Submitted by
The Gold Report
as part of our
contributors program
.
This interview was conducted by Sally Lowder of
The Gold
Report
(10/31/12)
It is a global ghoul fest when Bob Moriarty talks about his
favorite zombie stocks
-
companies whose share prices have flirted with death but still
offer devilishly good potential. Moriarty is happy to "buy $1 bills
for $0.50″ and tells readers where to do the same in this exclusive
Gold Report
interview.
The Gold Report:
Appropriately for this time of year - Halloween and the Day of the
Dead - gold's hold above $1,700/ounce (oz) seems to be reviving
some junior mining stock prices that had been left for dead. What
are some names with a heartbeat?
Bob Moriarty:
NOVAGOLD (NG:TSX; NG:NYSE.MKT) has come back from the dead a couple
of times. In 2001 or 2002, NOVAGOLD was the number one gaining
stock on the Toronto Stock Exchange. It reached $20/share at one
point. In 2008, it hit a low of $0.46/share; 18 months later it had
bounced back to $17/share.
TGR:
And today it trades at $5/share.
BM:
The lesson here is to buy when stocks are cheap and sell when they
get expensive. Too many investors in the junior mining space marry
the damn stocks. They fail to sell and take their profit when they
have the chance. If investors aren't willing to sell at a profit,
the only alternative is that they sell at a loss.
When I write about a stock, I think I can predict what it will
do over the next few months to a year, but it is really hard to
predict what the fools running these companies will do two or three
years out. You have to take a profit when you can.
TGR:
Well, NOVAGOLD has revitalized itself and is moving Donlin Creek in
Alaska forward. Can you tell us another zombie story?
BM:
Canaco Resources Inc. (CAN:TSX.V) has a big property in northern
Tanzania. I visited about six years ago and looked at some of the
gold through a loupe. From that look, I could tell the gold had
been formed right there. But the other geologists on the tour
begged to differ and the company drilled another project to the
south. That was a total bust and the stock fell through the floor.
As a last-gasp effort, Canaco sold half of the company to the
Chinese at $0.05 a share in early 2009.
The company returned to northern Tanzania, where it drilled and
promoted the project like crazy. The stock ran from $0.06/share in
2008 to $6.40/share in 2011. The company got to a market cap of
$700?800 million (
M
). Then, with the market expecting a resource of 5 million ounces
(Moz) or so, Canaco announced just 1 Moz. The market killed the
stock.
TGR:
On May 15, 2012, it was trading at $0.87/share and two days later
it was down to $0.36/share.
BM:
This is a perfect example of a stock being smacked by the market
because management over-promoted the project and it blew up in its
face. The company now has $0.54/share in cash and is selling for
$0.41/share. That is crazy.
TGR:
You believe Canaco is an interesting investment, then?
BM:
Anytime you can buy $1 bills for $0.80, it is a good deal. Canaco
has 1 Moz of mineable gold. Its mistake was over-promotion. I hope
management had a "come to Jesus meeting" and is figuring out how to
use that $100M to turn the project into a mine. If you cannot make
a mine with 1 Moz in Tanzania, you cannot do it anywhere.
TGR:
Looking for another zombie stock, how about CBM Asia Development
Corp. (TCF:TSX.V; CBMDF:OTCBB)?
BM:
I would like to grab management by their necks and shake them until
their brains fall out. The company has raised $40?50M over the last
four years and has a $25M market cap. Its coal-bed methane project
in Indonesia has more potential than any I have ever seen or heard
of.
I have a lot of shares in this bugger. I was in placements at
$0.40 in 2008 and am now buying stock at $0.14/share. This is a
situation where 100% of the investors have lost money; that has to
be a management problem.
TGR:
What does management need to do to move forward?
BM:
Management needs to put money in something so investors can see the
benefit. Management spends $1M here or $5M there to pick up a new
project with 10 trillion cubic feet (Tcf) potential; but until you
drill it out, you cannot put a hard number on it. It's worth a lot
but investors don't see it. Management has to do something
visible.
The company did put out a probable resource last year. Its share
was 1 Tcf of gas and the market price in Indonesia is
$10?12/thousand cubic feet. CBM Asia has an asset that should be
worth $200?300M and its stock is selling for a tenth of that
amount.
Management needs to drill to come up with a resource. It needs
to sell something and show investors that the company can make
money.
TGR:
It looks as if CBM Asia has had a couple of resurrections.
Initially, it had a nice run up in share price, got decimated and
had another nice run up. With a $0.14 share price and a $25M market
cap, it seems to be on life support.
BM:
But it is not on life support, and that is the terrible thing. The
company has $9M in the bank, a $25M market cap and 169M shares
total. Its 1 Tcf resource should be worth $200?300M. Its enterprise
value is $15M, when it should be $300M.
I have gotten a lot of grief from people who bought shares on my
recommendation. But I am still buying; I have an open order. I do
not think I am an idiot; I think management has done a poor job. I
think CBM Asia has the goods and will resurrect when it shows the
shareholders some value.
TGR:
OK, we have gone from Alaska to Africa to Indonesia. What location
and company provide your next zombie stock?
Bob Moriarty:
This one? Philippine Metals Inc. (PHI:TSX.V; PHIXF:OTCQX)?is a very
funny stock.
TGR:
A Goldman Sachs analyst out of Sydney recently told me the
Philippines is a mining district on the cusp of breaking out. What
makes Philippine Metals a zombie?
BM:
I met Philippine Metals' management several years ago in Vancouver.
The company had three major projects in the Philippines and I saw
some of the rock?it was some of the highest grade copper I had ever
seen. I invested when the shares were $0.45/share. It dropped to
$0.25/share in mid-2010 when some drill results did not work
out.
The Philippines has some of the richest gold and copper deposits
in the world. It also has one of the most corrupt governments in
the world. You can have two companies working there, one can be
very successful, the other a total failure. It all has to do with
their understanding of the local politics.
Philippine Metals now has $0.04/share in cash. I bought shares
this week at $0.02/share. You cannot go wrong buying $1 bills for
$0.50.
TGR:
Is the company moving forward at all?
BM:
I'm told yes. But if it disappears into Junior Stock Heaven, I lose
$0.02; if lightning strikes and it hits something, maybe I make
some money.
TGR:
Would you consider Comstock Mining Inc. (LODE:NYSE.MKT) a zombie
stock? It was beaten down and now seems to be coming back.
BM:
When the Comstock Lode was active in the 19th century, it produced
8 Moz gold and 299 Moz silver. Because of the ratio of silver to
gold, it was considered a silver district originally. Based on
today's ratio of silver to gold it would be considered a gold
district.
This stock has had some pretty high ranges. In 2010 it was
$2.20/share, went up to $4.40/share and by May 2012 had drifted
down to $1.60/share.
The company has seven miles of the Comstock Lode?a lot of gold
and silver. Its success will depend on how good management is and
how fast it can increase production. I was there for its first
gold/silver pour not long ago. The company estimates production of
20,000 oz gold this year, which is not a lot, but Comstock will be
producing a lot more in the future.
There is some local opposition to the mine, which seems crazy to
me. The only decent paying jobs in Nevada are mining. Comstock will
be increasing production, 99% of its drill holes are hitting
ore-grade material and someday the fools in Nevada will start
realizing that riches don't come from a government unemployment
check.
TGR:
What about Tembo Gold Corp. (TEM:TSX.V; TBGPF:OTCQX) or Argentex
Mining Corporation (ATX:TSX.V; AGXMF:OTCBB)?
BM:
Tembo and Argentex are both really good examples of zombie
stocks.
When I visited Argentex in Argentina three months ago, its stock
has been beaten down to $0.25/share. I wrote about the company and
its share price rose to $0.40/share. A delayed NI 43-101 report
hurt the stock price for a while. If you like silver, you have to
like Argentex. The company has some great silver projects. When I
was there, it was developing ounces for $0.06/oz. The stock is
cheap now, but not for long.
Tembo has excellent management. The company raised a lot of
money and put it into the ground. It was getting great intercepts
on its projects in Tanzania. Then, what happened to Canaco dragged
Tembo down.
Tembo should be a $3?4/share stock right now, but it is
$0.47/share. This has nothing to do with management or the market.
It is suffering from what happened to Canaco.
TGR:
It seems that when something happens anywhere in Africa, all of the
African stocks get smacked. That makes no more sense than smacking
down a stock in Ontario when something happens in Mexico.
BM:
That is absolutely true. Some of the most profitable African mines
are in Tanzania. If you cannot make a mine out of a great resource
there, management should be run out of town on a rail after being
tarred and feathered.
TGR:
I think it's time to leave the zombies to their unholy slumber and
talk about some other companies that pass your litmus test.
BM:
The companies I like the best are those that take care of their
shareholders, companies where 100% of the shareholders make
money.
I like Novo Resources Corp. (NVO:CNSX; NSRPF:OTCQX), which is
run by Quinton Hennigh. I visited Australia with Quinton and saw
the best deposit I have ever seen. It has taken the company three
years to assemble the project, but it has come together. Shares
were $0.40 three months ago; now the share price is $0.88.
TGR:
I thought Quinton Hennigh was working with Brent Cook. Is Novo his
side gig?
BM:
Quinton has half a dozen gigs. He is the brains behind Evolving
Gold Corp. (EVG:TSX; EVOGF:OTCQX; EV7:FSE) and Gold Canyon
Resources Inc. (GCU:TSX.V). He helped out Prosperity Goldfields
Corp. (PPG:TSX.V). He has done a lot for EurOmax Resources Ltd.
(EOX:TSX.V) in Serbia and Bulgaria.
But Novo Resources is his baby. He wanted to keep it quiet until
it was done. He did the deal with Mark Creasy in August; I wrote
about it and shares more than doubled. Virtually all of the
shareholders have made money. Quinton is proving up 3 oz gold per
square meter. Now, 1 square kilometer is 1M square meters; that
would be 3 Moz. This is an extraordinary deposit with unlimited
potential. Plus, the stock is very cheap and nobody knows about
it.
The project is in the Pilbara region of northwestern Australia,
a region known for its iron deposits. Those iron deposits
precipitated out of salt water 3 billion years ago when oxygen
started being formed by algae. The funny thing is that same sort of
precipitation is the source for gold deposits worldwide, yet it's
not understood.
Gold did not all come from deep in the earth, it came from salt
water and fresh water that was a lot more acidic than it is now.
Way back then, water contained thousands of times more gold than it
does today. As the chemistry of the water changed, its ability to
contain gold changed and the gold precipitated out.
According to this precipitation theory, there probably is a lot
more gold around than we think. However, you need to approach it
the way you would a coal-bed methane, potash or coal deposit. You
need to think about a sedimentary basin with gold being in
conglomerates. That is what Quinton has come up with: multigram
gold in 10-, 20- and 30-meter intercepts. He is adding lots of
ounces in a hurry.
TGR:
We are close to the end of a year during which the gold price has
held steady. What do you see for the rest of the year?
BM:
The prices of gold and silver have held up very well. We have come
out of a minor correction with real nice prices for the juniors. I
think this is the buying opportunity of a lifetime. The
government's announcement of more quantitative easing (QE) from QE3
into infinity can only be inflationary over the long term.
TGR:
If it is the buying opportunity of a lifetime, why are larger
investors like the hedge funds and the institutions not piling into
the space?
BM:
Because they do not pile in at bottoms. They pile in at tops.
TGR:
But we are not seeing a bottom right now. Gold and silver prices
are ascending. Are we in the middle of a long-term bull market for
both silver and gold, with a ways to go yet?
BM:
Yes, absolutely. Big investors are skeptical; they will leap in
only after we have had a major rise. One of the first pieces I
wrote for our website in 2001 was "Hey Guys, This Is a Bottom."
Gold stocks were up 50% in six months and nobody noticed.
TGR:
Any final Halloween treats for our readers. Bob?
BM:
I cannot say it often enough: This is the opportunity of a
lifetime. You can be in a closed room, wearing a blindfold and
throwing darts and you are sure to hit something very valuable.
Stocks are so cheap that you are almost hard pressed to make a bad
decision.
TGR:
Thanks, Bob.
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 and Barb
Moriarty brought 321gold.com to the Internet 10 years ago, and
later added 321energy.com to cover oil, natural gas, gasoline,
coal, solar, wind and nuclear energy. Both sites feature
articles, editorial opinions, pricing figures and updates on
relevant current events. Before his Internet career, Moriarty was
a Marine F-4B pilot and O-1C/G forward air controller with more
than 820 missions in Vietnam. A captain at age 22, he was the
youngest naval aviator in Vietnam and one of the war's most
highly decorated. He holds 14 international aviation records, and
once flew an airplane through the Eiffel Tower's pillars "just
for fun."
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DISCLOSURE:
1) Sally Lowder of
The Gold Report
conducted this interview. She personally and/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:
NOVAGOLD, Comstock Mining Inc., Tembo Gold Corp., Argentex Mining
Corp., Evolving Gold Corp., Gold Canyon Resources Inc. and
Prosperity Goldfields Corp. Streetwise Reports does not accept
stock in exchange for services. Interviews are edited for clarity.
3) Bob Moriarty: I personally and/or my family own shares of the
following companies mentioned in this interview: Tembo Gold Corp.,
Novo Resources Corp., Evolving Gold Corp., Gold Canyon Resources
Inc., Prosperity Goldfields Corp., CBM Asia Development Corp. and
Philippine Metals Inc. I personally and/or my family am paid by the
following companies mentioned in this interview: None. I was not
paid by Streetwise Reports for participating in this interview.
Streetwise -
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Report
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