
potential factors, including being taken over.
country in which it operates, Senegal, has been actively promoting that
district as the next up-and-coming gold district in Africa and the world.
another public company that has a substantial position already in Oromin, that has built a mill near Oromin's
projects and that will be forced sooner or later to look for resources
elsewhere, it makes a lot of sense for it to look at Oromin
as an acquisition. The combination of both of them coming together could then
pose a very attractive takeover and another bump up by someone even larger in
combination of all of these factors, plus Oromin
has been around a long time. It's been a story that's been in development for
years. Managements of these types of companies like to get to this point and
be taken out because they would like to start over somewhere else.
TGR: What are
some other compelling stories in the junior mining space?
PG: As I said
earlier, we are at the point where a lot of companies that greatly advanced
their projects and their share prices may have not gone in that same direction.
Sunridge Gold Corp. (SGC:TSX.V) is one
that fits that mold as is Spanish Mountain Gold Ltd.
Metals Ltd. (DON:TSX.V) is
another classic example.
surprise pick for 2013, something I have not spoken about publicly before, is
South Africa. It may be wise for speculators to look at South Africa again
for gold plays for a lot of reasons. One reason is the rand, South Africa's
currency, is finally going down in value, which is a critical point. Second,
the necessary changes that needed to happen politically, economically and on
the labor front are ongoing and advanced.
Africa, a particular company that I happen to represent is Wits Gold Ltd. (WGR:TSX; WGR:JSE). But
really, South African mining in general could be a very interesting
speculative play for 2013.
TGR: What are
some equities based in South Africa?
PG: At the
moment, I would look for a fund, an exchange-traded fund or a company that
has several plays under its belt in South Africa. That's what I hope to do in
the next month. This is certainly not something that needs to be rushed into
overnight. But everything I know about it and people whom I've trusted for
almost 30 years have, in the last few weeks, started to feel that South
Africa has gotten to the point where it needs to be back on the map when we
look for gold plays. I am certainly going to target that in the early days of
mentioned Sunridge Gold, which we have talked about
it in previous interviews with The Gold Report. Sunridge
recently announced that it's going to publish its full feasibility study for
its Asmara project in Q2/13. It plans to lower its capital expenditures and
mine direct-shipping ore first to generate more cash flow off the top. What
were your initial impressions from that news release?
PG: If Sunridge Gold were suddenly lifted up by a gust of wind
and fell anywhere on the map in North America, its stock price would be 5 to
10 times higher than where it is, everything else remaining the same. It has
been punished for being in a perceived not-great place, Eritrea. But in fact
management attests, and we can see also from the results of Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT), that
it's been a good place to work in. But the world's perception of Eritrea
still remains, and people tremendously discount values of companies operating
that both Sunridge and Nevsun
can be acquired, most likely by a Chinese-led company. The Chinese have been
building their position in Africa. To me, it's only a question of which one
receives the bid first, Nevsun or Sunridge.
still the chance that Nevsun—which has much
in common with Sunridge—may buy it,
concluding that based on where Sunridge's price is, it can only enhance Nevsun's
copper projects you want to talk about?
PG: Excelsior Mining Corp. (MIN:TSX.V) has a
copper project in Arizona that is very viable. But it's another company that
many have perceived as being further down the road than it was and had
hiccups early this year, which seemingly have regressed, that impacted
Excelsior. If that ends and people look back to that area positively again, Excelsior
can turn around. Mark Morabito is chairman of the
board. In the past, he has managed to bring major investment parties into his
projects. That's something we can hope can happen with Excelsior.
year-end is approaching, how should retail investors handle tax loss selling
PG: My No. 1
advice on juniors is to realize failure is the norm in the junior resource
business. Not realizing that leads to a whole host of difficulties. If we
understand that, we won't get as mentally and financially distressed as we do
when we overindulge.
One of the
things that I see corporations battle so much is this need on the part of
speculators to have constant news, almost on a daily basis, from these
companies. Even IBM and Microsoft cannot put out news every day, and people
expect far too much and far too soon developments from juniors. They set
themselves up for disappointment that should never be there in the first
place. So failure is the norm in this business, and it takes a lot longer for
the ones that work out to get to where they have to get to. Patience is
clearly a virtue. Have a plan for when things don't work out because a lot of
them, even some that I've spoken to you about today, may not reach all the
goals that we originally thought they could.
sounds great, Peter.
adviser and market analyst Peter Grandich started
publishing The Grandich
Letter—now a blog—without a high school diploma or even a day
of formal training. His ability to interpret and forecast financial
happenings, which once earned him the moniker "Wall Street Whiz
Kid," has led to hundreds of media interviews. He is regarded as one of
the world's foremost market strategists.
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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: Alderon Iron Ore Corp., Geologix Explorations Inc., Timmins Gold Corp. and Sunridge Gold Corp. Streetwise Reports does
not accept stock in exchange for services. Interviews are edited for clarity.
3) Peter Grandich: Disclosure information is
available here. Peter Grandich was not paid by Streetwise Reports for
participating in this interview.