A lot of short-term peaks and troughs can make things messy
in the resource space, and the associated volatility can whipsaw
people out of investments. "Still," says Pathfinder Asset
Management Limited's Associate Portfolio Manager Taylor
MacDonald, "the long-term picture itself is very much intact."
The U.S. dollar is in the process of breaking down, and that will
ultimately be supportive of gold. "And when you sidecar the
dollar breakdown with quantitative easing, he says, "you
essentially have a perfect storm forming for gold." Find out why
Taylor expects the junior mining space to shine even brighter in
2011 in this exclusive interview with
The Gold Report.
The Gold Report:
There was certainly a buzz surrounding junior mining at the
recent Cambridge House Conference, but first please tell us a
little bit about your mandate at Pathfinder Asset Management in
terms of companies you invest in and clients you serve.
Since we last spoke in August, we've evolved from a family office
to a registered fund, which just went live on January 1st. We're
gradually going to shift assets from the family office to the
fund, and initially invite close friends, family and
associates-people we do business with-into the fund. We may open
the fund to the general public eventually but, for the time
being, we're keeping it quite closely held and largely with just
people to whom we're close.
So, it's essentially a private fund at this point but will be
accepting new clientele as things progress. About how much do you
have under management?
$60 million mostly focused on the resource space. I'd say roughly
two-thirds of the fund would be some sort of commodity, precious
or base metals or oil and gas. The balance would be tech, special
situations and a bit of healthcare.
What is it about the resource space that interests you? Do you
feel it's an area where investors can get a lot of value in terms
of growth in their portfolio?
Sure. Of course, a lot of short-term peaks and troughs can make
things messy and the associated volatility can whipsaw people out
of investments. Still, the long-term picture itself is very much
intact. We're still bullish on gold and I think the macro picture
is robust. I'd say the U.S. dollar is in the process of breaking
down, and ultimately that will be supportive of gold, oil and any
other commodity prices.
And when you sidecar the dollar breakdown with quantitative
easing, you essentially have a perfect storm forming for gold.
Going forward, the U.S. will just continue to print money and
debase its currency. Other nations will do the same. Unless you
see unemployment down at least in the United States, quantitative
easing (i.e., blatant money printing) will remain in place.
That's one of the best possible tailwinds for gold.
In light of the continuing currency debasement and flight to hard
assets, do you stick with precious metals companies for the
resource stocks in your fund, or do you bring in other equities
from the sector, as well?
We do own some base metal companies, but we're primarily focused
in the precious metal space when it comes to mining. While we
like the broader gold space, we tend to focus on quality small-
and micro-cap names, looking for significant upside potential. We
naturally tend to take larger positions on those we like, and
they're always on what we call our shopping list any time the
market corrects or these particular names correct.
One we discussed last time was
Otis Gold Corp. (TSX:OOO; OTCBB:OGLDF)
. Back in November, we put more money into the company alongside
Galena Asset Management, a well-known mining fund out of the UK,
and we are putting even more chips in on the current round. The
company has ticked a lot of boxes since we last spoke, including
acquiring 100% of the Kilgore Project. It acquired this from
Bayswater Uranium (TSX.V:BYU)
for just under $1.8M and 2M shares. A 2% net smelter royalty (
) was also eliminated, so about $3M in consideration all told.
It's acquiring these ounces for essentially $12/oz.-dirt-cheap
vis-à-vis the comps. But it's even cheaper if proven resources go
well beyond 1 million ounces (Moz.), which is likely.
What leads you to believe that?
The company's had some really good exploration success, hitting
88 meters of 1.2 g/t with a 32-meter interval and, within that,
3.5 g/t. Of the 44 holes drilled and released since 2008, 43 have
been mineralized. Results of the remaining 12 holes drilled in
2010 are expected within 30 days. An updated NI 43-101 will be
released later this year, and this will likely approach 1.0 Moz.
Further, the deposit is open in at least three directions. As a
result, the Mine Ridge deposit alone will likely overshoot that
million-ounce target significantly. If it hits on Dog Bone Ridge,
Otis could be one of the stories of the year for sure. From what
I hear, the geologists are seeing the right kind of rock. Dog
Bone Ridge has five different targets, each with the potential to
be as big as the main Kilgore deposit. If we see some good
results out of Dog Bone and can continue strong numbers out of
Kilgore, I'd expect it to go a hell of a lot higher.
Right. I've been to that property. Idaho seems to be a
mining-friendly state, and it looks as if Otis is making progress
there in terms of defining that resource.
Absolutely. I think we'll see a lot of other companies come to
the forefront here in 2011. There's one, a private company right
now but I'd watch for it-Midas Gold, Inc. It's developing the
Stibnite district in Idaho. It's refractory ore, so it's going to
be difficult to process; but I think with Midas and recent
success from companies like
Premium Exploration Inc. (TSX.V:PEM)
, Idaho could really come into the limelight in the mining
Shifting to the other side of the world, last time you mentioned
you felt pretty comfortable with a gold exploration company in
the Republic of Mali in West Africa.
North Atlantic Resources Ltd. (TSX.V:NAC)
, which will be no more as of February 16 or so. It's going to be
renamed Legend Gold Corp. (TSX.V:LGN). Legend will focus on gold
exploration in Mali and is involved in both of the prolific gold
belts there. The company is well cashed up, with $3.4M cash on
hand, plus it expects another $6M from warrants in the near term.
If I had to characterize this company, I'd say it's a clean
investment with a clear exit strategy. Management will be able to
extrapolate a lot of value from its projects.
With multiple work programs ongoing, there should be steady
news flow in the coming weeks and months to keep Legend's
investors updated and keep the company's face in the market, so
to speak. It's got an aggressive drilling program over the next
six months-30,000 meters of drilling on two projects between now
and June is very aggressive.
The company mobilized drills at its FT Project in December and
should be drilling 20,000 meters over the next six months.
There's a 600,000 oz. (600 Koz.) resource there at present, but
I'd expect that to grow significantly with great success in
exploration drilling both at the main zone and on nearby,
parallel structures. Back in August of last year, it drilled 0.75
oz. over 6 meters, 13 kilometers away from the main FT zone. I'd
expect the company to find more of these structures and possibly
grow the resource. I'd anticipate somewhere in the ballpark of
1.5-2.5 Moz. from FT when all is said and done.
At Kantela, the company has a non-compliant resource of 130
Koz. that sits within spitting distance of the Sadiola Gold Mine.
There's considerable upside from there. The mine itself is in
decline at Sadiola, which is operated by
AngloGold Ashanti Ltd. (NYSE:AU; JSE:ANG; ASX:AGG; LSE:AGD)
. In that scenario, one could easily see Kantela as a tasty
morsel for its next-door neighbor, either to partner with or buy
outright-especially if the company encounters success with 10,000
meters of drilling slated for this year.
West Africa seems to be getting more and more attention as a
We own companies that have operations in Ghana, Burkina Faso and
Mali, and we're comfortable with all three of those
Obviously, Pathfinder's investors are comfortable with some level
of risk. Would you characterize all these junior mining stocks as
That depends on where they are on the exploration spectrum in the
mining cycle. There's a high level of risk with grassroots and
early stage exploration, but you can also mitigate that risk by
investing early and having a tight structure with a good
management team. At the end of the day, you really don't know
what's going to come out of the ground but that's also why you're
rewarded with much higher torque, much higher leverage and the
potential for huge upside.
Can you tell me about any companies you like that fit that
A Mexican precious metals explorer that we really like of late
and falls into that category is
Westminster Resources Ltd. (TSX.V:WMR)
, which recently financed and has $4 million in cash in the bank.
Westminster boasts an underexplored, high-grade
copper/gold/silver target in mining-friendly Sonora State where
Alamos Gold Inc. (TSX:AGI)
Timmins Gold Corp. (TSX.V:TMM)
Capital Gold Corp. (TSX:CGC; NYSE.A:CGC; Fkft:CGU)
all have producing properties. This project has never been
drilled and it's quite appealing to us because it's a
Which mine is that?
It's the Anita Copper Mine, located on Westminster's El Cobre
Property. It was a producing mine up until 1910 when the Mexican
Revolution forced all of the American operators off the property
and north of the border. Historical reports on the Anita Mine
indicate 42,000 tons of "waste rock" on surface on low-grade
tonnage yielded 5.8 g/t Au, 52 g/t Ag and 4% Cu in sampling. This
is all bulk-sample testing; it's non-compliant but it shows
immense potential, and the company has now traced the surface
expression of Anita 600 meters. Three kilometers to the south, it
has traced Los Amigos 400m on surface.
Will the company be drilling on this asset around the Anita
It's in the process of drilling now and is about halfway through
a 3,000m drill program. Several assays are pending and some have
been released. It's what I would call a "recognizance-drilling
program." Westminster conducted a geophysical survey that shows
an anomaly in the hill where the Anita Mine is located. It starts
where the old mine shaft is-exactly where the company's pulling
out all this high-grade rock. As you move into the hill, the
anomaly grows larger and larger. Assays from a drill hole
announced on Monday confirmed the potential for high-grade
mineralization with the company reporting a 9m intercept of 2.4%
Cu, 22.7 g/t Ag and 1.2 g/t Au-translating into $310/ton rock at
current prices. Now, as the company works into the hill,
hopefully it'll come up with some longer intercepts.
Assuming this mineralization corresponds directly to the
survey, you have up to 40 million tons (Mt.) just based on what
the company has delineated so far-and that's just the hillside
itself. Who knows if there's a deeper structure, or whether it's
connected to Los Amigos and there's something beneath that. But
the fact that this "waste rock" grades so high and it's a
past-producing mine-these are all the ingredients for success. So
just doing an arm wave you could have up to 40 Mt.; even if you
get 2 g/t, that's 2 Moz. right there.
Any other companies you want to discuss?
Another small-cap gold explorer we're very keen on is
Confederation Minerals Ltd. (TSX.V:CFM)
. It's focused on a high-grade gold exploration project in the
Northern Ontario's Red Lake Mining District, which is the Newman
Todd Project. It's earning a 70% stake from
Redstar Gold Corp. (TSX.V:RGC)
. The project is right in the middle of one of the most-prolific
mining districts in North America-the Greenstone belt, situated
within 10 km. of six major present and past producers.
So good infrastructure, too.
Yes, needless to say infrastructure is considerable. And there's
a skilled workforce. So, the project itself is situated on an
underexplored structural corridor 2 km. long. And, something I've
rarely seen in the mining business, the company has encountered
significant gold mineralization in each and every one of the 24
holes it drilled. But what really excites me is that the
structure itself extends over the northeast to the tenement
Lake Gold Inc. (CNSX:HYL; Fkft:HYK)
. And the
Goldcorp Inc. (TSX:G; NYSE:GG)
property is on the exact same structural trend. This thing sticks
out like an elbow; the company encountered 26.4 g/t over 0.5m
last October and also 2.0m of 42 g/t and as high as 168 g/t over
The core itself is geologically and visually very similar to
the F2 Gold Zone discovery at
Rubicon Minerals Corp.'s (NYSE.A:RBY; TSX:RMX)
Phoenix Gold Project. That property has 4 Moz. of 20 g/t with
geological potential of up to 16 Moz. And all this is wrapped up
in a company with $3.2M in cash and maybe 27M shares outstanding,
with management and insiders owning a total of 9M. It's mostly
escrowed; so, you've got one-third of the stock locked up, a
great management team behind it and good geological talent. This
is cheap by any measure, and the company hasn't missed on a
Of all the investments we own right now, I'd say I'm most
excited about this one in terms of sheer upside potential. This
could be monstrous. It's well structured, and between management
and us, 40% of the stock is put away. Expect news flow in the
next couple of weeks or so.
Any other names that come to mind?
North Country Gold Corp. (TSX.V:NCG)
is another gold development company that we're very interested
in. It has a strong management team and is backed by the
Discovery Group, which has an excellent track record for
exploring and developing large precious and base metals,
Kaminak Gold Corporation (TSX.V:KAM)
being the highlight. Discovery is also involved with a couple of
other companies, including
Kivalliq Energy Corp. (TSX.V:KIV)
, which is working in Nunavut right now. It's trying to replicate
a model that was amply demonstrated by Cumberland Resources Ltd.,
a privately held coal miner that was bought out by
Massey Energy Company (
, and Comaplex Minerals Corp., which was taken over by
Agnico-Eagle Mines Ltd. (TSX:AEM; NYSE:AEM)
So you've got a developing mining district in Nunavut. A
couple of majors in the region are looking to consolidate, but
this is an open-pittable, high-grade deposit with a very large
land package and huge potential. The company's got a resource in
its back pocket that it's waiting to pull out. It's fully cashed
up and has been drilling this aggressively. From what I've seen
and heard, we're likely looking at 3-5 Moz. in average grade at
3-4 g/t. And there are a lot of suitors in the region,
Agnico-Eagle and who knows-maybe
Kinross Gold Corp. (TSX:K; NYSE:KGC)
starts consolidating in the area, as well (as they're starting to
do in the Yukon).
Well, we know that Agnico-Eagle and
Newmont Mining Corp. (
have to replace those ounces as they mine through them. If this
deposit looks compelling to them, assuming that the resource
continues to be outlined and increased, it could be an
acquisition target down the road.
Definitely. So, we really like North Country. We've also done
really well on another one,
Batero Gold Corp. (TSX.V:BAT)
, and we still think there's a lot of upside left. We were
involved early but we continue to buy and will keep supporting
the story. The company is exploring and growing its Quinchia
Project, which is an attractive series of gold/copper-porphyry
assets in Colombia's prolific Middle Cauca Belt. That's the same
belt that AngloGold Ashanti's La Colosa,
Medoro Resources Ltd.'s (TSX.V:MRS)
Marmato, Titiribi and
Sunward Resources Ltd.'s (TSX.V:SWD)
La Mina call home. Previous work done resulted in a historic
resource-4.4 Moz. gold, and I believe there's potential for up to
Batero recently announced a rocket of a hole-452 meters
bringing 0.6 tons gold and 0.12% copper from surface. This was a
180-meter stepout from AngloGold Ashanti's discovery hole.
Over the next five months, Batero's very aggressive
exploration program will be progressing, as it works seven
simultaneous exploration targets with four drills running. With
the deposit kicking up gold showings at surface and being open in
all directions I really don't want to put a cap on where this
could go. Judging from what I've seen, though, I'd say 6-10 Moz.
is well within the realm of possibility.
Colombia has a very well-documented mining history, and it just
keeps growing and growing. Any other nuggets you'd like to share
with our readers?
Sure. I can mention a few companies that I would recommend people
put on their watch list.
Revolution Resources Corp. (TSX:RV)
operates in North Carolina. It shares the same belt and has
similar geology to
Romarco Minerals Inc. (TSX.V:R)
, which boasts 3.1 Moz. (M&I) and 1.1 Moz. (Inferred), as
well as a $1 billion market cap. And lastly,
Ryan Gold Corp. (TSX.V:RYG)
Revolution Resources is part of the same group that built
Underworld Resources-a Yukon gold explorer that Kinross took out
for $140M in March 2010. High-grade intercepts at surface in the
early part of the drill program show considerable promise. The
company just raised $9M. We took a piece of that placement, and
it's financed for years-not months. Some of the top-notch gold
funds took part in this raise. A lot of the similar names you see
in Romarco. I'd say the best and brightest in this space are
definitely involved in this story; it's one to watch. There's a
5,000m drill program underway now, completion of and results for
which should be out by the end of the quarter.
Another company being put out by the same group is
Entourage Mining Ltd. (OTCBB:ETGMF)
. It's exploring in the Haile district in Ontario. It's exploring
in the shadow of the head frame, which is always one of the best
places to go. The company's managed to steal away some top talent
Barrick Gold Corporation's (TSX:ABX; NYSE:ABX)
Hemlo property and acquired a great land package around it.
Entourage will be exploring it as high-grade deep underground
stuff; there's some phenomenal potential there. The gentleman
who's running the geological portion of the program won an award
for mine development for adding all the ounces he did to Hemlo
when everyone thought it was going into decline. I just wanted to
make that a very brief mention because it's highly speculative
and in a very small market cap.
As for Ryan Gold-the sharpest minds in mining are involved in
the story, including Pat Dicapo, Murray John, Ned Goodman, Mike
Skead, Sean Roosen and, of course, Shawn Ryan-the legendary Yukon
prospector with a wealth of major gold discoveries coming from
the stable. If you want to play the Yukon in 2011, this is one of
the best bets. It's got a suite of excellent projects and all but
guaranteed access to capital in the pipeline to come.
So, obviously you see the junior mining space is advancing even
beyond what we saw in 2010 as we move into 2011. You don't see
any price-appreciation pullback in the select junior stocks in
which Pathfinder's invested?
I mean things may get rocky. I think one of the biggest things we
have to be cautious about out here, especially in the junior
mining space, is that a little bit of selling can really impact
the market. In 2010 people made phenomenal money and there's a
massive income tax bill coming for a lot of people on capital
gains. Come April and May, you're going to see a lot of people
selling because they have a tax bill they have to pay.
The Canadian or U.S. government will come knocking; people are
going to have to get that cash somewhere, and it's likely to be
from their portfolios. While I like the space long term and think
you can never hurt yourself by going with quality, if I had to
read the tea leaves here, I'd say that we're likely due for a
correction sometime between March and April when people realize
the magnitude of what they're going to owe the government. I
wouldn't be surprised if the summer is slow, but I think we're
going to have a rocking end of the year as long as the world
economy holds together. At the end of the day, I really have no
choice but to be bullish.
Good conversation. We'll be watching Pathfinder Asset Management
as it grows.
Taylor MacDonald is an associate portfolio manager at
Pathfinder Asset Management Limited. He graduated from the
Wharton School, University of Pennsylvania with a bachelor in
economics in 2004. Prior to Pathfinder, he worked in equity
research at Raymond James Ltd. in Vancouver, investment banking
with Haywood Securities (UK) Ltd. in London, England and
institutional equity sales at RenCap Securities in New York. He
has been a CFA Charterholder since 2009 and is a Level II CAIA
Want to read more exclusive
interviews like this?
for our free e-newsletter, and you'll learn when new articles
have been published. To see a list of recent interviews with
industry analysts and commentators, visit our
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:
2) The following companies mentioned in the interview are
The Gold Report:
Otis, Premium Exploration, North Atlantic Resources, Timmins,
Capital Gold, Goldcorp, Rubicon, Sunward and Revolution
3) Taylor MacDonald: I personally and/or my family own shares of
the following companies mentioned in this interview: Batero and
Ryan Gold. I personally and/or my family am paid by the following
companies mentioned in this interview: None.
is Copyright © 2011 by Streetwise Reports LLC. All rights are
reserved. Streetwise Reports LLC hereby grants an unrestricted
license to use or disseminate this copyrighted material (i) only
in whole (and always including this disclaimer), but (ii) never
The GOLD Report does not render general or specific investment
advice and does not endorse or recommend the business, products,
services or securities of any industry or company mentioned in
From time to time, Streetwise Reports LLC and its
directors, officers, employees or members of their families, as
well as persons interviewed for articles on the site, may have a
long or short position in securities mentioned and may make
purchases and/or sales of those securities in the open market or
Streetwise Reports LLC does not guarantee the accuracy or
thoroughness of the information reported.
Streetwise Reports LLC receives a fee from companies that are
listed on the home page in the In This Issue section. Their
sponsor pages may be considered advertising for the purposes of
18 U.S.C. 1734.
Participating companies provide the logos used in The Gold
Report. These logos are trademarks and are the property of the
Streetwise Reports LLC
P.O. Box 1099
Kenwood, CA 95452
Tel.: (707) 282-5593
Fax: (707) 282-5592