Why Brent Cook and Joe Mazumdar are doubling down on the Exploration and the Insights
Now that Exploration Insights founder is starting to see the bright side of the mining equity cycle, he brought in former Canaccord Genuity Analyst Joe Mazumdar to cover developers and producers at the newsletter. In this interview with The Gold Report, the pair share observations from their recent travels and a short list of companies they are compiling to take advantage of a possible upswing in gold in all currencies.
The Gold Report: Congratulations on the new Exploration Insights partnership, Brent and Joe. How is working on the newsletter side different than the analyst side?
Joe Mazumdar: A lot of the work for a sell-side analyst involves chasing news as it's released with little time for sober second thought. In my opinion, writing for Exploration Insights is more amenable to taking a longer look at the implications of events. The difference can be as wide as between writing for a daily newspaper such as the New York Post and for The Economist.
TGR: Do the two of you see the market similarly? In what ways do you differ?
JM: Over the past decade or so, Brent has tended to focus on lower market capitalization, low liquidity exploration companies that provide a high potential reward but with a high risk. Brent's letter provides the subscribers of Exploration Insights the benefit of his experience to offer companies in this category that are filtered for red flags. I try to provide the same filtering for the subscribers but for higher market capitalization, more liquid developers and producers.
Brent Cook: I've been on a number of field trips with Joe around the world, and he is a master at looking at the financial situation behind a mine and company, plus the geology. In November, I got a lot more positive on this sector and started buying. But I expected the initial bump would come in the mid-tier companies. That's where Joe's expertise comes in. The first two companies he brought to the table were Claude Resources Inc. and Lake Shore Gold Corp. Claude is up over 60%, and Lake Shore has had a takeout offer from Tahoe Resources Inc. since his recommendation in early December.
I'm not out of exploration at all. That's my passion. But Joe's participation gives the newsletter more coverage of the solid assets that could be the first to be rewarded.
As to what I am doing with my money, I'm probably half in small to mid-tier producers and developers. I have another 25% in early-stage exploration projects. I'm keeping aside about 25% for new discoveries that are difficult to predict but will occur. I'm convinced we are going to find some companies that are in the very early stages of making a discovery and I want to be able to pounce on those before the rest of the market figures it out. That's where we make our real ten-baggers.
TGR: Last summer when we talked, Brent, you compared the mining market to a wasteland. As we approach the other side of the junior mining equity valuation desert, how will we know if it is an oasis or a mirage?
BC: I envision the past four years as a tribe of the unwanted crawling across a foreboding abyss comparable to the Great Salt Lake desert in the middle of summer. It's just been brutal. As we made our way across the salt flats people just lost the will, went broke and in general fell to the wayside one by one until there was only a small group of us left. But I think we've finally stumbled onto a bit of water. It does not appear to be alkaline. I think this is for real, but we have to remember that Donner Pass lies up ahead. You know how that turned out for the unprepared.
JM: Over the last year and a half, one of the reasons that companies like Claude, Richmont Mines Inc. and Lake Shore have outperformed the market is because gold had been going up in multiple currencies, just not the U.S. dollar. We've already seen 12+ months of appreciation of the gold price in the local currencies of stable jurisdictions like Australia and Canada. So some of these equities saw significant price appreciation a while ago. Claude is up 220% from its 52-week low.
A true gold bull market requires gold rising in all the major currencies. Just recently we have begun to see gold go up in the U.S. dollar as investors became frustrated with the uncertainty in the U.S. economy and the potential actions of the U.S. Federal Reserve. Will they raise rates or keep them the same or even lower them? All that uncertainty adds to the allure of gold as a safe-haven asset.
Now we're sitting at a decent gold price for a lot of the people who were on the cusp at $1,000 per ounce ($1,000/oz) and $1,100/oz. Suddenly, a lot of stocks with marginal assets are close to their 52-week highs. We've seen very liquid, large market capitalization companies that are highly levered with a lot of debt, like Barrick Gold Corp., up almost 80% year to date. The mid-tier producers like Lake Shore Gold are up 60–65% year to date.
We know that the last few years of protracted financing risk in a low gold price environment has led to a paucity of development projects and downturn in exploration expenditures. As the gold price environment turns, the ones that should reap the benefits are the companies that are executing this contrarian strategy.