Byron King Plays Gold, Silver and REEs
Source: Brian Sylvester of
The Gold Report
Some people speak softly and suppress their opinions.
Newsletter Writer Byron King is not one of those people. "We have
to quit screwing around. We have to get back to basics, back to
capital investments and mking things-important things. Great
countries mine metals and minerals," he says. In this exclusive
The Gold Report,
Byron shares several precious metals companies that are making
important things and some juniors that are well on their way.
The Gold Report:
Byron, you are the editor of Agora Financial's large-cap newsletter
and small-cap newsletter
Energy and Scarcity Investor,
both of which deal with resource sector investments and play the
upstream extraction technology that goes into those sectors. But
you also write for
Whiskey and Gunpowder.
Where does that fit into the mix?
Whiskey and Gunpowder
is a promotional newsletter that Agora Financial publishes. Most of
its content has already appeared in
Energy and Scarcity Investor.
They repurpose it for a larger audience for free.
It's good to mention
Whiskey and Gunpowder
because the idea is that readers would eventually take a look at
which is a lower-cost newsletter as opposed to
Energy and Scarcity Investor,
which is quite a bit more expensive. But in today's interview,
we're going to give people some samples of the really good
Let's start with gold. The Hill, an online website covering
politics, reports that Republican Congressman Ron Paul plans to
introduce legislation that would force a mandatory annual audit of
the American gold reserves at Fort Knox and the New York Federal
Reserve bank. Paul said there is "a possibility that there might
not actually be any gold at Fort Knox." What impact could that sort
of audit have on the gold price?
It's long overdue because, aside from taking the word of a few
federal managers, nobody really knows what is inside Fort Knox.
This is not lunatic conspiracy-theory thinking. This is prudent
financial and asset management of an important component of the
U.S. national monetary base.
We have this big granite vault in Kentucky, called Fort Knox.
It's supposed to have the national gold reserve, which for the most
part, was accumulated in the 1930s when President Franklin D.
Roosevelt confiscated gold from the American people. That gold paid
for the Second World War, the Cold War, Vietnam, and it paid for
big government. Now the question is: What's in Fort Knox, and what
is the quality of the gold?
But what impact would it have on the gold price?
It could have two different impacts. If they open the doors to an
independent third-party audit and it came back that everything is
there and it's of a certain quality, then that would calm the
markets. I actually think you could see the price of gold pull back
a little bit. But, if a true and honest independent audit found
that there's not as much gold as we thought or that-God
forbid!-there's no gold, because it was all leased out by the
Federal government, that would not be a good day for the U.S.
dollar. And it would not be a good day for Federal fiscal
We're talking about $350 billion in gold.
It had better be there, because that's what they're telling the
world. If it's not there, there's a problem. Bad news does not
improve with age. I think that the gold reserve at Fort Knox is as
important as our nuclear weapon stockpiles.
Audit the reserve. Give an honest assessment to the American
people and move on.
Bangladesh recently bought $400 million in gold from the IMF.
Should gold investors be concerned the IMF is liquidating its gold
assets, or should they be heartened by the fact that a third world
country like Bangladesh is bolstering its gold reserves?
Some of both. I think it's a concern that the IMF, apparently,
doesn't understand what gold is. It reveals that economic thinking
at the highest levels of world monetary governance still treats
gold as another commodity like hog bellies or orange juice futures.
Within those high ethereal realms of international monetary
management, people still don't understand that gold is money. I
think it's good that Bangladesh has the funds to buy gold to put in
its reserves. I think a generation from now, Bangladesh will erect
a statue to whoever made that decision.
What's your investment thesis when it comes to gold?
My standard investment thesis is that you should never put
everything in one play. What I tell people is that, in a normal
everyday portfolio, you should have about 10% of your portfolio in
gold and silver-the physical stuff, the Real McCoy. That's before
you start buying gold mining stocks or shares in a gold exchange
traded fund (
). If 10% is not enough for you, then buy more. Buy more until you
What's your personal asset mix?
I don't brag about it because I don't think people should brag
about what they own. Let's just say that I eat my own cooking. I
own gold, I own silver. . .the Real McCoy. Just last week, I was
out west visiting different sites when I stopped in Virginia City,
Nevada and bought more silver ingots. When you walk into a store
and they have beautiful silver ingots on sale, you should never
walk out empty-handed.
Do you include precious metal equities as part of that mix?
Oh, yes. Over and above the physical metal, I'm a great believer in
gold miners-the big guys:
Goldcorp Inc. (NYSE:GG; TSX:G)
AngloGold Ashanti Ltd. (NYSE:AU; JSE:ANG; ASX:AGG; LSE:AGD)
. Those are great companies.
Then there are the smaller Canadian juniors. A very nice
precious metal miner that I just added to the
Energy and Scarcity Investor
Scorpio Mining Corp. (TSX:SPM)
, which has an operation in Mexico. I've met CEO Peter Hawley. He
has really built a solid-producing precious metal company. He has
an undergrad degree in mine engineering and a graduate degree in
geology. It's the best of both worlds; this is the kind of guy you
want running your silver-gold-lead-zinc mine. The base metals
basically pay for the mine, so the silver is almost free.
I don't think many folks have even heard of Scorpio.
One of the attractions of the company was that it didn't have a lot
of exposure. It doesn't have a long track record behind it so that
everybody's bought in. At the time I recommended Scorpio, which was
in July, the company still had a lot of upside. It's done well in
the last couple of months. I think there is still some upside left
before the stock goes fully valued. Scorpio's already profitable.
My God-a junior producer that actually makes a profit. Can you
Are there other small precious metal exploration plays that you're
There's a wonderful play going on in the Yukon, in the old Keno
Hill Silver District. It's being run by
Alexco Resource Corp. (TSX:AXR; NYSE.A:AXU)
. Alexco is an excellent play; the company started out in
environmental remediation. This environmental remediation company
acquired the rights to these silver-mining claims left over after
decades of mining. The company agreed to clean up the mess, but
part of the contract said that Alexco could also mine the silver in
the process of cleaning up.
This is an area that hadn't been looked at since the 1950s and
1960s. When Alexco went back there with modern exploration
techniques, it found a whole lot more silver. I have seen some of
the ore, and it is some of the highest-quality lead-zinc silver ore
that you could find anywhere.
Alexco had some problems during the market crash, but it later
sold some silver forward to
Silver Wheaton Corp. (NYSE:SLW; TSX:SLW)
, a silver royalty company, for $50 million. The company used that
cash to finish building the mine. By about November or December,
Alexco's going to be "crunching" the first ore.
And you're a trained geologist. You know the difference between
average drill core and something special.
Yes, I got my geology degree at Harvard. My focus was actually hard
rock geology with lots of mineralogy and petrology. I appreciate a
good ore body when I see one.
I love the Alexco story. There's still a lot of upside because,
once the company starts producing and has some cash flow, the
institutions that can't invest in junior developers will begin to
invest in a producer.
Gold has climbed 17% this year and outperformed all kinds of
things-equities, Treasuries and most industrial metals. What are
your thoughts on silver as a commodity and as an investment?
You do need to look at both sides of the coin on silver. Silver is
a monetary metal. People have used silver as a monetary mechanism
for 4,000 years, maybe more. As gold does well for world fiscal
reasons, silver also gets dragged along. That's part one. Part two
is-the world is still using a lot of silver. Think about how many
new electronic applications there are. Then there are the medical
applications. You've got companies like Johnson & Johnson
putting small amounts of silver in Band-Aids. It's a small amount
of silver, but the company makes a lot of Band-Aids. I don't think
we have to worry too much about the industrial side of silver.
How high do you think it can get by the end of 2011? We're right
around $22 right now.
We're around $22 on the quoted markets, but go out and try to buy
an ounce of physical silver for $22. You can't. You're going to pay
$25-$26 per ounce for the physical pieces of silver.
How high can silver go? It's already at $25 in a practical
sense. As more and more people begin to realize the utter
hopelessness of the U.S. government's financial situation, I
anticipate more people fleeing to silver. It's the poor man's gold.
If you can't afford the $1,350 to buy a Gold Buffalo coin, maybe
you can buy $500 or $600 worth of silver and put it in a safe
What are some silver plays out there that could see share-price
appreciation if silver runs higher?
My favorite big miner is
Mining Co. (
of Coeur d'Alene, Idaho. What I really like about Hecla is that it
owns one of the largest, most important base metals and silver
mines in North America. It's called Greens Creek and it's in the
great state of Alaska. Greens Creek is a very long life mine. About
two years ago, Hecla bought the share of the mine it didn't own
Tinto Ltd. (LSE:RIO; NYSE:TP; ASX:RIO)
. It now controls the mine completely, which produces so much lead
and zinc that Hecla actually gets paid to mine the silver-its cash
costs for silver at Greens Creek are negative.
Hecla had problems during the market crash, mostly due to
leverage. Part of that leverage was from buying out Rio Tinto and
Greens Creek. But Hecla is not just a one-trick pony. It has
incredibly good acreage in Idaho's silver district, as well as in
For environmental reasons, the last 30 or 40 years in the U.S.
have not been kind to mining. Alaska's still a friendly
jurisdiction; but, every time you turn around, environmental issues
have hurt the mining industry. I think we're at a turning point. If
the United States wants to be an important country in the future,
we have to quit screwing around. We have to get back to basics. We
have to get back to capital investments and making things, making
important things. Great countries mine metals and minerals. The
U.S. has a well-developed environmental industry, as well. I
honestly think that it is possible to mine copper, lead, zinc, gold
and silver and do it in a safe and environmentally responsible
Another way of playing rising silver prices is Silver Wheaton,
which I mentioned earlier. That company has had an outstanding run
since the market crash of 2008-2009. It was under $10 per share;
now it's up in the high-$20s per share. How high can it go? If you
think the price of silver is going up, then Silver Wheaton's share
price is also going to go up. It has a very attractive business
model. It has money, and you've got developers that need money
upfront to fund development.
Are there some non-producers on your radar?
Well, a wonderful play that is right on the cusp of breaking out is
an explorer-developer working the Pinguino deposit in southern
Argentina. It's called
Argentex Mining Corporation (TSX.V:ATX; OTCBB:AGXM)
. I started looking at the company because its Pinguino property
has lots of lead-zinc mineralization, and the zinc is rich in an
element called indium-a critical metal for electronics. You can't
do solar panels or flat screen TVs without indium. Argentex is
really an indium play. This Pinguino deposit is among the
highest-grade indium deposits ever discovered.
Argentex has an ongoing drilling program and plenty of money to
fund it. The company has found that the lead-zinc ore also contains
silver. A few weeks ago, it published a report announcing the
discovery of over 3,000 grams per ton (g/t) silver in about a
40-ft.-long section of drill core. All of a sudden that turned this
indium play into a silver play. You can now look at Argentex from
two different directions.
One thing that people have been concerned about is that it's
located in Argentina. Every time you read something about
Argentina, it's bad. The other side of the coin is that Goldcorp
just made a major investment in Argentina by buying out
Andean Resources Ltd. (TSX:AND, ASX:AND)
. That's a $3.5 billion investment, so Goldcorp must think it can
function in Argentina.
Let's change gears for a moment and head into rare earth elements
(REEs) because you recently wrote a lot about REEs in
Energy and Scarcity Investor.
You said: "Over the next year or so, rare earths could be one
sector-a tiny sector to be sure that's immune to the economic
illnesses we're seeing in much of the rest of the economy." What
makes REEs immune to the broader economy's ills?
It's actually the small size of the sector that works in its favor.
It is a physically and economically small sector in the global
economy. The entire world output of all rare earths could fit on
maybe two large iron ore carrying vessels.
Rare earths are exotic elements in the periodic table and the
word is seeping out into the broader investment space about how
critical these elements are to future technological
Look for examples in
Toyota Motor Corp.'s (
Prius Hybrid. Every Prius battery has 33 pounds of an element
called lanthanum, which makes the battery work. Or look at these
windmills spinning away generating electricity. The permanent
magnet inside a large, modern windmill uses about 550 pounds of an
element called neodymium. Think about the thousands and thousands
of windmills being erected. That adds up to a lot of neodymium.
There are really two types of rare earths, though, right?
Yes, there are the heavy rare earth elements (HREEs) and the light
rare earth elements (LREEs). You measure the lighter rare earths,
like neodymium or lanthanum, in terms of tens of thousands of tons.
There's a lot of that stuff, but it's still critical. It's not like
the world has a massive surplus of it. Then you've got the heavy
rare earths, things like europium or holmium-elements that are
critical in electronic applications. You measure that stuff in
kilograms, and it is far more valuable. But you use much less of it
in the electronics.
On the supply side, China pretty much runs 95% of the global REE
space and it has been lowering its REE exports steadily. China's
more than happy to make the magnets and sell the magnets; but it's
not exporting rare earths so you can make the magnets. The country
wants to add as much value to the technological food chain as it
possibly can-and do it in China because it creates jobs.
How did we let China get such a stronghold on the REE market?
Because in the West, we pretty much let the REE industry go away. I
mean the mine at Mountain Pass, California, has not mined ore since
Molycorp Inc. (
just raised some money to do a major refurbishment of the Mountain
Pass mine. The company actually has a business plan to get back
into finished REE products, which I think is a good thing. The West
has a lot of catching up to do. If the United States wants to be a
serious country in the 21st century, we have to do rare earths
because I think rare earths are a barometer of a country's
willingness to devote resources to the frontiers of technology.
What are some REE plays that you're following that could possibly
offset some of the supply constraints stemming from China's rule of
The one that I've been following the longest is an Australian
Lynas Corporation (ASX:LYC)
, which has the Mount Weld mine in Australia. But the company's
building an REE processing facility in Malaysia. It's a long story,
but Malaysia offered a better deal.
Lynas had its problems in 2008-2009 when the banks bailed on it.
The company had to raise a whole bunch of new capital, and it
almost got taken over by a Chinese company. But I think the
Australia government said: "We don't want the Chinese controlling
this resource." So Lynas remains independent. It has a business
plan and is working it.
Another play that I mentioned earlier, Molycorp, controls the
Mountain Pass Mine in California. Mountain Pass was discovered in
the days of the Cold War when people were looking for uranium.
Uranium and thorium are quite commonly associated with rare earths.
Mountain Pass supplied the baby boom with the europium that went
into RCA color televisions.
The 1990s brought intense REE competition from China, and the
economics got worse and worse. In 2002, a pipe broke and spilled
thorium-laced material all over the California desert.
Environmental regulators went ballistic. Unocal, the oil company
that owned Mountain Pass, cleaned it up but it was still a
Molycorp was owned by
Chevron Corporation (
after Chevron bought Unocal. Chevron really didn't know what it had
in Molycorp and let it set up as a private company.
A few months ago, Molycorp went public in the $13 range. It's
around $27 now. I think the company has a really nice future ahead
of it. It raised a bunch of money in the IPO, and it has a very
good business plan called "Mines to Magnets." It's going to do
everything, and then sell into a manufacturing chain. I met the
CEO, and he knows his rare earths. He's one of the very few people
in the West who really has a grip on REEs.
Are there some other smaller companies with a cheaper entry
Well, the smaller-the riskier.
Another U.S.-based rare earth play that I'm looking at is
Element Resources Ltd. (TSX.V:RES; NYSE:REE)
. Its management team understands rare earths, and its Bear Lodge
deposit in Wyoming is a nice deposit. Good mineralogy. Good future.
It's a development play-nothing preordained or predestined about
it. But in terms of the management team and the deposit, I think
Rare Element has a good future.
An even smaller one that I'm looking at is called
Ucore Rare Metals Inc. (TSX.V:UCU)
, which used to be Ucore Uranium. The company has a variety of
projects in Canada and the U.S., but the one I really like is in
Alaska. It's called Bokan Mountain, which is an old uranium mine;
that means there are mining roads, a port facility, some
infrastructure. They need to be fixed up but they're there. It's
got a history of mining and permitting. It's in the middle of the
Tongass National Forest, so there aren't people issues in terms of
displacing residents. And the mineralogy is spectacular.
Earlier you mentioned giving
readers a taste of the good stuff. Can you share a morsel from your
paid newsletters with our readers?
Exploration Ltd. (TSX.V:LRA)
; it's got the same management team as another company that I like
Reservoir Capital Corp. (TSX.V:REO)
. I like Lara. I'm going to be following Lara more closely and
writing more about it, but I'm going to give the people who read my
paid materials the first shot when I talk about Lara. But I like
Lara, and I really like its management.
*Look for Byron King's comments on the energy sector on
to be published Oct. 5.*
Byron King writes for Agora Financial's
(a self-styled "independent investor's daily guide to gold,
commodities, profits and freedom"). Byron edits two
Energy & Scarcity Investor
He studied geology and graduated with honors from Harvard
University and also holds advanced degrees from the University of
Pittsburgh School of Law and the U.S. Naval War College. Earlier in
his career, Byron worked as a geologist for Gulf Oil in the
exploration and production division. He served for many years in
both the active and reserve components of the U.S. Navy. Byron
also, at a different time, practiced law, focusing on bankruptcy
and other contentious matters involving people and money. Byron has
written extensively about peak oil and world energy developments.
His expertise includes precious metals and alternative energy
sources, such as solar, wind and geothermal. Byron has also advised
the U.S. Department of Defense on national energy policy.
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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:
2) The following companies mentioned in the interview are sponsors
The Gold Report
The Energy Report:
Goldcorp, Rare Element Resources, Ucore, Reservoir and Lara.
3) Byron King: I personally and/or my family own shares of the
following companies mentioned in this interview: Goldcorp and Hecla
(family). I personally and/or my family am paid by the following
companies mentioned in this interview: None.
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