Always challenging, always controversial and always the contrarian, 321gold.com founder Bob Moriarty always can be counted on for a few takeaway nuggets when he chats with The Gold Report. In this interview, his third with us over the past 12 months, Bob cautions against confusing investment savvy with ego-satisfaction, suggests taking time for due diligence instead of looking to gurus, and—of course—recommends a contrarian strategy. He also offers a few tips for investors who want the biggest “bounce for the ounce” and shares some thoughts about a few “brilliant” mining projects he recently visited in Mexico.
[Editor’s note: For Part 1 of this article, please click here]
TGR: Do you see currency ultimately being backed by gold again?
BM: No central bank will come out and say we need to go to a gold standard. We’ll go to a gold standard because every currency in the world will fail simultaneously. People will say, “Hey, we need to use something” And somebody else will say, “Why don’t we use shells?” And somebody will say, “Nah, there’s too many of them.” And somebody will say, “Why don’t we use salt?” “Nah, we tried it before and it didn’t work.” “Very well, geez, why don’t we use plastic?” “No, we tried that and it really didn’t work.” “Well, why don’t we try gold?” “Hey, a good idea, but how do you buy a loaf of bread?” “Well, you could always use silver.” And that’s exactly what we’ll do.
We’ll do it. When the market crashed in October and November, Europeans were actually talking about a new Bretton Woods agreement. When the system crashes and everybody realizes we’re in a depression, people will start talking about gold seriously. The first country to go to the gold standard will have the highest standard of living in the world and the most solid economy.
TGR: In the absence currencies moving onto a gold standard, silver will see an increase relative to gold but not up to the projection of $50 an ounce?
BM: Correct. I could see a ratio now of 40:1 or 50:1, silver to gold, but to get it to 16:1, 17:1 or 18:1 would take us going to a gold standard. You can forget all this nonsense about some kind of shortage of silver. There is no shortage. It’s fiction. A bunch of dingbats have been running around saying that for years. It’s not true. The manipulation or conspiracy theory is all nonsense. Silver isn’t any more manipulated than corn or soybeans. But for $50 silver you need to go to a gold standard.
TGR: It’s interesting that silver coins carry a much higher premium than gold coins do. What’s causing that if there is no shortage?
BM: That’s not really true. I went into my coin dealer in Miami a couple of weeks ago, and I was buying Mercury dimes for 99 cents each. If you buy them right, there’s no shortage of gold or silver. It’s just a very inefficient system. When I was a kid, a city such as San Francisco or Fort Worth or Dallas would have 100 coin dealers. I think there are three coin dealers in Miami now. It’s hard to buy silver and gold. eBay is kind of a blessing because anybody who wants to buy it can find it there. You can get sterling silver on eBay for $7 or $8 an ounce. There’s no shortage of silver. It’s just a very inefficient marketing system.
TGR: Few base metal stocks have responded from their November lows the way gold has. What are your thoughts about copper these days?
BM: It all depends on China, and I’ll tell you why. Depressions are perfectly normal, and if governments would keep their nose out of the economy, they’d last about 18 months to two years. They exist because there is always more money owed than exists in a fractional reserve system. It takes about 80 years to grow out of control; at that point, you wipe out all the bad debt, start all over and the economy recovers.
The price of copper is 100% dependent upon demand from China. If China lets its economy come out of the depression, the depression in China will last about 18 months to two years. I think the Chinese are smart enough to do that. They certainly see how foolish it is for the United States to keep pouring money down a rat hole. And I think they will be fine, so I think the price of copper will go up, but the proviso on that is it all depends on China.
TGR: So you expect the price of copper to go up in about two to three years?
BM: No, it will actually tend to recover; but copper has really been hammered. It has come down from $4 to $1 and change. Copper is probably pretty cheap right now, and investors will go in and say that in relative terms it’s still pretty cheap. I would guess the cost of production worldwide is probably a $1 to $1.25. Any time the price of a commodity comes down to its production cost, the risk is virtually zero regardless of demand. Two things determine price: one is supply and the other is demand. If it costs $900 an ounce to produce platinum, which it does, nobody is going to produce it at $800 an ounce, because it isn’t worth it to operate a mine.
TGR: So it’s self-correcting.
BM: Exactly. That’s the way the economy is supposed to work. That’s the way the laws of supply and demand work. It’s only when governments start trying to pass laws to change supply and demand dynamics that economies gets screwed up. How can you create artificial demand and believe that you’re helping your economy? It’s like taking piles of $100 bills out in your yard and burning them and saying this is a good thing for the economy. It’s not; it’s stupid.
TGR: You’ve recently returned from a trip to Mexico. Any mining companies you visited that you’d like to talk about?
BM: I saw three companies, and all three were brilliant. It was a really productive week for me. The first was Pediment Exploration Ltd. (TSX: V.PEZ, Stock Forum). I went to their project in the Baja, and they have hired people to put it into production. It will be in production in about a year, which is exactly what I am telling people they should be looking at now. And then we flew up to Hermosillo. We took a look at La Colorada, which Pediment also will have in production in about a year. It probably will be 80,000 to 120,000 ounces total between the two projects. CEO Gary Freeman has made an absolute commitment to get into production, which is a good idea.
The second company I went to see was Fortuna Silver Mines Inc. (TSX: V.FVI, Stock Forum), and I had written up its big silver-lead-zinc Cayoma project in Peru three or four years ago. I was a little disappointed that I hadn’t heard very much about it, and I talked to the president of the company and asked about it. He said they’re moving forward; they’re doing very well down, making money and throwing off cash, even with the low lead and zinc prices. The project I went to see in Mexico was their San Jose gold project near Oaxaca, which is probably about 18 months away from production. I said, “Hey, guys, you guys got to speed it up. This is a great project with really solid numbers. You’ve got positive cash flow; get it into production.”
The third project I saw was Castle Gold Corporation’s (TSX: V.CSG, Stock Forum) incredible project near Durango. It’s low-grade gold, costing them about $600 an ounce to produce, but it’s very highly leveraged to gold. Great company, great management and a really good story.
TGR: What is their production target? About 30,000 ounces?
BM: I think it’s about 35,000 ounces, but Castle Gold also has a project called La Fortuna. There were maybe 15 or 20 mines there 100 years ago. That’s the kind of project that could very easily be a district play. That’s one of the things that I like to see a company focused on good, solid prospects. Most of the guys in the mining business treat projects like Beanie Babies; they collect them. A company may have 13 different projects, but most of them are moose pasture. They consume money and will never do anything.
So I was very pleased with Castle Gold (1) because of this gold project that should to produce about 35,000 ounces this year, and (2) their expansion capability with both projects is simply brilliant. Castle Gold is one of those companies that’s way off the radar. They need to do a better job of telling their story, because they have a really wonderful story.
But the companies that are going to succeed, where you’re going to get a real payback in this environment, are the producing companies. It was true in 1930, and it’s true today.
TGR: Two of the three companies that you mentioned are not yet in production, though.
BM: They are all production stories and all have excellent management. What I tell people is that the very best time to buy any stock is just as they go into production. That is when you get the biggest bounce to the ounce.
TGR: Do you see the possibility of any combinations? Doesn’t the institutional side typically want to see production between 100 and 200 ounces to want to get involved in the stock?
BM: That’s true, but it’s also meaningless. If you went back 100 years ago, the average mine in Nevada probably produced 2,000 ounces annually. As the price of gold goes up, smaller projects become more viable. The magic number has been a target of 3 million ounces if you want a Newmont Mining Corp. (NYSE: NEM, Stock Forum) or a Barrick Gold Corporation (NYSE: ABX, Stock Forum) or a Placer Dome to take an interest in you. But that doesn’t make sense in today’s environment. If you can produce gold at $600 and gold goes to $1,200, that’s a good deal. Whether you produce 35,000 ounces or 350,000 ounces is relatively meaningless.
What I would like to see is kind of the opposite of mergers and acquisitions.
TGR: How so?
BM: I’d like to see a third of the companies that are in mining today disappear. Every guy who’s ever walked on a mining project was able to go out and get financing to start a company and raise money and spend it. There’s probably 3,000 juniors out there now, and I’d like to see about 1,000 of them go out of business.
TGR: You may see that if they aren’t able to get financing.
BM: I hope so.
TGR: Of all sectors, the gold sector has been one of the few that’s been able to raise money in the last three or four months.
BM: That’s true, but I really hope investors start sharpening their pencils. So much money has been pissed away over the last seven years. It really angers me. I’ve heard story after story after story after story of “what we’re gonna do” and they never do it. If a company has had five placements in the last five years with a stock price at 10 cents, I hope they go out of business.
TGR: You mentioned Newmont a little while ago. The last time we talked, you said that Rare Element Resources Ltd. (TSX: V.RES, Stock Forum) is another company that’s really good, well cashed up, and has Newmont behind it. Any update on Rare Element?
BM: I just talked to the company a few days ago. The U.S. Forest Service just published their acceptance of the new disturbance plan. Newmont’s been fairly quiet about drilling for some technical/political reasons. They could be drilling in probably less than 90 days, and I expect that the gold project will really move forward quickly. This is a big system and six months from now it will be a much bigger story than it is today. Rare Element Resource is also expected to release a new 43-101 resource estimate on the rare earths project very soon. The historic resource was about 4 million tones of 3.7% rare earths, which makes it one of the largest rare earths projects in North America. Ninety-seven percent of rare earths supply comes from China; this resource could grow and become very strategic. [Here is a link to an excellent times article on this subject https://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article5870223.ece]
TGR: So they have the permit for the 200-acre expansion?
BM: Almost. This big wait has been for the U.S. forest service to sign off on final approval, which was done in early March. It has to be published for a short period of time and then is issued. They previously had a 5-acre disturbance permit, and now they will have got the 200-acre. From a technical point of view, it allows them to set up a lot more drill pads, roads and use their equipment. Newmont has been very patient and strategic in that this permit would be sufficient for a project to move all the way to bankable feasibility. They can now start doing it the way they should have been doing it two years ago.
TGR: Another company you’ve followed is Evolving Gold (TSX: V.EVG, Stock Forum). What’s going on there?
BM: Evolving Gold has one of the best exploration projects. It’s one of the very few explorers I would touch with a 10-foot pole. It has a giant Cripple Creek-type deposit in Montana. I am convinced that it’s a really big deposit, and I am convinced it will move forward. The time it has taken to get assays and drill results back has been an absolute disaster for them, but they have one of the sharpest technical teams I know of. The stock got up to 42 cents; but it’s dirt cheap. It should probably be $1 a share.
TGR: Have those delays in drill results and assays driven the stock down?
BM: That’s part of it, but up until about a couple of weeks ago, the gold stocks were really holding up well. Evolving Gold was down to 14 cents back in October through December. So even at 30 cents, it’s recovered nicely. Despite being hammered recently, gold stocks don’t concern me at all. It’s March; it’s selling; it’s no big deal. The gold stocks will be the first to recover.
TGR: Another company you told The Gold Report readers about back in November was ATW Gold Corp. (TSX: V.ATW, Stock Forum). It has done really well and has held its gains. It’s given a little bit back, but it’s about 50%.
BM: ATW is at exactly the sweet spot. They literally started production two weeks ago; they had everybody in place; the final permit came in. They are in production and mining today. They’re running a leaching system. They’re shipping the carbon with the gold in it and will be pouring doré bars in a month or two. This is another great company. They have another project, Gullewa, in the wings; it will be in production in about 18 months. I love the company. I love the management. I’ve got a lot of the shares.
TGR: Any other companies come to mind that you think readers should be looking at?
BM: There are dozens and dozens and dozens of good companies. What I would say is that this is the time to do some due diligence. Understand one thing: There are no gurus. There may be people who have more experience than you, but there are no gurus. If you do some due diligence and go in and look at it, you will find some companies that are extraordinarily cheap.
For more articles on gold, visit the Stockhouse gold & silver feature supplement
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For additional comments on Pediment Exploration Ltd. (TSX: V.PEZ), Fortuna Silver Mines Inc. (TSX: V.FVI), Castle Gold Corporation (TSX: V.CSG), Newmont Mining Corp. (NYSE: NEM), Barrick Gold Corporation (NYSE: ABX), Rare Element Resources Ltd. (TSX: V.RES), Evolving Gold (TSX: V.EVG), and ATW Gold Corp. (TSX: V.ATW) from newsletter writers, money managers, and analysts, click on the respective links or visit The Gold Report.
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Convinced that gold and silver were at a bottom eight years ago and wanting to give others a foundation for investing in resource stocks, Bob and Barb Moriarty brought 321gold.com to the Internet almost nine years ago. According to a recent web traffic report, the site gets more than 1.8 million hits per month. The Moriartys have added a second resource site, 321energy.com, to the family as well. Both sites feature articles, editorial opinions, pricing figures and updates on the current events affecting both sectors.
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