Gwen Preston on Bullish Commodities and Identifying Quality Junior Mining Investment Opportunities

Gwen Preston is the founder of the Resource Maven newsletter that focuses on mining, exploration, and resource investing.  In this interview, Gwen shares regarding where she is currently finding the best mining investment opportunities.  She reveals the commodities she is most bullish on and why.  Also discussed are how exploration companies can best steward their initial discoveries after they attract significant attention.

0:05 Introduction

1:44 Commodities Gwen is bullish on

4:13 For uranium equities do you have a price per pound in mind for your exist strategy?

7:13 Commentary on investing in copper and zinc mining stocks now

9:58 Discussing Taseko Mines

12:14 Where Gwen is finding the best mining investment opportunities

16:37 Identifying high-beta mining stocks

17:49 How explorers can best steward a spectacular discovery hole

TRANSCRIPT:

Bill: In our last interview, you were bullish on gold, copper, zinc and uranium. It’s seven months later now, is that still the case?

Gwen: So it’s been an interesting seven months for sure. Seven months ago, I was probably… I was. I was very broadly bullish on commodities, and that has shifted in that I think the trade war has really taken a bite. We can see that in the data as it continues to weaken. And that to me, means that the base metal opportunity has been postponed because investors don’t invest in growth, base metals are a growth story, regardless of how strong the fundamentals are. The copper fundamentals are still very strong. But then let’s just won’t get excited about copper until global growth is on everyone’s lips again.

So to me the base metal story has been somewhat postponed, so that’s copper and zinc. Gold, however, has come forward and is now stronger, and I’m more excited about the gold market because, of course, when growth gets derailed and people are worried about growth, about whether stock market is going to continue, about uncertainty in general, that is when gold shines and, of course, interest rates are a big part of that. They play into everything that I just said.

The way things are developing these days, I really think that the gold market that I’ve been waiting for, that gold investors I have been waiting for, the bull market is around the corner. Does that mean it starts tomorrow, in six weeks? The end of the year? I’m not going to pretend that I can predict that, but I think that it’s here, and I’m pretty excited about the opportunity there. Just to close on that, uranium marches to its own tune. And uranium has its own interesting thing going on right now where the whole sector is sort of on hold as we wait for president Trump to make a decision on a question that’s been posed to him about national security, about whether America needs to produce more of its own uranium domestically. And the decision that he makes from that question is going to impact the uranium market.

No matter which way he goes, I think it will set the market going, but everybody’s just waiting to figure out exactly what the details are of that before they jump on board. And so I am bullish on uranium, but I think this Trump decision, which is called section 232, that’s an important moment for uranium. I am excited about uranium, but need to know the answer to that. And I’m really excited about gold.

Bill: Experienced investors, when they make their initial investment, they have their exit strategy in mind. When you think about your uranium investments, what is your exit strategy in terms of the price per pound? Do you have some sort of number in your head right now?

Gwen: Oh, that’s an interesting question, a good way of looking at it. So I’ve been interested in uranium for quite a few years, because I think like copper, its fundamentals are very strong. Supply is insufficient to keep up with demand starting not very long from now. Also, the uranium spot prices are a crazy number. It doesn’t make any sense. No mine in the world can make money at current uranium prices. Most of these mines are actually selling their product into long-term contracts that are at higher prices because they are old contracts. So that’s how the market is still alive.

But I think entering either before this decision or just as the market starts, which is any time now, and then getting out… not trying to time it to the top. Whether it’s a price per pound, whether it’s a multiple on your investment that you decide that that’s enough as opposed to being greedy, at least taking your money off the table. My general commodities, mining investing is so volatile, especially in the smaller companies that I generally will take my money, my initial capital off the table, often at just the double, depending on the circumstance. Sometimes I’ll wait for a triple, but take my money off the table and then at least I’m only playing with the house’s money from there on in.

But uranium markets can be incredibly hot when they happen, but they can also be somewhat short lived in their excitement. So the main thing that you really need to pay attention as for uranium prices, most producers for mines that are ready to go, especially those in America, but also around the world, people quote prices in the mid $40 per pound as their, “We’re ready to start. We will turn the keys and start our mines operating again at 40 bucks a pound.” So it’s kind of like one lower risk approach to this scenario might be kind of the buy the rumor, sell the news concept, which is to get in now and then almost to get out as that price point is reached. There’s almost certainly going to be more upside beyond that, but you will have ridden… you will have gone for a nice ride and get that well before there’s any potential for a bunch of supply to overwhelm the market.

Bill: With the trade war putting a downer on copper and zinc at the moment, what’s your perspective on entering into copper and zinc stocks now? Is there some upward trend or the resolution of the trade war before you would recommend taking large positions in these type of stocks?

Gwen: I’m still bullish on both copper and things because the numbers don’t lie. The world does not produce enough copper. Copper is always a tight market. Copper is an essential metal for development, and there’s not enough copper starting in a year… Well, not even really this year, but certainly in the next few years, we don’t produce enough copper. The copper project pipeline is very limited in terms of new assets that are ready to be built that can start adding to the supply.

Copper is also… In the near term, I would say copper is very difficult to predict. So yes, the trade wars are absolutely biting into base metals. Like I said before, people aren’t oriented towards big growth stories, which is what copper is at the end of the day. And then when that gap of interest or momentum exists, then you get all the speculators, and all of the paper money starts playing, starts pushing the copper prices around more than real price forces. And that just creates the potential for volatility.

And so I feel like in the short term, the copper market is very difficult to predict. But if like me, you believe that the world is going to need more copper within the next year or two years, three years, there’s limited downside in entering into good companies now. There could be some downside, especially if the big markets go into a correction, let alone a crash, because baby in the bathwater, everything gets thrown out. That would happen.

But at the end of the day, copper producers and more so copper developers, those that have copper projects that aren’t yet mined, they haven’t gotten any love yet. So you can’t lose what you don’t have. So that means that their downside is still fairly limited. So if you were entering copper now, you need to be entering it with a medium time horizon anyways. So, I think it’s a reasonable bet to make if you’re betting on just solid horses and are going to put it in your account and forget about it until investor perspective shifts towards growth.

Bill: One copper developer that I previously owned, I don’t own right now is Taseko Mines. I previously owned this company. What’s your thoughts on this company, mostly based in British Columbia and, I believe, Arizona?

Gwen: Yeah, so Taseko has some interesting projects for sure. They have been plagued in recent years because they’ve been trying very hard to permit a new mine in British Columbia and that permit got denied because of local opposition, primarily first nations opposition, to that asset. And so that’s really been the way that that whole story played out. Didn’t help the company, and didn’t help the share price. But Taseko is a good example of… It’s actually sort of difficult to find companies that are clear exposure to copper production. It seems like it would be easy, but a lot of copper is produced by the world’s biggest mining companies who also produce lots of gold or zinc or silver. All of the above.

And so it’s a little difficult to find really pure play copper stories. Taseko fits into that category. Like, First Quantum, there’s actually not that many. So if we’re looking for a pure play copper option, it is one of them, but it’s had its own social political permitting issues in recent years.

Bill: I know you like to focus on exploration stocks. Is that where a lot of your focus still is?

Gwen: So I was actually… I write a newsletter on Wednesday. Today’s Wednesday, and it’s my day for writing. And so I was just… As you called, I was just writing for today’s letter about how in recent years I’ve been excited to position in gold companies because I think that the market was heating up, getting ready and whatnot. But I’ve been super, super selective in what I’ve chosen. It has to be the best of the best of the best in terms of jurisdiction and asset and people and capital structure, because the market was still so limited that that was the only kind of company that stood a chance.

And I was very selective too in terms of what stage of asset I was interested in. Exploration could work if it was the best of the best of the best. And some developers could work, but the market limited investor interest in the market meant that there was lots of other stages of assets or kinds of assets, they just didn’t get the love. Deservedly or not as is its own philosophical question, but they just didn’t get the love.

And what I was writing about is how if I am correct and we are starting into a broad, strong gold market, it changes the game. And I’m not saying you should just throw money at the gold sector because the rising tide lifts all boats. That’s not a careful way of investing. What I am saying though, is that a lot more kinds of companies get the opportunity to progress and perform in a real gold market. So you take a gold producer that has just been making money, just scraping by in recent years. As gold goes from 1,200 to 1,300, let alone 1,600, that company now is making good money. And so the entire investor prospective on that company changes.

So that company, the higher cost producers, actually generate more leverage in terms of their growing bottom line than do some of the lower cost producers that have been more favored in recent years. It’s ironic, and I don’t love that that’s the way it works, but that is the way it works. And similarly, large projects that aren’t mines that are still exploration stage, that are moving through the mine planning stage, the ones that need a higher gold price to work, we call them optionality plays, they’re an option on higher metal prices. Those ones really, in terms of share price, outperform when the markets strengthens.

Again, I don’t love that. I want a mine that makes sense when gold is at its current level or perhaps lower. I think that robust mine should be everyone’s favorite all the time. But at the end of the day, the optionality plays to large, maybe lower grade assets, but they just have a ton of gold in them, like big porphyry deposits, but need a 1,300 or $1,400 gold price. Once we get up to 15 or $1,600 gold, so all of a sudden these assets become the flavor of the market. Everyone piles into these projects that have not looked economic until now, but then gold price inches up a bit, and bam, they’re economic, and oh, now they’re going to get taken out. They’re going to get advanced.

So at the end of the day, I love exploration. Exploration is super high risk. When the bull market is going, you can invest in a much broader suite of kinds of companies. And they all offer opportunities, so you can have explorers. You can have those are who are delineating a discovery and growing value by defining a deposit. You can have those that are proving that the deposit that they’ve discovered would be economic as a mine. You can have those that are almost finished the planning the mine and are nearing the end of permitting. You can have those that are building the mine, you can have new operators. They all offer really good opportunity when the gold market gets going. So I actually think that my suite of interest is much broader now. I still want the best companies out there, but my interest has really broadened, and that’s super exciting.

Bill: One of the things I’ve done over the past several years is just make a mental note, if it’s not in writing or somewhere on my computer, of the companies that perform best when gold is coming out of a bottoming. And gold might rise 60 bucks or I expect gold rise 60 bucks, and I know these companies do well. One of them is Vista Gold Corp. that has a large resource in Australia, very well capitalized. I know the management. Its very well run, and in 30 days from its December bottom to the beginning of February this year, it was up like 70% when gold was going up. So you want to really put those companies, have them noted. If you think gold’s going to go on a run, even if it’s a month run, those companies, as you say, they really do outperform the others.

Gwen: It’s crazy. Yeah. The fact that the asset goes from sub economic or marginal economic to making money, should it be built into a mine? Because the gold price changes a hundred bucks, it just changes the market completely. And when that gold move becomes a more sustained thing, investors really pile into companies like this as a good example. And so yes, there’s some really interesting opportunity that that is opening up or that will open up if this market is developing the way that I think it is.

Bill: One thing that I’ve been contemplating and just observing is companies that have a spectacular drill hole. And then I’m asking myself the question, “how is the management stewarding or managing for the most benefit of shareholders, what they’re doing with the new eyeballs and the potential money that they now have access to?” What’s your thoughts in terms of financing and marketing? What are some of your thoughts about how management can best steward a spectacular drill hole now that they have everybody’s attention?

Gwen: That’s a really great question. So I think there’s a couple aspects there. So first of all, if this is a new discovery and your share price hits it because you get a discovery, you need to raise money. And that’s because the market’s excitement will always ease… Not always, but in general the market’s excitement will ease. It’s very difficult to live up to the excitement of that first discovery announcement. So you need to raise money because at the end of the day, it is in shareholders’ best interest for you to raise money when your share price is at its strongest.

So raise the money when you can. Depending on the confidence that you have in the scale of the discovery that you’ve made, you can decide how big that financing should be. But you aren’t going to be able to continue proving out the scale of that discovery if you don’t have money in the bank. So, take some money, figure it out. Warrants are a big question there. Do it without warrants. One of the things that I have become most focused on as this market has been very slow and investor capital has been so limited, is I want companies that’s really tight to their structures, and so… So if you can raise money without issuing warrants, then go for it.

And then stepping back a little bit, management means to be just top-notch. And when I say that, yes you need to be strong, technically, probably wouldn’t. You probably need to be, if you’re going to have made the kind of discovery that you just described. So perhaps that’s there, but management needs to be… this needs to be 100% of what they’re working on, and they need to be doing it 110% of their time. So even take a knockout exploration story like Great Bear in Red Lake that has the most exciting gold discovery in the market lately.

The team at Great Bear Resources is on the road all the time. They’re still taking the story all over the world because New York doesn’t know the story very well, London still doesn’t know the story very well. And in order for this thing to continue to hold onto the momentum that it has, you need more and more people to get interested in it. So you really need a team that understands capital markets, that has a lot of good connections, and is going to work their butts off telling the story and making sure people understand the real potential that they’re uncovering.

So there’s certainly a lot of factors there. But I’d say the other thing that I like to saying is that with any company, but often exploration is a good example, you want a management team that has a clear plan for how they’re going to use capital raised to create new value. And that seems like it should be an obvious thing, creating new value is the whole point of having a public company. But it isn’t always there. In fact, I would say that a lot of the time, it isn’t there. A lot of the time management gets lost in geology, gets lost in jurisdiction, gets lost in debt or salaries or whatever it might be. I want a very clear plan for how you’re going to spend the dollars that you’ve raised to create new value.

And I know it’s exploration, so there’s no guarantees, but if that’s the first thing that you’re going to try doesn’t work, what’s the next thing that you’re going to try? So a really clear plan is very important and is less common than I would like.

Bill: And there is a correlation between good marketing dollars spent on a discovery story that then is developed efficiently and successfully and the buyout price that that explorer, now developer, realizes.

Gwen: Oh for sure. Yeah. People say promotion is a bad word. Promotion is not a bad word. Investors will not buy your stock if they’ve never heard of it. So you need to, like I say, be on the road and telling everyone your story. And then there is… Part of that isn’t just management taking one-on-one meetings or going to conferences, but is also spreading the word through the Internet, through social media, through various marketing campaigns. But yes, just be careful with how you do it, and really don’t make promises that you can’t live up to, because as soon as you’ve done that, your credibility is blasted, and no one’s going to believe I’m in the potential of your stock anymore.

Bill: Gwen, as we conclude, can you give us an update of what’s going on at www.resourcemaven.ca, and what can people find there?

Gwen: Sure. So I ran a series of newsletters about what I am buying, selling and thinking in the metals and mining space. I have a sort of introduction to the metal space newsletter that’s called Maven Metals. So for those who aren’t familiar with mining, but see some opportunity in this gold sector as we get going, that letter is oriented to those folks, explains a opportunity and gives lower risk investment ideas. Then my main newsletter… That’s a monthly. My main newsletter is a weekly is newsletter that is for the more engaged metals investors talking about what I’m buying, selling and thinking in the higher risk, higher reward sector largely, and a lot of macro discussion of how this market is coming together.

And then I have a premium service for those who are interested in the opportunity to participate alongside me when I’m investing in private placements. And the idea there is that a lot of the really good private placements in this sector are either closed before the market even realizes that they existed or not obvious when they happen because they’re sort of new companies being established. So I’m just trying to give retail investors a little bit of access to those opportunities. So those are my letters, and I work away on them. And I’m introducing a bunch of new companies right now, because like I said, I’m interested in a broader suite in the gold sector right now. So I’m pretty excited about the opportunity that’s out there, and that’s what I’m writing about.

Bill: Excellent. Well, I appreciate your insights today. Thanks for coming on Mining Stock Education, and I look forward to catching up with you in another six months.

Gwen: Sounds good. Thanks so much, Bill.