The Mining Report: You're fond of the saying, "As January goes, so goes the year." Given how gold performed last month, up 8%, what does this tell you about the rest of 2015?
Jeb Handwerger: Going back over the last 100 years, the statistics are on the side of the sector that outperforms in January. And this January, precious metals and junior miners have taken off, breaking out against all major currencies. Gold bullion outperformed all other currencies, and it's also beginning to break out against the U.S. dollar. The gold price broke above the 200-day moving average versus the greenback, which many observers see as an indicator of the medium- to long-term trend. Since then it has pulled back to the 50-day moving average, which should act as support as it is begins to slope higher.
"Integra Gold Corp.'s Lamaque is one of the highest-quality assets in Quebec controlled by a junior miner."
We're seeing a big increase in mergers and acquisitions (M&As). In November, Osisko Gold Royalties Ltd. (OR:TSX) bought Virginia Mines Inc. (VGQ:TSX). In December, Coeur Mining Inc. (CDE:NYSE) bought Paramount Gold and Silver Corp. (PZG:TSX; PZG:NYSE.MKT). In January, Goldcorp Inc. (G:TSX; GG:NYSE) bought Probe Mines Ltd. (PRB:TSX.V) for $440 million ($440M). And in uranium, Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.MKT) and Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.MKT; EFRFF:OTCQX) merged. All this tells me there's been a sentiment change. Probe and Paramount were mentioned in last year's interview as takeout candidates.
TMR: Gold ended the month over $1,275 per ounce ($1,275/oz). Is this fact in itself significant?
JH: Yes. The price of gold seems to have stabilized, and now the miners are catching up. Keep in mind that the majors and midtiers have cut exploration budgets and now rely on the juniors to provide their replacement reserves and resources. That's why M&A has increased. This tells me that the junior miners are really set for a takeoff.
TMR: Could gold in the short term come to rival or even supplant the U.S. dollar as the ultimate safe haven, especially if the broader equity markets start to go south?
"Pershing Gold Corp. is a cash-rich company with strong shareholder support."
JH: I think that's the most likely scenario. The U.S. equity markets are strong, but the economic fundamentals are still weak. Christmas retail sales were not as good as expected. The strong U.S. dollar will result in a hard landing for the real estate market, which has been dependent on foreign buyers and is now overbought and expensive. This real estate correction could put pressure on the banks and the financial markets.
TMR: What effect will the oil price collapse have?
JH: It hurts the banks, which are sitting on bad loans possibly larger than what they had during the 2007–2008 credit crisis. And the collapse of the fracking sector means the loss of most of the only high-paying U.S. jobs created since 2008, not just the drilling jobs but also the ancillary jobs servicing that industry. I believe the unemployment picture is much worse than they realize.
TMR: The Federal Reserve has tied monetary policy to the unemployment rate. How will it react?
JH: I wonder how long the Fed will continue to allow the dollar to rise with all the other currencies crashing. The U.S. led the world in quantitative easing (QE) back in 2009. Now Europe and the Japanese are leading it. When will it be the U.S.'s turn to once again devalue its currency? The Fed could be forced to bring back QE. The central banks are trying whatever they can to boost demand, but it doesn't appear to be working.
TMR: What's your gold price prediction?
JH: I see it hitting new highs against the U.S. dollar—above $1,900/oz—within 12–18 months. Investors have been moving out of world currencies into the U.S. dollar, but eventually they will diversify into real assets and real money, and also into the miners and the junior miners. I believe we're in the early stages of a bull market in gold equities, which could last anywhere from five to seven years. I further believe that the gold price could possibly double to $2,600/oz.
TMR: Which gold juniors will flourish in the new bull market?
JH: Those companies that are marketable in the U.S. to the funds and to the institutions, which are the companies with proven management teams that have been able to raise money throughout the downturn.
TMR: Is Nevada still the world's best gold mining jurisdiction?
JH: Nevada probably remains the best mining jurisdiction in the world; oil and drilling costs are at really low prices. That's where the majors, such as Barrick Gold Corp. (ABX:TSX; ABX:NYSE), have their lowest cash cost mines, in the Cortez and Carlin trends.
TMR: Talk about some Nevada gold juniors you like.
JH: Corvus Gold Inc. (KOR:TSX) has the North Bullfrog project. The company has just expanded its land position, and it is continuing to hit just incredible results. Corvus announced 17.1 grams per ton (17.1 g/t) gold and 19.5 g/t silver over 35.9 meters in October and 4.1 g/t gold and 75.4 g/t silver in January. The company is run by Jeff Pontius, the former U.S. exploration manager for AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE), and Dr. Russell Myers, one of the world's top geologists. Corvus is coming out with an updated resource and an updated preliminary economic assessment (PEA), which will include all the recent high-grade results.
"Red Eagle Mining Corp.'s Santa Rosa project has outstanding economics."
One company we just started accumulating is Pershing Gold Corp. (PGLC:OTCBB). This stock has broken out from a 10-month downtrend. Pershing just announced with Newmont Mining Corp. (NMC:TSX; NEM:NYSE) a major landmark deal consolidating the Relief Canyon property. The company has a great management team led by Steve Alfers, formerly of Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) and NewWest Gold. He sold the Long Canyon property to Fronteer Gold, which was bought out by Newmont for over $2 billion ($2B) at the height of the 2011 cycle. Pershing is a cash-rich company with strong shareholder support. Its property has three open pits and a fully constructed and permitted heap-leach processing facility. Pershing has recently announced some high-grade drill results, which is showing to the market that it is far from the low-grade producer it was back in the 1980s.
TMR: How long before Pershing re-opens the Relief Canyon mine?
JH: Pershing's current plan is to incorporate the drilling results into a new resource estimate around April of this year. Then it will commence a PEA. Once the PEA is completed, then Pershing will make a production decision. I believe Pershing could be in production by 2016.
TMR: Are there any other Nevada gold juniors you're fond of?
JH: I'll name two. Canamex Resources Corp. (CSQ:TSX.V; CX6:FSE) and its Bruner project, which has produced some of Nevada's best recent results in two years of drilling. Canamex got in two big, dividend-paying NYSE producers to make investments: Hecla Mining Co. (HL:NYSE) and Gold Resource Corp. (GORO:NYSE.MKT; GORO:OTCBB; GIH:FSE). Canamex was just granted subsurface water rights for Bruner, which are essential for heap-leach operations.
"Wellgreen Platinum Ltd.'s management has a proven track record."
Canamex will soon publish its maiden resource estimate. This is crucial because if you look at those Nevada companies with published resources—Pershing, Corvus or Gold Standard Ventures Corp. (GSV:TSX.V; GSV:NYSE)—they have much higher valuations. So Canamex could be a good candidate for rerating after it announces the initial NI 43-101.
TMR: And the other is?
JH: NuLegacy Gold Corporation (NUG:TSX.V; NULGF:OTCPK). Its Iceberg project is adjacent to Barrick's Goldrush discovery, and Iceberg is a joint venture (JV) with Barrick. NuLegacy's COO is Dr. Roger Steininger, the geologist who discovered Pipeline for Royal Gold Inc. (RGL:TSX; RGLD:NASDAQ), which became Barrick's first major property on the Cortez Trend. Goldrush is about 15 million ounces (15 Moz) and growing and will probably become one of the lowest-cost gold mines in the world.
TMR: Which Canadian juniors excite you?
JH: In Quebec, Integra Gold Corp. (ICG:TSX.V; ICGQF:OTCQX) has the Lamaque project. The company just announced an updated PEA that incorporated the acquisition of the Sigma-Lamaque mill. Lamaque has an exceptionally high pre-tax internal rate of return (IRR), 77%. This is a good takeover target, especially now as Integra just released an updated resource that shows that Lamaque is one of the highest-quality assets in Quebec controlled by a junior miner.
In Manitoba, Carlisle Goldfields Ltd. (CGJ:TSX; CGJCF:OTCQX) just completed a 6.5:1 share consolidation, which is very good for investors. The company has a partner in AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE), which is spending CA$13M in 2015 on the Lynn Lake JV. It's very exciting to see a major with such great technical expertise spending the money to earn into a junior's property. Carlisle is a deeply undervalued company. As I mentioned earlier, Goldcorp spent $440M to take out Probe. Carlisle has a market cap of only $15M, and its metrics are similar to Probe's.
TMR: We have seen an upsurge of interest in Alaska. What do you follow there?
JH: International Tower Hill Mines Ltd. (ITH:TSX; THM:NYSE.MKT) and its Livengood project. The company has had a major run of late, and it just raised CA$8.4M in a non-brokered private placement. It has huge volatility on the upside if gold moves higher, just as it demonstrated huge volatility when gold fell from $1,900/oz to $1,150/oz. Investors who understand its large reserve and resource base should use Tower Hill as a call option on the price of gold. That's why institutions such as Paulson and Tocqueville are supporters. Its CEO is Tom Irwin, the mine engineer who ran Kinross Gold Corp.'s (K:TSX; KGC:NYSE) Fort Knox mine, 45 miles from Livengood.
TMR: The initial capital expenditure (capex) for Livengood Project was $2.8B. How much must this be reduced for Livengood to become economic?
JH: Its last feasibility study was based on $1,500/oz gold. If you believe gold will top $1,900/oz in the next 18 months, then Tower Hill would provide a huge amount of leverage.
TMR: Let's discuss gold juniors outside North America.
JH: One company that should really be on the radar of investors is Red Eagle Mining Corp. (RD:TSX.V) in Colombia. Its Santa Rosa project has outstanding economics: a 53% pre-tax IRR, cash costs of $596/oz and an initial capex of only $74M. The only reason it is deeply discounted is because Colombia has been out of favor as a jurisdiction. Santa Rosa could get its final permit within a couple of months, and with this approval shares should be rerated.
Another company we own is Galane Gold Ltd. (GG:TSX.V), a 50 Koz/year producer in Botswana. This company recently signed a $5M gold loan with Samsung Electronics Co. Ltd. Not many people are aware that gold has industrial applications in electronics. Companies like Samsung need to ensure gold production from secure, conflict-free African jurisdictions. Every $100/oz increase in gold means $5M extra revenue for Galane, which is now trading below its cash value. This company should become an outperformer.
The final gold company I'd like to mention is Gainey Capital Corp. (GNC:TSX.V) in Mexico. The company has a gravimetric/flotation processing facility in the heart of the Sierra Madre Trend, which is where Coeur took out Paramount. This facility can process up to 300 tons of ore per day and can be upgraded to 600 tons per day. Gainey signed a 10,000-ton ore-processing agreement Jan. 2. This will provide near-term cash flow to develop its El Colomo gold-silver property. The mill is run by former Barrick Gold mill supervisor George Cantua, who operated a 24,000 ton per day mill in the Dominican Republic for Barrick. I've recently bought Gainey because I think it's in a turnaround situation.
TMR: In your view, what are the prospects for the platinum group metals (PGM) sector?
JH: Quite good because current supply is from unstable jurisdictions: platinum from South Africa and palladium from Russia and Zimbabwe. The world is looking for PGM deposits in North America. As an example, Antofagasta Plc (ANTO:LSE) just took out Duluth Metals Ltd. (DM:TSX) for a large premium.
TMR: What's the best PGM project?
JH: Wellgreen Platinum Ltd. (WG:TSX; WGPLF:OTCPK) released a PEA for its Wellgreen project in the Yukon on Feb. 2. This project has better metrics than Duluth. It is the largest and lowest-cost deposit in North America except for the Stillwater mine in the U.S. Wellgreen has an after-tax NPV of CA$1.2B and a 24.6% IRR. If Wellgreen were bought out at a similar level as Duluth, it would be triple its current value.
Wellgreen's management has a proven track record. CEO Greg Johnson was the founder of NOVAGOLD (NG:TSX; NG:NYSE.MKT), whose stock he took from around $0.50 to $22. Wellgreen could be his next big win. I think Wellgreen will bring in a major as a strategic partner in developing this huge asset, which could produce over 200 Koz of platinum and palladium per year, plus copper and 70M pounds of nickel per year.
TMR: Are you bullish on nickel?
JH: I am, and that's why I like Royal Nickel Corp. (RNX:TSX), which owns the Dumont project in Québec. That is one of the largest and most-advanced shovel-ready projects in North America. This is a high-quality company run by former Inco management.
Since Indonesia announced its export ban on nickel, the Chinese started supplying the market, but inventories are decreasing. New supplies are needed, and that's great news for Wellgreen and Royal Nickel.
TMR: Moving on to uranium, what does the merger of Uranerz and Energy Fuels tell you about the future of that sector?
JH: It's a brilliant move by both companies. They will have the low-cost production from Uranerz to fill their contracts for the next couple of years. Then Uranerz will have the upside of Energy Fuels' only operational mill in the United States and its long-term contracts. This new company will have a market cap of over $200M and will become the pre-eminent North American uranium name to institutions and U.S. investors. It will be listed on the Russell 2000 and be a prime choice for those looking to benefit from the U.S. nuclear renaissance.
For the first time in 40 years, America is building new reactors. And China is forging ahead here as well. Much of the supply for U.S. reactors has come from Russia. Now that has ended in a big way, and America must develop domestic supply.
TMR: Which uranium junior is your favorite?
JH: I'm a shareholder of Anfield Resources Inc. (ARY:TSX.V; ANLDF:OTCQB; 0AD:FSE), which has projects in the western U.S. Last month the company secured $12M in financing, which enables it to complete the asset purchase from Uranium One Inc. (UUU:TSX), including one of America's three permitted uranium mills. I think the market is underestimating the value of Uranium One's domestic U.S. assets. Once the transaction closes, the company could be rerated higher.
I think Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT), another low-cost, in situ uranium producer in Wyoming, is a good bet and I bought Fission 3.0 Corp. (FUU:TSX.V; FSIOF:OTC), which is run by the same management and technical team that was behind the 100+ million pound PLS uranium discovery. Fission 3.0 has cash, a great exploration package and the top management team in the juniors that consistently rewards its shareholders. The uranium spot price is running higher, and it is only a matter of time before the junior miners benefit.
TMR: Where do you stand on specialty metals?
JH: We did pretty well with several specific specialty metals companies in 2014. One was NioCorp Developments Ltd. (NB:TSX.V), which is run by Mark Smith, who took Molycorp Inc. (MCP:NYSE) from a private company to a NYSE-listed producer. NioCorp has one of the top North American niobium deposits. This metal is critical to the steel industry because it makes it lighter and stronger. The company just announced a major resource update increasing the grade and size. It may own what could be the fourth producing niobium mine in the world.
Another one that's done very well for us is Western Lithium USA Corp. (WLC:TSX; WLCDF:OTCQX). Tesla Motors Inc. (TSLA:NASDAQ) last year announced plans to begin construction of a new gigafactory near Reno, Nevada. This happens to be quite close to Western's Kings Valley project, one of the largest and highest-quality lithium deposits in the Western world. So this company is a good candidate to supply Tesla and become the go-to lithium provider. I would not be surprised to see some major announcements in 2015 with some strategic partners.
We also like graphite, and we've recently bought into Graphite One Resources Inc. (GPH:TSX.V), which owns the large high-flake Graphite Creek project in Alaska. This state is extremely supportive of the critical minerals sector. It understands America's need to reduce its dependence on Chinese supply. Graphite One owns the highest-quality graphite asset in the U.S. and it trades at a deeply discounted market cap. A PEA could show the investment community that Graphite One could become the U.S. answer for large-flake graphite used in lithium-ion batteries.
Alaska is a great jurisdiction for mining. Alaska has demonstrated its support for heavy rare earth junior Ucore Rare Metals Inc. (UCU:TSX.V; UURAF:OTCQX). The Alaska Development Association will help fund capex and infrastructure costs. This greatly increases the prospects for Ucore's Bokan Mountain project to go into production. The company has just announced improved metallurgy with the use of molecular recognition technology. Its recent drill results demonstrate mineralization extending at depth. A feasibility study is on the way.
TMR: Final question. The new bull market you expect is of course welcome news for long-suffering investors. But is it best for them to hold on to stocks that have yet to show a recovery, or should they dump them and move on to better chances?
JH: It may be time for them to rotate into the strongest and highest-quality juniors they can find. That's why it's more important than ever for investors to do their due diligence. They should review filings and salaries, look at insider positions and which funds are holding companies.
Above all, I look for companies that are in it to win it: intelligent and active, with excellent assets in stable jurisdictions and management teams with skin in the game and that are shareholders themselves. The gains that can be made in the early stages of a bull market can be quite exceptional. I saw this in the 2001 market, and I think I may see it again in 2015.
TMR: Jeb, thank you for your time and your insights.
Jeb Handwerger is an author, speaker and founder of GoldStockTrades.com. He studied engineering and mathematics at University of Buffalo and earned a master's degree at Nova Southeastern University. After teaching technical analysis to professionals in South Florida for over seven years, Handwerger began a daily newsletter, which grew to include thousands of readers from over 40 nations.
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DISCLOSURE:
1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Uranerz Energy Corp., Energy Fuels Inc., Pershing Gold Corp., Gold Standard Ventures Corp., Integra Gold Corp., Red Eagle Mining Corp. and Wellgreen Platinum Inc. Franco-Nevada Corp. and Goldcorp Inc. are not affiliated with Streetwise Reports. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Jeb Handwerger: I own, or my family owns, shares of the following companies mentioned in this interview: Anfield Resources Inc., Canamex Resources Corp., Carlisle Goldfields Ltd., Corvus Gold Inc., Fission 3.0 Corp., Energy Fuels Inc., Gainey Capital Corp., Galane Gold Ltd., Graphite One Resources Inc., Integra Gold Corp., International Tower Hill Mines Ltd., New Gold Inc., NioCorp Developments Ltd., NOVAGOLD, NuLegacy Gold Corporation, Pershing Gold Corp., Red Eagle Mining Corp., Royal Nickel Corp., Ucore Rare Metals Inc., Ur-Energy Inc., Uranerz Energy Corp., Wellgreen Platinum Ltd. and Western Lithium USA Corp. I personally 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 as they are sponsors on my website: Anfield Resources Inc., Canamex Resources Corp., Carlisle Goldfields Ltd., Corvus Gold Inc., Fission 3.0 Corp., Gainey Capital Corp., Galane Gold Ltd., Graphite One Resources Inc., Integra Gold Corp., International Tower Hill Mines Ltd., NioCorp Developments Ltd., Pershing Gold Corp., Red Eagle Mining Corp., Royal Nickel Corp., Ucore Rare Metals Inc., Ur-Energy Inc., Uranerz Energy Corp., Wellgreen Platinum Ltd. and Western Lithium USA Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on research, understanding of the sector and interview theme. 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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