TGR: How do you determine the price buy limits for the stocks you recommend? In other words, why are stocks good buys at one price and not another?
OG: When it comes to choosing mining stocks, I put a strong emphasis on deep research and fundamental analysis. This is crucial in a market where more than 80% of all junior mining companies will ultimately fail. It's all about quality and investors always have to be very, very picky in selecting picks that could become their favorites.
After my thorough due diligence and conversations with managements and fund managers, I select my favorites, which I buy for the middle to long term. The other crucial factor is timing. For instance, you could have invested in the best-of-class companies from 2011–2013, and it wouldn't have made any difference, as the whole sector was punished. But when the timing is right, which seems to be now, it doesn't matter if an investor buys a great junior mining company at $1 or $1.50/share.
TGR: What are the specific criteria you seek in your research and analysis?
OG: I seek experienced and excellent management teams with strong track records and large networks; companies with healthy cash balances, solid financing outlooks and tight share structures with patient and successful investors; and projects that are decent-sized, attractive and well-located with exploration and expansion potential, projects that are economic even in low metal price environments. Aggressive project-development schedules are also very important. I also want to see strong and clear ambitions.
TGR: What gold companies come to mind in this respect?
OG: Columbus Gold Corp. (CGT:TSX.V) is led by very smart and prudent people. Most are well-versed geologists and genuine resource experts. Additionally, they have experienced financial experts and a strong network of investors and supporters. Columbus is developing one of the most promising early-stage gold projects in South America, the Paul Isnard project in French Guiana.
Paul Isnard already contains a 5+ million ounce (5+ Moz) deposit. Exploration potential is outstanding. The resource contains a higher-grade ore body with decent grades of about 2 grams/ton (2 g/t) gold. The whole deposit is very flat and the continuity and quality of gold mineralization are favorable. There is still a lot of work to be done, but I see solid potential for a large-scale, very profitable gold mining operation.
Columbus' management acted to avoid heavy dilution yet develop its project on a fast track by making a deal with the Russian company Nordgold N.V. (NORD:LSE), one of the top 20 gold producers worldwide. It speaks for itself that four substantial gold companies are already involved in Paul Isnard: Nordgold and its well-capitalized project partner, the French producer Auplata S.A. (ALAUP:PA), mid-cap producer IAMGOLD Corp. (IMG:TSX; IAG:NYSE) and Sandstorm Gold Ltd. (SSL:TSX.V; SAND:NYSE.MKT), which bought a lucrative net smelter return last year.
TGR: What else do you like in that region?
OG: In Guyana, there is Sandspring Resources Ltd. (SSP:TSX.V) and its Toroparu project, which has 10 Moz gold and decent copper credits. I have tracked this company for years and decided to recommend it after its agreement with Silver Wheaton Corp. (SLW:TSX; SLW:NYSE). This is a game changer. I hear that Silver Wheaton selected Sandspring over 50 other juniors with decent gold assets.
The overall economics of Toroparu project are pretty good, with a solid return on investment. It has great support from the Guyana government. With the Silver Wheaton agreement, Sandspring now has the funds to reach the feasibility stage. I also like the company's high insider holdings, more than 25%. This is a perfect leverage play for me at its current valuation, as it will benefit greatly from what we expect will be a significant upturn in the gold price.
TGR: What other regions do you like in South America?
OG: I like the Antioquia Department in northwest Colombia, which is still widely underexplored. This is home to Continental Gold Ltd.'s (CNL:TSX; CGOOF:OTCQX) Buriticá project, one of the world's best. It already boasts 6+ Moz of over 10 g/t gold and will soon publish a new resource estimate. I believe it will ultimately contain 10+ Moz. This could be a huge cash cow.
Continental Gold has a great management team with a fantastic track record, including CEO Ari Sussman and Chairman Robert Allen, the company's largest shareholder. In December 2012, Continental raised CA$86.3 million (CA$86.3M), a truly outstanding amount for a junior gold company. This financing avoided dilution and enabled one of the largest gold exploration programs in South America. With a current cash balance of more than CA$100M, the company is perfectly positioned to bring Buriticá to feasibility and the final milestones in the permitting process.
TGR: Do you like any other companies in Antioquia?
OG: Not far from Buriticá, Red Eagle Mining Corp. (RD:TSX.V) has found a lucrative, 5+ g/t gold ore body at its Santa Rosa project. Its key deposit, San Ramon, has very attractive economic numbers, even at lower gold price levels, and a fantastic return on investment. Also, there is great infrastructure access, which leads to positive cost reductions. Red Eagle is on track to reach feasibility this year. It also has great exploration and expansion potential at its huge flagship property.
What really makes this special is the low capital expense (capex) of about CA$85M. Financing shouldn't be a problem, as Red Eagle is backed by two financially sound, strategic investors that own more than 30% of the company. The first is Liberty Metals & Mining Holdings LLC, which is a daughter company of the insurance giant Liberty Mutual of Boston. The second-largest shareholder (after management) is Appian Natural Resources Fund L.P., a new mining-focused fund that is led by two successful former J.P. Morgan bankers.
Red Eagle's CEO, Ian Slater, is a smart and talented manager who has put together an amazing team that is doing fine community work in Colombia.
TGR: This is a stock that is trading at only $0.335/share.
OG: Absolutely great leverage there. It did its IPO at $1.25.
TGR: Do you like any gold companies in Brazil?
OG: Brazil Resources Inc. (BRI:TSX.V; BRIZF:OTCQX). Its genius chairman is Amir Adnani, the mastermind behind Uranium Energy Corp. (UEC:NYSE.MKT). Brazil Resources is his new darling, and he has huge ambitions. The company has a strong team of resource experts and well-connected finance people, as well as an excellent share structure and shareholder structure. It is backed by the Brasilinvest crew, which has attracted funds of more than $16 billion ($16B) since its establishment.
Other prominent investors and backers of Brazil Resources are the Casey Group and Sprott. So it's a pretty good sign that most of the outstanding shares are in strong and highly qualitative hands.
Brazil Resources owns a huge and promising land package of gold mining concessions in Brazil, including a multimillion-ounce gold resource with plenty of exploration potential.
In addition, the company holds a highly interesting land package next to Fission Uranium Corp.'s (FCU:TSX.V) Patterson Lake South discovery in Saskatchewan. This project is in a lucrative joint venture with a uranium major, AREVA SA (AREVA:EPA), so it could be a very profitable offtake.
One my friends from Vancouver is a strong supporter of this story: Mr. Gianni Kovacevic is a great investor with a huge network and the chief editor of The MEDAP Letter, which has Brazil Resources in its resource portfolio.
With Brazil Resources we have a great team, very attractive projects, sufficient funds, first-class investors and a strong schedule. These are the fundamentals I want to see in a junior gold story.
TGR: You mentioned ambitious management. Which other teams come to mind?
OG: Two gold juniors I follow closely are True Gold Mining Inc. (TGM:TSX.V) and Pilot Gold Inc. (PLG:TSX). Both companies are led by the masterminds of Fronteer Gold, which was acquired by Newmont Mining Corp. (NEM:NYSE) in a $2.3B deal. The former president and CEO of Fronteer is Mark O'Dea, one of the most skilled managers in global junior mining. He is now the executive chairman of True Gold and the chairman of Pilot. Both companies are backed by first-class strategic investors and mining companies and have great financials. I really like the business philosophy and the strong ambitions of the stunning head management here.
TGR: What can you say specifically about these companies and their projects?
OG: True Gold is developing in Burkina Faso one of the most promising and profitable gold projects worldwide: Karma. It is already approaching mine financing and the start of construction. In gold mining today, it's all about margin, and True Gold owns a margin leader with district-sized potential.
Pilot Gold has had a very impressive gold discovery at its Kinsley Mountain project in Nevada this year. This could be a world-class gold deposit comparable to Fronteer's Long Canyon deposit. In Turkey, the company is developing the huge TV Tower project, which is in a joint venture with resource giant Teck Resources Ltd. (TCK:TSX; TCK:NYSE). TV Tower seems to contain several decent gold, silver and copper deposits and has great development and exploration potential.
Next page: Opportunities elsewhere