There's a saying that old love never rusts. James West, publisher and editor of The Midas Letter, might have broken it off with the gold space for a while, but he always knew he'd be back when the time was right. In this interview with The Gold Report, West talks about what has convinced him to start shopping for gold stocks again and the unconventional indicators he's using to signal a buy.
The Gold Report: James, you took a leave of absence, so to speak, from the gold space, opting instead to focus more heavily on the oil and gas market. While you're still in oil and gas, you've come back to the mining space. Why are you returning to the gold and silver business now?
James West: There's been an overreaction. Some valuations are so beaten up that they defy all logic. The companies that I'm interested in have the following characteristics: They are in production or are going into production within 12 months; they have cash costs well below $1,000 an ounce ($1,000/oz), but preferably $900/oz or lower; they have a solid management team that is able to access capital on good terms; they still have a strong share structure; and they operate in a safe jurisdiction.
I wouldn't say that I am prepared to proclaim that the worst is over and it's time to go all-in on gold and silver stocks. There are still a lot of risks out there.
TGR: What sources of information are you using to inform your investment decisions?
JW: My ideas emanate from monitoring press releases and volume spikes, and obviously I follow successful management teams. I get attracted to companies that are suddenly active or trading at volumes outside of their norms. If a company intrigues me, I will research its share structure, insider ownership and cross-reference board members with other deals that they've been involved with to ascertain a track record.
Generally, if there's slowly building volume over time without any news, that's an indication that people who are involved with a project or peripheral to the company are aware of some aspect of the project that has not yet been made public and are starting to accumulate shares.
TGR: Tell us about some gold and silver equities you're following, James.
JW: The one that shocks me the most is Colossus Minerals Inc. (CSI:TSX; COLUF:OTCQX). Colossus is near and dear to my heart because I was the first newsletter writer to cover the company in 2008 when it listed. It was one of my first research successes. It traded as high as $10/share at one point.
To see it below $0.50/share is shocking considering that not that much has changed since I first started covering it, except it now knows that it's onto one of the highest-grade platinum/palladium/gold deposits ever discovered and it started production. Even if gold went down to $800/oz, this is a project that would still be very economically viable.
TGR: Any other shocking valuations?
JW: Klondex Mines Ltd. (KDX:TSX; KLNDF:OTCBB). Here's a company that has very high-grade material in Nevada. It's very advanced. The share price has been appreciating steadily since April from sub-$1 to the $1.55/share range. It is bulk sampling and on track to go into production. It just released a technical report on the Fire Creek project. The news just keeps getting better and better. It's a safe investment for a gold mining company. And now with the definitive agreement with Newmont Mining Corp. (NEM:NYSE), investors' patience is being rewarded.
TGR: President and CEO Paul Huet seems to be a driven individual.
JW: I've spoken to him at length on the phone. He was very forceful in his conviction about what was going to happen with the mill under his management. What he said was going to happen is exactly what happened. He made it very clear that he put his own money into this project and that he joined the company because he believed in it.