The Gold Report caught up with newsletter writer and commentator Lou Paquette, who launched the website Emerging Growth Stocks in 1995 to provide investors and speculators with a unique alternative to what he saw was a growing problem with corporate governance and conflict of interest on Wall Street. He believes that as people finally begin to realize that gold is the only asset we can count on any more, the bull market will "come out of its shell." He shares some of his favorite mining companies that are well-positioned to ride out these turbulent times.
[Editor’s Note: Please click here for Part 1 of this interview]
TGR: Do you have some particular companies that you’re following that you think would be good investments?
LP: The senior that I like is Goldcorp (TSX: T.G, Stock Forum). They have that beautiful high-grade Red Lake deposit that they’re mining, they’re a low-cost producer and they’re in Canada. So, that’s kind of a no-brainer that you want to pick up in the low of the season.
Another, smaller producer might be San Gold Corporation (TSX: V.SGR, Stock Forum). They’re located in Manitoba. Their production costs have been very high, actually; they’ve actually been almost mining at a loss. But, in the next month or two they’re going to start hitting their higher-grade stuff. Their production is going to go up, and their costs are going to go right down. So, I think San Gold is another one, and that has had some great moves. That’s moved from around 67 cents to a $1.67 since November, so I think this is something to track maybe and look at in the next seasonal low.
Another one, a smaller producer from there, would be Castle Gold Corporation (TSX: V.CSG, Stock Forum). They’re going to double their production this year, trading well under a dollar; I think it’s about a 40-50 cent stock. And they have a really good manager running the company. Like I said, they have a growth production profile. So it's one smaller junior that may have a bigger percentage move once gold bull market emerges further.
TGR: Castle is currently producing?
LP: Yes, yes they are. It’s modest production; it was only about 25,000 ounces last year. They believe they’re going to double that this year, and possibly increase it in the future. But, you know, it’s a little penny stock with lots of leverage. So there are three that I like.
TGR: You're a fan of Rainy River Resources Ltd. (TSX: V.RR, Stock Forum), too, correct?
LP: We were very lucky in that we picked that one a long time ago, maybe three to four years ago before gold had its real big move, so when it was still a penny stock. I met the president, Nelson Baker—his son invited me to come over and hear the story, and I had never heard of Rainy River before. Nelson just told me his method, his theory of where he thought the gold was, and it made sense to me. It was a good theory and we rode it up to something like 68 cents. And they just kept hitting nice long intersections. So, I have already been in and out of that one, and it’s something I might look at during the seasonal low to go back into.
TGR: I think you’re also following Energold Drilling Corp. (TSX: V.EGD, Stock Forum)?
LP: Yes, Energold, as well, and that’s not another gold company; it just sounds like one. It’s a drilling company, a service company. They say the people who really made money in the Yukon Gold Rush were the people that serviced the miners up in the Yukon. And this drilling company was a $5 stock this past summer. It’s down to $1; they’ve made a lot of money. They earned 23 cents a share in their first nine months of the year. It’s trading at something like three times its earnings; so, a ridiculous valuation. Fred Davidson runs it as a very tight, very tight ship.
He also runs another profitable mining company, IMPACT Silver (TSX: V.IPT, Stock Forum). So, he’s a really good manager, and what they’ve got is a bunch of small, easy-to-move, lightweight drills that can get up into the real hard-to-reach areas, and that’s what’s kind of giving them an advantage. That trades around a dollar, I guess.
TGR: Being a service company related to precious metals miners, would they expect to see the same type of growth as precious metals investments?
LP: Right now the market is betting that the demand is going to go down and the companies won’t be able to finance, and they’re going to have to eliminate their drilling programs. That’s what the market’s betting; so, it’s kind of a contrary bet.
When I last talked to the company, they said they were still busy; they had a good order backlog, and everything seemed pretty strong going forward. Expect a little flattening maybe in earnings, but I don’t think they’re going away. That’s for sure.
I look at EnerGold as a combination value and growth play. If you look back, they’ve been growing their earnings every single year for the last five years. And yet, they’re trading at less than a P/E of 5.
So, it’s a super value, and yet it’s a growth company. Now, they might have a little flak period coming up here because, let’s face it, some companies are going to have trouble financing. We might see some drilling programs that are being cancelled, but still—yes, it’s just a really good value play—strong earnings, building the balance sheet.
TGR: Can you compare investing in silver as a commodity hedge or a finance hedge compared to gold. Do you like it?
LP: I do like it; I guess gold I like the most because it’s really considered money. Now, we do have silver coins, but silver is also considered somewhat of an industrial metal. So, in a recessionary time, some people may say well demand for silver may ebb a little bit, whereas if there is a panic in the financial markets it may go up for gold. So, my first preference is gold, but silver seems to have more volatility. You know if you do catch the bottom, it seems to have a bigger percentage move. So, it’s a good thing to be in as well. And, yes, sure I would have some exposure to silver as well.
TGR: And would you have any silver producers that you recommend?
LP: Again, Impact Silver. I think Fred is such a good manager
TGR: I read your overview on your website, and some of the other sectors that you’re currently looking at would be uranium, renewable, and oil and gas. Let's get your thoughts on uranium, mostly because uranium had so much buzz and a huge run up in 2007, and went through a huge crash when the market crashed. Is it really making a comeback or is it just going to kind of limp along here with all the other stocks?
LP: It’s kind of a flip of the coin. If you look at just uranium itself, I am told, and my understanding is, that the supply and demand fundamentals going forward are very positive, that there’s going to be more demand than there is supply in the coming years. But on top of that you have to put the price of oil. It seems like with the renewables, with the green stocks and with uranium, there seems to be a pretty strong correlation. When oil goes way up, you find that uranium kind of follows. So, you’ve got to take that into account as well.
It just so happens that oil looks like it's kind of flattening out, too. So, I kind of like uranium play here now. I’ve been very fortunate with uranium. I did play on the way up, and just not that far from the market high, I dumped everything. I just decided we’ve had great gains with these uranium stocks. I am going to get out and raise a bunch of cash, and that has worked out really well.
And so since then, we’ve just started to get back into one or two exploration stocks in the last, say, eight months or so. So, we’re starting to nibble on the sector again.
TGR: And are there any specific exploration stocks that are intriguing in the uranium area?
LP: Yes, I will mention one in uranium that we’re following; we’ve been following for a while, and I wouldn’t be surprised if you’ve heard of this one. I would consider this the top uranium discovery, and that’s Hathor Exploration Inc. (TSX: V.HAT, Stock Forum).
I’m also taking a look at their partners as well, Terra Ventures Inc. (TSX: V.TAS, Stock Forum). They have a 10% carried interest in the play. The reason we like that is they have hit multi-meter intersections of 5%, 10% uranium. Most uranium plays if you read them, they’re lucky to get .01% of uranium.
TGR: What’s the play with Terra Ventures?
LP: Terra has a 10% carried interest with Hathor. So, they don’t need to pay any money for drilling or anything. They just get a free ride now. Hathor has multiple drills going for months, and they’re also drilling a very prospective area. And if they come out with what some are expecting, we could see a major addition to their resource this year.
Terra’s a penny stock trading up to the 40-50 cent area. And they have some other plays of their own, too.
TGR: If someone were reallocating their portfolio right now, what percentage of the portfolio would you recommend being in gold, in oil and gas, uranium, and renewables?
LP: That’s a really good question; you know I can’t tell people how they should do it; they have to make up their own minds what feels good for them, but I can tell you what I’m doing. And that is about a third in gold, okay, about a third in energy, and then within that third, and about two-thirds in oil and gas, and the rest of it in uranium and renewables.
So that’s two-thirds of my holdings, and then another third everything else—cash and that sort of thing.
I don’t know if you’ve heard of an author from a long time ago; his name was Harry Browne ("How You Can Profit From the Coming Devaluation", 1970, and "You Can Profit from a Monetary Crisis", 1974). He was known for his "Permanent Portfolio." A quarter in long bonds, a quarter of your assets in gold, cash, and stocks, and then you re-balance once a year. I am doing that, but taking out the long bonds—I am actually short long bonds.
In the last issue, I recommended an ETF, an inverse ETF that will go up when long bonds go down in price. And sure enough, it’s had a really nice gain since we’ve recommended it. I wish I had more of it. You know people were talking about long bonds might be in a bubble, that might be the next bubble, and sure enough they have come off in price, and people are starting to sense that we’re going to have inflation from all this printing of money that’s been happening.
So, I have no exposure to long bonds, and about a third in cash, a third in gold, and a third in energy.
TGR: Very good, Lou. Thanks for your time.
For additional comments on Goldcorp (TSX:G) (NYSE:GG), San Gold Corporation (TSX.V:SGR), Castle Gold Corporation (TSX.V:CSG), Rainy River Resources Ltd. (TSX.V:RR), Energold Drilling Corp. (TSX.V:EGD), IMPACT Silver (TSX.V:IPT), Hathor Exploration Inc. (TSX.V:HAT) and Terra Ventures Inc. (TSX.V:TAS) from newsletter writers, money managers, and analysts, click on the respective links or visit The Gold Report.
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Louis Paquette launched Emerging Growth Stocks (emerginggrowthstocks.ca) in 1995 to provide investors and speculators with a unique alternative to what he saw was a growing problem with corporate governance and conflict of interest on Wall Street. Lou posts a 15-minute audio interview, “Week in Review with Lou,” most Fridays on his Emerging Growth Stocks website, along with “Charts of the Week,” featuring his technical analysis and some political rants as well. He also has a blog, www.emerginggrowthstocks.blogspot.com, which features a wide variety of interviews and articles.Lou also offers a Market/Management Psychology Investment newsletter that doesn't marry one sector but rotates with the tide of the market.
Paquette is regularly quoted in Investor's Digest, Bull & Bear, and Money Saver, and publishes on Info-mine, Kitco, and Goldseek.com, etc. He is a regular speaker on Cambridge House Investment Conference circuit.
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