James West: Junior Gold and Silver E&P
Source: Brian Sylvester of The Gold Report 04/01/2011
Despite confusing short-term undulations in the price of
gold, the shaky foundation under the U.S. dollar could result in
long-term opportunities for gold and silver juniors, says
Publisher and Editor James West. In this exclusive interview
The Gold Report,
James shares some of his top-15 companies to watch.
The Gold Report:
James, Comex gold futures hit an all-time high yesterday before
falling back to about $1,431/oz. We're seeing dramatic daily
swings in the gold price of $20-$50 regularly. How do you explain
The gold market is about as neurotic as a schizophrenic Hollywood
starlet hooked on coke. Trying to keep abreast of daily price
fluctuations is an exercise in futility. My favorite line on the
gold and silver markets is, "He who focuses on the bobbing cork
loses sight of the rising tide." That really sums it up
beautifully. All of the negative macroeconomic factors on the
stability of the U.S. dollar that started the precious metals
bull market back in 2000 are now stronger by a factor of at least
10. The U.S. economy has crashed twice since then as a result of
too much liquidity in the system, causing asset-class
hyperinflation, which, in turn, causes price collapses that
engender general market panic.
The first pro-gold/dollar-negative fundamental was the excess
commercial and residential real estate inventory based on former
Federal Reserve Chairman Alan Greenspan's easy money policy. The
result was bank leverage:capital ratios that exceeded 100:1 in
many cases. Retail lenders ended up with so much capital they had
to reduce the difficulty of borrowing money for individuals with
questionable credit histories. Otherwise, the money would just
sit there doing nothing-and that is not a tenable situation for
bank capital. It has to keep moving. Real estate exceeded
inventory, people bought cars and recreational vehicles, took
trips and built second homes. Yes, that created the appearance of
a robust economy, but it was built on credit that was not going
to be repaid.
Just as the Fed set the example by making it so easy for banks
to leverage their balance sheets, consumers started to do the
same thing. The major difference was that the banks were bailed
out, whereas the consumers were thrown a rock to keep them from
drowning. That is why we now see two distinct tiers in our
economy. The retail consumer is trying to tread water carrying
this massive debt rock, while the banks, granted a pair of wings
in the form of bailouts and quantitative easing, are busy finding
a new generation of retail consumer suckers to encumber with
New home prices in the United States just established an
all-time low since the crisis began, so all this nonsense about
the economic recovery, obviously, is meadow muffins. The only
thing that is up is the stock market thanks to the financial
services sector, which was the primary beneficiary of exponential
increases in the amount of U.S. dollars in the market. Issuing
more currency against a deteriorating asset base and shrinking
real GDP (not nominal GDP as is generated by measuring the
massive numbers resulting directly from the multiplication of
ersatz dollars through derivatives trading) is counterfeiting.
How can you print more money when, technically, you are in a
state of default on your current obligations? The only reason
that a default hasn't been declared is because the two biggest
holders of U.S. debt-Japan and China-don't dare upset the global
economic apple cart by pulling the rug out from underneath the
USD. That would have dire implications for their own economies
and central bank balance sheets. Three times as many U.S. dollars
are in circulation today than in 2000. That should result in a
gold price at least three times higher than a decade ago.
The severe instability of the entire Middle East and, by
extension, implied instability within any country that is not a
democracy (i.e., China, Russia, Saudi Arabia, Venezuela, Sri
Lanka, Indonesia, Mexico, Bolivia, Argentina, Zimbabwe, Yemen,
Sudan, etc.), the safe-haven demand for gold and silver is
multiplied theoretically. So to answer your question-yes,
absolutely. There is daily volatility, but it's meaningless. All
that matters in the price movement of monetary metals are the
macro movements, which are both heading upward fundamentally and
Recently, the Portuguese government rejected proposed austerity
measures and Portuguese Prime Minister Jose Socrates resigned.
Portugal is facing financial collapse and will likely need a
bailout from the European Union (
). At first blush, that would seem to be good for the gold price.
However, weakness in the euro generally pushes the USD higher and
that leads to weakness in precious metals usually. How do you see
the Portuguese situation affecting the gold price?
There are two primary reasons why gold will not be influenced
positively by Portugal's collapse. First, the whole idea of the
dollar as safe haven makes sense only to people who don't
perceive the riskiness of the USD. During the last crash in 2008,
everything went down except the U.S. dollar. That demonstrated,
in no uncertain terms, that the USD was perceived to be a safer
place for value preservation than even gold (in the absence of
any speculative market). And that showed clearly that the world's
largest capital positions fail to comprehend that the U.S. dollar
and its excess capacity is the largest catalyst causing asset
bubbles and general economic instability in the world. The
supposed 'smart money' is actually the dumbest money on earth.
The U.S. dollar is the cause of the majority of our global
This perverse paradox is going to correct itself when the
penny finally drops in the very limited imaginations of the
economists who drive such decisions. Like Pavlov's dog in the
famous conditioned-reflex experiment, markets respond when they
see familiar situations arise. So, although Portugal's problems
should be mildly bullish for physical gold demand, they will in
fact manifest as a dollar-positive/gold-bearish effect.
The second reason that the gold price performs less like a
safe haven than it should is because the gold price is determined
by futures markets, which lead the spot price rather than the
other way around. Futures markets long ago ceased to be the
price-discovery mechanism they were intended to be, and instead
are a way for the biggest banks to influence the direction of the
spot price. That gives them the ability to profit from the
extreme volatility such massive capital positions can have in a
relatively small market. The size of the futures market-which now
functions as a betting mechanism for price direction-is infinite,
whereas the size of the actual physical gold market is limited by
how much gold can actually be moved around. So, the future price
of gold is a separate number than the actual price of gold even
though the actual [spot] price is influenced by the future
With inflation creeping up and the economy stutter stepping
forward, we hear whispers of further quantitative easing (QE).
What are you hearing? And what effect would QE3 have on gold and
In the news this past week, we've heard that St. Louis Federal
Reserve Bank President James Bullard said the Fed should review
whether to complete the $600 billion purchase of T-Bills, which
is QE2, because the economy was looking so strong. Now we know
that the various Fed branches suffer from persistent
irreconciliation based on what is happening both within the Fed
and in the economy, so it's not much of a surprise that the St.
Louis Fed believes the chairman needs to rethink his strategy.
Such statements really just confuse the general public. It
doesn't matter one iota what the various Fed governors think. All
that matters, and all that becomes U.S. central bank policy, is
what Chairman Ben Bernanke and the president's economic advisors
decide they are going to do. So, while Bullard might not be
cognizant of the fact that the positive economic indicators that
led him to think the economy is improving is a direct optical
result of QE, there is no doubt that Chairman Bernanke is aware
that the only thing propping up the stock market-and, therefore,
the appearance of improving GDP growth-is quantitative easing.
That's why there's no question that the U.S. Federal Reserve's
policy of kiting checks to itself through the U.S. Treasury
absolutely must continue. However, I also think the Fed is
cognizant of the fact that the term "quantitative easing" is now
perceived as negative in the mainstream financial media; thus, it
will transition to an unnamed feature of U.S. monetary
James, you recently sold your equity position in a Peruvian mine
to focus on the
and to be involved in a precious metals fund based in Luxembourg.
First, why Luxembourg? And what are the fund's criteria for
investing in companies?
I'm a portfolio advisor to two corporate investment groups. I
also launched a fund based in Luxembourg. Combined with the
expanded publication products offered by Midas Financial
Publishing Group, this is forcing me to streamline my obligations
in the interests of time management, which is to say, I still
want to have a life outside of work.
The first reason we elected to domicile the fund in Luxembourg
is that the private family wealth offices that are the primary
sponsors of the fund prefer its very tough regulatory framework,
which is managed by the Commission de Surveillance du Secteur
Financier. If the bank where the fund is held in Luxembourg goes
belly up for whatever reason, the assets of the fund are
protected in their entirety, including all cash. The second
reason is that these private wealth groups are excellent
long-term shareholders, which means we can bring a higher-caliber
shareholder to the companies we invest in.
In terms of criteria, we invest only in opportunities brought
to us by A-List capital markets entrepreneurs with serial track
records of value creation for shareholders. They do this through
premium access to projects and superior financings that provide a
lower-weighted average cost of capital to the companies, which
result in better-retained earnings for the fund in the long run
and, therefore, its unit holders. We hold no more than 9.9% of
any company and no more than 40% of our holdings will be pre-IPO
What are your goals for the fund in 2011?
The number one goal is to deliver the best performance possible
to unit holders. We achieve that by capturing the absolute best
of pre-IPO investment opportunities, as well as IPO and secondary
financing opportunities, in the resource sector with particular
emphasis on gold and silver explorers and near-term producers.
The Midas Letter has access to these companies because we've been
around for as long as we have and deliver triple-digit returns
consistently, based on the superior product in our portfolio.
Tell us about some companies in your top-15 holdings.
My top-15 includes
Prodigy Gold Inc. (TSX.V:PDG)
Cap-Ex Ventures Ltd. (TSX.V:CEV)
. Prodigy has a 2.1 million ounce (Moz.) resource at its Magino
gold property near Wawa, Ontario, where it recently announced an
infill drill hole of 261 meters grading 1.13 g/t gold. Within
that hole was a 104.6-meter strike length that graded 2.06 g/t
gold. That's just the first group of holes from a 20,000m program
now underway that is designed to increase the size of the
resource, as well as the category of existing resources. With a
market cap of about $75 million-that's less than $40/oz. in the
ground, making it very cheap. There likely will be more fantastic
results like that, which could take the stock much higher.
Cap-Ex is a fantastic iron ore story in Quebec, and we're in
for 100,000 shares or so at about $0.80. If you look at other
iron ore deals in the area and consider the average grade and
tonnage of properties on trend, in view of the company's
geophysical data, its market cap should increase dramatically
when drill results come in late spring or early summer.
Colossus Minerals Inc. (TSX:CSI)
in the Serra Pelada pit in Brazil is another favorite. It is the
site of an incredible deposit of super bonanza-grade gold, silver
and platinum group metals (PGMs). Some of the ore there is worth
hundreds of thousands of dollars per ton, and the company is not
going to bother with an NI 43-101 resource estimate-it's going
straight to production. The market discounts CSI for that reason;
so, even with a $700M market cap, my feeling is that Colossus is
vastly undervalued still and, therefore, an excellent buy. We
first got in at $1.41, so it's been a huge win for us.
In Brazil's Mato Grosso area, Thomas Obradovich of Aurelian
fame is heading up
Lago Dourado Minerals Ltd (TSX.V:LDM)
. He has what I consider a better-than-average chance at a
discovery, especially because its flagship property, essentially,
is 10 sq. km. of
production with persistently high surface gold values.
A Colombian gold story that we love,
Sunward Resources Ltd. (TSX.V:SWD)
, is focused on developing large porphyry gold-copper projects in
Colombia. Core assets include the Titiribi project, which hosts
an NI 43-101 inferred resource of 3.7 Moz. at a 0.3 g/t cutoff,
along with the storied Mande Norte (Murindo) project in northern
As the vehicle for acquisition in Colombia for Toronto
investment force Power One Capital Markets,
Waymar Resources Ltd. (TSX.V:WYM)
has a very rosy future. Its current flagship property, Anzá
Project, hosts a producing gypsum mine that has exposed a
volcanogenic massive sulphide (VMS) system underneath, from which
we eagerly anticipate drill results.
Gold Canyon Resources Inc.'s (TSX.V:GCU)
Springpole Gold Project is a deposit that just keeps on giving.
The project's 100.5m at 7.23 g/t gold assay near Red Lake Mining
Camp is just one of the most recent intercepts that points to a
deposit that could reach 10 Moz. or more. We think Gold Canyon,
one of the real home runs for our portfolio at a $1.43 entry
level, has the potential to give us tenbagger returns.
Wildcat Silver Corp. (TSX.V:WS)
was trading at just over $0.50 when we first wrote about it in
March 2010. Here it is a little more than one year later, and
it's better than 400% higher-just the kind of vindication we like
to see when we cover a deal that nobody else will touch. Recent
drill results of 100m at 4.5 g/t silver with lots of coincident
manganese, lead, zinc and copper means the company's Hermosa
property (formerly known as Hardshell) located in Santa Cruz
County, Arizona, is going to be a big winner.
Revolution Resources Corp. (TSX:RV)
is expanding on the apparent gold revival in North Carolina. Its
Champion Hills Property has multiple historic pits and workings
within a 25-kilometer long trend in North Carolina. The project
occurs within the Carolina Slate Belt, which hosts most of the
major gold mines in the southeastern U.S. Significant deposits
Newcrest Mining Limited's (ASX:NCM)
Ridgeway Mine, which produced 1.5 Moz. gold from 1988 to 1999,
Romarco Minerals Inc.'s (
Haile Mine project.
Evolving Gold Corp. (TSX.V:EVG; Fkft:EV7)
is probably one of the best stories, in terms of having an
undervalued major discovery in the U.S. The company suffers from
lousy shareholders and an incoherent communications strategy as a
result of a revolving company-leadership door, which we hope will
be solved with the addition of William Gee as CEO.
Two others are
African Gold Group, Inc. (TSX.V:AGG)
Continental Gold Ltd. (
. African Gold's recent step-out drill results 4.3 km. north of
the relatively well-defined Zone 1 area comprises 10% of the 12
km. gold anomaly at its 200-km.2 Kobada gold project in Mali.
Essentially, this new zone is distinct from Zone 1 at this point
and demonstrates grade continuity over long intercepts from
Continental Gold recently announced results of the underground
sampling of parts of the San Antonio subzone/vein set, yielding
indications of a strong and continuous high-grade system at its
Buriticá project in Antioquia, Colombia. We've covered
Continental Gold since its IPO at $1.75 and expect the company to
continue performing strongly as it moves closer to full
NioGold Mining Corp. (TSX.V:NOX; OTCPK:NOXGF)
has been working in the Cadillac-Malartic-Val-d'Or region in
Quebec, close to
Osisko Mining Corp. (
and now has a $20M joint venture agreement in place with
Aurizon Mines Ltd. (TSX:ARZ; NYSE.A:AZK)
, which needs to replace production and is looking to expand on
the back of strong cash flows.
Golden Hope Mines Ltd. (TSX.V:GNH)
has suffered negative press from individuals who have never set
foot on the property but who, unfortunately, have an audience
among those ill-equipped to recognize bad information. We're
still believers in the 20-kilometer trend theory, as are numerous
others in the region that includes a company with management in
common with Osisko.
What excites you today, in terms of equity investing?
The thing that excites me the most at this juncture is the
incredible as-yet-unrecognized opportunity in junior gold and
silver explorers and producers (E&Ps), as well as in some
select oil and gas plays. Increasingly, other asset classes are
becoming less attractive, in terms of speculative returns. I
think, in the not-so-distant future, the only game in town worth
playing will be TSX- and TSX Venture-listed exploration
James West, publisher and editor of the
is an independent capital markets entrepreneur and investor.
He has spent more than 20 years working in such capacities as
corporate finance advisor, corporate development officer,
investor relations officer and media relations and business
development officer for companies involved in mining, oil and
gas, alternative fuels, healthcare, Internet technology,
transportation, manufacturing and housing construction.
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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:
Colossus, Sunward Resources, Gold Canyon, Wildcat Silver,
Revolution Resources, Evolving Gold, African Gold, Continental
Gold, NioGold and Aurizon.
3) James West: I personally and/or my family own shares of the
following companies mentioned in this interview: Cap-Ex, Prodigy,
Evolving Gold, Continental, African Gold Group, Golden Hope,
NioGold, Gold Canyon, Waymar, Lago Dourado and Sunward. I
personally and/or my family am paid by the following companies
mentioned in this interview: None.
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