Some people mentioned they wanted a full transcript of my interview posted on the Venture Profiles website. Here it is in plain black and white text, and I hope it is useful to you.
Cheers - JMH
1. During your two years as a member of Stockhouse the quality of your content has been recognized by the community as unmistakably brilliant. What motivates you to produce such high level analysis to what at times can be an extremely fickle audience?
The best answer here is the simplest one: My motivation is to make money.
My portfolio of juniors is rather small. I typically start positioning during a company’s early, unrecognized stage, or when its share price is beat up, but the company has a bright future. These types of entry points let me to build positions with minimal market visibility.
During this phase, I think like an investor rather than a trader and the approach is fundamental. My model is long-only and I don’t have specific price and volume targets in mind. Instead, I view companies as organic entities. My goal is to harvest a portion of the investment when key business objectives have been achieved. In the meantime, I don’t get concerned about trading or short-term oscillations in volume or price.
Past that, research is ongoing and refreshed any time one of my portfolio companies releases news. If things look good to me, I’m pleased to publish promotional reports and updates on a favorite company. The goal here is to generate maximum attention and thoughtful discussion on the issue, which can lead to better volume and a potential increase in share price. In simple terms, I support my investments by sharing my opinion through well-researched promotion.
2. You are on the record as saying "I like what I like and as long as I like it, I won't abandon it." How does that sentiment hold up in the carnival that is the Venture Exchange?
The TSX-V is more rumor mill than market. There isn’t much high-quality fundamental analysis for junior resource stocks, and of course technical analysis is of little use because volumes are too thin—especially in bear markets. Most of what passes for “research” is just first-rate promotional material. If it comes from an industry pundit or newsletter writer, rest assured they have a vested interest in what they’re recommending. With this in mind, I also have a vested interest in any stock I own. If I take and add to a position, it comes with firm belief in management’s ability to develop a company’s flagship assets over a 3-5 year time span, within the context of a market.
Companies are overbought and oversold all the time. My best successes have come through owning undervalued positions and “staying the trade” even when times get tough. If I have confidence in an issue and it is down, I will add. I will of course also speak well of the issue publicly. It is very easy to be bullish at the top and it is very hard to be bullish in the depths of a bear. But coming out of a bear—which is what I believe is going on right now—allows an investor to get in and go long before the early multiples.
3. Petro One Energy and Goldstrike Resources are two stocks you have written about passionately for the last year. What is it about these two management groups that has you "believing" despite the negative sentiment the market has shown both stocks in recent times?
There’s a lot to like about both these companies, particularly in this bear market. Petro One has taken the roughest ride, from highs well above $2 over a year ago, to rock-bottom pricing in July 2012, with support at about .17 cents. Some of this is because of the markets, but mostly it has to do with reality, which is the company’s new oil pool on the J5 parcel is about 1.3 million barrels. Initial pressures from the 10A-15 discovery well were excellent and the oil is quite light. The asset is economic and production is advancing in accordance with what’s been announced. But it takes time to sort out a development strategy, and the company appears to be reluctant to raise the required dollars to achieve maximum efficient production potential at this time. The pool is just north of a million barrels, so I would rather see them bootstrap through production over time instead of dilutive financing. They will file year-end statements on August 28, 2012, which should give us details Petro One’s financial picture and business activities.
Certainly, I have confidence in the management team or I wouldn’t own shares or speak favorably about the company. This is the first attempt at building a light oil company for this team as a group. But individually, and in terms of business building and technical expertise—the team is quite accomplished. The most notable Oil and Gas professionals would be Hairuo Qing, Ph.D. (McGill), P. Geo. Geology Department Head at the University of Regina, Saskatchewan and Trevor Bremner, M.Sc., P. Geo.
Dr. Qing is one of the world’s foremost experts of the Williston Basin, with his specific studies of the Red River, Midale, Frobisher and Alida reservoirs of southeast Saskatchewan, as well as the Shaunavon reservoir of Southwest Saskatchewan, and Trevor Bremner was integral to Mobil’s development of Grand Banks targets off the coast of Newfoundland.
Management aside, I own Petro One based on fundamentals: I like the jurisdictions, the business model, the potential of future targets, and the GSR shares held in the company’s treasury. As much as I like the company, I believe it was grossly overbought at $2.30 and now it is equally oversold at .18 cents. I think they’ve done a fine job in discovering and building up this first asset, considering the money spent, and I wonder why everyone focuses on this one “warm-up” discovery while ignoring the massive potential within the company’s portfolio.
Petro One has a number of potentially high-yield discovery targets at depth on J5, and they’ve only shot 3D seismic on ¼ of that section. They have 100% ownership of all assets, and 100% surface-to-basement rights in Saskatchewan and Manitoba, which feature 3% royalty regimes. Adding to this, they now have over 13 stand-alone properties totaling 13.9 sections (3,600 ha / 8,900 acres) with easy access, significant infrastructure, and world-class target potential. Other properties contain unrisked prospective NI 51-101 resources totaling 3 million barrels oil (563,000 risked).
The next update should go a long way towards restoring market confidence and I have no doubts any new deals or discovery news will light the stock up once more. With production increasing, new discoveries coming and up to 20 million GSR shares in the till, you can see why I think Petro One is oversold at this time. I continue to accumulate along the bottom.
Speaking of Goldstrike Resources, it is hard not to like that stock. The first pass results over the Plateau North and South projects suggest the company may be first-mover and in fact, 100% own an entirely new mining Carlin-style district. Taking a look at how the recessive linears stack and ladder over distance, as well as the evident orpiment & realgar, well, I just haven’t really seen geology like that other than what you’d find at some world-class mines in Nevada. Certainly there’s nothing like it in Canada, other than some of the projects we’ve seen come out of the Archer Cathro / Strategic / ATAC barn. I note also that same brain trust has been paying close attention to Goldstrike’s activities, and they have now begun to stake targets based on the model established by Goldstrike’s Plateau. The Archer Cathro gang are among the brightest and most respected minds in Yukon exploration, so if they’re paying attention to Goldstrike and attempting to replicate GSR’s early success, that tells me something.
As for management: In the 1990s, Goldstrike’s Bill Chornobay founded the Yukon Prime Properties Syndicate, a group that included Terry King, LL.B., and Bart Jaworski, P. Geo. (now Senior Mining Analyst at Raymond James). The Prime Properties Syndicate specialized in Yukon project generation and identified a number of original gold prospects that were optioned to public companies, including the original Coffee Creek claim block that now forms the nucleus of the Kaminak Supremo zone gold discovery.
The Coffee Creek property was originally optioned to Prospector International by the Syndicate, and Prospector obtained very encouraging results from initial geochemical grid soil surveys, but that was in 2000 and market conditions at the time made it difficult to fund gold exploration projects. Accordingly, the Coffee Creek claims were permitted to lapse, and remained dormant until the ground was later staked by Shawn Ryan and optioned to Kaminak. While it is often claimed that Shawn Ryan prospected these claims, the records show that no quartz claims existed in this area prior to the work of Bill’s team, and Kaminak’s initial work program essentially followed the recommendations laid out in the Prospector International report.
Looking back at the Yukon in 1999, you’ll see 13 companies actively exploring, of which the most active 3 were built by the same team that runs GSR today. The only other company still in the Yukon from that time is ATAC. ATAC has had excellent success recently, but the people affiliated with Bill Chornobay’s Prime Properties syndicate had a much wider reach back then, larger and more prolific tracts of land, of which over 14 of their former projects are still under active exploration today. So with this in mind, it’s obvious that GSR is not just one of the crowd. In fact, most of the crowd exists based on the work that Bill’s team laid down over a decade ago.
Beyond this, GSR’s technical staff is first rate: Trevor Bremner is a “Renaissance” geologist with significant expertise in both Oil & Gas as well as Gold exploration. He served as the Yukon’s Chief Geologist and Yukon’s Acting Director of Mineral Resources for nearly a decade, and three years as Head of Mining Legislation in Ottawa. Prior to that, he spent about eight seasons in the Yukon on a wide variety of mineral exploration projects with Archer Cathro and Associates (founders of ATAC Resources).
Dr. Lawrence (Larry) D ick, Ph.D., P.Geo. has over 35 years of mineral experience, and is an internationally recognized explorationist who has been credited with or played a key role in five major mineral discoveries in North and South America. He spent more than ten years working throughout the Yukon including the Carmacks gold camp and the Nisling Range, which both form part of what is now known as the White Gold District.
Larry led the exploration teams that discovered the Golden Bear deposit in British Columbia, discovered and developed the Can Can gold-silver deposit in north-central Chile. He is a co-founder of General Minerals Corp. (now Sprott Resource Corp.) and has served for many years as its Executive Vice President and Independent Director, as well as directing its exploration activities. He also founded Copper 1 Inc., serving as its Chief Executive Officer and President, and subsequently co-founded and served as the President, CEO and Chairman of Evolving Gold Corp., before assuming his present role as Chief Geologist and Manager of Resources for Baron Global Financial Canada Ltd. For his exploration successes in Chile, Dr. D ick was awarded the Chevron Chairman's Award, and the "Mente et Malleo" award at the Chilean Geological Congress for the most successful exploration team in Chile.
As announced on May 14, 2012, Goldstrike has two exploration teams active in the field right now, with Team 1 trenching, mapping, prospecting, doing ground geophysics and diamond drilling on the Company’s 100% controlled Plateau Project, which is the company’s flagship. Team 2 will likely be doing the same on the Summit, Big One, Cando 2, Livingstone, Lucky Strike and Strike Projects. Most importantly—and this is unique to Goldstrike—all of the company’s projects have been generated from scratch. The grades encountered across the portfolio are outstanding, and none of the projects are failed old stories, recycled for a new round of investors. They all have entirely new discovery potential. Should they find something of good size and grade, I have no doubt the market will pay up for it.
With over 144 Gold exploration companies in the Yukon and $300+ million dollars spent, Goldstrike has put together more totally new discoveries than all of these companies combined. Every one of the company’s financings has been oversubscribed and priced at or above market. Goldstrike’s first-ever round of drill results on the Plateau and other properties are now pending. The company’s market cap is $15 million vs. ATAC’s $250 million, and the first pass results over the Plateau are every bit as good—if not better—than those found at Osiris. With all this in mind, I consider the stock a screaming buy, I accumulate along support lines, and I am certainly looking forward to the next round of news.
4. What advice do you have for the novice retail Investor looking to make successful trades on the TSX-V?
I don’t think novice investors should participate in the TSX Venture Exchange. The learning curve is too steep, volumes are too erratic, and there is simply too much risk of all kinds. The Venture is a gambler’s market, replete with gamesmanship of the highest order. Perhaps 10% of the companies have a real shot at either significant discoveries or share price runs of sufficient volume and quality to make money—in some cases large sums of money, which is what keeps bringing people back. Novice investors must first come to grips with the potential that they will, sooner or later lose significant money on bad stock bets or in a bear market.
My recommendation to novice investors is to build a diversified, low cost portfolio with the help of a licensed professional broker or financial advisor. Perhaps a small portion of that overall strategy can be devoted to speculating on the Venture Exchange.
5. When you are researching a company to invest in, what are the three most important factors that you consider?
My evaluation methods are proprietary and can’t be condensed into short bullet points. But if I were to give a general overview:
Macro: Is the company exploring for or developing an asset that is in some stage of a long-term bull market, which is likely to continue from 3-5 years from the period of investment?
Corporate Due Diligence: Do the executives individually or as a group have a track record of success in terms of mine finding, asset development, financing, and promotion?
Projects Due Diligence: Do the company’s flagship assets have significant discovery potential, and are they located in a politically stable jurisdiction? Is there a guiding geological theme behind a company’s exploration strategy, or are they merely “closeologists” chasing the latest hot commodity in an unfamiliar area?
Business Efficiency: A complete breakdown of the share structure, track record of financings, filings. Is the company run at low cost, and is the share structure efficient?
Essential Contact: Contact with management, technical staff and / or investor relations personnel to answer questions.
Geology – Early Stage: What is the geological setting and exploration thesis? Are there producing or past-producing mines in area? What kind of previous exploration work has taken place on the prospect, if any? Unless I understand the company’s projects fully—and that is rare—I typically outsource much of the geological due diligence to an economic geologist colleague for thorough evaluation.
Geology – Advanced Stage: What is the size and grade of the resource and what potential exists for expansion? Has there been any metallurgical testing, and if so, what are the results? What does infrastructure look like? If the project has a pre-feasibility or feasibility study, what are the projected capital and operating costs? What recovery rates and metals prices were used? What are the projected Net Present Value and Internal Rate of Return how will the project be financed, and when will the project see positive cash flow?
What's the best trade of your career? What's the worst?
This is a great question as they are in fact the same trade: I bought Aurelian sub $1.00 and got off most under $10. Of course it ran much, much higher. Weeks later I felt terrible about stepping out too soon. Months later, I was glad.
7. Other than POP and GSR what are some of the stocks you are looking at right now and why?
Right now, there are 16 different securities in my AlphaFlight Portfolio, ranging from speculations to well-researched, value deals. Most of them have sufficient professional analyst coverage, or at least write ups from credible newsletter writers, so there is little I can add to the discussion. I am pleased with the wagers I have made, but no one should invest in these companies without first conducting their own due diligence, which should include the advice of a licensed broker or financial advisor. With this in mind, I encourage industry professionals and sophisticated investors to visit me on Facebook, follow me on Twitter, and look through my images and commentary on Flickr. I’m always open to talking stocks and happy to give my thoughts.
8. If you are stuck listening to the same 3 songs on your iPod for the rest of time...what are the songs?
Well this is a funny question and you are going to get a fun answer. I don’t own an iPod and likely never will—give me a hi-fi system instead. I think any three songs, ad infinitum would ultimately drive me crazy. I suppose I am dating myself here, but I could get by, for at least a few years, with The Beatles Anthology.
