Dave Kranzler | Mining Fund Manager Discusses Investing in Today’s Junior Gold Market

In this Mining Stock Education episode, Dave Kranzler, editor of the Mining Stock Journal, comments on his current outlook for gold and the junior gold mining sector.  Dave also shares regarding what he looks for in a late stage development company, his perspective on shorting mining stocks and how he hedges his fund’s mining stock portfolio. Specific companies discussed are Excelsior Mining, Tahoe Resources, and US Gold Corp.  Dave also offers his thoughts on the electrical vehicle revolution, Tesla Motors and Elon Musk.  Dave runs a mining stock fund out of Denver and is also the editor of the Short Seller’s Journal.  His latest insights can be found on his website at InvestmentResearchDynamics.com.

0:05 Introductions of Topics and Guest

0:30 Dave’s thoughts on the current gold and junior gold mining sector

7:23 Why Dave recommended Excelsior Mining in his Mining Stock Journal

13:25 What Dave looks for in a late-stage development company

16:27 Discussing Tahoe Resources

24:44 Dave shares insights regarding shorting mining stocks and how to hedge a mining stock portfolio

33:48 Dave’s thoughts regarding the electrical vehicle revolution

38:51 Discussing Tesla Motors and Elon Musk

44:10 Discussing US Gold Corp

48:33 Information regarding Investment Research Dynamics


Bill: Thanks for tuning in to another Mining Stock Education episode. I’m Bill Powers. Today, I’ll be speaking with the editor of the Mining Stock Journal, Dave Kranzler. We’ll be discussing gold, junior gold stocks, shorting mining stocks, and the electrical vehicle revolution. Dave also runs a mining stock fund out of Denver, and his latest insights can be found on his website, investmentresearchdynamics.com. Dave, thanks for joining me today.

Dave: Thanks for having me on again, Bill. I love doing this show. You always have great questions and great comments.

Bill: Thank you very much, and I appreciate your insights. That’s why I asked you on. And the first question I’d like to jump into is regarding your current thoughts on the gold market and specifically, how the miners are performing relative to the price of gold. What do you foresee or analyze right now?

Dave: You know, we’ve been kinda trading in a range here in the gold market. At the high end, as everyone probably knows, 1,360 area. And at the low end, just call it 1,300. I actually didn’t think they’d be able to get gold below 1,300 again. But obviously, they did. And I always preface my shorter term forecast with the market’s so heavily manipulated. Anything is possible in the short term. It’s really an impossible market to forecast.

But, my personal view is that I think gold is kinda percolating or call it coiling. I guess, some technical stock analysts like to use the term coiling. It’s coiling for a move that I think it’s gonna take it over 1,400 at some point. I expect it to happen this year, but for the last 10 or so years, my expectations have usually…it takes longer than what I expect it will take to happen. But, you know, obviously, the economic fundamentals are strengthening in gold’s favor. The geopolitical elements that drive gold are strengthening in gold’s favor.

And if you just kind of look at the way that the trader positions in the Commitment of Traders report shifts around, it’s shifted into a, kind of, a structure that, you know…call it a structure of the COT, that is neutral and turning favorable for gold and silver. So, you know, I don’t know when we’re going to see the next move begin, but I think the market has been setting up. The longer it, kind of, trend sideways, the more powerful the next move higher will be.

Bill: What do you think about the performance of the minors and some of the major, minor ETFs relative to the price of gold? Many commentators have described the current mining investment sector and the junior miners as boring. And I go through to, kind of, gauge sentiment, look at the comments section on YouTube videos that discuss these things, or Kitco articles, and it seems like many people are discouraged. What do you see as the relationship between the performance of the miners relative to gold, and what that may be speaking of for the future?

Dave: Sure. There’s no question that the sector as a whole, again, it’s kinda stale because it’s…I mean, it’s kind of drifting. You know, it goes lower for a bit then it moves higher and people get optimistic, and then it goes lower again. And you know, the stocks have been kinda following gold in that trading range for quite some time, and people are getting impatient. I mean, I’ve seen this…because I’ve been doing this sector since 2001 and I have seen it, you know, time and again, where, you know, unfortunately, most investors are shorter term. I mean, most of the investors that I chat with now weren’t even in the sector before 2012 or 2014, or a lot of them are new to the sector since the market bottomed out in the end of 2015. And it’s a sector that really requires a long-term perspective because it’s…I mean, at its root level, it’s about money, honest money, as opposed to fiat paper currency. And it takes a long time for changes in monetary regimes to shift.

I mean, look at how long it took for the world to shift from essentially what was a gold standard before World War II, into the U.S. being the reserve currency of the world. I mean, you’re talking about basically a 35, 40-year shift and it happened in stages. You know, Bretton Woods and then 1971, and there were some mini-stages in between that, sort of, kept the dollar moving toward becoming a pure fiat currency and the reserve currency. So, if we are headed towards a global monetary system that will have gold involved in the money supply and in the monetary foundation, and into some extent, we kind of already are because, you know, arguably, the Fed may or may not hold gold, which is supposedly holding on behalf of the treasury, but a lot of central banks around the world do own gold as part of their reserves and it’s considered a Tier 1 asset.

So that means that in Central Bank terms, it’s interchangeable for fiat currency. So, you know, to that extent, the foundation is set up there to reintroduce gold in the monetary system. I think that’s what we’re slowly seeing. And part of what’s keeping a lid on the price of gold is western elitist interests are trying to prevent that from happening. Obviously, it’s ignorance countered to their wealth building interest to reintroduce gold into the global monetary system.

So, I guess, that’s sort of a roundabout way to say, you know, I think you got to be patient. And sometimes, the best times to, you know, sit tight and be right or even add more money to an investment sector is when no one else wants it. And we’re, sort of, in a period like that right now in terms of just judging by, as you pointed out, the general sentiment toward the sector, so. And for me, that’s when I’m like, “This is the best time to buy.” I mean, when I came out of business school in ’91, everyone said the junk bond market was dead, and I was like, “No, no one else is going into it and so I’m going into it.” And I think out of the top 10 schools, there were 2 graduates, myself and one other guy, that went into the junk bond market. And then, obviously, the rest is history from there in terms of how the junk bond market developed.

So, you know, again, I think it’s just a long-winded way of saying, “You know, if you own it, sit tight and be right. If you really believe in it, don’t just sit tight, start slowly wading into more positions.” And not every mining stock has gone sideways or down. I mean, we can talk about Excelsior Mining, which I recommended in my Mining Stock Journal, I think about…I’d have to look it up, but call it 6 months ago, and it was around 78 cents, 80 cents. And I mean, it’s been as high as $1.10, and it closed on Friday in $1.03. So, over, call it a 6-month period, that’s a heck of a rate of return, 25%.

Bill: And what were the main catalysts driving that stock? That’s not one I followed.

Dave: They’ve got a copper project in Arizona, and it’s a very robust deposit. And they are going to employ, what’s called, the in-situ extraction process, and it’s…

Bill: Like uranium mining?

Dave: Yeah. Exactly. Exactly. And it’s been done with copper before, and they have all their permits in place now. They just recently got their federal mining permit or environmental permit really, which lets them mine. And they may actually get production started by the fourth quarter this year. And it was just one of these companies when someone showed me the idea and I listened to the presentation, I had never heard of it, and I don’t really… You know, Mining Stock Journal is primarily gold and silver stocks. You know, occasionally, there will be a copper play in there like Almadex, which was a major-league home run, but I don’t go out looking for copper ideas. And I looked at it and I heard the presentation and, again, it was trading right around 80 cents. And I started running some numbers on it because if they meet what their projections are… and this in-situ extraction process as you know, I think it’s a little more reliable and predictable than the typical, you know, crush the ore and then extract it with cyanide, and then further process it there in a dore bars. You know, I think it has to have a little more consistent extraction results.

And I’m just kinda shooting from the hip there, but that was kinda my impression because here’s a company that has about a $200 million market cap now, and they’re projecting that they’ll do, by year 7 of the mine, 300 million in free cash flow. So that would be EBIT… The way free cash flow there is defined is EBITDA less sustaining CAPEX. So we’re talking about, you know, by year se7ven, this thing’s gonna be throwing off, you know, 33% more cash flow than the current market cap of the company. And when I look at something like that, I’m like, “This is a no-brainer.” I mean, yeah, there is some risk that something could happen that derails their ability to produce, but you’re at the point now where, like I said, I think they’re getting ready to… They’ll probably start producing by the fourth quarter this year, so.

Bill: What’s their mine life? A lot of times, copper projects have longer mine life than gold.

Dave: I mean, this thing, they’re looking at… They’ve got it running 23, 24 years.

Bill: Yes, some of these copper mines can be 50-plus years.

Dave: And in their first full year of operations, so let’s just say, you know, for argumentative purposes, their first full year is 2019, they’re going to do 50 million a year in free cash flow. So, I mean, just on that basis, you know, it’s a $200 million market cap trading at 4 times free…and really, it’s four times free cash flow as opposed to EBITDA. You can’t find any company in the Nasdaq that trades anywhere remotely close to four times cash flow. Those companies are trading, you know, at 40 times cash flow. So on a relative value basis, this is an extreme value play. And it has a…

Bill: And that’s usually is a $3 copper, I would assume, or thereabouts?

Dave: Actually, no, their base case feasibility study uses 2.75 copper. And that’s one of the things that I liked about it when I saw it, you know, they weren’t using pie in the sky numbers. Yeah. They’re using a 7.5% discount rate. And most juniors, when they’re making, you know, like their pre-feasibility analysis or their preliminary economic analysis, they’re only using a 5% discount rate. And these guys are…

Bill: Because it’s in America.

Dave: Yeah, and Canadian companies do it too. It’s just kind of a standard. Now, I’m seeing some junior mining companies moving toward using a higher discount rate, 7%, 7.5%. But, you know, these guys, their return assumptions are very conservative. Like I said, their base case is using 2.75 with a 7.5% discount rate. And this thing has a 40% IRR and an $807 million after-tax NPV. So, versus a $200 million market cap now, and almost completely de-risked, I mean, this thing, to me, is a no-brainer. I mean, your risk is the price of copper. And if we go into a global economic severe recession, the price of copper is gonna take a hit. But, again, this thing has a $522 million after-tax NPV using to 2.25 copper. So copper could make a big hit and this thing still is, you know… And sort of your most conservative assumptions, this thing is still undervalued relative to its potential.

Bill: Can you talk about what you look for as well as warning signs when you’re looking at a late-stage development company that’s made it to at least a pre-feasibility stage? What are some things that are like red flags, where you say, “No, I’m not going to touch that thing.”? And then what would you be looking for going on financially with the company, you know, not just cash on hand, but ways in which they’re looking at bringing the project into existence?

Dave: That’s a great question, and it’s always… So, for instance, there’s a company that I featured in my Mining Stock Journal early in the Mining Stock Journal’s evolution, so it would have been, like, the spring or summer 2006, Treasury Metals, and it’s up in Canada. Don’t hold me onto this. I think it’s in the Timmins camp. It’s a really nice project they’ve got. Again, I’m just running these numbers off the top of my head, well over a million ounces of…I think, it’s measured and indicated. And they are…I mean, they’re getting really close to whether they’re going to make a decision to go forward or not with building a mine. And I’m thinking to myself, “Wait, you’ve got all the pieces in place. You know, what could derail this thing?” I mean, the ability to raise capital to put in the mine, that could be a huge derailment. I mean, you know, if it’s an underground mine, those things can cost a lot of money to build. Capital markets might not be there to finance it, so that’s a potential risk.

You know, usually by the time at which they’re at the feasibility study, they’ve got most of the kinks ironed out. They’ve got a, you know, a resource that has demonstrable metallurgy, meaning, you know, that it can be successfully extracted at the current price of gold. You know, any kind of political issues have been taken care of. They’ve got their permits in place. You know, I think at that point, it’s just kinda like you’ve got to look at the project and say, “Okay, this thing makes sense. And even if the price of gold drops $100 between now and when they start production, it’s still gonna throw off cash flow.” You know, to me, the risks…once they’re at the feasibility point and they got to start looking for financing, the two risks that you gotta consider are financing risks and the price of gold or price of silver risk. And those are both market risks, and those are, to a large degree, they are out of the company’s control. They’re out of any one’s control. But, you know, that’s why you can buy these stocks and make, you know, a 50% return in a year because of the risk involved.

Bill: One stock that I’ve corresponded with you regarding before I purchase a position last December was Tahoe Resources, which you’ve covered in your Mining Stock Journal. Can you comment on Tahoe Resources and what you think the value proposition is now and for the future of that company?

Dave: Sure. What price did you get in?

Bill: Four thirty nine a share. That was my cost basis.

Dave: Oh, so you’re happy.

Bill: Yeah, absolutely. But it went up over five then it went down to, I want to say, 3.80 after the earnings call. And then it shot up 18%, like, the next trading day after that. So I’m definitely in the money, this one.

Dave: Well, 60 cents on 4.39 in a year, that’s not too bad?

Bill: Yep.

Dave: That’s, what? About 14% or something?

Bill: Yeah, so far. I’m expecting a lot more though, especially with the Guatemala mine, you know, coming back into production 20 million ounces of silver a year. I bought it not only because of the gold production, which made a lot of sense, but also because of the hope for double in a day if that silver mine comes back into production.

Dave: You know, I think that double in a day when the news hits or if it hits that they can resume operations at the mine, that double in a day, I think, has been partially priced out of it already. So you’re not going to get a double, but you should get a dollar or two pop. Then, you know, as you mentioned, the real upside to this stock hinges on what happens in Guatemala. I mean, I guess, for your listeners, the story there is, is that a local group of activists filed a lawsuit against Tahoe, and a local court issued an injunction and forced it to shut down. It had something to do with breaching of environmental regulations or something. It’s been awhile since I’ve actually talked about the story. I’m just sort of waiting for it to, you know, finish. And at any rate, the issue is at the…

The local court in Guatemala is called the Supreme Court. And what they call the Constitutional Court now is looking at the issue and deciding on it. And I thought there would have been some sort of decision rendered by now, but there hasn’t. So this thing’s been dragging out longer than I thought, and definitely longer than the company thought.

But, if you discard the Guatemala operation and just look at its other silver operations in Peru, it’s got two mines there, and then it’s got some very profitable gold mines in Canada. You know, at $5 a share, Tahoe is undervalued just looking at its gold mining operations. And then you throw in the two smaller silver operations in Peru, and even without Guatemala, I think the stock is going to…it will perform well as the price of gold goes higher because it… I mean, it’s a… I guess, some people might still put it in the junior category because it’s not as big as Goldcorp or Newmont or Barrick, but I consider it, you know, a major league mining company.

Bill: For a stock like this, it was trading, you know, a year ago, I believe over nine bucks. And when so many people get burned, they bought at 9, 10, I mean, it was over, I believe, 20. I’m doing this from memory. I’m not looking at the chart. A couple of years ago, people who bought higher then, of course, sold lower, they get burned. What does it take and how long does it take for a company like that to really shake off all that baggage and negative investor feelings towards the stock before the stock can really start to fly, assuming, you know, the price of gold is going up and the company is running well?

Dave: Sure. And, you know, to be fair, it’s part of that drop in the stock is gonna be market related, right? Because for the last year, gold and silver have gone sideways to down, and the mining stocks have also gone, for the most part, sideways to down, so. But you’re right, most of that drop in the price, which was… When the mine was shuddered, it was at 8.50 and the stock dropped down to 5.50. And so, a lot of the volatility in the stock has been counter-related to any kind of news or announcements that might be made connected to that mine as opposed to what the market’s doing.

I think, you know, hopefully, people understood there’s always political risk in a country like Guatemala with investing in this stock. And, I mean, that was one of the things I liked about Tahoe, you know, if the political risk didn’t come to the surface, it was very undervalued, you know, with the Guatemala mine in operation, Escobal, especially as the price of silver moves higher. You know, again, this is a situation where, at this point, I don’t know how this is going to be resolved. I know the U.S. State Department and it was the embassy down there released a statement encouraging the constitutional court to make a decision on this. And they threw some language in there that was encouraging them to rule in favor of Tahoe. And I knew from talking to the company…I don’t know, probably about six or nine months ago, I spoke to their…it was actually their attorney, who does a lot of their political relations work, and I knew that she was talking to the U.S. government about helping them out there.

So, the other thing you need to consider here besides just the political activism that might be opposed to the mine is that the mine is a major employer down there. I think Tahoe is responsible for, like, somewhere between 1% and 2% of Guatemala’s GDP. And so I can guarantee you that the government is missing out on…they really are not happy with missing out on the tax revenues and the royalties that they collect from when this mine operates, so.

But you know, it’s like this country, you know, the government…I’m assuming they’re trying as hard as possible to be a democracy, and they’re not going to go in there and overrule the court on this. You know, they got to let the legal system down there run its due course. So, we’ll see what happens. Again, I mean, this company, and I haven’t looked at the cash balance in a while, but I think they have about a 170 million in cash right now. If they just had to shut down this mine and leave, you know, the one thing that… You know, and this kind of gets back to just the mining stocks, and especially the junior mining stocks in general. The one thing that this last, call it, 12 to 18 months has done is it has created a lot of very, very undervalued junior mining stocks. And I say undervalued based on what a lot of these juniors already have in the ground, what they’ve already proved. And they’re trading at substantial discounts to, you know, where they would be trading if the price of gold was at 1,400 and the sentiment was a lot stronger in this market.

So, my point here with Tahoe is they got plenty of cash to go out and make some acquisitions if they have to, you know, replace the revenue stream that they would miss out by shutting down the Escobal mine in Guatemala. And there’s plenty of those acquisition just in Nevada. So, you know, if you don’t like the political risk associated with mining, there’s plenty of junior miners just in Nevada that are extremely undervalued right now. And I think if Tahoe were to, you know, get shut out on the Guatemala, I think you’d see them pretty quickly look to build their old mining operations by acquiring some junior minors. You know, for instance, Treasury Metals would be a great acquisition for them and it would blend in nicely with their operations, the two gold operations they have in Canada now.

Bill: Dave, you write the Short Seller’s Journal as well as the Mining Stock Journal. So my next question relates to shorting mining stocks. What’s your general perspective on shorting mining stocks, and how and when do you do that? And if you could share any examples, please.

Dave: Sure. In general, I’m kind of opposed to shorting mining stocks because, to me, these juniors are kind of like the internet stocks were in, you know, the late 1990s. You know, as opposed to a lot of those internet stocks were no revenues, no prospects, and they were still getting $1 to $2 billion market caps. A lot of these juniors are working on developing properties. And even if they end up with a property that only has half a million ounces on, and if the price of gold is, you know, between $1,500 and $2,000 an ounce, that means that junior mining company is going to be worth a lot of money. Right now, relative to that potential, these companies are trading at pennies on the dollar. So I don’t think that’s the type of story that you wanna short because it’s a thinly-traded market. These companies don’t have a lot of share float outstanding.

And, you know, if you’re short one of these stocks and all of a sudden the market takes off, you’re gonna feel like you got run over by a herd of elephants. So, in general, I don’t recommend shorting especially individual names. Now, there has been over the last couple years, I have put some, you know, avoid-this-name type ideas in the Mining Stock Journal. And I did it with MX Gold. And I have to look up the chart price, but it might have been like at 30 cents and now I think it’s under 10 cents. And as we were talking earlier, Bill, I did it with…you know, I’d put Northern Dynasty in there. I said, “Just avoid it because this property, in my opinion, is never going to get developed.” And Northern Dynasty was at… Now, I didn’t recommend shorting it, and I just said, “Avoid it.” I said, “If you’re aggressive, you might wanna short it.” And that was at a $1.38 when I recommended that. And now the stocks, I think, it’s closed at 47 cents on Friday.

And then that Novo Resources, when that thing traded up over $6, I actually tried to borrow it for our fund and short it, and I couldn’t get… Our custodian that we use for our fund wouldn’t let us short a five-letter stock. So we weren’t able to short it, but I did put in my Mining Stock Journal. I advised my readers to avoid it. And then, you know, the stock went from six to under three. And I think it’s probably back over four now. And again, you know, that’s one of those stocks that I would recommend avoiding at this point until there’s a lot more news out on it that shows that they have something that, not only do they have a viable resource there, but it’s something that can be viably converted into gold that they can sell.

So, I guess, this is a probably a long-winded way of saying, in general, if I don’t like a junior mining stock, you know, I wouldn’t tell someone to short it, I would just tell him to avoid it. So that’s my view on whether or not you should short mining stocks. In terms of what I would potentially recommend is there’s things that you can do to hedge a long portfolio in mining stocks.

And in our fund, when we think that there’s going to be a period of time where gold’s gonna be manipulated lower, and, you know, it’s a volatile sector, so the mining stocks are going to have, you know, say, a 10% to 20% pullback, what we do is we’ll hedge out at least 50% of our long position of our mining stocks and sometimes up to 100% if we want to, you know, get a little speculative in terms of our view on a pullback or a, you know, a short-term downtrend in the sector. And the way that we do that is we use JDST, which is the inverse of JNUG. And the reason why we use that is because it’s triple leveraged, and we can put on a hedge using JDST that it only costs us a third of the total size of our stock portfolio, right? Because there’s three times leverage there. So a third of the value of JDST versus the total market cap of our share portfolio, theoretically, should move the same, right, and percentage wise.

And we take it even further than that because you can do it with putting up even less capital, and that’s to use deep-in-the-money calls that are near expiration. So as an example, JDST closed on Friday at 49.86, and if you take a look at the JDST 42 calls that expire next Friday, on Friday, they went out indicated at 7.40 bid, 8.40 offered. So if you can buy those for 8 bucks per option, you’re essentially going long JDST with about 14 cents a premium because you got the cost of the option plus the strike price is 50. JDST closed at 49.86, so there’s 14 cents of premium in there. And that’s just the cost of putting on a less capital-intensive hedge than actually going out and buying the number of shares in JDST that we would need to use the hedge position.

And then there’s also transactions cost involved there. Because if we continue to believe the market is gonna go lower and I’m not saying, “I think the market is going lower next week.” But we’ll roll the call options forward to the next week. And we try to pick out a deep-in-the-money call option that will minimize the amount of time premium that we pay because it obviously reduces the cost of the hedge. So, the other problem with these triple-levered trusts is that because they’re essentially pure derivatives, they have a huge time-premium decay. I’ve seen articles where, you know, these triple-levered trust, and it doesn’t matter what it is, they lose about 10% a month because of the premium decay. So that’s why we look at it in terms of a short-term trade, we use short-term calls. And our preference is to not go long the actual trust because with that decay factor in there, you’re kinda swimming upstream and you need a big move in a short period of time to actually do well going long, either of these trust, whether it’s JDST if you’ve got a bearish view, or JNUG if you’ve got a bullish view.

Bill: Would you say if one was looking to short a junior mining stock and that was possible, the best candidate would be a stock that had a parabolic run up due primarily to a newsletter promotion?

Dave: Yes. Absolutely. And we saw that with Novo Resources. We’ve seen it with Northern Dynasty. We were seeing it with MX Gold.

Bill: What about, you know, when, like say, a pre-revenue junior company does a large financing and there’s a 5-year warrant attached to it, and the warrant might be 30% or 40% only above the current range that the stock is trading in. You know you’re gonna have millions of shares become free trading in about four months. Have you ever tried to short a stock, you know, at three and a half months before you know all that free trading shares are gonna come open?

Dave: Not really. I mean, generally, when warrants become exercisable and if they’re in-the-money, it generally doesn’t create a large sell-off in the stock. There might be a small technical sell-off. Again, for me, I just don’t like to mess around with shorting these shares because what happens if you short the shares anticipating, you know, the lockup period on a warrant’s expires, and all of a sudden, people exercise their warrants and dump their shares. What happens if between, you know, when you short it and that point, you know, the sector takes off and you’re looking at a stock, just to throw some numbers out there, might go from 40 cents to 80 cents. You know what I mean?

Bill: Yeah. What about the electrical vehicle revolution? If I could preface this intro by saying, in my opinion, you’re probably one of the greatest Twitter critics of Elon Musk and Tesla. You can share your thoughts with Tesla if you could. But beyond Tesla, what are your thoughts regarding the macro-narrative of the electrical vehicle revolution and the increased need for battery minerals?

Dave: Sure. You know, I think these EVs are… I mean, you could say, “Okay, well, Tesla pioneered the way.” Well, guess what? Right behind that, you’ve got Audi, BMW, Porsche, Jaguar, Honda, and then the U.S. producers. You know, within two or three years, the market’s gonna be flooded with a lot of different models and a lot of different price points. So, there’s no question that, you know, the shift into EVs is going to become a mainstream trend. Again, I don’t spend a lot of time studying the issue. I mean, I drive a gas-powered Audi, and I’m very happy with it. And I think until the price of gasoline becomes unaffordable for most households, I think most people probably will stick with their gasoline-powered cars.

I mean, these EVs, I think, still have a lot of development to do before they can be considered interchangeable with a gas-powered car, for instance, you know, the battery range, things like that. It’s also, I guess…my understanding is the battery life is not as long as people think it might be when they buy these cars. And to replace the batteries is very expensive. And then you got environmental hazards connected to disposing of the batteries. You know, that’s kinda like the white elephant connected to battery-powered vehicles that no one talks about. I think a lot of these batteries are getting dumped in the ocean, and that kinda disconcerts at least me.

But in terms of creating the need for, kind of, the base elements that go into making batteries, you know, I know there is projected to be a cobalt shortage that’s developing because I guess cobalt is an essential ingredient in making these batteries. And as you mentioned it, you know, I mentioned earlier that I pretty much focus only on gold and silver mining stocks. Well, as it turns out, there’s a junior mining company that had bought a property in Canada to develop the silver potential of the property. And they happened to discover a ton of cobalt on the property, and they’re in the process of advancing that and drilling it out. And I recommended that one in my Mining Stock Journal. It was probably three or four issues ago, maybe two or three issues ago. And ordinarily, I’d give you the name, but it’s such a new idea for my subscribers that I like to, kind of, embargo sharing ideas with the public for a while and let my subscribers decide if they want to buy it or not.

And so, in this particular company, I spent a lot of time on the phone with the CEO. They also have a silver mine that they’re developing. And just without the cobalt property, the silver mine is potentially a massive home run, so. But right now, it’s…you know, if you look at what the market cap of the company is and you look at what, I think, it’s called U.S. Cobalt is there’s…

Bill: Being acquired by First Cobalt?

Dave: That’s what it is. First Cobalt is, sort of, the Mac Daddy of the pure cobalt producers. If you look at what First Cobalt is paying for properties out there that have cobalt in the ground but, you know, are a long way from being developed, you know, this company could probably flip their cobalt property for pretty close to the current market cap of the entire stock, and that would give you the silver property for free. Now, they’re not going to do that because if they can prove out a big cobalt resource on their property, I mean, obviously, the cobalt property alone is worth, you know, 10 times what they could sell it for now, so. And this is the idea that I really like, it’s got a low stock float. The CEO has experience. In a prior life of his, he took an energy property and developd it into a home run and sold it into a major, so. I think on a risk-return basis, this is probably one of my more favorite new ideas that I’ve been presenting to my Mining Stock Journal subscribers.

Bill: If I could get your response to this, when I was at PDAC in Toronto about two and a half months ago, I overheard someone say and they said, “It’s my opinion that Tesla will end up being a battery company. It’s tough to make cars.” Do you have any thoughts or a response to that opinion?

Dave: I think that’s kinda optimistic for Tesla’s future. I think, Tesla’s gonna run itself into the ground, quite frankly. I mean, you’re looking at a company that burns close to a billion dollars of cash flow every quarter. They’ve got a massive amount of debt. I mean, companies like that shouldn’t be financed with debt, you know. Right now, in, you know, using financial theory, the bond market is telling you the stock is worthless because the bonds are trading at about 85 cents on the dollar. And as you know in a strict bankruptcy scenario, bonds get paid off at 100% before equity gets anything. And the bond market is telling you these bonds aren’t even worth par. So that means, theoretically, the stock is worth zero. So at a $15 billion market cap, that’s a really expensive option on the future of Tesla.

And again, we’re going to start seeing…I think. Audi’s coming out with an EV that’s…I think the price point is gonna compete with the Tesla Model S. And it’s supposed to be far superior. And a good friend of mine who actually…he works in finance and he’s toured the Gigafactory, and he said, “The thing’s just a complete disaster.” He recently toured it. And he’s brought up the good point that once these competing models come out and they start getting reviews, I mean, they’re gonna compare extremely favorably to the Teslas.

And the thing I don’t understand about Tesla’s, those Model S’s, we had a stretch there a few weeks ago where it was like every week the Model S was crashing. They think it’s related to the autopilot catching on fire and incinerating the occupants. You know, I’m not sure how the government lets these Model S’s…you know, I don’t understand that they don’t at least put in a recall until they figure out why these things catch on fire when they… I think Tesla’s going to become eventually a bankruptcy liquidation.

Bill: And Elon Musk has been getting a lot more ornery with his investors on the conference call when I read some of the transcript. And I think he’s kinda frustrated with the PR his company’s getting.

Dave: Well, he only has himself to blame. You know, you live in Michigan, Tesla reminds me, remember the DeLorean?

Bill: You mean from “Back to The Future,” the movie?

Dave: Yeah, well that was the car that was “Back to The Future.” But remember John DeLorean?

Bill: Uh-huh.

Dave: I mean, to me, it’s kind of a similar profile. You know, ultimately, I mean… DeLoreans, it was a great sports car. I mean, you know, it was stainless steel, it looked great. The place where I go get my Audi serviced, they actually have an old DeLorean in their warehouse. You know, and every time I go there to get my oil changed. I just saw it the other day. It just reminds me of John DeLorean. I think his fate was ultimately decided. I think he was trying to sell a big briefcase full of cocaine, you know, to get cash to keep the money going, if I recall the story correctly, but something like that happened. And, you know, Elon Musk’s personality profile kind reminds me, you know, similar to DeLorean’s. He has a great idea, but he’s crazy. And, you know, you’re seeing it in his public persona now. I really think he’s…mentally, I think he’s melting down.

Bill: Yeah, imagine he’s under a lot of stress because I know there’s a lot of people that aren’t happy and his critics seem to be piling on.

Dave: Here’s the other thing about it. He comes out he Tweets these financial projections and these production projections, and they never even come remotely close. And every time he Tweets something, you know, that’s positive, that he thinks is going to be positive, the stock jumps up. And to me, I don’t know how the SEC doesn’t shut that down. I mean, you don’t see the CEOS of these junior mining companies getting onto Twitter and saying, “Hey, you know, we’re a year away from producing a million ounces a year.” You know, they don’t do that, but that’s kind of the equivalent of what Musk has been doing. And, you know, I just don’t understand how the stock stays at this market cap the way that it does, other than I think it’s perpetually under a short squeeze because it’s a very heavily shorted stock.

Bill: Well, Dave, I appreciate our conversation. I’m sure the listeners do as well. Before you take off, is there anything you’d like to share in light of what we talked about? And could you update us regarding what Investment Research Dynamics has to offer?

Dave: Sure. You know, again, I think we’re in a period of time here where, you know, with the precious metals, the money stocks, you want to just sit tight and be right. You know, I’m not aggressively wading into the market in my fund buying shares. We have some cash, but we’ve also got a lot of it invested. And, you know, we’ve put a lot of that cash to work over the last couple of months. It does look like there’s some money that’s starting to accumulate these shares again. U.S. Gold is one that you and I talked about. You know, it took a hit, but now all of a sudden it looks like it’s being accumulated again. And I just want to say that that hit the U.S. Gold took was completely unwarranted. They didn’t have any news released. You know, it was a technical sell-off that I think the shorts piled onto.

And I know our custodian has emailed us several times trying to borrow our shares and they’re paying 50% annualized rate of interest if you lend them their shares, which of course, we don’t. I heard Ameritrade was offering U.S. Gold shareholders, like, 65% of borrowed shares. So that tells you right there, there’s a short squeeze coming down the road. But at any rate, I mean, the U.S. Gold stories on the com. I mean, they’ve got their copper-gold project in Wyoming, and that property alone is worth the market cap of the stock. So, then you get the Cortez Trend, Keystone Project for free, and that thing… You know, and, again, ultimately, there may not be anything there that’s minable. But I’ve spoken to Dave Mathewson, the chief geologist who’s really kinda running the company, and you can just tell from his body language that he knows, he can smell there’s something there underneath the ground. And he’s been responsible for some of the largest gold finds in Nevada, so.

It’s one of those things. The news is on the com. If you buy it here, you’re going to be able to buy it at a great price. I think, it closed yesterday at what, like $1.45 or something? And that’s about…that’s…

Bill: It was like up 5%, I think.

Dave: Yeah. And so, you know, I think it bottomed out around $1.20, so.

Bill: And the trading volume just died on that stock, too.

Dave: Yes. And that’s actually a good sign because the fact that it’s been moving higher, especially in this market environment, tells you that it’s being accumulated. So they’ll start drilling on the Keystone property, I think, within the next couple weeks and we should start seeing some drill news release by the end of July. And if any of those holes come back hot, that stock’s gonna fly.

Bill: And there’s limited downside at this point, like you said, with their Copper King property. You have the intrinsic value there. So, I mean, I can’t see it going much below 20 million market cap.

Dave: Right. I mean, if the market cap right now is, what, about 23 million, 24 million, something like that, that’s off the top of my head. But, I know when I spoke to the CEO a while ago, he said, you know, if someone offered him 50 million for the Copper King property, he might think about selling it. And he said, he’s been offered, you know, around 10 million or 15 million for it. So, you know, essentially the bare bones valuation on that, the Copper King property is not too far below the market cap of the stock. So, to me, it’s basically a free option on what could end up being a home run property in one of the richest gold trends in the world in Nevada.

Bill: I think having a stock on the Nasdaq with the name U.S. Gold in a gold bull market, I mean, that alone, the shares are gonna run up pretty high.

Dave: Yes, exactly. And I know that the CEO’s kind of… He knows he’s not going to get institutional investors really involved in the story until they start producing drilling results. So I know he’s been going around and working, you know, retail investors, which are your primary investors in juniors anyway, and building up a large retail base of shareholders. And once you start getting institutions involved, that’s when the stock could really take off, especially because it’s only got, I think, 17 million shares outstanding.

Bill: Yeah, like, fully diluted.

Dave: Yes, fully diluted. And this guy, Dave Mathewson, the guy who’s basically the chief geologist, he takes 75% of his pay in stock. So, to me, that’s a huge affirmation of what he believes the potential is for this property, so. But at any rate, I update stocks like Excelsior Mining and U.S. Gold, you know, at every issue in my Mining Stock Journal. And, you know, you’re listeners can find out more about either the Mining Stock Journal or the Short Seller’s Journal at my website, investmentresearchdynamics.com.

Bill: And you do about three commentaries a week usually, like, blog posts about current macro of economics or particular topics you’re thinking about.

Dave: Yes. I try to do, like, maybe five posts a week. But, you know, most of my time that I spend writing is either writing the Mining Stock Journal or the Short Seller’s Journal. So the Mining Stock Journal is twice a month and the Short Seller’s Journal is every Sunday. So, on weeks where I have to get both of them out, you know, I’m probably spending 60 hours during that week writing my journal and researching for my journals, so sometimes it gets a little bit harder to do blog posts. But yeah, I try to shoot for four to five a week.

Bill: Well, Dave, I appreciate your time and thank you for joining me today.

Dave: Thanks again for having me, Bill. Anytime.


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