Jordan Roy-Byrne | You Can Still Find Quality Gold Stocks That Haven’t Made Big Moves Yet

Jordan Roy-Byrne of TheDailyGold.com is well-known for his commentary on the gold market.  In this interview, Jordan shares not only his thoughts on where gold is headed but also regarding how he approaches junior gold stock investing.  Jordan provides an overview profile of his ideal junior gold stock, offers his commentary on mining jurisdictions he prefers, the state of junior mining finance and more.

0:05 Introduction

1:45 Where is gold headed?

7:45 What are gold stocks telegraphing about the direction of the gold price?

10:30 Did Jordan accurately time gold’s Dec 2015/Jan 2016 bottom?

15:36 What is the ideal profile of a junior gold stock investment?

20:46 Commentary on gold optionality plays

23:24 What mining jurisdictions does Jordan focus on?

25:46 Jordan’s thoughts on the current state of junior mining finance

BEGIN TRANSCRIPT:

Bill: You are listening to Mining Stock Education. Thanks for tuning in. I’m Bill Powers, your host. Well, today I’m joined by Jordan Roy-Byrne of TheDailyGold.com. If you follow the gold market, and you go on the Internet, you’ve been, I’m sure, exposed to Jordan’s commentary, which he puts out once a week. I post it on my website. Jordan also has subscription service regarding time in the gold market and he shares, via his subscription service, some of the stocks that he invests in. I asked him to come on the show today to talk about the gold market, where he sees gold going, and to share with us his approach to junior mining stock investing. So, Jordan, thanks for joining me.

Jordan:  Thanks for having me, Bill. It’s a real pleasure.

Bill: Well, I appreciated your commentary last year in 2018. You know, as a perma-bull, those of us that invest in these gold stocks, we want to see gold go up because then our equities go up. And last year over the course of the year, you were really conservative. In fact you said, if I recall correctly, and correct me if I’m wrong, that basically towards the end of 2018 would be the earliest that you would see gold rising steeply. And you were saying that from the beginning of 2018. So I appreciate your conservative approach, even as someone that wants to see gold rise in price and believes there’s fundamental reasons for a rise in gold price, you at the same time try to be realistic. So, with that being said, what do you see now, Jordan? We’re a few months in, or more than a few months into a rise in gold price. Some people I’ve talked to recently in private conversations said it just feels like it’s different, like we’re going to continue to trend upward. What are you seeing right now?

Jordan:  Well, I do have to say that over the last couple of years I’ve probably been too conservative at times, and I think we can look at fundamentals and technicals separately. And so fundamentals over the last year, I’ve been making the case that basically a shift in Fed policy is what will get this market going and we haven’t seen the full shift yet but it appears we have seen the Fed move to a pause. And so what I was saying in 2018 is either the sector will bottom after the last rate hike. And it’s possible that December is the last rate hike. It’s just it’s difficult. So we don’t know. And looking at history, obviously negative real rates and falling real interest rates are really the biggest driver for precious metals moving higher, and so that means you either have an acceleration and inflation or you have the Fed cutting rates. Those are the catalysts, basically.

So I think at least this time where we are here and now it’s more likely to be the Fed cutting rates and it’s really when they make that first rate cut, it’s right before that when the market really gets going. And looking at how precious metals have performed. I mean they’ve performed pretty well before that December bottom if it was the last cut, and after that December bottom. And so it’s really interesting to me because technically we’ve seen a lot of good things but we haven’t quite seen enough to say this is a bull market. There’s still a few things that are lacking. Breadth indicators as far as how much of the sector is participating, how much of the sector is above the 200-day moving average.

We’ve seen really good readings, but not quite at the levels where you say, okay, that’s clearly a bull market. And so that’s where we are here and now in the very short term. It’s actually very interesting. It looks like over the last couple weeks the gold stocks are kind of doing a bullish consolidation here and it’s possible that if we get another higher here we could see gold go up and test that wall of resistance around 1,350, 1,360. The miners could pop a little bit more and I’m anxious to see if we get that move higher, some of the indicators that I look at, are those going to reach bull market territory? I do think if gold gets up to the 1,350, 1,360 level again, I do think that’s a really good sign because it will have gotten up to that level a handful of times over the last two or three years and it’s just the more times you get up to it, the more likely you’re going to break.

So I’m actually pretty encouraged with where we are. And so the fact that we’re not quite in a bull market yet, at least in a confirmed bull market yet, that kind of fits with the fundamentals where the Fed is pausing which is good, that’s already priced in, but is the Fed going to move from a pause to a cut? I mean, it’s possible later in the year. I think the market’s predicting a cut in early 2020. So basically fundamentals and technicals are saying, we’re not quite in a bull market yet but we’re really close. And the last thing on that I should say, well two things. Number one, when we do get in a confirmed bull market, obviously prices are going to be higher, so you can’t just wait for the confirmation and assume that prices are still going to be at thee levels. When we do get confirmation, prices will obviously be higher.

The last thing is I’m really watching gold against the S&P 500, gold against the stock market, because gold has never been in a real bull market, in a real lasting bull market, without strongly outperforming the stock market. The only caveat to that is if you go back to 1985 to 1987 when the dollar actually fell 50%. I think gold went up 70%. So we did have a bull market then, but as precious metals then, they really didn’t outperform the S&P 500. So that’s the only example that … the only non-example I can say of gold being in at least a cyclical bull market and not outperforming the stock market at the same time.

So gold against the stock market ratio. I am watching that every day. I’m watching that super closely because I think that, assuming that we are going to get a bull market and gold’s going to have a big breakout, that the last catalyst for that, I think, is really going to be gold outperforming the stock market. And it fits together because if the stock market gets weak and rolls over, gold’s going to be outperforming the stock market and it probably has a negative economic message and what’s the Fed going to do at that point? They’re probably going to look to rate cuts. So I know that’s a long answer, but that’s basically how I see the market where we are here and now. Things are looking better and better. We’re not quite confirmed bull market yet but who knows, I think we’re going to be there before the end of the year but maybe it’ll only be a couple months. We’ll see.

Bill: When you look at the gold stocks, what do you think they are telegraphing about the price of gold this year? Are there any clear signals?

Jordan:  It’s a good question. One thing I want to look for is seeing … at least in the short term … is seeing are the gold stocks showing more strength than gold? And I think on a very short term basis they are. If we look at the correction over the last couple of weeks … I’m just pulling up some short term charts. We have had this move over the last couple months, and we’ve kind of been correcting since the very end of January, but we’re holding those gains, so we’re correcting in a very bullish fashion. And so as far as the whole year, Bill, it’s hard to say because the miners obviously are going to leave, they’re going to discount things in advance and so I think that one thing we should look for is if we see the miners really outperforming gold and showing a lot of relative strength, before gold gets up or breaks that wall of resistance around 1,360, that would be a really encouraging sign.

And, look, if and when the market takes out that 1,350, 1,360 level, there’s a measured upside move to 1,700. Gold doesn’t really have a lot of resistance until 1,500, 1,550. So there is a lot of room to run if we get this big breakout. And the same thing for the stocks. They’ve made these massive bottoming patterns over the last six or seven years and GDXJ, for example, if it breaks out of its bottoming pattern, it has a measured upside target of like 80 or 82. I think GDX has a measured upside target of close to 50 or maybe it’s 50.

So that’s really the big key. I think if and when we get this big breakout in the sector, obviously you’re going to see a lot of money being made. You’re going to see huge moves, and we’re in the period before that right now where we’re kind of waiting and, like you said, is there any signal that’s telling us it’s going to come immediately or later? It’s hard to say but I do have to say, over the last week or so the gold stocks they are showing a little bit more strength relative to gold and that’s a good sign. I mean silver is kind of underperforming gold a little bit. I would like to see that strengthen, but I really think that, again, if and when we see gold make this massive breakout through that wall of resistance, I think that’s going to be the point when you see silver and the entire junior sector really start to outperform.

Bill: When you go back and look at how you analyzed the bottom in gold that occurred in December of 2015, January ’16, how accurate were you back then, and then early in ’16, when did, with your analysis, did you get that technical confirmation that you were in a strong upswing?

Jordan:  That’s a very good question. I’m watching more breadth indicators this time around because I think in late December, at least leading into 2016, I was thinking we’re probably going to see more dollar strength and we’re going to see precious metals move lower and then they’re going to make this huge bottom around the summer. So I’m always kind of a little … Like, I’m too conservative, so I’m kind of a little late to these bottoms. And, you know, once gold, I think … I want to say in February I started buying more things aggressively. And I think when gold went through its 80-week moving average, which is also equivalent to the 400-day moving average. I use that in my work quite a bit, along with the 200-day.

At that point that’s when I started buying aggressively and getting up to fully invested. So I did wait, I didn’t anticipate it. And it’s interesting because I remember in November there were a couple of stocks that I just thought, geez, these are super cheap. I should just buy them anyway. Because as a technical analyst, one problem I have, especially in this sector, is I get obsessed with trying to pick the exact bottom or just buy the low, when if you’re looking at something and you just think this is extremely cheap, kind of being a technical analyst it prevents me from buying something that’s an extremely good value.

Like, I remember in November 2015 Pure Gold, for example, and Bear Creek Mining were just super cheap. Like Pure Gold, it was like at seven or eight cents. I mean, that stock I think it’s like 70 cents today. So it made a huge move in 2016 so I did not buy those, unfortunately, so when these exact bottoms are being made I tend to be too conservative. It’s looking more and more likely, like the bottom in November or December, whenever it was, at the end of last year, I was too conservative around that bottom. I wasn’t trusting my indicators, breadth indicators were really weak but they were showing that the market was really over sold, especially with respect to GDXJ.

So, yeah, it’s extremely difficult for anyone to pick the bottom. But it’s also at that point … like fundamental investing and value investing and just being able to identify really good values. That’s going to actually serve you better than trying to pick the exact bottom as a technical analyst. Especially in the junior sector. But one last thing I will mention is the nice thing about this sector is the junior sector as a whole tends to really lag. And so one thing I remember, it’s interesting because going back to the 2008 low, there were some juniors that really didn’t start to move until the spring of 2009. So that was four, five, six months after that low. And even in 2016, the same thing. We had that bottom in January but there were some stocks that really didn’t start moving until April, May, June.

And so the nice thing is you can actually wait for the bottom to be confirmed and you’re still going to find some value in the junior sector. You don’t have to chase everything that’s already jumped 50% or 70%. There’s things that you can buy that haven’t moved yet that will move. So that’s the nice thing about the junior sector and, assuming that’s the case again, a lot of these things that haven’t moved, if we see gold make that major breakout this year, those things that haven’t moved, they’re going to move really fast. They’re going to jump like 50% or 70% in a couple of weeks. They could double in a month and a half. So with picking bottoms that’s one thing that people should remember. Just because you haven’t gotten into the juniors that have already gone up 50% or 75%, don’t beat yourself up about that because there’s plenty of opportunities out there. Just still do your research. You can still find things that haven’t moved but really will move once gold makes that breakout.

Bill: That’s a good segue into you sharing your approach to junior mining investing and what you look for in a company. You go to the conferences. I met you briefly last year at the Sprott Conference but you attend numerous conferences. You meet with management face-to-face. When you’re looking at a junior mining investment, what does the ideal investment look like for you?

Jordan:  The ideal investment. I will say this. When I started out investing in this sector in the early 2002, I was more into looking at the junior producers and you know we had strong metals prices. They were consistently rising. Other than that crash in 2008, they basically were consistently rising every year. And so that was really conducive to junior producers that were able to grow their production and there was a group of silver juniors, they’re much bigger now, but I really liked investing in those. And same on the gold side.

So as I got started investing in this industry I started out on the producers side and given the consistent rises in gold and silver prices, that made investing in producers that much easier. Because they were able to grow their production. Financing was easier because metals prices were always rising. But in the last couple of years I’ve learned to invest more in the explorers and the exploration side because the overall fundamentals of the industry, which I’m sure you’ve talked about on your show and guests have talked about, the majors can’t grow production, their reserve bases, their production profiles are going to be falling off a cliff over the next five or ten years, so they have to replace reserves. If you’re not replacing reserves you’re literally dying in this business.

And that’s why we see if it looks like a junior has made a real discovery, the stock can make a massive move higher in a short amount of time. So now the real juicy fundamentals are for the exploration companies that can make a discovery, find an economic deposit, grow it, add value to it. There’s where the money is flowing and so on the exploration side, what I’m really looking for, it’s simple. I’m looking for obviously small companies but something that has … they’ve already identified something or they some value so they have some backstop that I guess limits their downside, but at the same time they have a huge amount of exploration upside to go with that.

I realize it’s kind of a tough set of criteria. There’s not going to be 100 or 50 companies out there that fit this criteria. But to me that’s really the sweet spot. If you can find something that they’ve already defined some value. It gives them a backstop, but they’re small enough where the stock, it hasn’t already going up like five or ten-fold. But with that, with what they’ve already found, they have a huge amount of potential to grow what they’ve already found or maybe they can discover something else on their project.

And so to me that’s really the sweet spot because I prefer to be in something like that rather than something there’s like a five-cent stock and they don’t have any backstop. And so if they drill and they miss it, it’s basically almost at that point it’s a lot more of a gamble. So that’s what I look for in explorers. Obviously you want to look for things that have a good capital structure. They have cash. They have a tight zero structure. Or they have a good retail float. I want to be with management teams and geologists that … they don’t necessarily have to have a track record. I mean, it’s great if they have a track record, but they at least know what they’re doing.

And, yeah, the retail float, I just mentioned that. That’s important because if they have a tighter retail float, the stock is going to be able to have an easier time rising and I want to look for stock that have a good enough upside. I’m not just looking for 50% or 100%, depending on the company. If we’re looking at small juniors I want to look at something that has three or five X potential. Now, on the producers side, obviously you want to look for things that have the ability to grow, but right now it’s very interesting because companies that are producing but they’re doing a lot of exploration, like if they make a discovery, they can get the same benefit to their stock, as you see in the junior exploration companies. Like Kirkland Lake is the gold standard of an example-

Bill: Wesdome.

Jordan:  Yeah, yeah. And I actually own Wesdome. I was going to mention that because that’s one of my favorite stocks. I was not going to mention Wesdome by name. I was going to say there’s actually one that’s a little bit … it’s like a poor man’s Kirkland Lake. But, yeah, that is Wesdome. If you’re looking for producers that’s what you want to find. Junior producers that they have some exploration potential and if they can make a discovery, that is a game changer for those companies as well. So that’s really what I’m looking at on the producer’s side. And, you know, Bill, things are going to get a lot more interesting if we do get this big breakout in this sector because money is going to be flowing into everything. So even like optionality plays, they have not been sexy the last couple of years, but optionality plays, if we see this big move in metals prices, the optionality plays are going to do extremely well.

Bill: Jordan, when I was at Beaver Creek I met with the management team. I believe it was 18 million ounces of gold they have in Mexico and they’re just sitting there and I can’t remember how many million. It could have been 10 million or more dollars in the bank, and I asked him, “What you are guys doing next year?” And they’re like, “Waiting for the gold price to rise.” So they’re there with all this cash in the bank, 18 million ounces of gold in the ground and they’re just waiting.

Jordan:  Yeah. I mean there’s probably more than a few companies like that. And there’s one that I follow, I might have mentioned the name but it’s moved quite a bit in the last couple of months. But, yeah, look everything as long as they have some gold or silver, then it’s an optionality play. So let me go back for a second. Almost every company is an optionality play in a sense. Even these hot-shot exploration companies, if metals prices go up that’s good for them, it’s good for everybody, obviously. So I’m just saying there’s probably a lot of value to be found on the optionality side, especially in the companies that have not moved yet. Those companies they could really move if we get this big breakout in the gold price.

And I’m a little bit more interested in silver now because silver, it hasn’t really moved yet. Silver’s bear market was worse than even the gold stocks. Silver, a couple months ago when it bottomed, it basically came down very close to its 2015, 2016 low. And, like I said earlier, if we do see this huge breakout in gold, that’s when silver is really going to take off. So as far as optionality, I’m getting more interested on the silver side. And the silver business, you know, a lot of silver companies have basically had to leave silver. They’ve had to change their name. So it’s really hard to find tiny, silver optionality plays. And, look, that’s another thing to keep an eye on if you’ve missed the move over the last couple of months, is look at silver, because silver is going to outperform once things really get going. So that also has me excited.

Bill: In terms of where you look for mining investments jurisdiction-wise, where do you focus on?

Jordan:  I would probably say Canada and Mexico. That’s the short answer. The long answer is-

Bill: Do you avoid your own home country, the US?

Jordan:  Not necessarily. I think jurisdiction is kind of … I think most people, they place too much emphasis on it. Because we know, given where the industry is, where it’s badly in need of economic deposits, if you find a high-margin economic deposit and it’s in a jurisdiction that’s supposedly not that great, that’s still going to have a lot of value. I mean, look what happened with Mariana Resources, in Turkey. That’s not exactly the best country to be in. But that stock did fantastically well on that discovery.

So there’s many … I shouldn’t say many … but there’s some examples like that. If you find a really good deposit and it can make a decent amount of money at 1,100 or 1,200 gold, that’s going to have value. Even if you’re in places in Africa. Obviously you have to know the ins and outs of where you are exactly and the political situation there and those things can always change every couple years. So you have to keep on top of those. But for me I’m more looking for where can I find economic deposit or exploration potential. That’s what I’m looking for, and then jurisdiction is kind of a second point.

You obviously don’t want to be in Russia or any of the stan countries but other than that I’m pretty much open to anywhere as long as there’s potential for an economic deposit. And when you’re in those unfavorable jurisdictions, those things are going to be cheaper. They’re going to be cheaper than if you just have a piece of moose pasture in Canada or Nevada. So that doesn’t really excite me. Exploration potential is what excites me, I guess, more than being in a safe jurisdiction. Because it’s much harder to find the deposit, I guess.

Bill: What’s your thoughts on junior mining sector and financing right now? I observed … I mentioned this to you in pre-call … a recent junior miner that had to give away a full warrant for each share in a private placement that they were doing to raise money and then on the flip side there’s companies like Great Bear Resources that have discoveries where they’re able to raise money at will, seemingly. What are some of your observations of what’s going on?

Jordan:  Yeah, it’s very interesting. I have a few private placements, and I was checking in on them yesterday and the financing market, I guess, for private stock has really dried up. I mean, there’s nothing there. And people, they’re looking to, I guess, random big-money retail investors. So it’s very interesting to me. I would have thought that gold making this recovery and holding about 1,300 for the time being, I thought that would get more people excited. But it really hasn’t. So if you’re buying into placements of private companies, that looks like those companies are having trouble raising a lot of money.

And there is one company I own. I won’t mention the name. But they were working on getting some big names. They’re going to have an upcoming financing, and they’re working on getting some big names into it. And it sounds like the big names are going to put in like about 10% of maybe what the company was hoping for. And I said, “Why? What’s the issue here?” And I guess a lot of the big names, they went big into things in 2016 and got burned. So they’re still gun shy. And we’re talking about real whales here. So they’re not putting in that much money now.

So it’s an interesting reflection on the sentiment of the sector. I mean, a breakout is not imminent, but, again, looking at where the technicals are, we very well could rally up to 1,350, 1,360 again. And it’s just interesting because it seems like the financing conditions are still going to be tough until we get that big breakout and that really surprises me. With respect to companies that are already public. I mean, giving away a full warrant. That’s not the end of the world as long as it’s not like a five-year warrant. If it’s a two-year warrant-

Bill: It was a two-year warrant, I believe.

Jordan:  Yeah, I guess a two-year warrant is not that bad. And I guess if the price is high enough, if the strike price on the warrant is high enough, it’s not the end of the world. But, yeah, it just speaks to it’s a very difficult time to finance. And look, obviously if you had a great discover like Great Bear and things just keep getting better, people are going to be throwing money at you left and right. But if you’re not in that situation, it definitely is difficult to finance. And so there’s a lot of opportunity, especially for the people who like to buy private placement companies before they go public, there’s a huge amount of opportunity there right now.

Bill: Yes. A lot of excellent advice you’ve shared with us today. Jordan’s website is TheDailyGold.com. There you can go. Jordan has a free email list, which I’m on, and he’ll email you once a week. His interviews and articles that he posts, and there you can also learn more about his paid-for subscription service. Jordan, as we conclude, any thoughts you’d like to share in light of what we’ve spoken about?

Jordan:  I think we’ve covered everything, Bill, actually. I have nothing else to say because I think I’ve said it all. I’d just say, thank you, Bill, for having me on, it’s been a pleasure.

Bill: Yeah, likewise. I appreciated the conversation and I look forward to catching up with you more often.