Dudley Comments On The Market Collapse

By Dudley Pierce Baker
Founder - Editor

The last week to 10 days has been devasting for many investors and particularly those of us in the precious metals sector. Many would have believed that gold, silver and miners would have performed well but we have been subjected to massive selling and no one is happy, unless you have lots of cash.

Cash has been king and the selling of stocks, gold, silver, etc. has been a flight to safety and that has lead to the rise in the U.S. Dollar at the expense of virtually everything else with the exception of bonds.

I want to share with you my weekly audio which I send out to my paid subscribers on March 14, 2020. I share some personal stories as well as frank market comments and encourage you to listen and if not a current subsciber, consider a subscription to my services.

Dudley's Weekly Audio - March 14, 2020

Other Great Articles For Your Reading:
Frank Holmes - Should You Buy The Panic?
Sprott Money - Global Monetary And Fiscal Authorities Are About To Open The Floodgates Of Liquidity
Peter Schiff - Fed Stimulus Will Light 'Fire Under Hard Assets'
Rick Rule - Sprott Media - Gold Stocks Are Stocks; In A Panic, All Stocks Sell Off

We will all get through this turmoil, so make sound decisions and not panic out of quality positions is my advice.


Are Financial Markets Starting To Feel, “The Burn” Of Bernie Sanders?

February 25, 2020
By Dudley Pierce Baker

"Are You Feeling The Burn?"

Some are starting to believe that the market selloff on Monday, February 24th, which took the Dow down over 1,000 points is partly due to the rise of Bernie Sanders in the Democratic Presidental polls. As I write this article this morning, the Dow is off an additional 400 points.

While the prime reason for the drop was the continuing scare of the coronavirus spreading around the world but an open mind must consider if there is another reason for the markets weakness.

Whether you like Bernie or not is a personal decision but with Bernie rising in the polls, tonights Democratic Presidential Debate will surely be a bloodbath with attacks coming from all of the other candidates.  Should be a fun evening.

Our friends at TheTechnicalTraders.com are beginning to factor in the possibility of "The Bernie Burn".

"...Bernie Sanders has been dominating the Caucus events in the US as a Socialist/Progressive candidate.  For many Americans, this is a frightening concept.  Even early into the Caucus voting cycle, it appears Mr. Sanders has taken a very clear leadership role headed into the 2020 Presidential election event.  Business and global investors are not going to like the concept of a Socialist/Progressive US Presidential candidate.  This is going to cause investors and business owners to avoid engaging in projects and opportunities until after the November 2020 elections.

Add into this fear contagion the fact that the Coronavirus event may continue to add to the global fear component of the US and global economy.  How much more risk is involved because of the spread of this virus over the next 12+ months and how will this concern complicate the concerns related to the US Presidential electing event?..."

To read this latest article addressing the coronavirus and Bernie Sanders, just link on this link below:





Mining Stock Warrant Speculation Can Yield 5x Returns Versus the Underlying Stock | Dudley Baker


February 4, 2020
Bill Powers and Dudley Baker





This is my first interview with Bill Powers on MiningStockEducation.com.

Mining Stock Warrant Speculation Can Yield 5x Returns
Versus the Underlying Stock | Dudley Baker

Give a listen soon and sign up for free emails.

Dudley Pierce Baker

A True Story: How I Ended Up Next to $8 Million Worth of Tequila

Note from Dudley Pierce Baker, founder of Common Stock Warrants and Junior Mining News.
I am the Dudley/Daniel referred to the this article below and yes, it was an incredible day with E.B. Tucker and John and especially meeting Felipe, the owner of G4 Tequila. Being the nature of competition I guess, E.B. did not mention that I have a stock warrant service. We chatted about warrants, others in the business, where we see the markets going and of course, tequila.

Editor’s note: Today, we’re bringing you a classic story from our very own E.B. Tucker.

E.B.’s not just a successful investor. He knows the importance of getting away from your desk… and he’s gone on numerous adventures abroad.

That’s why we had to share his tale from Mexico again. Along with his analyst John Pangere, E.B. got a behind-the-scenes look at a tequila distillery… and winded up meeting a stowaway and an IRS agent.

You can find out more below…

How I Ended Up Next to $8 Million Worth of Tequila

By E.B. Tucker, editor, Strategic Trader

E.B. Tucker

I went to Mexico in February with Strategic Trader lead analyst John Pangere.

After spending a few days in the ritzy Polanco neighborhood of Mexico City, John and I headed for Jalisco state to check on one of his personal investments.

Prior to joining my team, John was working as an analyst focused on private investments. He worked on financing for a startup company that planned to import a new premium tequila from Mexico. He learned the tequila would be new to the U.S., but the family producing it was fourth-generation.

They called the product G4.

John and his father Ross got involved in the upstart distribution company as passive investors. Over time, they got more involved. They met the man behind the exceptional product and ended up taking over the entire business.

To be clear, John is not involved in producing tequila. He merely has the right to coordinate its distribution in the U.S. and Canada. In the U.S., that means choosing which distributor in each state will comply with the local laws and get the product behind the bar or on the liquor store shelf. If the product takes off, it can turn into an impressive royalty business with a remarkably low overhead.

And recently, John asked if I wanted to go down to rural Mexico and check on the distillery.

Of course I did.

And I ended up in rural Mexico with an intoxicated stowaway and a former IRS agent in a rental pickup truck…


We took an early flight into Guadalajara from Mexico City. The plan was to get out to the distillery and back to the airport in one very long day. In retrospect, it was somewhat ambitious.

A Fourth-Generation Tequila Distiller

Having been to almost every part of Mexico looking at gold and silver mines, I’m not at all afraid of traveling there. In fact, in all of my trips I have never once run into trouble. Most Americans cringe when you mention visiting the country. I will rent a pickup and head off to parts unknown without thinking twice.

We took off from Guadalajara heading north, then east, looking for a town called Arandas. Once we found it, we headed down a smaller road to Jesús María. After that, we hit a dirt road looking for the agave plantation.

Agave is the key ingredient in tequila. Besides water, it’s the only ingredient.

The plant looks like a giant pineapple. The core grows in the dirt, while the thick green leaves flare out above. Tequila makers only use the heart of the plant and discard the leaves.

I had seen plenty of pictures of agave plants. After George Clooney invested in Casamigos (which sold for close to $1 billion), tequila ads started popping up everywhere. The ads for premium tequila often show pictures of agave fields.

These big-flared agave plants shown in premium ads are deceptive. Bigger is not always better. Similar to grapes for wine production, the size of the plant does not matter. Weather, rain, and altitude all affect how the agave plant looks as it grows. Time in the ground also varies. Some growers harvest plants in just a few years, while others wait close to a decade.

A skilled tequila distiller knows to ignore the size, shape, and color of an agave plant and focus on just the sugar content. A fourth-generation tequila distiller, like the man pictured below, does it instinctively.

Me, John, and our local gringo friend Dudley with fourth-generation tequila distiller Felipe Camarena

The first thing Felipe Camarena said to me when we met was, “Excuse me; I’ve been drinking a little since Saturday.”

…We arrived on a Tuesday.

Camarena produces tequila in the same region as his father and grandfather did. It’s in his blood… And he had a lot of it in his blood when we met.

The quality of a premium tequila rests solely on the distiller’s instinctive skill. As I mentioned, agave and water are the only ingredients. The rest is art.

I am not a drinker, so I didn’t know a lot about tequila when we arrived. I asked Felipe to arrange a full tour of his operation, start to finish. I wanted to see how the product goes from agave plant to bottle.

Tequila – From Plant to Bottle

The first step in the process is harvesting agave. The distiller is going for the optimal sugar content. Too young, too old, too large, or too small, and the wrong mix of agave can cheapen the process.

The agave arrive without leaves. Field workers remove those with a machete. Again, picture a pineapple without the leaves on the head.

Next, workers at the distillery use machetes to split the agave in half.

Agave plants ready for processing

As far as the workers at the distillery, most speak English and have a technical background. These guys are very sharp. It’s part of what makes premium tequila stand apart from bottom-shelf junk.

The agave plant has very high sugar content. That sugar is what the distiller wants. To extract it, he has to cook the plant and then crush it, which produces a juicy syrup that starts the distillation process.

After workers split the agave in half with a machete, they remove the heart, which you’ll notice littering the ground in front of the split agave pictured above. This heart makes the product bitter if it’s cooked with the rest of the plant.

With the agave plants split, workers load the halves into a stone cooking furnace. This is the traditional way to cook agave. Some mass-market tequila makers use an acid bath to extract sugars from agave. It’s faster and cheaper. If you’ve never had tequila, you wouldn’t know the difference. If you have, there’s no going back.

E.B. inside the agave oven

The stone oven I’m standing in holds 27 tons of agave. That’s about 24,500 kilograms… or over 54,000 pounds. Each 10 kilograms of agave plant loaded into this oven will ultimately produce about one liter of tequila. That means this fully loaded oven will turn into around 2,500 liters of tequila on the store shelf.

The cooking process takes two days. The first day is the actual cooking, with heat applied through the floorboards below. You’ll notice (in the photo above) the plants are strategically packed so that warm air can circulate through them. The second day, the agave sit in the oven without heat, which allows them to cure.

After two days in the oven, the cooked agave go into a stone pit that looks like a small loading dock. A homemade steamroller crushes the cooked agave, sending the sugary extract into a fermentation area.

It’s All About the Water

Tequila is essentially fermented agave and water… But not just any water.

Felipe Camarena uses three sources of water to make his tequila: rainwater, spring water, and deep well water. He wouldn’t tell me how much of each, but I gathered he mixes on instinct, not formula.

The agave and water mixture heads to fermentation tanks for five days. Then, it goes into a still.

The still hasn’t changed much since people made hooch in the woods during Prohibition. The copper pots shown here have a copper coil running through them that looks like a corkscrew.

Stills turn fermented agave and water into clear alcohol

The operator turns up the heat, making steam from the fermented agave and water mixture. The condensation from that steam drips into the stainless steel tanks in the middle. The distiller tests the alcohol throughout the process to make sure it meets purity standards.

The finished product is clear tequila, also called “blanco.” Some of that heads straight into a bottle and onto a truck. It’s ready to drink.

The rest of the blanco tequila goes into barrels for aging. It turns into three different types of tequila, depending on how long it ages in the barrel. Each barrel holds 200 liters.

E.B. in front of $8 million worth of barrel-aged tequila

G4 sells four types of tequila:

  • Blanco – Ready to drink immediately
  • Reposado – Aged at least six months
  • Añejo – Aged at least 18 months
  • Extra Añejo – Aged at least three years

The longer the tequila ages, the darker it becomes. The Extra Añejo is good for sipping, while the blanco goes in the blender at a pool party.

John’s investment in the tequila business is in good shape. He’s especially taciturn when it comes to discussing specifics. I did manage to get an admission that after its first full year, case shipments to U.S. distributors were up triple-digits in the first quarter.

Back in Florida, I bought several bottles at the local liquor store as gifts for friends. They told me the product was exceptional.

If you’re inclined, the company’s website has a locator that lists restaurants and stores that carry the product.

The Stowaway and the IRS Agent

Things got a little tricky when we tried to leave the distillery.

For starters, we had another gringo in tow, named Dudley. He goes by “Daniel” in Spanish. After I told a friend about the upcoming trip, he introduced us over email.

Daniel moved from Texas to Guadalajara in the late 1990s. He jumped at the chance to come see the distillery with us. He said he loves tequila. I was glad to have him, figuring if we ran into trouble in the Mexican interior, six fists give better odds than four.

About halfway through the drive, Daniel pulls out his IRS badge. Granted, he retired years ago and came to see the agency for what it is. I told him the only difference between the mafia and the IRS is that the mafia headquarters doesn’t fly a big American flag.

Since John barely drinks and I don’t drink at all, we left Daniel to do all the tasting with Felipe. He did great. So great in fact, that Felipe didn’t want us to leave. Determined not to spend the night in the hills of rural Mexico, I told John, “We’re leaving.”

Felipe wasn’t having it and got in the rental pickup truck with us. There’s no reasoning with a man who’s been making tequila for 50 years and drinking it for a week straight. He nearly tore the truck apart looking for a cigarette lighter before we could pacify him with the promise of a stop at the next crossroads.

Things worked out great in the end. We had some of the distillery staff rendezvous with us in Jesús María for an early dinner. Then, we had to tell Felipe we’d be back in a minute and make a run for the car. If we hadn’t, I think we’d still be there today.

Felipe Camarena is a man whose life’s work is making some of the best tequila in the world. Of course, he wants his guests to stay and enjoy sipping it with him for days on end. He’s passionate about his product and it shows.

If you do run across G4 Tequila at a restaurant or your local store, give it a try. It’s nice to know where it comes from.


E.B. Tucker
Editor, Strategic Trader

Common Stock Warrants Are a Powerful Wealth Building Tool with Dudley Baker

Note from Dudley Pierce Baker, CommonStockWarrants.com

I recently did this interview with Kerry Lutz and we walk through investment possibilities with mining shares and stock warrants.
There is a short advertising break in the middle, so don't leave the interview until completed.

Common Stock Warrants Are a Powerful Wealth Building Tool with Dudley Baker


If you would like more information on stock warrants please download your Free copy of "The Stock Warrant Handbook, Your Personal Guide To Trading Stock Warrants".

SILVER – Should Investors Lower Expectations?

By Dudley Pierce Baker

While investors have watched the price of gold performing very well and recently trading over $1600, silver has lagged and lagged badly. This begs the question, are we overrating or expecting too much from silver and our silver miners?

Quite the contrary.........

Two other analysts that I follow are saying to be patient and that silver will be catching up soon, really soon.

Below I give my opinion on how to invest in silver, if these analysts are correct that higher prices are coming.

Chris Vermeulen at TheTechnicalTraders.com sees the possibility of silver trading upwards of $90 - $95 per ounce within the next 24 months. A move of that potential is surely worth waiting for, is it not?

In this recent article by Chris,


"...Remember, the current disparity level is just over 200% between Gold and Silver.  If Gold continues to rally higher and Silver attempts to break higher, attempting to narrow the disparity level, then Silver will (at some point) enter a near parabolic upside price move above $36 to $40.  Our researchers believe this may happen before June or July 2020...."

Clive Maund - January 13, 2020 writing on Silver-Phoenix500.com:

Silver Market Update

"...Silver’s recent rally looks diminutive and stunted compared to gold’s, but that’s normal at this early stage of a new bull market, when silver typically underperforms gold due to investors being risk inverse, with silver being perceived as more risky and volatile than gold. Nevertheless,....."


With the possibility of gold over $3,000 and silver over $90, investors would have the opportunity of making a fortune, if correctly invested.

I suggest a portfolio of gold and silver miners as well as some stock warrants which are trading on shares of your favorite companies. This market environment would create many 10 baggers, 10 times or more for your investment dollars and the stock warrants would normally be at least twice those gains.

You will find many stock warrants trading on gold and silver miners in my databases.

This is the time to THINK BIG AND GO FOR HOME RUNS.

If you are not familiar with stock warrants, I invite you to visit my website and download your free copy of "The Stock Warrant Handbook, Your Personal Guide To Trading Stock Warrants."

Those subscribing to my Gold Subscription or LifeTime Subscription get access to my entire portfolio of gold and silver miners and the stock warrants which I own as well as my weekly audio.


The Real Gold Bull Market Is Yet to Launch





Editors Note from Dudley Pierce Baker - CommonStockWarrants.com

"Marin Katusa and his team do an excellent job of marketing and presenting the views and justification for the continuing bull market in the resource sector. I basically agree with all of their views. I would suggest and I believe that Marin would agree, that investors should consider stock warrants which might be trading on any of the companies being considered for investment."

The Real Gold Bull Market Is Yet to Launch

The gold market has always moved in cycles—from dramatic boom to overnight bust, and eventually back again.

So far in this “boom,” gold has barely risen 20% from its floor.

That’s not even close to the minimum required to qualify for a true “bull market” over the past century.

  • The smallest gold run-up in the past 90 years was 45% from 1930-1933—more than twice the current gain.

The other rallies were far, far bigger: from 1972-1974, the rally yielded a 100% gain.

From 1978-1980, another 100% gain. Then from 2007-2010, a 67% increase in the price of gold.

The point is this: when gold is ready to rise, it takes off.

Every single one of the years in the date ranges above saw an increase of more than 20%. What some investors might see as slipping backwards may just be the cycle getting ready for its next natural advance.

  • So if you’re a subscriber to my Boom-Bust-Echo theory, then you know the gold rally has barely just begun.

The biggest profits still lie ahead of us.

Savvy investors will patiently hold, before finally selling near the peak of the boom.

For example, many major gold producers right now, such as Kinross, Gold Fields, Alamos, and Eldorado are trading around $5-6.

(Gold Fields is up nearly 190% from its lows 14 months ago – and that’s a $5 billion company!)

These stocks could easily be sitting at doubles a year or two from now. And the juniors’ percentage returns will likely be an order of magnitude greater.

It might be hard to believe that gold stocks could see gains of 500% or more in the next couple years. It was equally hard to believe in 1933, 1972, 1978, and 2007… but it happened every time.

Why Gold Is a Bad Investment When “This” Happens

During a gold rally, you might be tempted to invest directly in gold bullion.

There are many reasons why that’s not the best way to invest, including the persistent strength of the U.S. dollar. Have some bullion exposure.

But another really big reason is the potential for extreme leverage with gold stocks.

Look at what happened to gold in the ‘70s…

It took off early, cooled off a bit in the mid-‘70s, then hit the afterburners headed into the latter part of the decade.

On December 31, 1978, gold was at $226 an ounce.

On January 21, 1980, it maxed out at $850 an ounce.

That would be like gold going to $5,641 by the time the next U.S. President is inaugurated. If it happened forty years ago, it can happen again.

Now, digging up information on tiny gold producers from the early ‘80s is no easy task. Most of the information was not digitized then.

But here’s data we put together below on a few producers that the Katusa Research team found, along with the percentage returns at their peak:

Table 1. Gold Producer Returns, 1979-1980


That’s an average of a 220% gain.

The GDX, an index of gold miners, currently trades on the New York Stock Exchange for around $28. Keep in mind that the current gold rally has already begun—it’s up more than 37% from its low.

  • If gold plays out like the 1979-1980 rally, that would put the GDX Index at a cool $44.88 by the end of 2020. 

Of course, it’s only the lucky investor that’s going to catch it right at the top.

But suppose you could capture 75% of those gains. That’s still a 165% return.

Buying into gold stocks instead of gold takes luck out of the equation. But we still haven’t mentioned where the real gains are to be had.

The ones that turn a modest portfolio into your whole retirement plan.

And how you can beat the GDX returns by over 200% or more…

The ones that make your 10% speculation bigger than the rest of your account.

Next week, I will reveal the kind of stocks that really move your net worth needle. And my team and I will see many of them front row center at the 2020 Vancouver Resource Investment Conference with over 350+ companies in attendance.

This year we have a world-class line up you don’t want to miss…

Peter Schiff, Lord Conrad Black, Ross Beaty, Raoul Pal, Grant Williams, Brent Johnson, Rick Rule, Frank Holmes and many, many more.

My team and I will have our boots on the ground on the conference floor and on the stage, interviewing companies and meeting with key management behind the scenes.

I’ve spent many years in this gauntlet and know exactly what to look for in a great opportunity and speculation.

I encourage all Katusa Research subscribers to attend if they’re in the area and to come say hello.

For more information on the event, click here.

To get complimentary tickets, go to the registration page right here and then enter code “katusa100”.






Precious Metals Companies And Stock Warrants

December 25, 2019
By Dudley Pierce Baker
Founder - Editor
Common Stock Warrants
Junior Mining News

Happy Holidays To All and perhaps an idea for you heading into 2020.

There are many stock warrants trading on companies in the Precious Metals sector.

Perhaps you remember the name Precious Metals Warrants which we founded in 2005?

That was a great name at the time as resource companies and stock warrants on those companies did well, very well.

That time is here again as I anticipate soon, that gold, silver and mining shares and of course the warrants trading on those shares to rise substantially creating many 500% and 1,000% gains, perhaps much more.

In 2013 we changed our name to Common Stock Warrants as expanded our stock warrant database service to include all warrants trading in the United States and Canada and in all industries and sectors.

Many of my subscribers are primarily interested in the resource sector and currently there are many warrants trading on companies in the gold, silver, oil & gas and uranium space. Some are begging to be bought at current prices.

Subscribers to our Gold or Lifetime Subscriptions have much more information at their disposal, with access to my weekly audio and to my personal portfolio, “A Look Over My Shoulder”.

I follow the views and technical analysis of Chris Vermeulen at The Technical Traders and suggest you also visit their website and consider a subscription.

Stock & ETF Trading SignalsI look for 2020 to be a banner year for the resource sector with perhaps many 5 and 10 baggers, i.e., 500% - 1,000% gainers.


Stock & ETF Trading Signals

A Crash Course in Junior Mining

Collin Kettell
Palisades Goldcorp Ltd.



A Crash Course in Junior Mining – what mining and technology share in common

Last week I spoke about the impending junior mining mania that will soon unfold. This move will be violent, extreme, and in many cases, the gains produced will be life changing.

This week I want to explore how the junior sector operates and how it fits into the overall commodity puzzle. In order to do so, I will draw a direct analogy to the tech space. These two sectors independently represent the two most volatile markets in the world and surprisingly have a lot in common.

Let’s start with tech. In tech, there are a handful of companies that produce a majority of the sector’s profits and represent the lion’s share of the sector’s market capitalization. Think of Google ($GOOG), Apple ($APPL), Amazon ($AMZN), Microsoft ($MSFT), and Facebook ($FB) – the Giants.

Next down the totem pole are companies that operate on solid cash flow, but lack conglomerate status. They are less known and ultimately serve as unsuspecting lunch should one of the top dogs get hungry to acquire.

Further down still are the start-ups – companies built to solve a specific problem. Some of them are known, but generally they are obscure and most fail to produce anything that gains market traction or longevity.

Start-ups serve an indispensable function in the technology space. They feed innovative concepts and ideas that change the world. Almost every technological revolution stems from a start-up. They begin as an idea in the mind of an inventor, but ultimately become capital intensive and rarely generate profit until maturation. The potential monetary prize of these inventions, platforms, or apps is exponential and thus warrants serious attention from the Giants.

The technology ecosystem was not designed like this, but has naturally evolved this way due to market forces. Tech Goliaths like Facebook and Google are constantly investing in R&D, but they simply cannot justify allocating the resources to create 2,000 startups in hopes of finding one gem. And even if they did, start-ups are organic concepts – a result of an inventor solving a problem they often times personally encountered.

For these reasons, tech giants are forced to sit back and watch with a checkbook in hand. When a start-up emerges that they deem to be critically important, they are willing to pay massive premiums to acquire that technology. Think of Google buying YouTube or Facebook’s purchase of Instagram. In both cases, these acquisitions cost $1B and were thought ludicrous at the time due to a lack of profit. They now contribute as massive profit centers for both companies. Investors trying to value technology start-ups on cash flow, or lack thereof, possess a fundamental misunderstanding of the sector.

There is of course the rare case where a start-up makes it through the maturation phase on its own. Facebook was famously offered $1B by Yahoo, but declined the offer. Uber ($UBER) has not had a credible takeout offer and is now public, but a sustainable cash flowing model has yet to be demonstrated.

Moving to mining, there similarly exist a handful of companies that make up the majority of production and lion’s share of the sector’s market capitalization – Barrick ($GOLD), Newmont ($NEM), Zijin, Kirkland Lake ($KL.TO) are some of the names that come to mind. These are the Majors, analogous to the Giants of technology.

A Major’s core competency rests in mining gold from the ground. They do occasionally perform grass roots exploration, but for the most part, are focused on development and extraction. A Major’s share price acts as a direct lever to the underlying commodity. Higher gold prices equate to better operating margins, and translate into a higher share price.

A bit further down the ladder are the mid-tier producers. They effectively perform the same duty as the Majors, but on a smaller scale and as witnessed time and time again, they are lunch for a hungry Major. Last week’s acquisition of Detour Gold ($DGC.TO) by Kirkland Lake is a prime example.

At the bottom of the hierarchical pyramid are the juniors, loosely defined as companies with less than a $250M market cap (often times below $10M). Juniors are focused on exploring for the mines of tomorrow.

These companies are the lifeblood of the mining business – without them there would be no ounces to replace the depleting reserves at operating gold mines. Just like technology start-ups, most of them fail. As the saying goes, 1-in-3,000 targets becomes a viable deposit. Ultimately those are pretty bad odds and why the majority of juniors fail. It is also why most Majors cannot justify grass roots exploration – it would bankrupt their operations.

For argument’s sake, a 1-in-3,000 success rate might be applicable to not just the juniors, but also tech startups. Success in achieving that pinnacle of discovery (or market relevance in the case of tech) will translate into serious profit for investors.

But, aside from market/discovery success, there is a force at play that is equally as important and that is the cycle itself. In technology today, the start-up ecosystem is robust. Across the board, companies have access to capital on terms that are not terribly dilutive. This has led to the ‘unicorn’ nomenclature, reminiscent of the dot-com bubble in 1999.

During the dot-com bubble, money rushed into the sector without prudence or precision. The value of tech companies rose in tandem regardless of quality, and investors made a fortune. This created an epic market bubble. The sector overcapitalized, capital was misallocated, and the market ultimately burst. It took a few years to come back, but money did ultimately return. The next cycle peak occurred in 2008. Today, tech appears once again in the euphoric portion of the cycle.

Mining is even more predictably cyclical. Following the Bre-X scandal in 1996, mining began a precipitous decline. The tides turned in 2000 and began an eleven-year bull market (minus the 2008 crash). Then in 2011 the mining market shifted into bear market territory, steered by the underlying commodity prices. In 2016, as a reaction to extremely depressed prices, the mining stocks rallied. Today, they remain depressed. But, positive indicators have emerged such as a rally in commodity prices, matched by moves in the Majors.

I cannot stress enough how important this cyclicality is to the ecosystems for both technology and mining. In a speculative market where valuations of companies are not based on profit, but instead derived from anticipation of future results, extreme cycles will always exist. When a lack of solutions are being invented to aid in technological issues, money will eventually pour in to fix this. When a lack of ounces exists in reserve in the gold market, money will ultimately rush in.

Conversely, when technology start-ups reach ‘unicorn’ valuations across the board, it only takes one WeWork moment to scare investors away – a not so subtle reminder that the risk they are taking on no longer can be met with the asymmetrical gains their capital deserves.

In mining, when an abundance of ounces are put into reserves due to discoveries and higher commodity prices, investors will achieve smaller returns for taking on greater risks. Major mining companies begin to overpay for ounces. The value of all juniors reaches extreme heights. And at some point, investors shy away.

Differences between technology and mining do, of course, exist. And they are valuable to examine in the context of this discussion as well.

I once asked a well-known industry titan why someone with such a sharp mind would subject himself to the junior sector? Why not venture into oil & gas for example? He responded that competition is a lot lighter when you are scraping along the bottom of the junior mining barrel. Harsh words – but not far removed from the truth.

People often times lament the junior mining sector with its inefficiencies and lack of intellectual capital. But there is good reason for this phenomenon and it is not going to change anytime soon – 1) the size of monetary reward and 2) the lack of predictability.

In technology, the prize for a successful start-up can directly translate into a $10B or $20B cash take out. This can happen in a very short period of time – a couple years. Facebook bought WhatsApp for $19B in stock and cash with only 55 employees on staff and five years into operation. Ownership of technology companies tend to remain quite concentrated in the hands of the founders, meaning the prize is really, really big.

In mining, it is rare for a discovery to yield over $1B on a takeout. $10B is unheard of. These acquisitions happen a couple times per cycle, not a couple times per month like in tech. Furthermore, the mining business is far more capital intensive in context of the value created in the market and therefore the founders receive a much smaller slice. Money owns the mining exploration space, not the geologists.

All this translates into smaller monetary rewards. Since money attracts talent, it is no wonder intellectual capital concentrates in technology rather than mining. Geologists can spend a lifetime in search of a discovery to call their own; when they find it, they rarely own enough to build serious wealth.

The second point is regarding a lack of predictability. In the start-up world, guessing what is going to be successful and what will not is no easy task. But there are venture capitalists out there that demonstrate an ability to pick the right horse time and time again – Peter Thiel, Andreessen Horowitz, etc. In mining, this is almost non- existent. Robert Friedland has had two multibillion-dollar discoveries to his name. He is the only person alive with such good luck. For those who will debate me on this point, I will further clarify that he is the only person to ever do it and remain the majority shareholder.

The reason for this is that mining is a game of odds. You have to buy enough lottery tickets to get a winning hand. If you ever wonder why billionaire Eric Sprott invests in hundreds of companies, it is not for lack of discipline. He understands the game innately. First, he takes educated guesses, planting seeds with the right teams and right projects. Then when the sniff of a discovery comes along, he is first in line to deploy as much as he can. Wallbridge Mining ($WM.TO) is a textbook example.

This is the only systematic way to play the discovery game and why Eric is bound to go from billionaire to multi-billionaire status when the next cycle hits.

Conversely, technology requires concentrated bets. Typical venture capitalists in Silicon Valley make very educated bets and will deploy into just a dozen companies over a few years period. This ability to predict the next tech success with some level of accuracy attracts intellectual capital away from an unpredictable sector like exploration and towards the world of tech. This fundamental difference in concentration of bets and associated risks is why technology start-ups exist in the private space, while mining is almost exclusively in the public sphere.

The bottom line is technology and mining are capital intensive and they require a constant flow of new ideas and new reserves. Without the start-ups and without the juniors, the ecosystem is broken.

The relevance of a technological innovation depletes over time in the face of new ideas, different needs, and faster processing capabilities. A mining project’s lifespan depletes very literally as every ounce mined is one less left in the ground.

These two sectors – tech start-ups and junior miners – lack traditional methods of valuation that are based on cash flow. And for that reason, cycles will always exist to reflect human nature – too much capital, too little capital, but always in search of a balance. Ironically, both sectors are currently out of whack. Mining is experiencing a lack of capital while technology is facing the opposite problem – too much money can result in an imprudent idea like WeWork being given a $40B valuation. The below graphic nicely depicts the discrepancy in relative valuations between the two sectors.

This is why I said last week that in some way, shape, or form, an impending junior mining mania is coming and it is going to be exactly the same this time!

Until next week,

Collin Kettell
Founder & Executive Chairman
Palisades Goldcorp Ltd.

NOTE: This material is for discussion purposes only. This is not an offer to buy or sell or subscribe or invest in securities. The information contained herein has been prepared for informational purposes using sources considered reliable and accurate, however, it is subject to change and we cannot guarantee the accurateness of the information. The material does not necessarily reflect the official policy or position of Palisades Goldcorp Ltd.