Hard Asset Digest May 2020

Brien Lundin: Mike, wonderful to be with you… and, yes, thankfully, we’re all good here.

Interestingly enough, Mike, I never really had an early interest in gold. In all honesty, I was simply looking for a job in the mid-eighties and saw an ad for a junior copywriter for Jim Blanchard’s Coin & Bullion Company.

I was working at a small advertising agency at the time as a writer and decided to apply. They gave me a writing test along with a number of competitors. I passed that and started working for them straight away — writing copy on gold, silver, bullion, coins and the like. I kind of just got thrown head-first into the world of the hard money investment newsletter industry as it were.

It was a crazy place to be sure!

And perhaps even crazier being that it was Jim Blanchard, who was known as the original gold bug and who was so instrumental in getting gold ownership legalized for US citizens in the early-1970s.

And from that, he started his own coin and bullion company, which grew to be the largest in the country. He also started Gold Newsletter as part of his lobbying efforts to return gold ownership to American citizens. And once that was successful, he started the New Orleans Investment Conference.

So he had quite an operation going. And I was literally the lowest man on the totem pole when I started. I quickly struck up a great friendship with Jim as we had a number of things in common. I was kind of a natural born libertarian. We had some science fiction authors that we liked in common.

Jim really took me under his wing. He exposed me to a more structured view of the libertarian philosophy behind gold ownership and its true role in preserving wealth against the inevitable depreciation of currencies — which, by the way, is something that's always happened throughout human history.

That was my initial exposure to the industry. I never knew much about gold, never cared much about it. But at my core, I was kind of, again, a natural libertarian and my views were never really formalized until I met Jim and the remarkable group of people around him and his company.

An important part of my role in the marketing department was to position the coin company for a potential sale. We were doing some fairly aggressive marketing and were able to get the coin company up to a very valuable level whereupon Jim sold it to a private equity group in 1988.

And within two years, that group had completely run it into the ground!

Mike, that was a remarkable experience. The group was associated with General Electric, and they came in thinking they knew everything about the business from the moment they stepped through the door. Well, they quickly proved they didn’t know a thing!

Jim bought it back and then sold the coin company to the management group that had taken over. I was still merely a copywriter in the company. Jim decided to take the newsletters and the conference and start a brand new company and brought me along with him. So I was employee one for the new venture.

From that point forward, I pretty much ran the show for Jim in what was christened at the time — Jefferson Financial.

BL: Yeah, it's just been awe inspiring, hasn't it? The way I like to tell people is I fully expected and predicted just about everything that's going on right now response wise. Yet, I expected it to play out over years — three, four, five years. Instead, it has played out over mere days.

So it's not only the degree of everything that's happened, but the rapidity — how quickly it has impacted the economy. And it's no holds barred. It has become a bidding war in Congress. There’s nothing that’s been considered before that hasn't been ramped up to levels never before seen. And they're coming up with new ideas — crazy ideas.

But crazy talk has been normalized since 2008!

So the degree of liquidity has just dwarfed anything that we could have imagined beforehand. And it's going to have repercussions for years to come. The federal debt has been completely blown out of the water on this. And the implication of that alone is that we're never going to have anything close to normalized interest rates ever again.

In fact, we almost assuredly will have negative real rates forever or for as long as this monetary regime is in effect. Because, otherwise, the cost to service the federal debt will blow the federal budget apart.

So there's no choice at this point but to continue to depreciate the value of the dollar and to continue to have negative real rates. And this, of course, is enormously bullish for precious metals and the associated derivative investments like mining stocks and the like.

BL: It's a bit of both. The scholars and pundits can quote facts and figures and display charts to show that gold is not the most effective hedge against inflation and that other hedges may work the best.

But gold is the ultimate money!

And because of that, its perceived value in the public side grows with their concern over the valuation of the dominant currency — in this case, the US dollar. So it's kind of a race to the exits for the dollar translating to a race into gold.

In times of stress, with growing concern regarding the future value of the dollar, is typically when you see the relative value of gold soar. In times when you have only mild inflation, a sense of complacency sets in where no one's too interested in gold.

But it's precisely the kind of environment we're in right now – and that we see approaching over the coming months and years – where gold will really shine and, in effect, play catch up. At some point, it will overshoot. But that's why you're in gold in the first place.

It’s also why I recommend physical gold primarily; it’s insurance against something that's inevitable. And for building wealth, there's nothing like gold and gold related investments such as mining stocks when you have this kind of fundamental move afoot.

BL: Mike, as you know, New Orleans is unique. There's really nothing quite like it in the United States, for sure, and certainly North America. It has more of a Caribbean, Central American feel — a very laid back atmosphere.

I can appreciate it better than a lot of my friends that grew up here, I think, because I was born and raised about 80 miles north of New Orleans. So while my family was originally from the city and we only visited a few times a year, being ‘not from here’ as it's called — I got to see it from the angle of people seeing it for the first time and, therefore, am able to appreciate it to a greater extent.

And people who come here are absolutely amazed by the ambience — just the immediate feel of the city when they land.

Sometimes I'll meet friends or acquaintances who've never been here before; I'll meet them out for dinner after their first day in the city, and I'll ask them… "Well, did you feel it?" And, invariably, they’ll say with unbridled exuberance… "Hell yeah I felt it!"

It’s really great; I think people immediately appreciate the attitude of not just the locals but also the visitors. New Orleans just has this very natural laissez faire attitude. Nobody really cares who you are, what you're doing, what you do for a living — as long as you don't bother or hurt anyone.

There’s this sense of personal freedom that's absolutely intoxicating… and people just fall in love with the city.

Of course, the culture extends beyond that to music and food and everything else that's generally associated with a carefree view toward life and a view toward appreciating the pleasures in life. Whether it be music or food or the nightlife — and oftentimes doing so to an excess that very few other places in the world are able to offer.

BL: Well, the city has always been known as a hotspot. It's only in this pandemic that that took on a new definition — a more disturbing definition. But because we were fairly early in the curve – with a good bit of that being Mardi Gras – it seems like New Orleans proper was a bit of a petri dish that helped to spread the disease. That goes for here and as well throughout the country from the thousands of people who came to experience Mardi Gras.

The timing seems to indicate that it was kind of a super spreader situation.

You add that with some of the other demographics and health issues of the people of New Orleans and you, unfortunately, get higher infection rates and death rates. But because New Orleans is not quite as closely packed as, say, Manhattan, we’ve hit our peak and have actually been in decline for close to five or six weeks now.

So infection rates are really dropping. Our transmission rate is now 0.78, which is well below the critical point of 1.0 wherein one infected person infects at least one other person. So below 1.0 is an indication that basically the disease will flame out as long as reasonable precautions are followed.

So I think we're on a good road now. Naturally, it all depends – not just here, but across the country – on how the process of opening up proceeds. In my personal experience, I’m noticing that people are becoming much more willing to go out and socialize as restrictions are loosening just a bit.

I'm starting to think that the rebound, at least in the social aspect, is not going to be as slow as many had feared. It seems that people are becoming a little less fearful of resuming their normal lives. Of course, everything depends on what happens over the next several weeks. If we get a major uptick in the infection rate, things will have to pull back — but so far, so good.

BL: It’s been interesting, Mike. Right now, we’re planning along two tracks. One being a live in-person event with some virtual component and the other being a purely virtual event. We expect to come to a decision within the next couple of weeks.

It’s tough because if you go with a live in-person event with a virtual component, you have to essentially build two events. And that entails all of the expenses of a live event plus so much more. So we have to figure out exactly what we're doing very soon.

Initially, I thought we could see where the world was in July, but the reality is that we are now approaching our peak marketing season for the event. So our goal is to figure out what it is we're producing and then go out and market it to investors.

Yet, our primary goal, as it is every year, is to deliver value above and beyond that of any other investor conference. And, of course, we’re able to combine that with our really unique ambience and sense of community that can only happen in a place like The Big Easy.

People love coming here to experience what we just talked about… that kind of natural, innate feeling of personal liberty and fun!

In that sense, it’ll be very difficult, if not impossible, to capture that same ambience if we’re forced to go completely virtual. But to whatever degree, we're going to try to include that in our offerings. Our sense of community is truly something that no other conference is able to duplicate.

So we’ll be doing our very best to find ways of extending our unique brand of value to our attendees regardless of which route we end up taking.

BL: Yes, it really is. You know, Mike, I’ve been through a few bull markets, and people don't realize that, outside of internet stocks, the gold sector is the youngest asset class out there because it has only been freely traded worldwide since 1971.

So we have not been through that many so-called bull markets in the metal. We had 1971 through 1980, which was technically two bull markets interspersed by a two-year bear market. And then we've had a few since then.

Most closely related to what’s happening now with gold, I think, is the bull market that began in either 1999 or 2001 —— depending on how you mark the lows. That market saw gold rise by over 650% from around $252 to $1,920 an ounce, and it was just an amazing run that lasted about 11 years.

But what was really life changing and wealth building were the junior mining stocks.

We saw a rising tide lifting all boats so that virtually any new junior gold deal coming out of the gate had a very high likelihood of doubling or more in value. And if you had access to some of the best newsletters and attended the conferences and were somewhat selective in choosing good companies with good management groups, then your downside, assuming you got in early, was companies that would go up three or four times in value.

You could then deploy those winnings into four or five other gold mining companies that would perform similarly. And along the way, you’d have the occasional company that would go up 10X - 20X in value and even higher.

So you can see very quickly how, if you continued with that kind of bull market environment for 8 or 10 years, the tremendous amount of wealth you could accumulate by playing that trend.

And by that I mean… you also invest the time and the resources to subscribe to the best newsletters. You go to the mining and investment conferences. With a little legwork, you’re able to take that universe of junior gold companies and break it down into a list of the better ones to get into.

If you then apply a bit of trading acumen like taking profits off-the-table and redeploying those gains at the right time — the result is just an incredible wealth-building experience.

And it also creates other investment opportunities. When you have a fundamental, underlying bull market in gold and gold stocks, you also get a bull market in silver stocks. Silver offers leverage, and the silver juniors offer leverage. Likewise, you can have things like a uranium bull market or a copper or zinc bull market or a rare earths bull market that are kind of off-shoots of that.

In essence, speculation in one sector drives opportunities in other, previously neglected commodity sectors. And I think that's the kind of environment we're looking at now, and it’s being driven by a fundamental, secular trend of monetary debasement.

Once you go down that trend, you can't stop it!

Like I said, governmental debt has grown so large that we cannot endure interest rates that are anything but extremely accommodative. And if the fed tries to normalize, as we saw before, the markets quickly deliver an ultimatum that the fed must obey. The economy has essentially been obliterated by debt and monetary policy.

Loose money is driving everything… so the ‘helicopter money’ has to keep falling to the ground or everything goes away. Again, that's an extremely bullish environment for gold and silver!

BL: Mike, I’ve coined the term ‘generational discovery’ for Great Bear Resources, and I think that's bearing out – no pun intended – as we watch things develop. I first heard the Great Bear story from the company’s president & CEO, Chris Taylor, in December of 2017.

At that time, they were doing a financing at 30 cents Canadian. So I scraped up every spare penny I had at the time to get into the financing, which unfortunately, because of the long bear market, wasn't an awful lot of money. But I got in and immediately recommended it to my Alert readers right around that same price.

By the time I got our next issue of Gold Newsletter out, it was trading for, I think, about C$0.55 a share. It’s now around C$12 per share. So yes — a very big win for our readers at whatever price they got in.

BL: That is good fortune indeed, Mike… and it’s funny, isn’t it, how many deals are struck and how many investment ideas are sparked via the ole cocktail napkin sketch!

BL: So back then, in talking with Chris, he explained the geologic concept and the long extent of the LP Fault, which extends some 14 to potentially 18 kilometers as far as the structure goes and with multi-multi kilometer indications of gold along that trend.

And you know this very well, Mike, that in a typical deposit, if you can get the mineralization to extend, say, 500 meters in one direction at decent grades — it can be a company maker.

Hence, looking at Great Bear’s LP Fault and the 4.5 kilometers of successful drilling to-date — you've got something that's already about 9 to 10 times larger than the typical successful discovery as far as potential goes.

Naturally, they have to continue to establish solid grades, proper geometry of the deposit, consistency of the mineralization, etc. But certainly the potential there is multi-kilometer in scope.

Along the LP Fault, they have the potential to have a lot of open pit mining and then extending into underground production. So you have that as yet another kicker for them. In addition to the LP Fault, there's potential that it is at least somewhat duplicated by the North Fault and targets in between the two.

So you begin to realize that – as far as Great Bear has already gotten to-date – there's the potential to multiply the deposit a few times in size.

So it's just an extraordinary opportunity not only for those who got in early but also for those who are still riding it. I still have about half of my original position in the company, and I’m kind of content to let it ride now because I don't see much downside relative to other companies in this kind of a market environment. You know, where you have everything working for you… you have discovery success… you have the underlying trend in the metal, etc.

It’s developing into what’s ultimately going to be a strategic deposit – a must-own deposit – by one or more of the big mining companies out there.

BL: Mike, I would guesstimate somewhere between C$20 and C$40 a share is where the target would be. That’s a wide range, and anything can happen. But, you know, when a gold bull market really gets going, the big mining companies can get awfully stupid, spending their money like drunken sailors!

And there's been efforts by some of our friends in the industry – the really big investors, the institutional investors – to try and reign in the gold mining companies to get them to spend wisely and manage properly in this current cycle.

And I tell those friends of ours at the institutional level basically to shut the hell up! We don't want them to get smart! We're focused on the junior companies that these big companies are buying… at hopefully exorbitant and stupid and careless prices.

And that's what we want them to do. Because I don't really invest much in the larger producers. So let them take their shareholders' money and give it to us in the juniors.

And timing is key… Great Bear is essentially in a race to prove up as much value as possible before any serious takeover attempts come about. The longer they can hang onto this tiger by its tail — the better it is for them and for shareholders like you and me.

They’re shareholders as well. In fact, they're the biggest shareholders. So their interests are perfectly aligned with that of the rest of their base.

BL: Yeah, it's like pouring gasoline on a fire but in a good way! Everything's working for Great Bear Resources, and the Dixie deposit is an industry standout to be sure!

BL: Mike, I’ve been doing a good bit of speaking the last few years to more generalist investment type groups that have an interest in getting involved in gold and other metals investments.

And it can be a bit intimidating when you think about it because there's physical metals… there’s coins… there’s mining stocks… there's ETFs… there’s mutual funds… and there's futures and options.

And within each of those areas, there exists a whole other spectrum of options such as the type of metal, the different kinds of coins, the rarity and collectibility of certain hard assets, and varying risk factors throughout.

And what I tell people is… Take it in stages!

Step one, if you're just getting involved and you have significant wealth, get a physical metals component; build that foundation first. And build a physical metals allocation in gold and silver, at least initially. And if not in your direct possession, then within your near access. I don’t recommend using a safe deposit box because one of the things you're insuring against is a bank holiday.

So beyond telling you that, I don't want to know how you do it. There are reports you can Google that show you how to hide it in your home. But, of course, every burglar worth their salt has already downloaded those same reports! There are some private storage areas, and it's good to have some just in a safe in your home.

All that said, I tell people they have to buy gold and silver bullion initially and to look at it not as an investment or a speculation — but as insurance for their wealth.

It’s not like fire insurance where you’re not expecting your home to ever catch fire. It’s insuring against something you know is going to happen — which is the depreciation of the US dollar.

And you only have to pay the premium once. You can add to your holdings without having to worry about the daily price of gold and silver. You can rest comfortably knowing you have that insurance sitting there. So that's the initial way to go.

After you have the physical metals, you can go into some of the derivative investments like mining stocks and ETFs. The more time and effort you put into researching the sector, the more involved you can get into, say, the junior mining stocks.

But you shouldn't venture into the juniors without having done your research and really becoming knowledgeable in the sector.

BL: Exactly right, Mike. I tell people that if you like gold, and you should, then you should love silver. Whereas silver typically moves later than gold in a bull market, it’s known for catching up quickly and outperforming gold on a percentage basis.

Silver is a natural lever to gold, yet it’s more volatile. When macro issues are driving gold, silver’s response is typically greater both to the upside and downside. So it holds greater risk and is not a free ride in that respect.

But if you’re confident that the overall trend for gold is bullish, then you need to own silver as well.

From a physical basis, it's bulkier than gold but it's also a lower denomination and more divisible. So that's one of the reasons why I recommend what's called junk silver or bag silver coins. Old US coins – dimes quarters, half dollars, and dollars – that were minted and are circulated in trade for simply the bullion value.

Some component of those in a physical metals portfolio is something I really recommend because it's easier to spend in some kind of a dire emergency. And that's one of the things you don't expect, yet you want to be prepared for and insure against.

So I don't recommend silver to the exclusion of gold, but I do recommend a healthy allocation to silver in a precious metals portfolio.

BL: Mike, it's interesting because there has been tremendous demand destruction in the base metals as a result of this pandemic. But there has also been tremendous supply destruction to go hand-in-hand with that. So it's going to be a timing thing for me.

I think you bet on gold and silver, initially, and gold and silver oriented companies. And I see copper, zinc, and some of the other base metals offering tremendous potential down the line.

Now, the key to investing in those companies is to invest in the mining stocks as it is extremely difficult to hold base metals physically. Futures and options are something that I think entails much greater risk than the average investor is likely to entertain.

So the idea is to invest in the equities, and, with prices low, now is a good time. With the base metals, you have a much longer time horizon — years as opposed to months in many cases.

At some point over the next two to four years, I expect those base metals markets – especially in the junior miners – to really heat up as demand returns to the sector.

Demand is quicker to come back than supply. And we've had a lot of supply destruction, not just because of the pandemic but also because of under-investment by mining companies over a number of years.

Even before the pandemic, we were setting up for supply deficits in copper and zinc. So those are areas I believe are a bit further in the future as far as when they're going to make their moves but, to my mind, seem equally inevitable.

So it's a timing thing. You still have time to invest in that sector, but if you've got a longer-term view and a large enough portfolio, placing some chips in some of those juniors that are developing large-scale projects would be a good strategy.

BL: Yeah, I'm cautiously optimistic that this is the beginning of an upward trend for uranium.

I don't know that we're going to have an explosion of higher prices partially because we've been expecting the bull market to begin in uranium for each of the last five years or so. And it's never really happened. That said, though, the long-term story has always been tremendously bullish and virtually irrefutable.

Now we have the short-term story of, again, tremendous supply destruction – yet demand is still rising at its previous rate.

And we've been waiting for the utilities to have to come back and renegotiate the long-term supply contracts. They have been trying to fill that gap with purchases in the spot market. But these recent supply disruptions and mine closures due to low prices and the pandemic are making it difficult for the utilities to even find supplies in the spot market.

I think the supply demand dynamics are going to have a greater effect over the next few months, which means now is a great time to be looking at the uranium mining stocks.

BL: I’m focusing on juniors that are close to production or in production, which, at this point, is essentially just Energy Fuels Inc. (NYSE American: UUUU).

I’m also interested in uranium companies that have the ability to start production fairly quickly. During the last uranium mania in the junior sector, I believe there were about 500 companies that sprouted up like mushrooms after a rainstorm to take advantage of prices that were soaring over $100 a pound. But the long bear market has wiped away the vast majority of those.

And those that did have uranium resources in the ground were absorbed into companies that had better management teams and generally better operations and more cash and more resources.

So now, when we have another rush into the uranium sector, instead of 500 companies, there's going to be maybe 8 or 10 that are worth looking at.

So what you can expect is that, at least initially in that run, all of that new capital is going to be focused on those 8 or 10 companies of which you could probably find 5 or 6 that are the best. And so their market values are going to explode higher in a very quick fashion.

BL: Sure, Mike… I’m happy to do that!

One company I like a lot that’s developing a wonderful silver project is Bluestone Resources (TSX-V: BSR)(OTC: BBSRF).

The company’s project is in Guatemala, which is why the stock is trading at a bit of a discount. It would be trading at a much higher valuation if it weren't in Guatemala. But the fact is, the time horizon for this investment is less than a couple years because the company, next year, will be producing free cash flow roughly equivalent to its current market cap.

So I like and own Bluestone Resources — it's fast tracking along the development timeline.

I think First Mining Gold (TSX: FF)(OTC: FFMGF) has a tremendous gold resource across a number of projects in the Canadian provinces of Ontario, Quebec, and Newfoundland. It’s a company that I believe has excellent exposure to a rising gold price and is currently undervalued by the market.

Another company on the exploration front that I like and own is Libero Copper & Gold (TSX.V: LBC)(OTC: LBCMF).

Libero’s Big Red project in British Columbia’s Golden Triangle has one of the best undrilled gold targets I've ever seen. The trenching results have been spectacular, and the company will be drilling this summer. They just raised enough money to drill, so that risk has been checked off as it were.

They also have a copper project in Colombia and another in Colorado. I think their share price will continue rising as its 2020 drill program at Big Red approaches to the point where someone buying the stock near current levels will have an opportunity to perhaps take some gains off-the-table before drilling even starts.

So I like Libero at current levels.

BL: Yes, GR Silver Mining (TSX.V: GRSL)(OTC: GRSLF) has been one of my top recommendations from the silver space, but, unfortunately, it has about doubled in price the last couple of months.

I say, unfortunately, because I've been trying to buy it!

I think there's lots of great news coming. And it’s not too late to get involved because they have the enviable ability to continue to deliver great drill results to the market because they have a tremendous amount of drilling that was done on their property by prior owners and never assayed for silver or gold. Or at least those results were never released to the public.

So just for assay costs, they are able to deliver a near constant stream of really good high-grade drill results to the market when so many other companies aren’t even able to resume drilling.

We've seen that big rise in the company’s price recently, and I think there are good days ahead of it as well.

BL: Sure. Gold Newsletter, as I mentioned, starting in 1971, was the very first precious metals advisory. It really began as a tool to try and get gold legalized again for American citizens. And it had great success in that endeavor.

This is actually Gold Newsletter’s 50th year!

So we've been around a while through every thick and thin. My career in this market extends 34 years at this point. So I've been around through many booms and busts.

And through that time period, I venture to say that Gold Newsletter has made more money for more investors than any other publication out there in the precious metals sphere.

Our track record has been near, if not at, the top of the pack through all of those years. And this is the time to get involved in the sector and to subscribe to a newsletter that will give you, at least what we perceive to be, the best deals and opportunities in the resource space at the earliest time frame. We feel it’s a bargain at $198 a year, and we even offer a free sample issue at our website.

I do tell people that they need to invest in a number of the top newsletters out there. So it's not just Gold Newsletter; they need to dedicate their money to invest in a few of the top recommended letters to really get to know the sector and to compare notes among editors.

We also offer Golden Opportunities, which is delivered at least once a week and is free. It presents my general views on the markets, and I think it's valuable from that standpoint. But it does not offer specific stock picks. They need to subscribe to Gold Newsletter for that.

But the free Golden Opportunities e-letter is available on our website and is something that we have a large, growing and dedicated readership because we deliver an awful lot of value in that letter. And not just my views, but the views of a lot of my friends in the industry.

BL: Yes… thank you for mentioning that, Mike. You know, the main reason we started doing the podcast is because I know so many people in the industry. And it's not just the gold industry and mining stocks but also economics and even geopolitics.

From running the New Orleans Investment Conference the last few decades, my Rolodex, if that’s even a term these days (laughs!), is pretty extensive! I figured as long as I know all of these people, why not have some discussions and invite people to listen in?

So that's how it began, and we've expanded the scope to include the philosophy of personal liberty.

We also drill down into the precious metals and mining stocks a good bit and try to get people timely value in that respect in terms of some of my friends' top recommendations of sectors and individual companies.

BL: It’s been my pleasure, Mike, and I extend those same wishes to you and your family as well!