Brien Lundin - PDAC Recap: Hidden Gems & High-Flying Resource Stocks

0:00Hey, everyone. Welcome to the K E report in a daily editorial Friday, March 6th. We are chatting with Brian London. Brian is the editor of the gold newsletter and our host down at the New Orleans Investment Conference this year happening just before and on Halloween. I'll post a link to the gold newsletter where you can also find out some more information on that New Orleans Investment Conference. Brian, let's just start off with quick little PDAC recap. You are there. I believe you're there for MIF and PDAC. We have a few other commentators sharing their thoughts on the weekend show, but let's get your thoughts. It sounds like it was very busy there, but any kind of different takeaways or anything really unique that caught your eye at those conferences. Yeah, I was, you know, it was a zoo and it has been actually for a few years, but there was obviously a lot of enthusiasm, a lot of smiles, a lot of activity. I don't know what the final crowd numbers were, but I'm sure it challenged the records. Everybody really excited and I was on a panel at PDAC and I commented on the fact

1:06that in a usual PDAC, you walked down the halls and you look at all those hundreds of companies assembled there in their booths and you figure that the vast majority of those aren't really going anywhere over the next year. You know, they might not really gain or gain much or they might even drop in value. This is the first time in a long time that I walked the, the aisles at PDAC, looking at all of the stories, the ones that I was aware of all had pretty decent investing arguments and as a general group, I had the feeling that the vast majority of those companies are very likely to be trading much higher by next year. Now, as I was talking, I was on this panel of Adrian Day and Rick Rolls in the front row and I could see skepticism across his face. But I genuinely believe that these companies are all very likely to be trading higher over the next year and our job as investors, as pundits and analysts, is not to find companies that

2:10are going to rise in price, but the ones that are going to lead the pack, be the fastest horses in the stable as it were. That is going to demand really active, very active, you know, management and work to find new companies. And you know, it's hard because there's so many stories right now that are well-cashed up that got good projects. I'm really looking at the expiration end as being the most exciting area out there, but it's a bit overwhelming, frankly, because there's so many stories. I started telling companies, don't even bother pitching me anymore. My brain is full. Here's my card. Let's set up a zoom. I can't take any more pitches. There's just, there's a lot out there right now. And I think it's a lot of opportunity and it's incumbent on us to put hay in the barn while we can and find the best opportunities and really work at finding the best opportunities. Well, Brian, very well stated. And I remember

3:10walking around at the V-Rick with you just in January and having the same effect where we were like, I can't take one more pitch because we had both been pitched all day and your mind becomes a wet noodle. But in the environment we're in here where so many companies are cached up, we were talking about that off mic. Everybody has money. Everybody has a drill program and a dream. How do you personally vet down the huge pool of choices into the ones that you think will out perform the pack? Well, you know, it's not a hard and fast recipe. There's so many ingredients that go into it. And for me, it's it's got to be the sum of all parts. Adding up to really, you know, tickling my fancy is we tend to have a at this point in my career a pretty good nose on what what is going to work. And that could mean it's going to work by the sheer force of the project and making a big discovery. It might work because it is a good project in an area that the market really likes right now. You know, silver is hot and everyone's looking for the next silver play.

4:12The next really good silver play that duplicates the formula of the previous one by a good team. That's very likely to be a good big winner in the market. So it is really finding each individual story or getting each individual story and seeing if the the recipe adds up to something that would be really attractive and perform. It's again, no hard and fast rules for me. So Brian, one thing I've really noticed about a lot of the commentators in the spaces seems like everyone's gone down the food chain into exploration companies right now. I guess they're just not seeing the the valuation, the opportunities in some of these developers or producers. But to me, those seem still kind of like the no brainer aspects because they follow the gold price. And if the gold price keeps moving higher, these companies are making money and you would think they'd be able to finance their project as long as it's a near term build. But what I keep hearing about is that we haven't had any multimillion ounce discoveries in the past two years. I think

5:17everyone's seen this chart that's been passed around. My argument to that is look at all the ounces that we have defined in the ground. And now all these companies going back and looking at these old resources saying it's a higher metals price. I'm lowering my cutoff grade. We're going to have more million ounces. Two, three, four million ounces more in the ground. To me, I almost feel like we're saturated in terms of ounces in the ground right now, which is making it harder to value all of them because everybody doesn't just have one million. Every company seems to have two, three, four, sometimes double digit million ounces in the ground. How do we analyze these projects when we need to realize they're not all going to get built? Hardly any of these are going to get built. Well, I don't know if they're not going to get built. That's been our experience. You know, over many years, most are not going to be built. But what we're talking about and what the gold price is pointing toward is an eventual reset at much higher prices with gold being an alternative

6:21currency or attached to fiat currencies in some way. So who knows what the upside is? I certainly don't, but I think it's still considerably higher. And in that kind of an environment where all that money, all that capital sloshing around the world has to go on gold, then there's certainly room for a lot more gold supplies. But I'm glad you brought up that point about cutoff grades because that's one of the emerging things that I found at PDAC, where it was companies that, you know, they're looking at their resource. In addition to sensitivity tables that now have a column for spot, which is how they're addressing what's happened in the gold price. Gold has soared past even the most optimistic assumptions on company sensitivity tables. So they're just using spot now. They're also looking at the resource that they lowered the cutoff grade. If they go from say point four for an open pit my project to point two, which is certainly realistic at $5,000 gold,

7:26you're seeing 50 to 100% increases in the resources that just drops down to the bottom line. That is an emerging theme and we're seeing ounces being found within the confines of already defined projects. Another aspect of this is that, you know, we look at what is the supply response to these high prices. I've been telling people that if you're talking about new production, new mines, you're talking about maybe five years or so before we get a really significant price response from new production from new mines in gold. For copper, you know, we're looking at 15 years or so. The only caveat to that is the what we're seeing also at this point in time, we're seeing ASICs for producers rising precipitously. I think the average is 1800 right now and moving toward $2,000 and that's because it's incumbent on these producers at these prices

8:27to just get as many ounces out the mill and out the tailings as they possibly can because their margins even at a $2,000 cost of production per ounce is still $3,000 in ounce. The margins on a percentage and dollar basis like they've never had before in the history of mining. So what's happening is we're getting a and about to get an immediate price or supply response surprises through low grading, through companies maximizing the amount of ore that they can put through the mill, at virtually any cutoff grade. So that means more gold coming out the other end of the pipeline and more money to the company. And that's what they should be doing, frankly. It's not a criticism. At these prices, they need to be taking advantage of it and they need to be low grading their projects and getting as many ounces out as they can. So it is a dynamic, it's a moving target. You have more coming out and more production response and more in the ground.

9:33You know, it's always been that this business is as much a business of rediscovery as discovery. Well, Brian, you bring up an interesting point here because just like in a bear market, people high grade their deposits to stay alive in a raging bull market like this with prices where they are for most of the metals, whether it's gold, silver or copper, you're going to see companies bringing in ounces that were considered waste or just a soil anomaly before. Do you think that's affecting the M&A cycle? And the reason I asked that is a lot of companies have had ounces that they wrote down in the past or projects they wrote down in the past that now they can develop is that staving off the need to do as much M&A as people would expect to be happening at these prices. Yeah, it could be, you know, in the old days, these South African mines were so well defined that analysts and the mines themselves knew to, you know, two decimal places at what gold price did certain reserves actually become reserves and actually become economic in companies were valued on that basis. So as the gold price rose, all of a sudden there was tremendous

10:38value that just suddenly appeared on these companies balance sheets as reserves that were out of the money suddenly became in the money. We're not seeing that kind of valuation concept or metric return to the Western markets yet. And frankly, I don't know that we ever will because of, you know, we just don't have the resources or reserves to find as tightly as the South Africans used to. But then again, you know, the majors, and that's a great point, Shad, that they can do the same thing. They can increase their pipelines by just recalculating their resources according to where the gold price is right now. And therefore, they don't have as much pressure to show Wall Street or other analysts as far as what their, how their pipeline may look. I think they're still going to, to look for M&A and look to build those resources and they're going to revert to human nature and try and grow through acquisitions. One of the things, the points I made on the panel was that

11:40everyone talks about how the big minors have to take better care of shareholder value and not start spending money like drunken sailors again. When an actuality, we want them to spend money like drunken sailors because we own all the little companies that they'll be buying at exorbitant prices. So that's, you know, that's kind of what we want to happen. And I think it will because human nature always reverts. Yeah, any sort of M&A down in the juniors definitely helps that whole junior sector and it lets people revalue these projects at higher prices. But Brian, since you're focused on exploration companies, what do you like out there? Because again, quite frankly, seems like a lot of these companies have a resource. They all have money. They all have pretty significant drill programs right now. Do you look for what you think are tier one deposits or are you okay going down into some of these other deposits that again, maybe just aren't getting the value or quite frankly have some near-term catalysts even if it's not your favorite asset.

12:47Yeah, I made the point as well to a couple of audiences that the majors right now are very exciting on that obvious rewriting that they need that needs to happen. And that they offer now potential returns that challenge the potential returns of an exploration play that actually discovers something. That said, and much lower risk as well. But that said, I always I'm always attracted to the exploration plays. That's where the excitement is in this market. And, you know, in a market that's built on stories, that's where you can capture that romance of discovery. And I'm seeing lots and lots of opportunity there, some of which I have yet to expose to my gold newsletter readers and therefore can't talk about yet. But I am amazed at how many good projects out there that have been kind of lying fallow for the last few years. There's didn't have the money

13:48to get the drills turning. And the money that has come into the sector over the last year, 18 months is now allowed companies to either bring those projects to drill ready status and start drilling or, you know, actually start drilling projects that had been ready. And the results are are coming in and have been coming in, frankly, since this past summer. But there's a lot of excitement out there. You know, I look at, I had a great update. If you want to talk about some specific companies, had a great update with Prospector Metals, which I have had on my hold list expecting the long winner of no news, that news vacuum to bring the price down. But it hasn't happened. Smart money is in this play. I got detailed updates from the geological team Rob Carpenter and Jody Gibson on the prospects and what they've learned and the importance of that tremendous widespread gyro site anomaly that they have in the project. And it really is important

14:52and it really is indicative. And, you know, I don't expect that price to come down much between now and when they start drilling, in fact, is probably going to rise as excitement builds. So that's a play I think people as far as it's come already. You know, we were on this one. I was recommending it at 17 cents well before it made the discovery before it was drilling. And I think that's it's one that despite the run, I think you want to own that one going forward. Looking down my list, as well, Cassiar Gold has been lagging the rest of the market and is starting to make up that ground. They're starting to really highlight the fact that they have a mill on their property in two permits. And, you know, there's a production angle there as well as the tremendous expiration angle and the value of a very large resource already defined. So I think they're going to play catch up a bit. Brian, thanks for mentioning both those companies' prospector and Cassiar are their ones we've had on the show and we think are doing well. But I'm curious,

15:54at PDAC or at any of these conferences, sometimes there's an area play that's trending or sometimes there's a, you know, a close-ology play to it or something or sometimes there's a talk of the town, you know, whether it's a certain metal that's trending. So I don't know if we expand beyond precious metals. Was there any of the critical minerals be it lithium or uranium or some of the defense metals or mirrors? Was there anything else that caught your eye even outside of precious metals as something that was trending or was there an area that was trending at PDAC? There are some, some of the area plays, you know, obviously the Mexican silver play suffering now with what's the tragic story of Visla. So that's come off the boil a good bit. In terms of prospector, there's a new recommendation in our less T2 metals that is actually becoming a bit of an area play on both Banyan and Prospector. That I think is going to get more attention down the road. It's overlooked right now. It's, as I say, it's a new recommendation for us that I

16:57don't own yet. Unfortunately, I shouldn't really be talking about it, but I don't even own that one. Spartan metals is a critical metals play in our portfolio that's actually in Nevada. Has some historic tungsten assets that I've liked and we recommended them at the end of last year. They have started to move. It's up about 65, 67 percent in our portfolio. I think they're going to get more aggressive going forward as well. So yeah, they're, we're starting to see it spread out a bit, you know, and that's typical in a gold bull market that in the equities that they start off in gold. They transition a bit quickly to silver as far as the juniors. And then as we saw in the 2000s, are you going to rare earths, you go into uranium, you go into critical metals and battery metals and the light. So that's starting to happen now. The interesting thing this time around is that we have really a secular historic bull market in the monetary metals of gold and silver that is co-incident

18:02with a secular bull market in base metals and energy metals and the light. In this time, I think that other bull market in the base metals is based on the supply demand factors, you know, supply constrictions going up against steep demand curves. So strong, so powerful that I think it can survive on its own. And we're really having embarrassment of riches right now as investors in the sector. And then we have two secular bull markets going on simultaneously. Yeah, it's a great environment out there and has been for quite a while for resource investors down into the stocks. And I like the base metal setup. I've said it before because we're also seeing a lot of capex build out and that directly impacts that whole supply demand aspect. And as long as that continues, which is being led by big tech and they have cash, this all should be supportive. But I don't know, there is still sometimes this valuation aspect of these stocks that

19:03have gotten really far ahead of themselves for maybe not having as much quality as I would like to see, but there's definitely quality assets out there in a way waiting to get taken over or simply going through that long process that is permitting and financing and then building assets. I think everyone should be sticking to those ones that are more near term producers than anything, but look, all these stocks, a lot of them are off 10, 20, 30, even 40% could be a great opportunity. Just need to see where that bottom might be and when some more interest comes back in. But hey, Brian, great chatting with you. As always, again, Brian London Editor of the Gold News Letter, click that link in the show notes to follow along with what Brian's writing. Brian, thanks for your time. Have a great weekend.