Louis James: Crisis Creates Opportunity with Junior
Source: George Mack of
Good rocks and good people are the core building blocks of
successful junior miners. Casey Research Senior Editor and Mining
Strategist Louis James wants to see the mineralization close up
and talk to geologists to verify the powerful upside potential
that may be in these stocks, which are also vulnerable to
staggering corrections. In this exclusive interview with
The Gold Report,
Louis reveals how to benefit from the combination of
geopolitical and domestic uncertainty and growth potential in the
The Gold Report:
You are a fundamental investor and as such you don't look at
macroeconomic trends quite so closely. As you say in one of your
reports, you "kick the rocks." But, are you still bullish on
I don't think those two are necessarily antipodes, nor is there
any tension at all between keeping an eye on the big picture
while looking for value in a specific opportunity. The one is the
context for the other. I look at the overall picture, and the
basic idea is to find a trend that's going to be your friend and
place your bets accordingly. But, of course, you want your bets
to be the best possible ones. A rising tide may lift all ships,
but you don't want to bet on a leaky one. So, yes, I go out and
kick the rocks to try to pick the best ones.
To answer the question-yes, I am very bullish on gold. Gold is
in the midst of a $25/oz. retreat as we speak, and I love days
like that. That actually helps us to buy gold or gold stocks from
weaker hands that are shaken by such moments.
The reasons for the bull market in gold haven't gone away; in
fact, they've only gotten worse-or better, depending on your
perspective. We were amongst the few contrarians that were
calling for a financial crisis leading to a currency crisis,
before the crash of 2008. Anybody can look back at our
publications to verify that, and the reasons for those
predictions are still in full force. If anything, they've been
made worse by quantitative easing (QE), Bernanke's non-printing
printing of money (he has claimed both that the Fed
printing money) and all the other things governments are doing
that are, as our founder Doug Casey likes to say, not only the
wrong things but the exact opposite of the right things to do.
And what's bad for fiat currencies is good for gold, so, yes,
we're very, very bullish on gold. That said, one we should never
forget that we'll be taking one step back for every two steps
You believe there are fundamentals in global economies that are
acting as catalysts for inflation?
That is correct. And, not just inflation but, political. . .
Trouble. Look at the protest in Wisconsin from the government
trying to balance the budget there. Unlike the federal
government, state governments can't print money. So, at some
point, they have to cut somewhere or they won't have anything to
pay the bills. The huge response in Wisconsin is quite
interesting-part of a bigger trend that is much, much deeper than
trouble in the Middle East. There's a lot of trouble on many
different fronts. We don't think it's a coincidence that you see
political unrest at times of economic difficulties. Look at the
price of food and cotton and other commodities. These are things
that have immediate and direct impact on the lives of the
masses-the transmission belt between economic trouble and
political trouble-and eventually social upheaval.
Were you implying that the Wisconsin protests are similar to the
anti-austerity protests and rallies that we saw in Europe,
particularly in Greece and Spain?
I'm saying just that. Belt tightening is never popular, and it's
just getting started. Americans are still relatively comfortable
compared to people in other places. You framed your question
about Europe in the past tense. That's just the warm up. The
musicians tuned their instruments, and we heard the overture. All
the ingredients for significant social turmoil are there, as the
concert goes into full swing. The implications are quite
significant and they're global.
You have written about black swans.
Yes. A black swan is any unexpected event that upsets your
projections. Many people were expecting Arab-Israeli tensions to
increase, but weren't expecting the collapse of Arab despotisms.
I can't say that we saw that specific thing coming either, but I
can say that we have stated in print that such despotisms
eventually have to go the way of the dodo bird. Actually, it
wasn't so long ago that Doug Casey did a report on Egypt wherein
he said it was basically a caldron that was waiting to bubble
over. But those are just examples of certain kinds of black
swan-anything can come and upset the apple cart. If, for example,
some U.S. state is suddenly unable to pay its bills and the
lights go off, a lot of people will call that a black swan-though
it should be no great surprise. Or it could be China, India or
Japan. It could be the Koreas shooting at each other. I just
think the climate is right; it's a black swan-friendly
Given that you're a bit cautious currently, you were recommending
a dollar-cost-averaging strategy to enter new long positions that
your readers didn't already own.
If we are in a rising market, a dollar-cost-averaging strategy is
a negative. It hurts investors.
I disagree completely. This is not investing. This is
Ok. Go ahead.
To be able to sleep at night has enormous value. Of course,
that's just a rubric for a larger financial concept here. We are
dealing with serious risk, and I think it is very dangerous to
imagine that you're investing when what you're really doing is
speculating. These two are not the same thing.
The junior resource sector, our focus at Casey Research, is
without question the most volatile market on earth. These stocks
all correct. They all fluctuate. Even market darlings and great
success stories frequently will retreat 50% or more, even without
a 2008-style crash, before they go on to new heights. So, there's
reason to be careful, to deploy wisely, to wait for days when the
markets pull back to buy, to take cash off the table when you
Going all-in is a gambler's game. I can't stress this enough
to people. Gains are not gains until you realize them. At Casey
Research, when we report a track record it includes
gains-not just high-watermarks stocks reach after we recommend
them. We include the profits we've taken off the table, which we
Back in the fall, you visited some mining operations in Colombia.
It was a due diligence trip. What do you do on these trips?
You're fluent, or at least conversant, in multiple languages and
I'm sure that's a big help to you. What are you looking for?
I use what we call the "8 Ps,"
Doug Casey's formula
for resource stock evaluation. As the words "due diligence"
imply, my function is to verify all of the Ps, as much as I can.
But it does tend to boil down to a few things. One is to go and
physically look at the rocks and see if they match what
management is saying. They don't always. You can go down the
ladder of the mine and look at the vein on one level, see that
the vein continues on levels below and reasonably conclude that
there's mineralization between. That's the kind of physical
verification I do.
Particularly crucial is the first "P"-people. I meet with
management and the technical people who will actually do the work
that adds shareholder value. Do they seem to know what they're
doing? What kind of experience do they have? Is it relevant to
the task at hand? Will they look me in the eye when I ask them
questions? Sometimes that's the most important thing. You could
call it the smell test. And yes, the languages help.
So, you want to get away from the guided tour. What happens when
you feel like there's a discrepancy between what you're seeing
with your eyes and what management has said?
It's rare to get a flat out lie. It's more common for something
to be not quite as rosy as described. Typically, when there's
some kind of discrepancy, I discuss it with management and give
them a chance to explain. I'm not interested in conflict, and we
don't generally report negatively on companies. If something
doesn't make the grade, we just move on to the next
What about takeover targets? Antares Minerals is gone.
Newmont Mining Corp. (
is picking up
Fronteer Gold Inc. (TSX:FRG; NYSE.A:FRG)
Ventana Gold Corp. (TSX:VEN)
is in the process of being taken over. What are some of the good
opportunities left for investors, particularly in Colombia?
In Colombia, one obvious candidate would be
Sunward Resources Ltd. (TSX.V:SWD)
. It's developing a new project that has big multimillion-ounce
potential, but the company hasn't finished drilling it off yet.
There's still a lot of work to do. It's a new story, gathering a
lot of interest.
The other obvious one in Colombia would be
Galway Resources Ltd. (TSX.V:GWY)
, which is immediately on strike from Ventana. It's got more
going for it than just the proximity-good drill results show that
Ventana's mineralization does indeed continue onto Galway's
property. On the other hand, Galway did not get taken out with
Ventana; so you have to ask yourself: If Brazilian billionaire
is not in a hurry to take Galway over, is there any reason for us
to hurry to own the stock?
Colombia is perhaps my favorite jurisdiction in Latin America.
The country is now headed in the right direction with new
free-trade agreements and a population that wants to work and is
very focused on rebuilding the economy. There are environmental
issues, particularly the high-altitude Páramo ecosystem
protection legislation with which
Greystar Resources Ltd. (
has run into trouble recently. It's important for people to
understand that this was not a new regulation slapped onto
Greystar. It was an existing regulation that the government never
had the power to enforce before because they were in a war for 40
years or more. The government did not start changing the rules on
the company-that was always a risk there.
In line with that and your question about disciplined buying,
we like to recommend that people buy in tranches. Buy a first
tranche, maybe just 20% of your ideal position to make sure you
don't miss the boat. Then, when it corrects-and they always
do-buy another 20%. That gives you 40%. Then, if you get a big
reversal without any bad news from the company-things go on sale
periodically in our sector-back up the truck and buy a big block
at low prices. That would be the sort of approach I would
recommend with something like Sunward, which already has seen a
great deal of share price appreciation in advance of the
anticipated results. I also like
Colombian Mines Corporation (TSX.V:CMJ)
Colombian Mines is down 20% over the past 12 weeks, while Sunward
is up 24% over the same period.
Yes. Sunward has had some good drill results. It drilled into
thicker and higher-grade mineralization than previously at its
Titiribi Project, which is known for being big but low grade. The
new results are not high grade-but higher-grade, which is
important for a big bulk-tonnage project like this. It makes
sense for SWD shares to appreciate.
Colombian Mines hasn't had a game-changer like that yet. The
company has identified a gold porphyry at its Yarumalito project.
It's big and potentially could be a company-maker; but so far,
the drill results haven't really sewn that up. There are assays
pending that may bear on that. We'll have to see. Columbian also
has the higher-grade El Dovio project, which is earlier stage but
potentially very rich for the company. CMJ also has joint
ventures (JVs) on some of its projects, including one with
Miranda Gold Corp. (TSX.V:MAD)
. I like using OPM (other people's money) on high-risk
exploration, so I like Colombian Mines. We already own the stock
and are happy with our position. We'd like to see the company
gain some traction on these projects before we buy anymore.
Miranda is a newcomer in the region, but I know the management
and I like them a lot. In spite of the good people and
prospective properties, Miranda hasn't had a lot of luck with its
projects yet. That does happen sometimes; even with the best
geologists, Mother Nature isn't always cooperative. So, I like
the company but I'm waiting for it to have the tiger by the tail,
or at least some indications of a company-maker on hand.
What about others?
Pulling back to the global picture looking for takeover targets,
one of my favorites is
Premier Gold Mines Ltd. (
. That's Ewan Downie's spin out of Wolfden Resources Inc. with
projects that are all potentially big, high grade and in top
mining jurisdictions. Most are within spitting distance of
Goldcorp Inc.'s (TSX:G; NYSE:GG)
producing assets. Premier is working to proving up significant
high-grade, multimillion-ounce potential targets-it has takeover
written all over it. I don't know when it will happen, but I
think it will. Goldcorp might be happy to see Premier spend its
money and do a lot of work for it, but if Goldcorp starts
thinking that somebody else may come in and scoop them up, I
would expect it to move aggressively.
An earlier-stage one we've mentioned in our publications would
Bayfield Ventures Corp. (TSX.V:BYV)
. It has a continuation of the Rainy River deposit called the
Burns block. This has graduated from being just "the property
next door" to having a high-grade gold shoot immediately on the
Bayfield side of the property line. And you know that high-grade
pocket is not going to be left hanging in the wall of an open
pit. Somebody's going to want to produce that gold-it's just
crying out for a takeover.
Trade Winds Ventures Inc. (TSX.V:TWD)
is a similar situation but not quite as extreme. It's got a
multimillion-ounce gold resource growing on trend from
Detour Gold Corporation's (
Detour Lake deposit. The project is a 50/50 JV with Detour
already, so there's a natural synergy there and potential for
takeover, but it could get big enough to justify a stand-alone
Any other companies you might be able to discuss?
Because you're interested in Colombia, I could mention
Mercer Gold Corp. (
. I like the company, I like the people and I like this
particular model, which is to try to explore on the other side of
the mountain from the famous
Medoro Resources Ltd. (TSX.V:MRS)
project in the Marmato district. Marmato is an infamous
environmental disaster zone in Colombia with hoards of illegal
miners dumping cyanide down the mountainside, and Medoro is the
company that's working to clean that up. There aren't any swarms
of illegal miners on the other side of the mountain; in fact,
there are only five miners and they're all in an association with
which Mercer has formed an alliance. There's no established gold
resource on Mercer's side, however, and so far, Mercer's drill
results have not produced any company-making discovery holes. It
has the right kinds of rocks, so it's got potential but it's
early stage. Medoro's riskier at this point but certainly has a
great deal of upside if the company hits what it's looking
Louis, are there any closing comments you'd like to leave with
Yes. We see a great deal of possibility for correction ahead. If
the trouble in the Middle East settles down, and if the economy
seems to be continuing to recover and the fear factor recedes, we
could see gold retreat significantly. The retreat we had in
January was only about 5%, which is really quite small as far as
gold corrections have gone during this cycle. Gold has retreated
as much as 25% in this cycle before going on to new highs. We
really haven't seen a major retreat in gold since the big ramp-up
last year; so, we are urging people to be cautious. If you do buy
anything now, make it a first tranche and keep some powder dry
for lower prices ahead. If that doesn't happen, and if the market
doesn't correct, the market may go really manic, inflating a
major gold bubble. If that starts happening, you'll be able to
see it and there will be time to redeploy into that bubble. So,
we do urge caution right now.
Many thanks, Louis.
You're very welcome.
Always on the lookout for the next double-your-money winner,
Louis James is the master of metals at Casey Research where he's
the widely read and well-respected senior editor of the
Casey Investment Alert
Conversations with Casey
Fluent in English, Spanish and French-and conversant in
German and Russian, to boot-Louis regularly takes his skills on
the road, evaluating highly prospective geological targets,
visiting explorers and producers at the far corners of the globe
and getting to know their management teams. In addition to
subject matter expertise, he's built a following on the basis of
a dynamic combination of investment savvy, practical advice,
experience in physics and economics and a gift for comprehensible
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1) George Mack of
The Gold Report
conducted this interview. He personally and/or his family own the
following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are
The Gold Report:
Sunward Resources, Colombian Mines, Miranda, Goldcorp and Detour
3) Louis James: I personally and/or my family own shares of the
following companies mentioned in this interview: None. I
personally and/or my family am paid by the following companies
mentioned in this interview: None.
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