The Gold Report: In your last interview with The Gold
Report, you said that a Federal Reserve interest rate hike would be
the best thing for gold. As we now know, the board decided to keep rates at
almost zero. How does that impact your projections for precious metals?
Jeb Handwerger: It was almost a done deal that the Fed was going to
raise interest rates in September, but then the Chinese market began to crash
and just the threat of raising interest rates caused a price decline in the
S&P 500, the likes of which we haven't seen in a long time. It was a
record drop, breaking a major four-year uptrend and forming a technical
bearish pattern. The Fed announced on Sept. 17, when it was expected to raise
interest rates for the first time since 2006, that it is uncertain about the
economy, that the equity markets are too volatile, and that there are too
many dangers of another recession. Now the Fed is doing whatever it can to
prevent a recession.
The global stock markets are beginning to roll over, something I predicted
in that same interview, due to fear of a rate increase before the end of
2015. The reality is we have a slowing global economy with the threat of
higher interest rates, and that sparked a rally in the precious metals. The
gold-Dow ratio is now beginning to turn in favor of precious metals, which
are once again seen as a safe haven to preserve capital and protect against
markets that are completely overinflated and experiencing record volatility.
That is why I have always advocated for a diversified portfolio, including
precious metals commodities and high-quality junior mining equities. I would
not be surprised to see gold at $1,600/ounce ($1,600/oz) and the S&P500
at around 1,600 before the end of the first half of 2016.
The bottoming process for the juniors could be taking place now, after a
seven-year decline. All of these factors make this a phenomenal time to find
assets not correlated to the stock market, the bond market and the U.S.
dollar. The best assets inversely correlated to those things are precious
metals commodities and junior miners.
Now, the junior miners are even cheaper than they were in the late 1990s,
when gold was below $275/oz. This could be a once-in-a-lifetime value
proposition that may not last much longer. The safest havens during these
periods of deleveraging are assets trading near their intrinsic values or at
liquidation levels, which we've seen. Many of these miners are trading even
below their cash values.
The U.S. stock market and the U.S. Treasury markets went straight up for
more than four years, boosted artificially by record low rates. They could be
due for a possible 30–50% decline. The recent decline was just about 10%. Any
rally may be short-lived until the markets return to realistic levels. As
soon as that uptrend in equities is broken, we will see a massive rotation
into the inversely correlated sectors, which include precious metals
commodities and the gold juniors.
TGR: You're not the only one saying this. J.P. Morgan just called a
bottom for gold. Are you watching the same indicators as the big investment
banks?
JH: I'm not a fan of big-house reports. I usually look at them as a
contrary indicator, but this could mean that the upturn has just become
undeniable.
The key indicator I watch is the gold-Dow ratio. That is evidence that the
trend may be changing. Investors need to look at the relationship between
stocks and gold. When that ratio breaks down, it's better to be in precious
metals.
I also look at the cycles. The decline really began in 2007. This is one
of the longer declines, even factoring the bounce after the credit crisis
between 2009 and 2011. Over this seven-year period, a drastic reduction in
mineral exploration and development due to capital chasing social media and
biotech stocks has caused a major shortage of mineral supplies. The recent
volatility and increase in the Chicago Board Options Exchange Index (VIX)
will send investors back to the junior miners as a way to diversify out of
overvalued stocks and bonds. That is why a portfolio of choice junior mining
investments is more valuable than a statement might show today.
TGR: What kind of junior mining company can do well in this
upward-turning environment you're describing?
JH: I look for companies actively drilling. I don't waste my time
with companies that don't really have a game plan for building fundamentals
and creating value for shareholders. You have to know the management team,
and it has to have clear, set goals with news flow and guidelines.
TGR: What are some top stocks you're watching that fit those
criteria?
JH: Integra
Gold Corp. (ICG:TSX.V; ICGQF:OTCQX) recently announced a major $14
million ($14M) investment from Eldorado Gold Corp. (ELD:TSX; EGO:NYSE).
Integra is getting impressive, high-grade results from its current drill
program. It is getting validation from a major mining company and major
investors during a bear market. That's exciting.
TGR: Could Integra be a takeout target?
JH: The validation from Eldorado, plus the increased funds to
advance this project and continue making discoveries, makes me think Integra
would be an attractive takeover target. As this company develops, it's only a
matter of time before a major wants to add this high-grade asset to its
portfolio to get rid of some of the crap causing problems to the bottom line.
We're already seeing a number of major mining companies doing that. They're
getting rid of their uneconomic projects in risky jurisdictions and they're
looking for lower capital expenditure, high-grade, extremely economic, robust
projects like Integra and Pershing Gold Corp. (PGLC:NASDAQ).
TGR: What makes Pershing attractive to a major?
JH: Pershing is continuing to drill at a record pace. It has a
huge, strong treasury. It is fast-tracking a great project that is continuing
to build value in Nevada. This is an exciting time because this state has
been ignored due to the strength of the dollar. Most investors like the
Canadian assets because they can get better margins if their costs are in
Canadian dollars and their sales are in U.S. dollars. People thought the
dollar was going to go higher if the Fed raised interest rates. Now that the
dollar is beginning to turn over, that might reignite interest in Nevada gold
mining.
Pershing Gold has a fully permitted mine and mill at Relief Canyon. It is
getting exceptional results with four drills currently on the property. It
has a great shareholder base. The largest shareholder is the billionaire Dr.
Phillip Frost. Pershing has a strong treasury, and has newly uplisted to the
NASDAQ with a share rollback. It has a clean balance sheet and an excellent
share structure. It is positioned for outperformance in the coming new bull
market.
Another Nevada company, Corvus Gold Inc. (KOR:TSX), just received a $2M
investment from Resource Capital Fund VI L.P. in a tough market. That tells
you something about the credibility of exploration at the North Bullfrog
project, located an hour's drive from Las Vegas. Management came out with a
preliminary economic assessment showing impressive numbers, but it's trading
at an all-time low. Corvus has Tocqueville Gold Fund, AngloGold Ashanti Ltd.
(AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) and Van Eck Associates Corp. as major
shareholders. That is a lot of institutional capital in this company, which
is led by Jeff Pontius, who has decades and decades of exploration experience
leading AngloGold Ashanti's gold exploration team in North America.
Staying in Nevada, NuLegacy Gold Corporation (NUG:TSX.V; NULGF:OTCPK) has
earned into the Iceberg project with Barrick Gold Corp. (ABX:TSX; ABX:NYSE).
It is right next to Barrick's Goldrush discovery. NuLegacy has hit some
impressive holes over the past few months. Barrick will have to decide by the
end of the year whether to take this forward or stay a minority partner.
Barrick has had a lot of problems in other areas. Its best mines are in the
Cortez Trend in Nevada, where NuLegacy is. I think the best move is to secure
those assets before a midtier swoops down and picks up that position. That's
an exciting project that has seen some results in Nevada.
TGR: Is there another company that is well positioned?
JH: Red
Eagle Mining Corp. (RD:TSX.V) owns the Santa Rosa deposit near Medellin;
it is the first mine that's been permitted in Colombia in over 20 years, a
significant announcement. Red Eagle is in construction of an extremely
high-grade, underground and robust economic mine that is coming into production
over the next 12–18 months. That is an exciting project that should be on the
radar of investors.
TGR: Is the market taking notice of that announcement?
JH: Red Eagle has outperformed the juniors. It's still holding up
there near its 52-week highs, but it hasn't broken out. Nothing in the entire
sector on the development side has been breaking out yet. But this is one to
watch.
TGR: Can you leave us with one more name to put on our radar?
JH: Carlisle
Goldfields Ltd. (CGJ:TSX; CGJCF:OTCQX) just announced an exciting
discovery at the Lynn Lake gold camp in Manitoba. Carlisle is partnered with
Alamos Gold Inc. (AGI:TSX) to develop a feasibility study. Alamos may
consider Carlisle a takeout target, especially as the junior mining sector
turns around. One of the things that I like about Carlisle is very few
juniors have a major company like Alamos operating and funding exploration
and development and drilling. It is kind of getting a ride on the development
from Alamos, which took over AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE). I expect
to see more progress in the next few months.
TGR: Based on the macro-picture you have painted for us, how are
you adjusting your portfolio for the rest of 2015? What is your strategy?
JH: I'm continuing to build positions in high-quality companies. I
think now is an excellent time, especially when companies are offering three-
to five-year warrants and financings. For accredited investors who haven't
yet had exposure to the junior mining sectors, that is an opportunity to
diversify out of stocks and bonds and general equities.
We are already beginning to see the beginning of a bottoming process in
the junior miners and a breakdown of the stocks. If you have a three- to
five-year window, there could be an exceptional amount of wealth created.
TGR: Thank you for your time, Jeb.
Gold Stock Trades. He studied engineering and mathematics at University
of Buffalo and earned a master's degree at Nova Southeastern University. In
2014, Jeb was the first to highlight the top two performers of the Best OTCQX
50. Handwerger began investing in junior mining equities in the late 90s, avoiding
the dot-com crash. In early 2009, at the depth of the credit crisis,
Handwerger began the Gold Stock Trades website for investors to become
more aware of exciting developments in the mining and natural resource
sector. He has remained active in pursuing his professional career in TV,
film and theater. He has performed in numerous award-winning
Broadway/off-Broadway productions, several well recognized feature films and
dozens of worldwide commercials. In addition to finance and acting,
Handwerger is passionate about education, and taught business to lower
socioeconomic students from seventh grade to adults in the Broward County
Public School System.