It's This Bad Because It's a Bottom: Eric Coffin
Source: Brian Sylvester of
The Gold Report
Eric Coffin, editor and publisher of the
Hard Rock Analyst
newsletter, has never heard so much negativity from investors.
"Everybody thinks the world is coming to an end," he tells
The Gold Report
As a contrarian, all the doom and gloom tells him the market is
about to pull out of its tailspin. In this exclusive interview,
Coffin talks about the hard-hit juniors in the Yukon and why it's
an area play he still believes in.
The Gold Report:
Eric, the gold bears recently outnumbered the gold bulls in
Bloomberg's weekly Gold Bull/Gold Bear Sentiment Survey for the
fourth time in a year. Are you a bull or a bear?
I think the gold price is going to end the year higher, so I
guess that makes me bullish, but I think of myself as
There needs to be a return of calm to Europe for the gold
price to move much higher. The currency pair trade between the
euro and the dollar is going to be a big determinant to the gold
price. There's been more noise about the EU providing stimulus
funds to offset all the government budget cuts in Europe. All of
those countries have to deal with their debt loads. But it's not
realistic to think that they can cut their deficit and 3% off
their gross domestic product year after year and realistically
get any net growth.
The other side of that equation is that the U.S. has slowed
down. That'll help the gold price because a lot of goldbugs are
riding on there being another round of quantitative easing. I'm
not sure it's going to happen. But as long as Federal Reserve
Chairman Ben Bernanke keeps saying it might happen, that's good
Stagnant gold prices are translating to equities. Canaccord
reports that "sector weakness in the gold equities over the last
six years has typically ended with 'V'-shaped corrections to the
upside." Do you believe that's what will happen this time?
I sure hope so because I'm on the buy side, not the sell side.
I'm going to feel pretty dumb if it doesn't happen. We're still
in a bull market for gold. In a secular bull market, generally
speaking, coming out of a dip tends to be an impressive move.
Many Yukon junior mining companies are starting their 2012
exploration programs after completing off-season financing on
buyers' terms. What types of companies are getting financing?
The only financings I've seen in the past five months are either
relatively new deals where investors have a lot of respect for
management-which is a roundabout way of saying that investors
figure management will figure out a way to make money
regardless-or companies that have something pretty definitive
with a bunch of drill holes. Companies that didn't take the
opportunity to raise money last year are going to have to pull a
rabbit out of their hat. The Yukon is an expensive place. There's
no getting around it.
Outside of companies with discoveries, like
Kaminak Gold Corp. (KAM:TSX.V)
ATAC Resources Ltd. (ATC:TSX.V)
Golden Predator Corp. (GPD:TSX)
, nobody's really done large financings and that's going to be
tough. About 60% of the companies are going to have a hard time
undertaking any significant programs this year. If the market
gets better, which I think is going to happen, they still have a
shot, but it's at buyers' terms.
I suspect a lot of companies are going to say, "Let's just
wait and see if next year is better." You haven't seen many
announcements. Quite a few of those companies that were talking
last year about doing $4, $6, $8 million exploration
programs-many of those programs aren't going to happen.
Desjardins Capital reports that 26 mergers and acquisitions worth
a combined $30 billion (
) took place during 2010 and 2011. There are about 120 more
companies operating in the Yukon. Are other junior explorers
going to be forced to merge?
I think there will be merger activity at the junior level. There
are a lot of companies with decent but not spectacular projects
where they haven't done enough work and are not in a position to
raise money. A merger is one way out for them.
What did you think of the recently announced merger between
Prosperity Goldfields Corp. (PPG:TSX.V)
Smash Minerals Corp. (SSH:TSX.V)
, which both have projects in the Yukon?
It was our idea, so we liked it. It's a really good combination
of management teams and a good-looking project. The first set of
results from this year's drilling at the Kiyuk project should be
out any time. I'm expecting good things from it.
Is it still fair to call the Yukon an area play when the shares
of most of the juniors operating there have declined
considerably, often by more than half? Even good results often
don't tangibly move share prices.
It still is an area play. This is a fairly common path even for a
successful area play. The easy money has been made or, as is the
case here, the market's just lousy and there is a lot of
consolidation. The Yukon is getting to that point. The few
companies that have done well will have the ability to pick up a
lot of projects. In any area play, anywhere from a third to a
half of the companies involved are piggybacking on the play to
help raise money. Those companies tend to disappear quickly if
they don't find something large right away or if the financing
environment gets difficult. The bad market has exacerbated things
but a large number of drop outs from an area play at this stage
is not an unexpected development.
Let's talk about some of the contenders. What would be some of
the biggest exploration programs in the Yukon this summer?
Contenders will be the big spenders. ATAC is probably going to be
the biggest up there at around $30M. Kaminak isn't very far
behind. Both of those are funded new discoveries.
ATAC is particularly interesting because it looks like it
could have a camp. It's Carlin, which is something new to the
Yukon. There's not a lot of doubt that it will have a lot of
ounces to work with, especially if they have some luck with new
Kaminak's Coffee project is the same model as the original 1.5
million ounce (Moz) White Gold discovery, but it'll probably be
larger. Kaminak is probably past that already, although it won't
have a number out until early next year.
Both of those companies will probably get resources out at the
end of the season.
Silver Range Resources Ltd. (SNG:TSX.V)
has projects all around the old Faro mine. It has a very large
land position and is drilling large bulk tonnage silver base
metals zone. It also made a couple of high-grade silver vein
discoveries late last year with similar mineralization to Keno
Ethos Gold Corp. (ECC:TSX.V; ETHOF:OTCQX)
has about $7 million budgeted for its Betty project, which is
adjacent to Kaminak's Coffee project. This will be the first
drill test at Betty that has generated some good high-grade
numbers from trenching and test pitting, so that will be closely
watched. Ethos is fully funded for that program with quite a bit
Since we last talked, your brother David, your best friend and
co-editor, passed away. He was a very fine geologist and a great
human being. Our condolences for your loss.
Thank you. We are going to hold a dinner and fundraiser for the
University of British Columbia geology department in honor of
Dave on June 4 after the Cambridge Conference in Vancouver.
Everyone can get together, have a meal and a few drinks, and tell
stories about Dave.
David often spent more than 200 days a year traveling to mining
projects around the world. He helped start a new mining company
before he passed away. Can you tell us about that?
We were meeting with
Strategic Metals Ltd. (SMD:TSX.V)
about its projects. Doug Eaton, who runs Strategic, showed us a
different project set that got our attention.
Precipitate Gold Corp. (PRG:TSX.V-pending)
was formed to explore 15 projects optioned from Strategic in the
southeastern Yukon and northeastern British Columbia plus four
other 100%-owned projects. After the initial public offering,
which should be later this month, Strategic will become a
significant shareholder and Precipitate gets 100% of the
The lead project is the Reef project, north of Northern Tiger
Resources Inc.'s (NTR:TSX.V) 3Ace project. A couple of large gold
arsenic anomalies have been found at Reef, but they have not been
drilled yet. There's some hard rock numbers there, but it will
take drilling to figure out what it is. It's quite early
Dave also picked and staked four other projects. We got a nice
cluster of fairly high gold in silt numbers on the Gemini project
in British Columbia. Part of the reason Dave liked this area was
because it has very little exploration history, but that's
actually what makes it interesting. It's not an area that's been
written off. It just hasn't been looked at. And the logistics are
pretty good by Yukon standards. The property is fairly flat,
which makes it easier to work in the winter and it's a short hop
from the Alaska Highway.
We went around and tapped on the shoulders of some really good
people to work on this. Adrian Fleming, who was running
Underworld Resources before it was taken over by Kinross Gold
Corp. (K:TSX; KGC:NYSE), is the chairman. Quinton Hennigh, who
was largely responsible for turning 600,000 ounces into 5 Moz at
Gold Canyon Resources Inc. (GCU:TSX.V)
, is the geologist. Gary Freeman, who was president of Pediment
Gold Corp. until it merged with
Argonaut Gold Inc. (AR:TSX)
and who is a really good market person, is on the board. Darryl
Cardey, who was the chairman of Underworld Resources [acquired by
Kinross], is on the board. Darcy Krohman, who has exploration and
regulatory experience, has come in to be the CEO. Mike Moore has
come on as vice president of exploration.
Like most early-stage stories, it's a management story. We
might trip over something amazing on one of the properties right
away, but we've got the right guys-that's the important thing.
Strong management is the best Plan B you can have with an early
It's a compelling story with all those names involved, Eric. You
follow companies all over the world, not just those in the Yukon.
What are some of your favorite stories outside of the Yukon?
I like Prosperity Goldfields, which is run by Adrian Fleming and
Quinton Henning. The project is in really good hands and has a
fair amount of room to grow. Results from the spring drill
campaign should start arriving any time now.
Columbus Gold Corp. (CGT:TSX.V)
picked up the Paul Isnard project, which was drilled about 20
years ago in French Guiana. It's got about 1.9 Moz on it.
Columbus is fairly comfortable that it can double the ounces, and
based on the drill results it's had so far, I'd say it probably
can. As a company that has a 4 Moz deposit with a $60M market
cap, it's fairly cheap.
Another one that we like is
Riverstone Resources Inc. (RVS:TSX.V)
. It's got very good management and projects. The last resource
was 3 Moz and it's still expanding. It's got a good bank account.
It optioned the Yaramoko project to
Roxgold Inc. (ROG:TSX.V)
and sold the remaining 40% for $17M and 17M Roxgold shares.
What are your thoughts on Riverstone's Karma project?
Karma probably has room to get to 4-5 Moz. It is still open and
has gotten a lot bigger than we thought it would. The ounces are
in several separate areas, but none of them are very far apart.
It even has several trends that haven't been drilled much
I'm very interested to see what happens with its Ligidi
project. It is a really large target-one of the biggest I've ever
seen in West Africa. What are the grades going to be when it
starts putting holes in it? There are a lot of investors who have
owned that stock for five years waiting to see Ligidi get
drilled. It's one of the reasons Dave and I wrote it up. The
company hasn't been able to work on it until now because of
arguments with the vendor from whom Riverstone acquired the
property. They've made peace now. It's just a matter of getting
the exploration permits.
Majescor Resources Inc. (MJX:TSX.V)
hit some interesting results recently on its Blondin project in
Haiti. What do you know about that?
We started following Majescor for its diamond mining a long time
ago and kept it on the list. The project in Haiti looks pretty
interesting. It has nice copper grades of a good width and a
supergene zone. Supergene is the oxide just above the water
table. Recirculating water creates blankets of high-grade
material, be it copper, gold or whatever. In this case, it
appears to be silver. Majescor doesn't have a lot of holes in
that yet so it's hard to get our arms around it. However, the few
holes it has drilled were getting 10-20 meters of 5-10 ounces
silver. It's got potential.
Of course, Haiti is Haiti. The country is a mess; that's not a
secret. However, it's a place that wants to get this industry
going. Resources are probably one of the shortest routes to Haiti
getting foreign currency reserves and direct investment. There
are a few companies there now, including Eurasian Minerals Inc.
(EMX:TSX.V) and Newmont Mining Corp. (NEM:NYSE).
Bear Creek Mining Corp. (BCM:TSX.V)
in Peru has had some permitting issues. It seemed to be an
up-and-coming company until the new government came into power
and changed the landscape. What are your thoughts on what's
happening in Peru and on companies like Bear Creek that are being
The political landscape has shifted a lot in Peru. It's made it
very difficult for anybody outside of Peru-and maybe even inside
Peru-to get a handle on what's a good spot and what isn't. There
are a lot of South American countries where mining companies just
shouldn't go because they're bound to face a political or
indigenous population problem and they won't get permitting. Bear
Creek has been there a long time and knew the good and bad areas
and followed the laws. It stuck to areas where it didn't expect
any problems and we didn't think it would encounter any either.
Now no one seems to know what the good areas and the bad areas
are. That's going to make it tough for everybody in Peru until
this stuff gets clarified.
The problem is with a mining permit at Santa Ana, which isn't its
primary project. The world-class Corani silver project is its
main project, but it can't develop that without getting the cash
flow from developing Santa Ana.
Santa Ana was always going to be the lower capital expenditure
(capex) project that would start spinning cash flow and increase
the company's valuation in order to raise money for Corani. This
has messed up its whole pipeline.
Is it too late to modify that game plan?
The locals don't want the company there. Unless Bear Creek can go
back into Santa Ana, it has to go back to square one and develop
Corani first. That probably means bringing in a partner because
it's a big capex project. There are Asian companies that are
pretty active in Peru and Chile that may have enough political
clout to be able to sit down with the government and say, "Look,
we can come in and spend $1 billion to build this thing, but
we've got to know now. No surprises."
The Chinese don't tend to be all that interested in silver
They would be more interested in the base metals, which Corani
has a lot of. There's a lot of zinc and lead. Lead is not a
politically correct metal and it's got environmental issues,
which doesn't make it an easy sell. However, it still gets used
in a lot of areas, one of them being China.
If a company can deal with the base metals, Corani could be a
very big silver producer by world standards for a long time.
Do you have some parting thoughts for us on the market and how it
translates to the retail investor?
I'm fairly comfortable that the U.S. is going to do OK over the
next couple of years. It's going to have another political fight
at the end of the year when tax cuts die. Europe has the
capability to pull itself out of its problems. In a large
measure, it's political decision-making. I certainly appreciate
northern Europeans and Germans that don't really see why they
should be footing the bill, but they can afford to foot the
We're not particularly worried about China. It's trying to
rebalance its economy. China's in a different boat from Europe or
the U.S. in that it's got $3 trillion in reserves and can open
the taps anytime it wants. China will increase the growth rate
when it feels it's the right time to do it.
The world economy will do OK as well. I know it feels like the
end of the world for investors that own a lot of resource stocks
as I do. The secular bull market hasn't ended. Ironically, all
the political problems in different producing regions are going
to extend that secular bull market in metals because it's that
much harder to grow production to a point that knocks metal
I'll just leave you with a contrarian thought: Everybody's so
negative right now because this is what bottoms look like.
Everybody thinks the world is coming to an end. Everybody thinks
it's the worst market they've ever been in. Everybody thinks
nothing is ever going to go up. That's what a bottom looks like.
It's not fun to go through. There's so much negativity everywhere
that it's telling me as a contrarian that there's probably not a
lot more pain to go through before things start getting
If readers would like to download HRA's new company report
on Precipitate Gold Corp., HRA has set up a special free report
offer for a limited time. Simply
and they will send you the report.
is the editor of the HRA (Hard Rock Analyst) family of
publications. Responsible for the "financial analysis" side of
HRA, Coffin has a degree in corporate and investment finance.
He has extensive experience in merger and acquisitions and
small-company financing and promotion. For many years, he
tracked the financial performance and funding of all
exchange-listed Canadian mining companies and has helped with
the formation of several successful exploration ventures.
Coffin was one of the first analysts to point out the
disastrous effects of gold hedging and gold loan-capital
financing in 1997. He also predicted the start of the current
secular bull market in commodities based on the movement of the
U.S. dollar in 2001 and the acceleration of growth in Asia and
India. Coffin can be reached at
or the website
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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
The Gold Report:
Ethos Capital Corp., Argonaut Gold Inc., Gold Canyon Resources
Inc., Golden Predator Corp., Majescor Resources Inc., Prosperity
Goldfields Corp. and Roxgold Inc. Streetwise Reports does not
accept stock in exchange for services.
3) Eric Coffin: I personally and/or my family own shares of the
following companies mentioned in this interview: Kaminak Gold
Corp., ATAC Resources Ltd., Prosperity Goldfields Corp.,
Precipitate Gold Corp., Northern Tiger Resources Inc., Columbus
Gold Corp., Majescor Resources Inc., Riverstone Resources Inc.,
Roxgold Inc., Argonaut Gold Inc. and Ethos Capital Corp. I
personally and my family are not paid by any of the companies I
follow in the HRA Advisories newsletters. I was not paid by
Streetwise Reports for participating in this story.
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