Doug Loud and Jeff Mosseri: How to Pick PM Juniors with Proven Management

Source: Zig Lambo of The Gold Report (6/24/11)

Douglass Loud Jeffrey Mosseri Jeff Mosseri and Doug Loud, at Greystone Asset Management, LLC, are New York-based money managers with a nose for potential winners in the highly competitive junior resource business. In today’s turbulent market, they are being more selective in their investment choices. In this exclusive interview with The Gold Report, they bring us up to date on their current picks for gold and silver plays they think have what it takes to produce some major gains.

Companies Mentioned: Alexco Resource Corp. – Baja Mining Corp. – Exeter Resource Corp.Extorre Gold Mines Ltd. – First Majestic Silver Corp. – Golden Predator Corp. – Goldgroup Mining Inc. – Gryphon Minerals Ltd. – Hecla Mining Co. – Indago Resources Ltd. – Kaminak Gold Corporation – Lumina Copper Corp. – Minco Gold Corporation – Minco Silver Corporation – Riverstone Resources Inc. – Rugby Mining Ltd. – Silvermex Resources Ltd. – Victoria Gold Corp. – Volta Resources Inc.

The Gold Report: Since you last spoke with The Gold Report in September 2010, there’s been a lot of economic and political upheaval. As money managers, what has this done to your thinking?

Doug Loud: It’s basically confirmed what we were already doing.

Jeff Mosseri: Absolutely. There are a lot of question marks out there. What’s going on in North Africa? Will China actually grow at the rate everyone is expecting it to grow? But within the overall political and economic base, I think what Doug said is absolutely true. So, from our point of view, one of the principal reasons we continue to like the metals is because they’re the last safe place.

TGR: So basically, all these political and economic concerns are going to have their fallout on the metals’ and commodities markets—and everyday life for everybody ultimately.

DL: Oh, yes!

TGR: How have things changed in your short-term outlook versus nine months ago, if at all?

DL: Well, you always have to worry about the summer doldrums in the metals, which have a historical base. Jeffrey has the better opinion of the short-term market.

JM: Well, as far as I’m concerned it all revolves around the dollar and gasoline. It would hurt any administration to have a $5 gasoline price at election time. So, after some short-term stabilization and maybe some strength in the dollar, we think it will reverse again later this year and remain weak for another year.

DL: Which makes oil, gold and, sadly, food prices go up. Washington’s financial maneuvers haven’t created many new jobs. The key, in the end, is going to be small businesses. Small business incentives could turn things around.

JM: Uncertainty is the biggest enemy of businesses and the stock market. The next-biggest is taxation. If those problems can be handled, small business will start reinvesting.

TGR: So how do the metals and resource stocks fit into the picture?

DL: In simple terms, if you want to be in the metals, you’re going to have to own the stocks and/or the bullion. The bullion doesn’t get bigger, whereas most of the miners are in the business of producing, but they also have to find more. If they do find more, then they get to be worth more.

TGR: Have you changed your investment criteria at all since last year?

DL: We’ve raised the quality level a bit. We’ve decided if we’re going to invest in a pure explorer it’s going to be someone like Exeter Resource Corp. (TSX:XRC; NYSE.A:XRA; Fkft:EXB), which employs a team that has done it before with great success. We want management that knows what they’re doing and can prove they’ve done it before.

TGR: With the thousands of companies out there and multi-thousands of properties, a lot of money gets spent on exploration, but few make it to production.

DL: That’s one of the reasons for sticking with jockeys who know how to ride the horses. You need good properties, but you also, first, need a management team that knows what they’re doing.

JM: Last year, anyone could have obtained financing for a project. This year, it’s much more discerning. That’s why more companies will either bite the dust or be taken over, because they won’t be able to get the financing they need.

TGR: Let’s talk about some of these companies that you liked last September and you still follow. Maybe you can give us some updates on Silvermex Resources Ltd. (TSX:SLX) and First Majestic Silver Corp. (TSX:FR; NYSE:AG; Fkft:FMV).

JM: Silvermex is doing what it should do; it acquired the La Guitarra silver mine, put it back into production and listed on the Toronto Stock Exchange since we last spoke. It’s got superb management and a great board. They’re defining the resource better; they’re cleaning up the mine, which had not been very well taken care of up to this point. They will have $10M of cash flow this year and double that next year. The company can probably continue in that growth path for some time to come. It would not surprise me at all if this management, which came from Hecla Mining Co. (NYSE:HL), would also have their eyes on interesting properties that haven’t been able to be financed but have something very special. I wouldn’t be surprised to see them on the acquisition path at some point.

So, as we said before, we like riding with a good jockey, and we think the company has superb jockeys. We think this will grow very nicely.

TGR: What has been the net result of the Silvermex / Genco merger?

JM: Genco facilitated the senior listing on the Toronto Stock Exchange and brought cash. In return, Genco gained superb management. Genco controlled a good property, which needed a lot of attention. Management has paid very serious attention to that property, resulting in several prospects which could result in new mines. Thanks to this property, the company now has a $10M cash flow this year, which becomes $20M next year, and will continue growing. Eventually, their Rosario property will also be put into production, and they will continue to grow.

TGR: Do opportunities exist in Mexico for small companies to do silver mining?

JM: Yes and this company is basically delivering; every time management makes a promise, it actually delivers.

DL: And that’s the same thing with First Majestic. The company is doing what the management said it would do. The Del Toro silver mine is coming online, thereby doubling production. The company is looking for, and finding, more opportunities. First Majestic switched from producing concentrates to making dore bars, which brings an additional $4/oz.

JM: First Majestic also has superb management. Both the CEO and the COO in Mexico are super managers and most of the people running the actual operations are well-experienced locals.

DL: It’s the same thing with Exeter and Extorre Gold Mines Ltd. (TSX:XG; NYSE.A:XG; Fkft:E1R;)—both companies have very experienced management. On the Exeter side, the big Caspiche project is undergoing testing.

Extorre just keeps announcing good news on its Cerro Moro property. The company also added a whole new area called Cerro Puntudo, and it just continues to deliver great results. And then the principals of the Exeter/Extorre group created this new company called Rugby Mining Ltd. (TSX.V:RUG), which is where a lot of the people can go should Exeter ever be taken over some afternoon when we least expect it.

Rugby includes four new fabulous projects. That whole team knows what they’re doing and that’s why we still like them. We take this comment very seriously and only make it after we do site visits and get to know the management really well.

TGR: So, the other hot area that everyone seems to be jumping on now is the Yukon, What interesting companies are you following up there?

DL: We still like Alexco Resource Corp. (TSX:AXR; NYSE.A:AXU), which is paid by the Yukon Territory to clean up old mine sites. As part of the deal, they get to keep whatever they find. There is a lot of gold around them, which is very nice. Again, experienced management that really knows what they’re doing.

Another one we like is Victoria Gold Corp. (TSX.V:VIT). The company has some very interesting finds at the head of the rivers where people are doing placer mining. So it may have some of the sources of the gold that’s in the rivers. You never know, but the management knows what they’re doing.

Then there is Kaminak Gold Corp. (TSX.V:KAM), which is up in that White Gold region. We loved Underworld, but it got eaten. Kaminak is the next in line, and could be another fabulous company that will probably get eaten, too. An important point, which Bill Sherriff, who runs Golden Predator Corp. (TSX:GPD), made is that one thing he likes about the Yukon is that he could get a mine permitted there in the same amount of time that it takes to get a drill hole permitted in Nevada; and Nevada is supposed to be friendly.

TGR: Do you predict some major discoveries being made there in the next few years?

DL: We often say, “If you want to take the train to New Haven, you have to be on it when it leaves.” You know you want to be in Exeter before they sell Caspiche; you want to be in Kaminak before it gets taken over. You want to be in Victoria before it gets taken over because otherwise you won’t have a chance to get it. It will just be gone, which happened to Underworld. We were all excited about Underworld, and all of a sudden one morning it was gone.

TGR: You’ve also followed several companies in Africa. What is the untapped potential there?

JM: Well, the political situation in Africa is very shaky in many countries; however, there are countries such as Burkina Faso where the regime is stable and a lot of companies have had success finding gold.

DL: In Burkina, you have Volta Resources Inc. (TSX:VTR), Gryphon Minerals Ltd. (ASX:GRY), Riverstone Resources Inc. (TSX.V:RVS) and Indago Resources Ltd. (ASX:IDG). All are serious players, have done their homework, are finding good projects and are very interesting. These are tricky companies to buy. Gryphon is only traded in Australia. To get more buyers they will have to be in Canada, if not the U.S.

The Indago guys bought a bunch of existing projects out of the Lundin Group, which was letting some projects go. So, the company landed on their feet running. Riverstone has interesting stuff, Volta is really interesting, so is Gyphon.

TGR: Are there any of those with a particularly good story?

DL: Well, all of these companies are drilling and it’s almost like you’ve got to own some of each because you don’t know which one is going to be the winner. Dollars to doughnuts someone’s going to buy out a couple of these.

JM: Endeavour Mining Corp. (TSX:EDV) is also in that area. It has an extended land package, and, since it acquired the rest of Etruscan Resources last year, it is moving fast towards production and looking to grow fast by adding acquisitions

TGR: Any other things you’re watching that you would like to talk about?

JM: There’s one specific company that’s a superb silver play—Minco Silver Corp. (TSX:MSV). It’s a Canadian company with a property in Fuwan, China. The company admits to 157Moz. of silver, with potential in that whole area of probably three times that amount. It has almost all of its permits to start building the mine and be in production within a year and a half. As soon as the company gets that last permit, it’s off to the races. It has superb management. Ken Cai is one of the better guys in the business. It also has a great guy who is head of exploration and the staff to run the mine, which is important.

TGR: Wasn’t Minco Silver a spin-off from Minco Mining?

JM: Minco Mining spun off Minco Silver and Minco Gold Corp. (TSX:MMM). MMM also spun off a third entity called Minco Base Metals. Minco Base Metals doesn’t trade. Minco Gold, which trades on the AMEX, owns about 13M shares of Minco Silver, and the beauty of those two companies is that the capitalization of both is relatively small. Minco Silver only has about 53M shares outstanding (64M shares fully diluted), and Minco Gold only has about 50M. That means the value flows through to the shareholder.

TGR: And that’s important, because one of the things that hurts a lot of these deals for investors is continued dilution. Now, you’re also following other companies in the Americas.

JM: We do follow a series of Mexican companies as well.

DL: One we like is Baja Mining Corp. (TSX:BAJ), which is a copper play in Baja, Mexico.

TGR: Baja Mining apparently has some really great potential.

DL: Management includes some of the most incredibly thorough people we’ve ever met, and they’re very environmentally conscious.

JM: In fact, Baja received an award for completing the biggest financing by a junior ever, which was about $1.1B that it closed early this year

DL: We also like Goldgroup Mining Inc. (TSX:GGA). The company has very interesting—shall we say—blobs of projects which they jokingly refer to as “the goats, the sheep and the elephants” because of the relative size of the blobs. It is doing some very interesting things down the Eastern side of Mexico and we’re paying a lot of attention.

TGR: Is that still an exploration company?

JM: It has one mine in production and it will have another mine in production probably within the next 18-24 months.

DL: So, their cash flow is able to support all their exploration, which is a great place to be, because once you’re in production you’ve got to keep finding more.

TGR: Are there any other names you’d like to mention at this point?

JM: Yes, there’s one other company that we’ve owned as a spin-off from other companies—that’s Lumina Copper Corp. (TSX:LCC). We started out with Lumina Copper, then it split into four. The company sold off three of the four. It is now a royalty company and the owner of Taca Taca Property in Argentina. At some point, that one will also be sold.

TGR: What are your thoughts about what is going to happen with the base metals?

DL: Well, we joke that some afternoon nickel is going to show up and tap us on the shoulder and say, “remember me.” That doesn’t mean gold and silver go down, but they might sort of calm down a little, and those other metals will come along as we rebuild things using steel, nickel, moly, and metals like that. Fixing infrastructure would be a great way to boost the economy. Copper, I think, will keep going because there are a lot of people who need copper other than the Chinese. People forget about India.

JM: So, as long as the dollar continues to weaken and all these commodities are denominated in dollars, we feel you’re going to make money in all of these things, particularly if they’re miners that will go out and find more.

TGR: So generally, the outlook is still bright for both precious and base metals. It’s just a matter of seeing how all these different political and economic events unwind.

JM: Yes, that’s the way we feel.

DL: You could almost say, “UNFORTUNATELY, the outlook is bright,” because of these other bad things that are going on, and are worse now than they were a year ago.

From that point of view, if you’ve been asleep at the wheel and think you ought to go do something, you better go do it. We joke about the day all the portfolio managers, who aren’t in the metals, decide maybe 5% of all their portfolios should be in gold and silver stocks. That could have an explosive effect on the market for those stocks. A lot of people haven’t done anything about the metals because they don’t really know how.

JM: It’s difficult to give advice to investors in general and the individual investor may not be prepared for the volatility that comes with the territory. At the same time, the need to own these things is not any less for the individual than the institutional investor.

TGR: It seems that we don’t have quite as much retail action in these junior companies as we have had in past cycles.

DL: I think you’re right. People are so afraid of the market they’re not in it, but they’ll decide they’re missing out and then they’ll come in.

JM: You know the general view is that gold has just recently gone from $800/oz. to $1,500/oz. and we need a serious correction before we can go any higher. Nothing could be further from the truth. We may have a correction, but it looks as if gold could just build and build on these numbers and go much higher over time.

TGR: So, with that positive outlook, we can just leave things on a high note. Thanks for taking the time to share your valuable insights, gentlemen.

JM: Thank you very much.

DL: Thanks.

Doug Loud joined Greystone at its founding in 2005 and has been executive director of Axiom Capital Management Inc. since 2009. Prior to that, he was with Murphy & Durieu, where he served as executive director of the Private Clients Group. He has over 35 years of investment management and securities industry experience. He holds degrees from Yale University and the University of California, Berkeley. He can be reached at, 212-521-3817.

Jeffrey N. Mosseri established Greystone Asset Management in 2005 and joined Axiom Capital Management Inc. in 2009. He was a stockbroker and investment manager at Goldsmith & Harris for 20 years. He also worked as a stockbroker and investment manager for Carnegie Capital, the investment advisory division of Prescott Ball & Turben, where he ran the international arbitrage division and developed the gold mining research and investment department. He can be reached at, 212-521-3812.

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1) Zig Lambo of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Exeter Resource Corp., Silvermex Resources Ltd., Golden Predator Corp.
3) Jeff Mosseri: I personally and/or my family own shares of the following companies mentioned in this interview: Minco Silver, Minco Gold, Exeter Resources, Extorre, Rugby Mining, Silvermex, Goldgroup, Baja Mining, First Majestic Silver, and Lumina Copper. I personally and/or my family am paid by the following companies mentioned in this interview: None.
Doug Loud: I personally and/or my family own shares of the following companies mentioned in this interview: Minco Silver, Minco Gold, Exeter Resources, Extorre, Rugby Mining, Silvermex, Goldgroup, Baja Mining, First Majestic Silver, and Lumina Copper. I personally and/or my family am paid by the following companies mentioned in this interview: None.