At this year’s Sprott Natural Resources Symposium, the Investing News Network caught up with John Kaiser of Kaiser Research to talk about the junior resource sector.
Kaiser, who believes we are back in a bear market, shared his thoughts on how to approach this season.
“I’m particularly keen about discovery exploration companies, valuations are extremely low in terms of their potential,” Kaiser said.
Speaking about what exploration areas he likes right now, Kaiser mentioned Nevada, saying there’s a strategic reason to look for gold in the United States even though the metal intrinsically is not used for many productive things.
In closing, he shared what his top three stocks are for the rest of the year and why he likes those companies.
Watch the video above or read the transcript below to learn more about Kaiser thoughts on gold exploration. You can also click here to view our full Sprott 2018 playlist on YouTube.
INN: We’re here at the Sprott show in Vancouver. How are you finding the event so far?
John Kaiser: Well, this event is really productive for me because there’s a large range of very good quality companies here. I have excellent opportunity to check out new ideas and also check out on some old ones. In terms of the audience, I suspect the numbers are down from the past year or so, but I am quite impressed by the enthusiasm and the mood given that we are in what seems to be the bear market that started in 2011 and had a brief interruption in 2016. So, although there’s this pervasive cloud over the resource sector somehow this conference feels really good.
INN: And as you mentioned we’re back in a bear market. In the current context, can investors still make money? What would be your best piece of advice for this season?
JK: What we’re seeing now is almost a relentless sell-off, the institutional audience is giving up on the resource sector. There was a bump in 2017 after Trump’s election because it was hoped that there would be a big infrastructure spending boom, but that has not materialized, instead the priority of the administration appears to be a trade war. Metal prices have fallen in the past couple months as the markets have realized, “yes, Trump is serious. He does want to unleash a trade war, which could have catastrophic interim consequences,” so a business cycle that maybe had a couple years left, the one that started at the end of the financial crash in 2008, it is being shortened. The interest rates are rising but the difference between 2-year and 10-year t-bills is almost flat, telling the market there is actually a recession around the corner.
Gold has retreated because as we saw in 2008, recession will cause a financial crisis and gold will be one of the hard assets that is sold first to deal with everybody’s liquidity crunch that they are in. So, we’re in this strange mode of anticipating a very negative macroeconomic downturn, which hasn’t actually happened yet, because things are still booming in places like the United States. China is grappling with a bit of a problem. Its ability to keep expanding itself is running out of room. But for the juniors, the risk capital has been sucked away by cannabis and cryptocurrency-blockchain type stories. These don’t have an obvious upside limit. So, that’s as long as the trend is positive that will keep sucking money, eventually that will stop. Think October 17th is an important date for Canada because that’s when cannabis becomes legal and then companies will have to start showing profits and demonstrate that once marijuana is not illegal, it will still be as possible to produce and sell as when it was illegal but that’ll take another six months to unwind.
For the resource sector I see it as actually an opportunity, but it is what they call catching falling knives. You have to be prepared to buy and see the stock go even lower, because we do not know how long stocks will go in a capitulation event, but we are seeing some positive developments. For example, South32 (ASX:S32) is paying $2.1 billion to buy out Arizona Mining (TSX:AZ), which was a big discovery, which became evident in the beginning of 2016. So, that’s a big cash infusion. Dalradian (TSX:DNA) is being taken out for about $500 million. So, that’s a cash infusion coming. Today (July 19) there was an announcement that Peregrine Diamonds (TSX:PGD) is being sold for about $100 million dollars to DeBeers, which in my view is so cheap that this just has to be opening bid over competitive auction. I can’t imagine that some groups like Rio Tinto and Washington companies are going to stand by and let the Friedlands give a gift to De Beers. So, even though maybe this will go for a couple hundred million dollars these are stocks held by investors, a lot of small people not just the Friedlands themselves, and they’ve been demoralized by the fact the company has been successful and yet it has not been rewarded in the market. You cash them out finally at a significant premium where the stock has been. All these little small cash infusions will start to restore the faith.
One of the big traps I’ve seen is people like myself have backed companies, The companies have made fundamental progress and yet we’ve not seen validation of that progress in the form of increased market capitalization instead we’ve seen dilution through addition of financing and nobody wants to or they can’t even buy anything new because they’re stuck in all these quality positions for which there is no liquidity. The glass is half-empty. So, the big bad mouse to look at these types of companies and say this wall of worries about this …read more
From:: Investing News Network