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Luke Burgess: Gangbuster Gold Equities in the Yukon
Source: Brian Sylvester of The Gold Report (6/13/11)
Wealth Daily Editor Luke Burgess loves the word "gangbuster." It makes him laugh, and it signals great opportunities for investors to make money. In his first exclusive interview with The Gold Report, he shares this take on Yukon gold plays and diversification among small-cap equities, be they gold, silver or rare earth plays.
Luke Burgess: Diversity is key in any kind of investing. I like the supply and demand dynamics of natural resources and commodities. If there's a supply deficit, there must be rising prices. When we're talking about gold and specific resources, I go back and forth about when to invest. Right now, we're loading up on silver. When silver dropped from US$50/oz. to US$30/oz., I felt that that was an oversell. I wanted to get into something specific, so I went to primary silver stocks.
TGR: So, you play different movements in the market. What else helps you determine which equities to write about?
LB: Right now, I'm interested in Yukon gold exploration because of the discoveries made a few summers ago. The Yukon has a long history of mining, but only a fraction of it is really explored; in fact, less than 3% of all the mineral occurrences there have been tested with modern techniques.
TGR: What do you consider modern techniques?
LB: That would include geochemistry, soil sampling, geophysics—things of that nature. The Yukon is the world's largest deposit for placer gold. In the last 100 years of mining the Yukon, 15–20 million ounces (Moz.) of gold has been mined from the streams of Yukon rivers. Generally, geologists believe the source of this placer gold is 10 times larger, which means there could be up to 200 Moz. of gold in the source.
TGR: That means upstream because placer gold is gold that's in rivers and streams.
LB: Correct. The source of Yukon gold has never been found. But the discovery of Kinross Gold Corp.'s (TSX:K; NYSE:KGC) Golden Saddle deposit and Kaminak Gold Corp.'s (TSX.V:KAM) Coffee Gold Project in the past two summers suggests that they're getting close to finding the source. These two discoveries launched a new Yukon gold rush. In an average year, maybe US$20–US$30 million is spent on gold exploration in the Yukon. This year, spending estimates are between US$330 and US$350 million. With this amount of money being invested, I believe they're going to find something. I believe the market will see this as big news, will be excited and will invest in it. The excitement alone will drive investors and the retail market into Yukon gold stocks.
TGR: Is this a situation in which the rising tide floats all boats?
LB: Well, you can't take just any Yukon gold stock and expect it to go up. You need to find out where the property is located, who's running the company, if it's had past successes, who brought the project to the company—things like that.
TGR: How is the Yukon gold rush different from those in Northern Ontario, Mexico or even Nevada?
LB: It's different because of its massive potential. I don't think there's all that much potential in Red Lake, Ontario or Sonora, Mexico. I mean, if there really are 200 million ounces up there, I don't know why we're not spending $1 billion to find it.
TGR: In a recent edition of Underground Profits, you wrote that Yukon gold stocks are "going to go gangbusters this summer." What are some of the small-cap names operating in the Yukon that you put in the gangbusters category?
LB: My favorite Yukon gold stock right now is Ethos Capital Corp. (TSX.V:ECC; OTCQX:ETHOF), which did a very good job last summer tying up claims that are located around the Coffee and Golden Saddle deposits. Ethos is now the third-largest Yukon gold-claim landholder. I like Ethos specifically because of the man who brought these projects to the company, Shawn Ryan—the geologist who helped with the initial discovery of both Golden Saddle and Coffee. Shawn knows the area, and he's succeeded in bringing companies quality projects. With his blessing on these properties, I think Ethos has a really good shot at finding something really good.
TGR: The Betty and Bridget Properties are two of Ethos' Yukon projects. The Betty claims are 40 km. west of Kaminak's Coffee project. Do you know when the company's going to start working on or drilling those claims?
LB: Drilling won't happen for quite a while. Right now, Shawn and his team are doing soil sampling. Most companies take soil samples every 100 meters or so, but Shawn will take a soil sample every 15m. He does a lot more work to find the best places to drill. Shawn and his team are doing 33,000 soil samples on the Betty claim to define drill targets.
TGR: Ethos is exploring the Bridget Property and already has almost 1,500 soil samples. The company must be getting a good idea of where to focus its drilling campaign. What is it about this area that makes it such a good prospect for gold?
LB: A few weeks ago, I went up to Vancouver and a few of Ethos' geologists showed me some pictures. Two of the pictures were of dacite-rock drill core that came from Kaminak's Coffee project. The drill grades were really good. Then they showed me another photo of dacite rock on Ethos' Bridget property; similar rocks, similar geologic setting. This gives us a hint that there's good potential for Ethos to find gold on the Bridget Property.
TGR: Bridget also is located along the Tintina Gold Belt, which has a number of significant deposits, including the Donlin Creek Project, owned equally by Barrick Gold Corp. (TSX:ABX; NYSE:ABX) and NovaGold Resources Inc. (TSX:NG; NYSE.A:NG) and is across the border in Alaska. Are you familiar with Ethos' management team?
LB: I am familiar with the management. I only do business with people I believe are on the level. I watch how they work and ask everybody I know about them. The Ethos management team has been successful in the past. CEO Gary Freeman had a company called Pediment Gold Corp., which was acquired by Argonaut Gold Inc. (TSX:AR). I was a Pediment investor, and I recommended it in my newsletter. I think we walked away with a 250% gain. Gary's past success speaks for itself—he knows how to work with people, how to raise money and he's been successful with geological teams. The geologist at Pediment, Mel Herdrick, did a fantastic job of putting the Pediment information together, compiling it and ramping-up the company's resource to get it sold. I'm confident that Ethos' new geologist, Peter Tallman, is just as capable.
TGR: Another interesting connection is that, when Gary was with Pediment Gold, the company had a gold/silver play in Mexico. Ethos also has gold and silver plays in Mexico. At one point, people might have thought of Ethos as a Mexico play. Now, more people likely consider it a Yukon play. Would you agree?
LB: When Ethos was an empty shell, it rolled the two northern Mexico properties into it. Those are actually silver-lead-zinc carbonate-replacement deposits or carbonate replacement targets, and they were the company's only projects when it first started. So, when the initial investors came into ECC, it was a silver-lead-zinc exploration company.
I believe that the plan had always been to acquire a Yukon asset, because Ethos stressed its desire to diversify. It mentioned Shawn Ryan and the Yukon, so the company knew what it was doing. I think this is beneficial for shareholders because, in the Yukon, you can explore only during the summer months. With only three or four months of exploration, you get only three or four months of news. But Ethos can work and explore its Mexican projects in the winter, which gives it projects to work on year-round.
TGR: What are some other gangbuster small-cap names in the Yukon?
LB: I like Radius Gold Inc. (TSX.V:RDU) and Ryan Gold Corp. (TSX.V:RYG). I like Ryan Gold simply because of its name. I think Shawn Ryan will be one of these guys we hear a lot about, which will drive people to the stock.
TGR: Well, Ryan did receive the Prospectors & Developers Association of Canada's 2011 Prospector of the Year (Bill Dennis) Award. He's certainly gaining a lot of notice for the incredible work that he's done discovering gold properties in the Yukon. Are Radius and Ryan at the same stage as Ethos?
LB: No, Radius is a little bit more advanced. It has some drilling. I'm not sure exactly what Ryan Gold is doing now, but I would say Ryan Gold is more of a grassroots play.
TGR: As I noted earlier, you don't limit yourself to any one specific commodity—you write about whatever suits your fancy. In Wealth Daily, you wrote about Wealth Minerals Ltd. (TSX.V:WML; OTCQX: WMLLF) being beat up in the market because it was considered a uranium play, even though it has the largest rare earth project in South America. What's going on there?
LB: I really like the story, even though the events surrounding it are unfortunate. After the earthquake and tsunami disaster at Japan's Fukushima Dai-Ichi nuclear plant, uranium prices took a dive—and uranium equities got hurt even worse. The market perceives Wealth Minerals as a uranium miner because that's the way the company started. It remained a uranium company for a very long time, but recently acquired the Rodeo de Los Molles REE-uranium deposit, which not many people know about.
When uranium prices fell, the market punished Wealth Minerals, even though the company is not exploring for uranium as much as it is for rare earths. REE stocks have gone higher and higher, yet WML remains in the gutter due to market perception.
TGR: So, as Wealth Minerals begins to rebrand itself as a rare earth play, it could start to see some of the same appreciation a number of the REE equities have experienced over the last two or three years.
LB: That's exactly what it's trying to do right now. The company is about to drill the Rodeo de Los Molles Project in Argentina, if it hasn't started already. The last time I talked with the guys there, they planned 30 holes of 2,000m each. As you said, this will rebrand the company for the better. I believe the retail market will realize that Wealth Minerals is not a uranium play anymore—it's a rare earth play.
TGR: Wealth Minerals is one of the Cardero Group of Companies, based in Vancouver. With the resources at their disposal, it shouldn't take them long to rebrand the company.
LB: No, it won't. CEO and President Henk Van Alphen is a very sharp guy. I like him a lot. In addition, the project already has a historic resource of, I believe, 5 million tons (Mt.) at 2% rare earth oxide (REO). But the historic resource isn't NI 43-101-compliant. Wealth Minerals needs to go in and bring it up to NI 43-101 compliance to find out what it really has.
TGR: Van Alphen is the former president of Pacific Rim Mining Corp. (TSX:PMU; NYSE.A:PMU)—another guy with a lot of experience.
LB: Yes. Like I said, I want to invest with management that has had past successes. They always have good friends in the market, friends that are willing to give them money for bridge financing.
TGR: What's the next step at Rodeo de Los Molles?
LB: For Wealth Minerals, I think the next step is to find out what resources it has from the drill results. That's going to drive the company's next step. It's a waiting game right now.
TGR: Any other small-cap names you'd like to mention today?
LB: Earlier this month, I recommended what was, until recently, a silver exploration company, and now it has a gold deposit. The company is Orex Minerals Inc. (TSX.V:REX), and it's a story similar to Wealth Minerals and Ethos in that it has successful management. Gary Cope is the CEO of both Orex and Orko Silver Corp. (TSX.V:OK), which also share Chief Geologist Ben Whiting as the geologic leader.
In 2004, Orko Silver acquired its La Preciosa project, which has inferred silver resources of 3 Moz. Over the next several years, the company used its technical expertise to ramp-up the deposit to close to 150 Moz. In the meantime, it tied up some land just to the northwest of the Preciosa project and put it into a company called Orex. The property sat there for quite a while doing nothing. Orko's getting started now because, in 2009, it penned a deal with Pan American Silver Corp. (TSX:PAA; NASDAQ:PAAS) to do a joint venture (JV) on the La Preciosa project. Now that the project is on cruise control, management can focus more on Orex and develop its projects down there.
In a 2010 interview, Gary Cope told Al Korelin that the company had six JV offers on the table without drilling a single hole. A few months later, it came out that Fresnillo wanted to be a partner. It has a non-binding letter of intent to do the JV, which gives it a huge partner in Mexico. I like this project because of its proximity to La Preciosa in what it calls the "Mexican Silver Trend." It is continuous to Orex's Coneto gold-silver exploration project. I see this as a clear sign that we need to play our hand in it.
Orex has a similar property to the northwest, and it recently acquired a 1 Moz. deposit, 300,000 of which is indicated and the rest is inferred. This is a $0.82 stock with 30 million shares. That makes it a $27M company with a 1 Moz. of gold resource in its pocket. Then there is this incredible potential in Mexico, where the company has targeted a +1 Moz. resource; and it also has one of the world's biggest silver mining companies as a partner. At $0.82 for a $27M company, I don't think we can go wrong.
TGR: Before we let you go, on the broad-stroke level, do you expect good buying opportunities over the summer months?
LB: The expected summer low for juniors tends to become a self-fulfilling prophecy. Sell in May and go away happens every year; but this year, I think that there will be a low. But there are particular markets—specifically, the Yukon gold stocks—that won't experience that low. And, if we see silver spike up to $50/oz., we'll see silver equities go up along with it.
TGR: So, the summer low may depend on specific plays and commodities. Luke, thank you for your time and insights.
Luke Burgess is one of a new generation of investors who has come to understand the intrinsic fundamental value of natural resources as commodities. Luke serves as investment director to two high-end investment advisory services, Underground Profits and Hard Money Millionaire. He is a weekly contributor to Wealth Daily, Energy & Capital and Wealth Wire and has been published on investment sites like Kitco, Stockhouse, Seeking Alpha and GoldSeek. Luke's been a featured guest on countless radio programs, including Trader's Nation, the Bill Meyer Show, Sound Investing Radio, the Brent Clanton Show, Stock Doctor, the Economic Contrarian, On the Money, the Andre Eggelation Show, KXYZ Biz Radio and Investments Advisor Review.
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1) Brian Sylvester 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: Ethos, NovaGold, Argonaut and Wealth Minerals.
3) Luke Burgess: From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.