Brien Lundin: Hi. This is Brien Lundin and I’m on the phone right now with my long-time friend, Marin Katusa, and we are discussing today’s gold market. What’s going on in gold, where gold is going, and the best ways that investors can capitalize on the trends that we see developing.
So, Marin, what you think? The market’s been very choppy lately, and not just gold, but all of the markets, equity markets, bond markets? We seem to be in kind of a period of transition. Are we actually in a gold bull market in your view?
Marin Katusa: I think we’re entering what I think is the exit of the risk-on market. And what I mean by that, is if you look at the technology stocks, whether it’s Amazon, Google, Facebook, Tesla.
You know, there was great momentum on the growth stories and we’re seeing that risk-off market coming off significantly. Look at Facebook which broke its 200-day moving average, Google’s right there behind it. And now, people are looking at safety, and that’s the first phase of a gold bull market is when the general market realizes, uh oh, you know, what is a safe haven. And gold is a natural safe haven.
Brien Lundin: So, you think gold’s going to be a beneficiary? I mean, we’ve seen periods where there’s a safe haven bid for gold and, at the same time, we’ve seen people or investors around the world flock to both the U.S. dollar and the Yen as at least temporary safe havens. Yet, gold has been following a pretty close inverse relationship with the dollar over the last couple of years. Do you see that breaking to some extent? Do you see investors, global investors, going to both gold and the dollar?
Marin Katusa: It’s an inflection point, when the big market falls off. For example, if you look at the global financial crisis, people fled to the U.S. dollar and gold. But because the dollar is so much larger of a market than the gold market, you see that, as people sell their equities, they go into cash, (and) there’s a demand for the U.S. dollar. The U.S. dollar appreciates versus the emerging markets and then, investors go away the second we’ve had that balance.
And now, we want to get into a safe haven which is gold. That’s what we saw in the last cycle, what we’ve seen in every major market correction. Then gold metal appreciates and then, the producers, and then, it goes to the best players (in the junior space). That’s how you get your big wins in the resource markets.
Brien Lundin: Yes. I agree, we’ve seen that, that inverse correlation break on occasion, but it’s only been really temporary. And I think what’s happening, you know, we’ve seen the dollar in a longer-term down trend, almost unbroken over the last year and a half or so. That’s corresponded with generally an uptrend in gold. And what I think has been happening is that after the Fed started its rate hike campaign, the smart money considered that trade done and started shifting allocations into the currencies that had yet to begin to tighten.
And if you look at it from that standpoint, that the Fed will probably be done tightening within the next year or 18 months. They’ve only got about four or five more rate hikes to go before they’re going to bouncing up against 3% interest rates, or Fed fund rates. So, they’re more than halfway through their process. I think if you look at the smart money, it’s transitioning to the other currencies, the Euro, the Pound, the Yen, that have yet to begin tightening.
We’re looking at about a two-year process right now where the dollar’s going to be weak and that’s going to be a real upward dynamic, or factor, pushing gold prices higher.
Marin Katusa: You know, your thesis is very difficult to argue with and I see that playing out. And if you look at history, you know, gold can’t be printed. It’s getting much more difficult regardless of where you’re going with it, from a permitting side, capital, CAPEX, from a just the jurisdictional geopolitical risk. Gold is harder to produce and own today than it’s been at any point in history, yet it’s relatively very cheap, you know, when you look at where it was a just few years ago. You’re looking at 35%, 40% discounts and every year, it’s getting harder and harder to produce gold.
Brien Lundin: Yes. And if you look at it from the currency standpoint. We were just talking about smart money switching from the dollar to the next thing that’s going to strengthen, being the other major currencies, Euro, Yen, et cetera. But those currencies aren’t in any great shape either.
If you look at the Western World debt accumulation during this recent period of 5,000-year lows in interest rates and just unprecedentedly loose monetary policy, there really isn’t a good alternative because all of these currencies will have to be depreciated to scale back those debt loads. And at some point, everyone’s going to look to the only thing left that has any kind of stability, and that’s got to be gold.
We’ve seen that process play over and over, over many years, in individual countries and individual currencies. But now, it seems like that process is, for the first time, going to apply on a global scale.
Marin Katusa: Well, there’s a reason why the Chinese and Russians are at record gold holdings.
Brien Lundin: Yes. They tend to think ahead, don’t they?
Marin Katusa: Yes.
Brien Lundin: And…
Marin Katusa: And they want to play off of the two-year political cycle that the West suffers with.
Brien Lundin: No. No. They think generationally. And we have seen China scale back their purchases of treasuries. Of course, they can’t dump treasuries, that would be self-defeating. But on the margins, and that’s really all that matters is (what’s happening) on the margins, they’re scaling back their purchases.
And the big buyer of U.S. sovereign debt it is leaving the market. We can look at China, what happens if China stops buying treasury debt? Well, the biggest buyer is leaving the market, and that’s the Federal Reserve. That liquidity is rolling off at the same time that the equity markets are priced for perfection. So, you know, whatever scenario plays out, it seems like gold is going to be the big beneficiary over the longer term.
Marin Katusa: I completely agree.
Brien Lundin: Now, if we have much higher gold prices, and I think we both agree that over the longer term, gold prices are going to be much higher. And that’s something that could start in relatively short fashion. You know, we’ve had a few, more than a few assaults on that reissuance area for gold, like in the $1,350, $1,360 range. And once we get through that area, we should have a bolt upward in the gold price, (to the point where) the gold price gets over $1,400.
You know, many of the world’s most accurate, successful, highly-regarded market technicians have agreed that once gold gets over $1,400, it’s clear sailing to record high levels. There’s no technical resistance past $1,400. So, we’re looking at what could be a significant rise in the gold price, at any time, on the basis of either the longer-term or the short-term factors that we’ve talked about.
With that mind, how should investors position themselves to leverage those moves in gold?
Marin Katusa: Well, I’ll you what I’ve been doing myself in the money I manage with Doug Casey. And, you know, it’s a double-sided coin though. If gold gets to $1,500 then, $2,000, you going to see a lot of me-too companies pop up and a lot of pretenders. And more importantly, the assets that are able to come into production at $1,600, $1,700 gold, the problem is a lot of these resources are in a very high politically risky, I call them, AK-47, nations — places where you don’t want to take your children on a vacation. And you have to think of your money in the way.
So, you look at certain areas of Africa, and look at Russia, for example. There’s many deposits there but, you know, you’re going to lose money because the government will change the rules on you. So, you have to be aware of your political risk. But fundamentally, Pareto’s Law, every generation in every cycle, stick with the best people who know what they’re doing. They’re contrarian, so, they’ve built up their asset base in the bear market when there was no one else. So, when they bought assets cheaply, they have skin the game. You want to invest alongside the management team, not at a way-higher cost basis. That’s another factor that our markets don’t talk about too much.
So, you want the president of the company to make sure that the company you're investing in is his largest investment. So, if there's something that goes wrong, his whole net worth is at risk. Trust me when that happens, the focus factor, these management, the last thing you want to be involved in is a salaried management who has…no skin in the game. Then you want to go after world-class assets.
Brien Lundin: Right.
Marin Katusa: …no skin in the game. Then you want to go after world-class assets. And, generally speaking, in the resource sector, it takes many decades to develop a resource. It's very rare that you take a grassroots exploration asset from a showing to a drill hole to a production within 10 years. Maybe one out of 1,000 projects eventually become mines and, in the last cycle, there was (only) one company that took a discovery to production in less than 10 years. So, you want to basically advance your investment from OPM, other people's money.
So, that’s kind of the quick, “Katusa key” as I call it to get access to an investment that, you know, (will offer leverage to gold). For example, our largest investment for gold leverage is a company called GOLDMINING INC (TSX-V: GOLD, OTCQX: GLDLF) run by Amir Adnani. And the big factor is, he’s got 9-1/2 million ounces of gold measured and indicated. And if you throw in the inferred, you’re at over 23 million ounces.
You know, you’ve got, also on top of that, over two billion pounds of copper and all of these assets are in areas that have infrastructure, that are pro-mining, where you have rule of law.
And interestingly enough, just in 2011, the combined market cap of all the companies that had these assets was well over a billion dollars, and the NAV was also well over a billion dollars on these assets.
But again, here’s a guy that owns 10% of his company, he was able to pick up these assets in a bear market. So, he literally bought these things at the bottom. Today, everyone wants to have that big score, but you have to be in the stock before the herd comes.
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Brien Lundin: Right.
Marin Katusa: Right now, on a measured and indicated basis, GOLDMINING INC (TSX-V: GOLD | OTCQX: GLDLF) is trading I think at about $13, $14 enterprise value per ounce. You throw in the inferred, it’s something like $6, $7 dollars an ounce. You know, we’re talking about absolutely buying assets at nickels on the dollar. But you’ve got to be a contrarian and you’ve got to be willing to be, doing what I call “the lonely trade before the masses come.”
They will come because everything you said was true when it comes to the gold market. And the reality is that maybe there’s, there’s ore 3,000 gold companies in the world looking to produce gold.
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(Of these), there’s maybe a handful that fit the criteria of what we talked about with, you know, the Katusa keys, the management team, the right assets. Something that a major will want to farm in. And it’s not just me who’s saying that. You’ve got major companies like IAMGold that are investors in this. You’ve got guys who are world-famous speculators like Doug Casey and Rick Rule that are endorsing Amir and this company. BrasilInvest, (one of GoldMining’s major assets is in Brazil), one of the largest merchant banks (in Brazil), run by the Ganaro family, is an investor at 10% of the company.
So, you’ve got to fit the criteria and then, you’ve got to fight the hardest thing in the market, which is yourself and your patience.
Brien Lundin: Right.
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Marin Katusa: You have to be patient to be a correct speculator.
Brien Lundin: And, you know, what you’re saying, Marin, just mirrors and jibes with everything I’ve been telling my readers. The earliest movers, and the biggest movers, on any kind of a rebound in gold are the companies that have large, world-class, identified resources. They offer the most leverage, and they respond more quickly to the rise in the gold price.
Later on in the cycle, much later on in the cycle, then you get people looking further down the food chain and investors will look at the exploration stocks, etc. But the big, quick movers, right off the bat, are the companies with the big gold assets that are already identified, already have proven resources, and sometimes with economics on them. And that’s where GOLDMINING INC (TSX-V: GOLD, OTCQX: GLDLF) really fits the bill.
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In fact, you know, we’re talking about how gold investors will come, once the gold price really starts moving. But with GoldMining, we have a demonstrated, a proven ability to attract investors. You know, when you look at the history of this company, it was nearly $3 in late 2016, when the gold price was even lower than it is today. So, we don’t have to have the gold price up $200, $300 from where it is today before this company would nearly triple in price.
All we need …
Marin Katusa: And I ...
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Brien Lundin: …is a change in sentiment.
Marin Katusa: And I’d add that, you know, the company today is much stronger and deeper in value …
Brien Lundin: Right.
Marin Katusa: …than it was when it was $3. And, you know, I’m not looking for a triple in this stock. The reason I’ve been a holder in this company for eight years, and I believe I’m one of the larger shareholders of the company alongside management, at the same price as management. And ironically, you know, we’ve bought stock much higher than it’s trading at today.
But this is a stock that will multiply. This will be, as Doug Casey says, this will be a company that will have 20 million ounces of gold and it’ll be at a $20 per share price. And we think that’ll happen by, you know, 2020 to 2025 once we get that positive sentiment in gold.
Brien Lundin: Right.
Marin Katusa: And that’s what the key factor here is, Brien, is the resource sector’s been so beaten down that people have pretty much given up the faith. But yet, we’ve seen what can happen with speculative markets in Bitcoin or even in the social media stocks like Facebook and Twitter, all these different companies. We haven’t seen any of that real market momentum come in gold. And when it does, the gains that the right companies will have will startle people, because Amir and the assets of this company will attract the big money. I’m not just talking about retail money, I’m talking about pension fund money where ….
Brien Lundin: Right.
Marin Katusa: … historically right now, the pension fund and the sovereign wealth funds have their lowest percentage of gold investment that they’ve had since the 1960s. If they just double that to 2% of their assets, you’ll see the price of gold go to over $3,000 an ounce and companies like GoldMining won’t just triple, they will go up five to 10 times their price.
Brien Lundin: Yes. And if you look at, what you said at the 20-some-odd million ounces on a market cap per ounce. And if that’s around $6 or $7 an ounce, we know having seen more than one cycle in this resource market, that at the top of a market, those resources are trading for over $100 an ounce, $150 an ounce.
Marin Katusa: And Amir wont’ need to finance for many years. He’s got something $14, $15 million ….
Brien Lundin: 14, yes.
(Mari Katusa): …in cash in the bank. He has no debt. That’s something you’ve got to very careful when you’re looking at these junior resource stocks is, management teams that don’t own stock usually leverage up debt so that they get paid back through all this nonsense. But the fact is, is GOLDMINING INC (TSX-V: GOLD, OTCQX: GLDLF), under Amir’s leadership, has a big cash war chest. We’re not going to get diluted.
And then when you look at, you know, the gold per share value since the IPO in 2011 of GoldMining versus any of its peers, it’s the No. 1 performing stock on a gold per share metric, versus any of its peers. And that’s going to continue because, again, I’ve known Amir for almost 20 years. This is a guy whose net worth is in this company. His family’s largest holdings are in these companies.
So, it’s got all of the right set ups, he’s built up this asset, he’s got a cash war chest. And once we see that positive gold sentiment, and Brien, that’s the key. Will it happen at the end of this month, will it happen mid-year, will it happen next year? I don’t know, that’s the golden question. But it will happen because there’s so much money on a macro perspective that is looking at gold.
And once it starts coming in and other fund managers see that their competitors are having big wins with gold, you’ll see the massive herd and the massive ….
Brien Lundin: Yes.
Marin Katusa: … inflow of capital.
Brien Lundin: And that’s a point what I wanted to stress too. We look at the ultimate potential in three, four, five years, or when gold really starts approaching its all-time highs, but you don’t need that to see a really significant gain in this stock over the near term.
Because the market, since 2016, has been stop-and-start. It’s been a stair-step pattern with higher highs and higher lows, so we know we’re in a bull market. But we haven’t had the kind of consistent gains that have previously gotten investors excited.
Once we have a few months of a steady rise in gold, then you’re going to see companies like GoldMining — and I think GoldMining’s going to lead the pack — you’re going to see companies with big gold resources just explode higher in value. We’ve seen that before. We saw that in 2016 when we had just a few months of a steadily rising gold price. That’s what happens and it’s going to happen again.
Marin Katusa: Well, I’m, you know, long and strong on the stock.
Brien Lundin: Preaching to the choir, yes?
Marin Katusa: Yes. I’ve picked right, I believe, and I’m going to sit tight. And I think in a few years, we’ll be looking back at this and saying, “Wow, I wish I’d bought more of it.”
Brien Lundin: Well, thank you, Marin, great to talk to you as always.
Just for the benefit of our listeners, GOLDMINING INC (TSX-V: GOLD, OTCQX: GLDLF) is the company we’re talking about. It’s on the TSXV, the Toronto Venture Exchange, and the symbol is simply Gold, G-O-L-D. On the OCTQX, is the symbol is G-L-D-L-F and you can learn more about the company at GoldMining.com.
Thanks again, Marin. Really appreciate your time.
Marin Katusa: Oh, it’s a pleasure, Brien. Thanks a lot.
Brien Lundin: Take care. Bye.
FULL DISCLOSURE: GoldMining Inc. is a paid client of Stockhouse Publishing.