Professional Mining Stock Investing Advice from David Erfle at PDAC 2018
by Bill Powers, Mining Stock Education
While at PDAC 2018 in Toronto this week, I teamed up with Nick the Mining Book Guy (@MiningBookGuy on Twitter, YouTube and CEO.CA) to query professional mining stock investor David Erfle (www.JuniorMinerJunky.com) regarding his approach to investing and his current thoughts on opportunities in the resource markets. We specifically questioned David to ascertain his perspective regarding various mining jurisdictions, the share structure of junior explorers, specific types of mining investments, his use of JNUG at cyclical bottoms, and regarding his current outlook on the gold mining sector.
David is open to investing in riskier mining jurisdictions at the right price, but he currently feels that there is “just too much undervaluation in the less-risky countries, in the less-risky jurisdictions to even bother with messing with anything even slightly risky right now.” While some feel that risky jurisdictions are worth the potential of making high returns, David recommends that newer mining stock investors avoid high-risk jurisdictions altogether.
Regarding share structure, while David normally steers clear of a bloated share structure, he does currently have one or two positions in companies with excessive amounts of issued shares. David has positions in these companies with a large amount of issued shares because he says, “the ownership is very solid. The retail float is very low. And I am very familiar with the people who own the shares in one particular one, Minaurum Gold. I have done very well with that one. They do have a lot of shares outstanding, but the retail float is only 15%. So if you got a really low retail float, you can get away with a higher share structure if you are very familiar with who owns those shares and you know they are not going to be selling them anytime soon.”
With respect to how David allocates his mining stock portfolio, he recommends 30% of one’s portfolio in growth-oriented producers because they are a lower-risk “and if you are going to have a high-risk portfolio, you need to have a lower-risk base for that high-risk portfolio.” David believes that quality growth-oriented producers are very undervalued now and present a great buying opportunity because “we are seeing the miners really, really become very undervalued in relation to the gold price. In January 2017 the gold price was under $1,200/oz and we have a gold price of over $1,300/oz now and the GDX is trading at the same price it was at that time.”
Concerning investing in gold royalty companies, David does not focus on these types of companies because he does not think that there is the five to ten bagger potential in them. David also does not like the prospect generator model as an asset class: “I really don’t like that model. Many of them have a lot of properties that are substandard and if they do get lucky and hit on something, they don’t control 100% of the project.”
Although about a year ago, David was not recommending investing in silver producers, David now recommends taking a position in quality silver producers. The reason he has changed his view is because of “sentiment and what’s going on with silver right now. I really think it a good idea to be a little more overweight silver right now. Silver has pretty much been left for dead. The last COT report showed a less than 8% spec position in silver. That is the lowest small spec position I’ve seen in quite some time. The last time we had a spec position below 10% was in July and December and after both of those positions, you had the silver price move up quite substantially in the next two months. So I think silver is very close to a very nice move here.”
When asked about his use of JNUG (daily, triple-leveraged junior gold miner ETF), David said he normally avoids the high-risk, speculative JNUG. However, David will look to take a position in JNUG at a low-risk entry point which for him would be after a final capitulation in the mining stocks after the current 21-month consolidation period. David would take a small 2% of his portfolio position in JNUG and hold it until he sees it becoming overbought.
As we concluded the interview, David’s parting advice was: “This is the best time to be looking for things [mining stock investments]. If you have the time and you really want to be a serious investor in this sector, you need to come to these conferences. You need to talk to these managements in person”…“ Stay patient. Stay vigilant. And spread out your risk as much as you possibly can.”
To learn more about how David recommends developing a quality mining stock portfolio, click HERE to access a summary of David’s VRIC 2018 presentation on the topic.
0:21 Introductions of Topic and Guests
0:59 David’s thoughts re: Africa, Latin America & Asian jurisdictions
5:56 David’s thoughts re: investing in a junior explorer with a bloated share structure
8:27 Allocating a mining stock portfolio
10:11 David’s thoughts on investing in gold royalty companies
11:05 David’s current thoughts on investing in silver producers
12:25 Discussing Idaho as a mining jurisdiction
15:12 When and how to utilize JNUG at a cyclical bottom
17:24 David’s thoughts on investor sentiment at PDAC 2018
19:40 Would David invest in a mining scam if he knew he could profit from trading its shares?
20:16 How David mitigates California’s high taxes as a mining investor
21:46 Parting wisdom for mining investors
