Source: Brian Sylvester of
The Gold Report (8/11/14)
Investors are all too familiar with the KABOOM in precious
metals prices in the fall of 2011 and the echo thatís still
reverberating. Three years later Jeb Handwerger, founder of
GoldStockTrades.com, believes it could be the broad marketís
turnóand soon. In this interview with
The Gold Report, Handwerger explains why itís important to
position yourself for some fall fireworks and suggests some stocks
with booming fundamentals.
The Gold Report: On June 11, on
GoldStockTrades.com you wrote, ďSome of my charts are
showing a potential reversal in the precious metals.Ē What are
those charts telling you in late July?
Jeb Handwerger: In early June it appeared that the junior
minersótracked by the Market Vectors Junior Gold Miners ETF (GDXJ),
which I use as a proxy for the junior gold minersówas making an
inverse head-and-shoulders pattern between $34 and $35. Then the
junior miners had a very strong rally in June, with an intraday
high of $46. Now weíre forming what I believe is a potential
crossing of the 50-day and the 200-day moving averagesóa golden
cross. This could signal the final turn from a secular bear market
to the beginning of an uptrend.
TGR: Is gold close to a golden cross?
JH: Yes, it did in early July and I believe it will hold.
Gold is now trading below both the three-year and five-year moving
average. Thatís very rare. The last time we saw the gold price move
below the long-term moving averages was in the 1999Ė2001 bear
market. If you can get gold at a discount, then itís a great
opportunity. The greatest opportunity may be the Philadelphia Gold
and Silver Index (XAU), an index of 16 gold miners.
The miners are usually closely correlated to gold, but are much
more volatile. For instance, in the 2008Ė2009 correction we saw the
Philadelphia Gold and Silver Index decline from 200 to below
80ómore than a 50% declineóeven though gold only corrected from
$1,000 per ounce ($1,000/oz) to $700/oz.
Now weíre seeing higher lows in the $1,200/oz range and the
Philadelphia Gold and Silver Index is trading around $100. If gold
moves up even $50 or $100/oz, the miners and the index could have
much larger percentage gains, so the leverage opportunity is really
in the miners. The miners outperformed gold by a wide margin from
TGR: Should investors buy the ETF or the miners?
JH: If youíre able to beat the Market Vectors Gold Miners
ETF (GDX) and the Market Vectors Junior Gold Miners ETF, then buy
them directly. I try to find companies that outperform the large
producers and their junior peers. If you find companies that are
leading both in fundamentals and technical data, you have a good
chance of beating the indexes.
TGR: What ranges do you expect gold and silver to trade in
at the end of 2014?
JH: The three-year trailing moving average is around
$1,510/oz; the five-year is about $1,415/oz. That is where gold
should be trading. Throughout the 2002Ė2011 rally gold was trading
at a huge premium to the three-year and five-year trailing moving
average. Now itís trading at a discount.
TGR: What about silver?
JH: The long-term charts for silver and the Philadelphia
Gold and Silver Index are closely correlated and leading indicators
to gold; silver and the miners will usually top a few months ahead.
They were also the strongest gainers after the 2008 crash. Silver
has pulled back to that crucial $20/oz rangeóa major breakout point
in 2011 when quantitative easing was announced and silver ran close
to $50/oz. Now that it has pulled back to that breakout point
again, silver should provide leverage and outside gains to
I also like platinum group metals. In 2012, I became bullish on
platinum and palladium because both were trading at a discount to
gold. Palladium is now breaking out on concerns about supply from
South Africa and Russia, while industrial and investment demands
are increasing. There are few platinum group metal major assets.
Investors should check out the juniors with advanced platinum group
metals resources in North America.
TGR: In the same June 11 commentary you posited that
institutional buyers were returning to junior mining equities. What
are some signs that youíre correct?
JH: One sign is a huge uptick in volume in the Market
Vectors Junior Gold Miners ETF. The volume increase in the first
seven months of 2014 has been exceptional, whereas volume is
decreasing in a rising market in the SPDR S&P 500 ETF
(SPY:NYSE), an ETF tracking the S&P 500. The rising volume in
the juniors may indicate accumulation, whereas decreasing volume in
a rising market may indicate that the rally in the S&P 500 is
overbought and running out of steam. The equity market has not had
a significant correction in more than three years and itís
dangerous territory for a correction.
To be clear, by institutional buyers, I meant value investors.
Value investors are buying junior mining companies at book value
per share (Note: cash on the balance sheet/share float) that is
double or triple the market caps. There are other companies that
have spent millions on their projects, yet the market cap is only a
fraction of what they have spent. Iíve spoken to fund managers that
I havenít spoken to in years, people who have made money in
previous cycles and have been out of the market. Those people are
finally dipping their toes back into the junior sector.
TGR: Are you expecting a broad market correction in the near
JH: Yes. Thatís why Iím expecting inflation to pick up and
thatís going to make things difficult for some of the overvalued
equities. I see a big rotation from the overbought large-cap
equities into the small-cap base and precious metals junior miners
and energy plays. I expect the fall to be quite busy. After Labor
Day weíre going to see some fireworks.
TGR: On June 25 you wrote, ďInvestors need to pick carefully
in the junior mining space and research the asset, share structure,
balance sheet, jurisdiction, growth profile and investigate to see
if management is ethical.Ē Letís examine those criteria more
closely, beginning with assets.
JH: If you think gold is going to be flat, you have to ask:
Will this company survive at the current gold price? If itís a
high-cost mine, itís going to have more challenges, yet a low-cost
or higher-grade mine can usually withstand difficult times.
Good financial backing is also crucial. Most of the companies I
follow are oversubscribed when a financing is offered. I stay away
from companies that are desperate for money.
Share structure: I like a company that doesnít have too many
shares outstanding. The ownership mix would preferably be a good
institution thatís a long-term investor with around 19.9%
ownership. I like finding companies with a significant position
held by a major producer or a well-respected fund because they have
done a lot of the homework for you. Those companies have strong
geological and technical research teams.
Balance Sheet: Cash that equals something close to 20 times the
active burn rate.
Jurisdiction: Thereís a lot of geopolitical risk in todayís
world. Stable jurisdictions are at a premium. Some of the majors
have had to take huge write-downs in places like Argentina and
Chile, whereas investment interest is growing in places like
Nevada. Nevada has by far the most economic gold mines.
If it werenít for Nevada, major producers like Barrick Gold
Corp. (ABX:TSX; ABX:NYSE) and Newmont Mining Corp. (NEM:NYSE) would
be in serious trouble. Barrickís most profitable mines are in
Nevadaís Cortez and Carlin trends. In Canada, thereís a lot of
merger and acquisition activity in Ontario. QuÉbec recently elected
a government thatís pro-mining. There are pockets of opportunity in
Africa but you have to look at specific areas. And some of these
jurisdictions are changing, such as in Colombia where three or four
juniors have been bought by majors over the past few years.
I recently returned from a site visit to Red Eagle Mining
Corp.ís (RD:TSX.V) Santa Rosa project. The market cap is $20
million ($20M) and the company is 18 months from production. There
are exceptional opportunities right now.
Management: How do you know if management is ethical? You look
at the salary and ask questions. Does the company have higher
general and administrative expenses than its peers? Does management
own shares? Did management partake in the last round of financing?
I tend to shy away from any companies where management is selling
stock. I like to see management ideally own 15Ė20%. One red flag is
when we see a CEO with only a few shares and the rest in options.
Track record is important, too. Has management done this before?
All these things are publicly disclosed and you can find them with
the click of a button.
TGR: You talked about Nevada. What are some companies youíre
JH:Canamex Resources Corp. (CSQ:TSX.V; CX6:FSE) is one. It
has two major shareholders, Hecla Mining Co. (HL:NYSE) and Gold
Resource Corp. (GORO:NYSE.MKT; GORO:OTCBB; GIH:FSE). Canamex has
hit some phenomenal near-surface results at its Bruner projectóone
intercept hit 44.2 meters grading 6.97 grams per tonne (6.97 g/t)
TGR: Canamex has two major shareholders in Gold Resource and
Hecla, but it doesnít seem to get a lot of attention. Why arenít
more people following that story?
JH: Now people are becoming more aware. I started covering
and buying the stock in December 2013 at around $0.06/share. That
was one-third of what Hecla paid for it. Now itís trading around
$0.18/share, so thatís a triple for my subscribers. Then Gold
Resource took a position and this summer Canamex has been hitting
incredible drill results at Brunerónear-surface, high-grade
material thatís amenable to heap leaching. I think itís just the
beginning. Canamex is going to publish soon a maiden resource. I
believe that this is a takeout target because itís an asset that
would probably have low capital costs and a quick payback. Weíre
probably going to see Hecla or Gold Resource make an offer or
finance another round.
TGR: You recently visited several gold projects in Nevada.
Tell us about some.
JH: I recently visited NuLegacy Gold Corporation (NUG:TSX.V;
NULGF:OTCPK). The company is sitting next to Barrickís Goldrush
deposit, probably one of the best discoveries in the world at 15.6
million ounces (15.6 Moz) gold in all categories. The company
partnered with Barrick, which is rare in the junior sector and only
happened because of NuLegacyís managementís team. COO Roger
Steininger was one of the people who discovered the Pipeline gold
deposit in Nevadaís Cortez Trend for Royal Gold Inc. (RGL:TSX;
RGLD:NASDAQ); the project has since been purchased by Barrick.
NuLegacy is beginning to outline a deposit in an area of Nevada
where there are potential elephants. Iím excited to see the results
of its exploration program, especially the Avocado Anomaly,
throughout the summer and fall.
Gold Standard Ventures Corp. (GSV:TSX.V; GSV:NYSE) is on my
watchlist as it has made multiple discoveries in Nevadaís historic
and famous Carlin Trend, which is home to a bunch of majors such as
Newmont and Barrick. Gold Standard just consolidated the Pinion
asset, which may have nearer-term production capabilities. The
company is planning to release an NI 43-101 resource estimate in
the near term, which will give me a better sense of the asset. The
geological team has several additional targets that they will
follow up on after the publication of the resource.
TGR: Perhaps one or two more in Nevada?
JH: I also like Corvus Gold Inc. (KOR:TSX), which is
exploring the North Bullfrog project in Nevada. Iíve been following
Corvus Gold since it was spun out from International Tower Hill
Mines Ltd. (ITH:TSX; THM:NYSE.MKT) almost three years ago. It went
over $2/share in a difficult market and has since pulled back. The
company continues to make high-grade discoveries at the
Yellowjacket deposit, part of North Bullfrog. Corvusí technical
team is very strong. CEO Jeff Pontius has made other million-ounce
discoveries, including the Livengood gold deposit in Alaska. In
Nevada, it looks as if Corvus is just beginning to scratch the
surface of a major gold discovery.
Another one in Nevada that is quite exciting is Comstock Mining
Inc. (LODE:NYSE.MKT). The company is increasing production and
lowering costs in the historic Comstock district. This year
Comstock is putting some of that capital into drilling an area with
some of the best exploration potential in Nevada.
TGR: Comstockís ultimate goal is to produce 200,000 ounces
per year (200 Koz/year) via heap leaching. Is that realistic?
JH: It started off at 10 Koz/year; now itís targeting 40
Koz/year. Comstock could likely make it to 100 Koz/year by
2016Ė2017. In the meantime, the company could make another
discovery. Some drill results in the Chute Zone look promising. It
could be onto something there.
TGR: What else do you own?
JH: I took a large position in Red Eagle Mining in Colombia.
I recently returned from a trip to MedellÍn to visit the Santa Rosa
project with analysts from major financial institutions. I like the
project for a few reasons. In my opinion it could be the first
permitted major gold producer in Colombia. Red Eagle is only a few
weeks away from publishing a bankable feasibility study on Santa
Rosa, which should reach production in the next 18 months. Itís a
very large projectóit could be a district, itís already 320 square
kilometers. An earlier preliminary economic assessment (PEA) showed
production of around 50 Koz/year with cash costs around $620/oz.
This means the mine could cash flow close to $60M even if gold
stays around $1,300/oz. The PEA showed a payback period of 1.4
years, which is impressive. The bankable feasibility study should
be published by the end of September.
TGR: Why is the share price not performing?
JH: Some people are concerned about the mining license. I
was there and saw the community support, especially from La
Universidad de Antioquia, the local university. It assisted the
company with the development of the environmental impact studies.
And COO Robert Bell has helped build 10 to 12 mines. Itís going to
have an exciting second half if Red Eagle gets the necessary
financing and a mining license. It has a strong shareholder in
Liberty Metals & Mining Holdings LLC, which owns about 20%.
Management owns around 12%.
TGR: Red Eagle recently bought the San Ramon extension from
AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE). What
does that mean for shareholders?
JH: Itís a strategic piece of land on the exploration
package. Some valuable opportunities could be there. One of the
knocks on Red Eagle is that it doesnít have a huge resource, but
the goal is to get into production. Once it is in production and
generating cash flow, there will be further exploration to build
reserves and resources. I believe there is a lot more gold there
than most investors realize.
TGR: What are some other equities that youíre telling your
JH: One of our favorite companies, Integra Gold Corp.
(ICG:TSX.V; ICGQF:OTCQX), recently closed a private placement that
was oversubscribed due to major demand from investors. Thereís so
much interest in Lamaque because it is one of the highest-grade
undeveloped gold projects in QuÉbec with over 3.3 million tons at
over 7 g/t gold. An updated resource incorporating the latest drill
results should be out soon.
TGR: Integraís PEA showed an internal rate of return of 38%
with a payback period of 1.8 years. Why didnít the market respond
JH: The market wants to see all the pending assays from the
57,000m of drilling that has yet to be added to the previous
resource. An updated resource with all this exciting drilling data
will make the majors take notice.
TGR: Could that lead to a takeover bid?
JH: Integra could be a classic takeover target. Osisko
Mining Corp., which had the nearby 10 Moz Malartic gold project,
was bought by Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) and
Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). Integraís Lamaque
project sits right next to Agnico-Eagleís 1.6 Moz Goldex mine in an
area with great infrastructure and skilled labor.
TGR: Perhaps one or two others before we leave the gold
JH: Another one that investors may want to look into is
Barisan Gold Corp. (BG:TSX.V). The company hit 412m of 1.1% copper
equivalent in a gold-copper porphyry at its Upper Tengkereng
discovery. Itís in Indonesia, which just elected a more
business-friendly prime minister. Barisan is publishing some of the
best drill results that Iíve recently seen in the junior mining
TGR: Any others?
JH: Itís not in Nevada, but keep a close eye on
International Tower Hill Mines. It has one of the largest resources
in the junior gold space in Alaska. If weíre hitting the bottom, we
want situations that are going to provide a lot of leverage to a
rising gold price. Tocqueville Asset Management has been buying
International Tower Hill shares throughout 2014. Some of the smart
money may be looking at a bottom here.
I love Alaska even though it is currently out of favor. It is
stable and secure in a chaotic world. NOVAGOLD (NG:TSX;
NG:NYSE.MKT) is on our watchlist as it owns the Donlin project,
where it is partnered with Barrick. It has around 45 Moz gold in
the Resource category. Donlin could possibly produce over a million
ounces of gold annually at a high grade of 2.2 g/t. It can be
purchased at a major discount. NOVAGOLD is currently trading under
$4/share. In previous gold bull markets, the company was trading in
the mid-teens. As the sector turns, I wouldnít be surprised if it
makes that move again.
TGR: Would you tell us about some action that the Alaskan
government recently took?
JH: The Alaskan government is approving up to $145M in
financing support for Ucore Rare Metals Inc.ís (UCU:TSX.V;
UURAF:OTCQX) Bokan project near Ketchikan. The rare earth sector is
beginning to wake up from a multiyear slumber. Investors are
returning as more people realize that these metals are critical for
automobiles, batteries, smart phones, wind turbines and military
equipment. Itís a $4 billion industry and China controls it,
especially the heavy rare earths. The Market Vectors Rare
Earth/Strategic Metals ETF (REMX) is breaking above the 200-day
moving average and Iíve been alerting readers to a potential
One of the best potential projects in the West is Ucore Rare
Metalsí Bokan deposit, which has incredible financial and
permitting support from the State of Alaska. It also has a great
partner in the U.S. Department of Defense. There are plenty of rare
earth projects, but very few are making authentic progress. Ucore
is doing that technically and financially, and Ucore is moving
closer to a bankable feasibility study. Pull up a chart of Ucore
versus Molycorp Inc. (MCP:NYSE) and you will see the
outperformance. I think thatís just the beginning.
TGR: The PEA for the Bokan Mountain Rare Earth Element
project pegs capital costs at $221M. It has loans for up to $145M
but that still leaves Ucore $76M short. Whereís that capital going
to come from?
JH: Thatís a good question. All the rare earth equities have
to face these questions but only Ucore has up to a $145M loan
guarantee from the State of Alaska. Ucore has a good shot and other
financiers may be more confident to lend to Alaska as they see the
strong lead backing by the State of Alaska.
TGR: Please give our readers one final thought to
JH: Weíre in a period known as the summer doldrums, yet
weíre seeing a lot of activity in precious metals. There is
geopolitical instability both in Eastern Europe and the Middle
East. The potential for black swan events is increasing and that is
the fuel that lights up the gold sector. We could still see another
pullback but post-Labor Day should bring a powerful seasonality
effect. Now may be the time to position in August for what I
believe is going to be an exciting fall season for precious metals
and the junior resource sector.
TGR: Thank you for talking with us, Jeb.
Jeb Handwerger is an author, speaker and founder of
GoldStockTrades.com. He studied engineering and mathematics at
University of Buffalo and earned a masterís degree at Nova
Southeastern University. After teaching technical analysis to
professionals in South Florida for over seven years, Handwerger
began a daily newsletter, which grew to include thousands of
readers from over 40 nations.
1) Brian Sylvester conducted this interview for Streetwise
Reports LLC, publisher of
The Gold Report, The Energy Report, The Life Sciences Report
The Mining Report, and provides services to Streetwise
Reports as an independent contractor. He owns, or his family owns,
shares of the following companies mentioned in this interview:
2) The following companies mentioned in the interview are
sponsors of Streetwise Reports: Comstock Mining Inc., Gold Standard
Ventures Corp., Integra Gold Corp., NOVAGOLD, NuLegacy Gold Corp.,
Red Eagle Mining Corp. and Ucore Rare Metals Inc. Streetwise
Reports does not accept stock in exchange for its services.
3) Jeb Handwerger: I own, or my family owns, shares of the
following companies mentioned in this interview: Ucore Rare Metals
Inc., International Tower Hill Mines Ltd., Barisan Gold Corp.,
Integra Gold Corp., Canamex Resources Corp., NuLegacy Gold Corp.,
Corvus Gold Inc., Comstock Mining Inc. and Red Eagle Mining Corp. I
personally am, or my family is, paid by the following companies
mentioned in this interview: None. My company has a financial
relationship with the following companies mentioned in this
interview as they are sponsors on my website: Ucore Rare Metals
Inc., International Tower Hill Mines Ltd., Barisan Gold Corp.,
Integra Gold Corp., Canamex Resources Corp., NuLegacy Gold Corp.,
Corvus Gold Inc., Comstock Mining Inc. and Red Eagle Mining Corp. I
was not paid by Streetwise Reports for participating in this
interview. Comments and opinions expressed are my own comments and
opinions. I had the opportunity to review the interview for
accuracy as of the date of the interview and am responsible for the
content of the interview.
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