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Thom Calandra: Taking Calculated Yet Extreme Risks in Mining

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Thom Calandra Thom Calandra, a long-time journalist and mining investor, knows what risks to stomach in search of jaw-dropping returns. Geopolitical risk, for one. Karen Roche of The Gold Report caught up with him at The New Orleans Investment Conference to see what this 30-year veteran of analyzing financial markets took away from the event. In this exclusive interview, Calandra revealed what mining gems he'll be eyeing for his portfolio and why he'll never invest without setting foot on a project first.

The Gold Report: Thom, you've been able to identify some tenfold-return candidates in Ghana, Colombia, Sierra Leone, Quebec and Ethiopia. What creates a candidate that can give you a 10x return and how does one find these candidates?

Thom Calandra: Karen, I've been a financial journalist for 30 years. I've focused entirely on natural resources for the past 12 years. I'm also a very heavy investor and I do some investor relations on the side. That combination gives me the ability to meet people a retail investor might not. I like to think I know most of the companies out there with interesting projects.

I've always had my favorite jurisdictions, but my one overarching rule is—and I know this is going to sound bizarre—ignore geopolitical risk. I'm not here to determine where the gold, silver, copper or platinum price is going. I'm here to find extremely undervalued prospectors and producers. By ignoring geopolitical risk, for example Colombia in 2007, I was able to get stuff cheap. Same thing with Ghana in 2002.

Ignoring geopolitical risk doesn't mean there won't be a price hit if there is a government change in mining doctrine or a revolution. Tanzania tax talk concerns me right now, for instance. But it does mean you're going to get in a lot cheaper than if you invest in a more mature economy.

TGR: That infers that the primary reason these companies are so undervalued is the geopolitical risk.

TC: Karen, it's absolutely the perception of geopolitical risk. Let's take Colombia. If you told someone you were going to Colombia, they would think you might be coming home in a body bag. The same applies now for Sierra Leone, Cote d'Ivoire or Liberia. Often perception of risk is not reality. The only way to find value in any investment class is to set aside the macro risk, whether it's geopolitical, investment, currency or any other larger factor.

TGR: What other risk factors do you evaluate when investing in junior mining?

TC: The higher the stakes are in commodities, the more likely there will be fraud. Investors need to be on guard when investing in natural resources more so than when investing in a biomedical company, for example.

There are at least seven mining or prospector risks: geopolitical risk, bad luck, geological risk, fraud, broad investment risk, incompetence and the risk of the commodity markets themselves. I will never invest in any natural resources project unless I get to walk it. I learned my lesson with a tiny Mozambique company called Noventa (NTA:TSX) in the tantalum space; I still own it, but now, after almost running out of money, the London-traded shares are a fraction of what I paid. If I walk a project, I like it, I know the people, and I can understand the structural geology, then I will invest. If I can't go see it, I'm not in.

TGR: To what extent do you think there is purposeful fraud in the metals marketplace?

TC: There's an old joke that natural resources, more than any other industry, have a high probability of companies going to zero, yet they keep coming around the racetrack again and again. I constantly come across companies that have been resurrected from the ruins of a silver mine in Colorado, a potash operation in Saskatchewan or a failed uranium operation in South Africa, and now they're a gold company, a molybdenum company or an iron ore company.

Natural resource businesses are so susceptible to being resurrected because the startup costs are far lower. Someone can more or less start up these companies out of a file cabinet and put them on an exchange. I'm most wary of the Over-the-Counter Bulletin Board dirt-bags in the U.S. and the hundreds of companies and millions of dollars of cheap paper that gets created for seed investors everywhere. Still, I do respect the regulations that Australia and Canada have in their markets.

TGR: What have they done differently than the U.S.?

TC: The NI 43-101 process has become much more rigorous in Canada. The various regional exchanges in Canada, even though they're not well coordinated, do a good job of monitoring press releases, websites and the information that's filtered to investors. Regulators in Canada could do a lot more, but they are more aggressive and attentive to the issues that affect natural resource investors. Australia is similar: very proactive on protecting The People. Also, no four-month hold on private placements, so people will back mostly entities that are a long-term hold and not a four-month trade with warrants on the side.

TGR: Since so many companies come back around the track, wouldn't one of the highest potential risks for investing in the sector be management?

TC: Totally. There is a saying that anyone in this business has many faces, and very few people in this business—whether they are geologists, bankers, financiers or mining engineers—have 100% approval from everyone you ask. There are a lot of rivalries and intense competition. Lots of trash talk. There are a handful of investors, bankers, financiers and geologists whom I trust and who are respected by 99.9% of the people whom I vet them against. That's where I start in my due diligence.

TGR: Can you point to those you believe are the real leaders?

TC: Let's take finance. I have great respect for Ari Sussman in Toronto, who is running Continental Gold Ltd. (CNL:TSX) and Colossus Minerals Inc. (CSI:TSX). He's very active in Colombia. He's in his late 30s, but he's all business. He knows more about mining finance than anyone I know his age.

On the staking side, Robert Allen from Grupo de Bullet S.A. has done a terrific job accumulating millions of hectares of properties, mining rights and claims across Colombia since 1981. He has a tremendous amount of integrity. I consider him a friend and a mentor.

Paul Zweng, who has a doctorate in geology from Stanford University, is a savant on the geological side. He's also a fund manager and he runs Bellhaven Copper and Gold Inc. (BHV:TSX.V:), which I have a stake in and which I helped to resurrect, along with Patrick Abraham, a broker in Panama who now lives in the USA.

TGR: Some people may question your reliability because of an issue you had with the Securities and Exchange Commission (SEC) in 2003 related to your ownership and coverage of companies while with MarketWatch. How would you react to that?

TC: I don't have any excuses about what happened. MarketWatch was on the forefront of many things on the Internet. We created it and we made a lot of money for a lot of investors both in technology and natural resources; but at some point in that cycle, I flew too close to the sun. I paid the price.

I consider it a one-off, and personal circumstances were involved. It is all out there for those interested in the blow-by-blow. I apologize. You can't examine these things without placing them in context. Back then, the commodities markets were flying high, as was Internet publishing, and I was intoxicated by some of the people whom I was covering. That is no excuse for a trained journalist.

I acknowledge my errors from back then. But I might add, my research and my ability to forecast, assess and analyze any position and property have never been questioned. I'm proud that we made a ton of money for a legion of people. Robert Friedland's Ivanhoe Mines Ltd. (IVN:TSX; IVN:NYSE) at Oyu Tolgoi in Mongolia is one of many examples. I am still making money. A lot of it. My run-in with the SEC made me aware of the conduct required for serving individual investors who desire both high-risk returns and a walking-talking tour guide of the world's nascent metals projects.

TGR: What do you look for on a site visit and how does that influence your investment position?

TC: When I went to see Dr. Amit Tripathi, the former vice president of exploration at Sunward Resources Ltd. (SWD:TSX.V) in Colombia's mid-Cauca Belt, I spent at least three hours with him discussing how structural geology affects drilling. It's very important in that area. You really want to keep your drilling expenses as low as you can.

How do companies demonstrate that? It means looking at cross-sections and some information that companies almost never share with investors. As long as I'm comfortable with the structural geology and I get to walk the property extensively, I can start examining other issues, including the quality of management and some of the economic and market issues.

TGR: Your first filter in investing is the project.

TC: That, and it has to be dirt cheap. There are very few things in my world right now that are not below $300 million (M). Some, which I still own, were a great deal smaller when I started my research and visits, like Bob Archer's Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A). I have quite a few mining benefactors named Bob who have become great friends; Mr. Archer is one of them.

There are some companies that I follow that are quite larger these days than when I first started visiting them. Great Basin Gold Ltd. (TSX:GBG, NYSE.A:GBG) in South Africa and Nevada has a $1 billion (B) market cap. Endeavour Silver Corp. (NYSE:EXK; TSX:EDR) is one of the biggies in Guanajuato and Durango, Mexico. I own these three and have for years.

Let's face it. I've always been high risk. With tech in the '90s. Aluminum and S&Ls in the '80s. Far East Internet companies listed in Hong Kong in the early 2000s. DNA and genomic diagnostics down in La Jolla, California. I know sometimes it drives my family crazy, but high-risk tolerance never disappoints long-term investors who buy companies with market caps of $20M–40M and are fortunate and tranquil enough to see them triple, quadruple and even quintuple their market caps over a couple of years.

TGR: Let's hear about some of the interesting companies that you're following?

TC: I'd really like to give you a couple that I don't own first. Every single thing that I do own is available for free in the portfolio function of I also write for Torrey Hills Capital's and for my friend Chris Kitze's

Let's take Continental Gold. Ari Sussman and Stuart Moller, his No. 1 geologist, have found what I call a "river of gold," ultra-high gold grades, underneath the Buriticá gold project not far from Medellin, Colombia. I think Mr. Moller and his assistant, Marco Castaneda, deserve a nomination as prospector of the year for what they have accomplished in this soon-to-be underground mine.

We've seen several companies come out with insanely high gold grades lately— CB Gold Inc. (CBJ:TSX.V) in Colombia came out a few weeks ago with grades that were off the charts, almost unbelievable. I hope for the company's sake that the drilling was spot on and didn't involve a lucky strike right through the center of a vein that extended. Or an extrapolation from a tiny intercept without sensible cut-off grades. I don't own CB and am amazed at the project's stated numbers. But I respect its investors, including copper pioneer Ross Beaty from Canada.

What Co-chairman Yale Simpson has done with Extorre Gold Mines Ltd. (XG:TSX; XG:NYSE.A; E1R:Fkft), a spin-off from Exeter Resource Corp. (XRC:TSX; XRA:NYSE.A; EXB:Fkft), in Argentina, in terms of discovery holes with tremendous grades and lengthy intercepts, is unreal, too. But very real. I don't own it but I value the Extorre team and its commitment to develop a mine down there.

I absolutely love Xtra-Gold Resources Corp. (XTGR:OTCBB), Paul Zyla and James Longshore's company with a vast jurisdiction in the Kibi gold belt in Ghana. I own a heck of a lot of the stock, about 185,000 shares. Maybe more. I rarely have been to a project four times over a five-year period, but this is one of them. We are talking about zones on this property that will vie with Ghana's other major gold belts. Every year there are 20–30 companies around the world that grow their market caps in an extremely rapid period of time from $30–40M to $1B or more. I think Xtra-Gold will be one of those very soon, and I will stake my reputation and a nice slice of my portfolio on it. All it needs is a bonanza-grade hole from geologist Yves Clement, in addition to all of the drilling Xtra-Gold already has completed these past three years. I think that is imminent.

Bellhaven Copper & Gold, in the mid-Cauca Belt in Colombia, is a company that will be sold, I believe, with spin-offs in Panama, for $3/share, or $400–450M. Maybe more if I am proven sane. The share price of Bellhaven is up about 45% after a strategic investment from IAMGOLD Corp. (IMG:TSX; IAG:NYSE). This is my largest stake and one that I helped to resurrect with the essential help of interim CEO Paul Zweng and Julio Benedetti, a Panama professional miner. Most Colombia-oriented investors are chasing prospectors that have a tenth of the potential that Bellhaven has in terms of ounces. If you want names of the ones I don't ever intend to own, feel free to email me at [email protected]. I own about 1.8M Bellhaven shares.

I like what's happening in Quebec right now. Glen Mullan's Golden Valley Mines Ltd. (GZZ:TSX.V) has become quite a prospect generator. He executed the first three-way simultaneous spin-off on the TSX Venture Exchange ever this past summer. Investors woke up one morning and instead of having one stock in their accounts, they had four. C'est magique. Golden Valley Mines has something up its sleeve about its next spin-off, whether it comes from Ontario, Quebec or Sierra Leone. I own it.

Investors looking for a dirt-cheap stock need to look at some companies that haven't done a thing this year. That would include any company in the molybdenum space. I'm invested in Avanti Mining Inc. (AVT.TSX.V), which has the old Kitsault mine in British Columbia. It is a real sad-sack story. Avanti is run by two folks I've known for a long time: Craig Nelsen, who was active in South Africa, and A.J. Ali, the chief financial officer and commodities financier. One day, I pray that severely depressed stock will do well because molybdenum prices will rise; people will recognize the demand for stainless steel and specialty stainless steel products. I have to add, Karen, I am tremendously unhappy with the time it is taking for the Avanti team to locate Asia or India or Poland steel partners who want a piece of a solid moly mine in return for financing assistance. I own almost all of the 900,000 or so shares I have bought these past three years, but have sold some—maybe 100,000 shares at sadly depressed prices—to raise cash.

TGR: What stories did you hear about at this conference that you're going to investigate further?

TC: Barkerville Gold Mines Ltd. (BGM:TSX.V), Frank Callaghan's company in British Columbia, a natural gold producer, is quite interesting. I'm fascinated. I hope to get out there but I do not own it.

I also want to go see some more of the Grupo de Bullet properties in Colombia that Bob Allen and his team are developing and then vending, much like a private merchant bank or a prospector generator. He and Ari Sussman were the spark plugs for Continental Gold. I'm interested as well in Colombia Crest Gold Corp. (CLB:TSX.V; EAT:Fkft), which is right next to Bellhaven Copper & Gold at La Mina in Antioquia. I actually saw part of its property in Colombia a few months ago, and now I'm looking at investing.

Karen, I have gotten reacquainted with Colombian Mines Corp. (CMJ:TSX.V). I used to own that one, but I never made any money on it. President Bob Carrington and his wife, Gloria, were good enough to introduce me to some of the Colombian Mines properties in Colombia many years ago. They both are a high-integrity factor in the business of Colombia mining and exploration. In addition to Bob Allen and politically connected Serafino Iacono and perhaps a few other names, for instance geologist Raul Madrid, who just passed away this month, Bob Carrington probably has been in that beautiful country as a foreign prospector as long as anyone. Colombia Mines is scrap-iron cheap, so I started buying it again and it's moving higher quickly. It has irons in the Colombia fire, including a vast copper property, El Dovio, and the Yarumalito gold-copper project near Medellin. So, that's a good start.

I am considering looking at a couple of gold-copper properties in Argentina, one of the few places in South America that I have yet to see. Also iron ore in Guinea in West Africa. And diamonds in Sierra Leone, which I have visited. I hope that's all a pleasant surprise.

TGR: Thom, thanks for your time and getting together.

Thom Calandra was the founding editor-in-chief and marquee columnist for CBS and FT MarketWatch until 2004. He currently travels the world visiting mines and exploration camps and writing up his findings for free at Calandra has been a commentator on investing topics for almost 30 years. He was the San Francisco Examiner's daily investing columnist. He has appeared on the CBS Evening News, CBS Radio Network and the CBS MarketWatch Weekend television show. Calandra was a London-based columnist for Bloomberg News and was the first financial editor of USAToday's Internet editions. He co-founded Ticker Trax for in Canada. He holds a master's degree in English from the University of Arizona and a bachelor's from City University of New York at Brooklyn College. He is a principal of Torrey Hills Capital in San Diego, California. He lives with his wife and two children in Tiburon, Calif.

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1)Karen Roche of The Gold Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: Exeter and Great Panther Silver.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Great Panther Silver Ltd., Extorre Gold Mines Ltd., Exeter Resources Corp., Barkerville Gold Mines Ltd., Colombian Mines Corp., Colossus Minerals Inc., Continental Gold Ltd.
3) Thom Calandra: I personally and/or my family own shares of the following companies mentioned in this interview: Colombian Mines, Bellhaven Copper & Gold, Great Panther Silver, Avanti Mining, Endeavour Silver Corp., Xtra-Gold Resources, Great Basin Gold and Golden Valley Mines. I personally am paid by the following companies mentioned in this interview: As a principal of Torrey Hills Capital in San Diego, California, I have the opportunity of participating in stock options granted by clients; those clients include Great Panther Silver, Xtra-Gold Resources, Golden Valley Mines and Avanti Mining.

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