The Gold Report: Bob, in light of financial uncertainty in the world—including the banking crisis in Cyprus and the drastic proposal to solve it by taxing the depositors—does the old adage "sell in May, go away" still hold true for gold investors in 2013?
Bob Moriarty: We've got an incredible dichotomy where the resource stocks are being destroyed and the Dow and S&P 500 are hitting new highs. But there's going to be a reverse shortly when the Dow and S&P 500 head toward a major bottom and the gold equities skyrocket.
TGR: What is the catalyst that will turn everything upside down after such a dramatic plunge last week?
BM: We've been conditioned to believe that there's an action and reaction in the stock market. If you turn on the evening news, you might hear that the Dow went up today because of tensions in the Middle East. But there is no direct link. Gold doesn't go up because of something that happens in Europe today. There's a lot more randomness than anybody wants to admit, and really the only way to tell whether we are at the top or the bottom is by focusing on psychology. In the psychology of bulls we're at record highs in the S&P 500, and in the psychology of bears we're at record lows for gold, silver and the junior mining stocks.
TGR: If there is no rationality, then how can you be so certain that the psychology is going to change?
BM: Everything changes. It's pretty easy to read psychology. When 100% of investors are bullish, the next trade is going to be down, and when 100% of them are bearish, the next trade is going to be up. When you run out of bulls, you have nothing but bears left.
TGR: Is the banking crisis in Cyprus a foretelling of what is to come in other countries? And will it impact the Dow or gold stocks?
BM: This is the proverbial handwriting on the wall. Everybody who has money in any bank, anywhere, has been warned that their money is at risk. I simply cannot come up with any reason for keeping money in a bank—or any more money than you need to.
TGR: Where should people put their money?
BM: One of the major roles for gold and silver is insurance against financial chaos, and we certainly do have financial chaos in the world. You didn't say anything about North Korea, but we don't know if a major nuclear war will start tomorrow—that's how crazy it is. All money in banks and all paper assets are at enormous risk. Gold and silver, regardless of price, are insurance against such financial chaos.
TGR: You travel the world looking at projects. What are some of the undervalued ones that really will jump up once the junior mining market turns up?
BM: I wrote about one company called Mundoro Capital Inc. (MUN:TSX.V). I don't own any shares and don't have a financial relationship with the company, but Mundoro is in Serbia. It surrounds a world-class hole recently drilled by Reservoir Minerals Inc. (RMC:TSX.V), which has a joint venture with Freeport-McMoRan Copper & Gold Inc. (FCX:NYSE). One day, Mundoro was selling at $0.75 on the dollar and the next it was up to $0.85 per dollar. Any copper or gold is free. That’s just simply absurd. Everything is cheap now. It's back to $0.75 for a dollar bill. That's insane and can't last for long.
TGR: Is it because of the history of mining in that area or because of the particulars of this project that you like the company?
BM: Mundoro's location is fabulous, but so is Eastern Europe in general. We have gotten a lot of information about Eastern Europe from the Russians and the former Communist-bloc countries. Mining has been going on in Eastern Europe for about 5,000 years, but a lot of gold, silver and copper is yet to be found. And Mundoro just happens to be in an area that has some absolutely world-class drill results.
TGR: Mundoro took over the project from Newmont Mining Corp. (NEM:NYSE) and another junior. What do you think they are seeing in this property that Newmont and the other junior didn't?
BM: Every mine goes through an average of seven companies before somebody properly develops it. That's no big deal and no comment whatsoever on Newmont or the other junior.
TGR: Are Reservoir's drill results impacting Mundoro's price? Is there another catalyst for Mundoro coming up that you are looking for?
BM: Mundoro was at $0.30/share before Reservoir announced that it had intercepted 291 meters, gradient 5.13% copper, 3.4 grams/ton gold at the Cukaru Peki prospect near the Bor mining complex infrastructure. That's 14% copper equivalent. Those are extraordinary holes, some worth $1,000/ton. That caused Mundoro next door to go to $0.35/share. It is back down to $0.26/share now as things are getting even cheaper.
TGR: What else do you like?
BM: My favorite investment has to be Novo Resources Corp. (NVO:CNSX; NSRPF:OTCQX) in Australia. Novo may have a Witwatersrand-type find on its hands. The stock was $1/share three months ago and it's about $0.55/share now.
TGR: And why did it go from $1 to $0.55/share?
BM: I suspect some fairly big investors had to raise money and sold off some of their holdings. None of the selling of the last two months has been rational. It's been forced selling.
TGR: Have you visited the company? What makes you so positive about this one?
"People worry too much about conspiracies and manipulation. They should look at investment decisions rationally and decide for themselves."
BM: Witwatersrand was a very nice system and produced about 2.5 billion ounces gold, and the project that Novo Resources has in Australia is bigger. President and CEO Quinton Hennigh and I are like brothers. The only thing we disagree on is that he keeps calling the geological structure Pilbara Paleoplacer and I tell him it's not. It's a precipitation deposit. Either way, I love what's in it.
What this market is lacking is a catalyst. It's lacking a really giant discovery that gets everybody's attention. I think Novo Resources and its Marble Bar project is going to be that catalyst. Novo Resources is in a joint venture with the Creasy Group, which is run by Mark Creasy, an Australian billionaire who is one of the top prospectors in Australia. Creasy and Hennigh are convinced Marble Bar is the next big discovery.
TGR: If it is a Witwatersrand-type system, will that make it easier to process the ore?
BM: The gold was precipitated out of salt water and it is found in conglomerate layers. Literally all you have to do is drill straight down. So it's very cheap drilling. Novo did some core holes to measure it and came up with this magnificent buckshot pyrite, which is one of the things you find in Witwatersrand systems. It's very important from a technical point of view. Ore processing is the same as with any other type of deposit. Ore discovery is a lot cheaper and easier.
TGR: Take us somewhere else in the world.
BM: I just came back from Cambodia and I saw an interesting company called Angkor Gold Corp. (ANK:TSX.V). Angkor's only problem is communication. The company spends an enormous amount of time pushing social responsibility. If you look really closely, the company is ahead of the game in raising money, which is unusual for a junior over the past two years. These days it's been virtually impossible for juniors to raise money. Angkor sold a 78 square kilometer project to the Chinese for $2.4 million ($2.4M) and formed a joint venture with an Indian company that wants to get into production in about 18 months. Angkor got a 10% net smelter royalty on that. That put a floor underneath the stock. If Angkor fired everybody in the company, it will have enough of a royalty to pay dividend checks; in a year and a half from now or so it could pay 10% dividends.
TGR: How soon will Angkor have some initial reporting on its Border, Phum Syarung and Okalla projects?
BM: Cambodia is a rainforest and it gets about 200 inches of rain a year. So what Angkor does is take samples from termite mounds and tests them for trace elements often found with gold. The cost of the samples is about one-third of the cost of a regular soil sample. It's very successful. I was really impressed with Angkor's technical program. And because Angkor focuses so hard on the social side, it has been ignoring the technical side. It's a good company and it's cheap.
Angkor should be reporting results on a regular basis soon. The company will be drilling soon and has taken 20,000 soil samples in the last year. So from a technical point of view the company is making great progress. If the company finds somebody who wants to go into production quickly, it does a joint venture and lets the partner get on with it. It's a smart move on Angkor's part. The company has a lot of ground there, about 10 projects total.
TGR: What are some of the companies you are going to be watching for movement this summer?
BM: A lot of companies are worth looking at from a financial point of view rather than a technical one. Tembo Gold Corp. (TEM:TSX.V; TBGPF:OTCQX) for example was around $0.35/share a month ago and it is $0.21/share now. Nothing has changed with the company. Investors can be very irrational. When the markets are buoyant, everything is wonderful. But at market lows, investors panic and dump shares; they should be doing the exact opposite. From a psychological point of view, we've had the lowest ratings we've ever had on the relationship of gold shares to gold. The Sprott Physical Silver Trust (PSLV;NYSE.MKT; PHS.U:TSX) today is at the lowest premium it has ever had—a -.37% premium. It should have a 5% or 6% premium; it has had its highs of a 34% premium. What it means is people don't want gold or silver. You can't give this stuff away. At $50/ounce ($50/oz) everybody wanted silver and at $23/oz everybody hates it. That's irrational.
TGR: Do you also look at other financials, such as cash on hand versus market share?
"The countries you want to invest in are the ones in the most chaos today."
BM: Mundoro had $0.38 in cash per share according to its filings; I wrote that at $0.30/share investors were getting $0.08 plus free gold and silver just for buying the stock. A lot of companies are selling for less than the cash they have on hand and everything is just as good.
TGR: What gold price do you use when you are estimating how much these companies could be worth?
BM: I don't try to estimate how much companies are worth. I evaluate whether they're cheap, fairly valued or fully valued. And right now, across the board, they're all cheap. Moneta Porcupine Mines Inc. (ME:TSX.V) is getting $4–5/oz for gold in Ontario. That's crazy.
TGR: Why do you think a company in Canada, which is a safe jurisdiction, would have this kind of a challenge? Moneta Porcupine's NI 43-101 has a resource estimate of 4.3 Moz gold. Does the price reflect that?
BM: People worry too much about conspiracies and manipulation. They should look at investment decisions rationally and decide for themselves. Unfortunately, when investments are fully valued everybody is really optimistic and when they're cheap everybody is really pessimistic. That's just plain dumb. When investments are fully valued and every Tom, Dick and Harry are talking about how great their stocks are doing, you should be unloading. And when they are cheap, you should be buying. If you went down to a Porsche dealer and he offered to sell you an $80,000 car for $50,000, you'd say what a great deal. But when you can buy dollar bills for $0.75 everybody thinks there's something wrong with that.
TGR: Do you like early stage exploration plays or companies that are getting closer to having a mine?
BM: I like pretty much all production stories.
I own shares of a company called Northern Lion Gold Corp. (NE:TSX.V; NE:N3E). It happens to be in Cyprus and is probably selling for less than the cash it has on hand. Northern Lion has come up with some extraordinary drill results over the last year, which have been ignored. And the company just got into a deal with Centerra Gold Inc. (CG:TSX), where Centerra can earn up to 70% interest in these projects in Cyprus with really nice grades. Strangely enough, the countries you want to invest in are the ones in the most chaos today. Northern Lion has about a $1.5M market cap and now it has a partner with deep pockets that can really move that puppy forward.
TGR: Thanks, Bob, for your insights.
Convinced that gold and silver were as low as they were likely to go, and wanting to give other investors a foundation for adding resource stocks to their portfolios, Bob Moriarty and his wife, Barb Moriarty, brought 321gold.com to the Internet more than 10 years ago. They later unveiled 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, opinion pieces, pricing figures and updates on relevant current events. Moriarty was a Marine F-4B fighter pilot and 0-1C/G forward air controller with more than 820 missions flown in the Vietnam War. A Marine captain at 22, he was the youngest naval aviator in Vietnam. He was highly decorated for his service, holds 14 international aviation records and once flew through the Eiffel Tower's pillars just for fun.
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DISCLOSURE:
1) JT Long conducted this interview for The Gold Report and provides services to The Gold Report as an employee. She or her 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: Angkor Gold Corp., Mundoro Capital Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Bob Moriarty: I or my family own shares of the following companies mentioned in this interview: Novo Resources Corp., Northern Lion Gold Corp. I am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Novo Resources Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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