Thom Calandra invests alongside his audience and subscribers largely in natural resource companies. Blue chip stocks are overpriced, in Thom's opinion, and the sector where true value can still be found is in mining and energy stocks. The recent small rebound has renewed interest and increased appetite for risk, but will it continue?
The stock and bond markets are way overvalued in all jurisdictions, while most mining stocks are still way undervalued. This means good things for commodity investors, but gold, in particular, is likely to outperform. Platinum, coal, graphite and tungsten are also all cheap at the moment.
Thom discusses a few of his favorite picks, including a new gold producer in Mexico, Canarc Resources (OTCQB:CRCUF).
Canarc's operations in Mexico are looking very good, with some rich deposits of gold and silver. Mega Uranium (OTCPK:MGAFF) is also looking like a sound investment and has substantial holdings in Nexgen (NXGEF), acting as a proxy for investors not yet positioned.
Palisade Radio Host, Collin Kettell: Welcome back to another episode of Palisade Radio. This is your host, Collin Kettell. On the show with us today is a new guest to the program. His name is Thom Calandra. Anybody who has been in the business for quite some time will know the name. He is the publisher of The Calandra Report, which can be found at www.thomcalandra.com. Thom, welcome to the program.
American journalist, stock investor, and former editor-in-chief and commentator of CBS MarketWatch, Thom Calandra: Thanks for having me, Collin.
CK: Yeah, a lot of people are getting very interested in the commodity space now; those that have been around and invested for a few years are beaten up, but starting to see the light at the end of the tunnel. I want to start out by asking you what you think of the last two months - the action in these commodity stocks and the juniors, in particular?
TC: Collin, you and I talked to a lot of the same people. A lot of the folks in natural resources are practically counting on a rebound, and I think that goes for energy as well. In fact, we see oil now at $40+ a barrel. I have to wonder sometimes... the equities, the metals equities, everything from gold and platinum to silver, copper, palladium, and so on, they have had quite a run. On the one hand, as my friends from Alamos Gold (NYSE:AGI) tell me, when the equities for metals go higher, that is people saying the metal is going to go higher. Gold stocks go higher because people believe gold is going higher. On the other hand, we are surrounded by people who are insistent that this rebound is going to continue. I worry a little, but am fairly confident myself that this rebound is in place.
CK: Yeah, and the theme I spoke about with a guest a couple weeks ago, Etai Friedman - he is a fund manager out of California, in fact, where you are based. He was not invested in the mining space. We, of course, had about a month's run in the GDXJ and GDX, pretty substantial. He was saying, "I think this is real. But I was not invested before and I am scared now to jump in case this is not real." I guess a lot of people are in that position. That begs the question: What position are you in, and how do you have your listener base and readership positioned?
TC: Well, my audience, Collin, is just as it was in the old days when I started CBS MarketWatch and MarketWatch.com, is that I invest almost right alongside my audience. I tried to have a position in the companies or the ideas and investments that I am interested in. I probably have about forty-five positions in natural resources and maybe another five or six outside of natural resources, special situations, and a couple of biomedicals.
As you could imagine 75% or 80% of those natural resources companies and investments are somewhere in the world of Canada. Now we have to look at the Canadian currency, which actually last four-six weeks we were making a rebound. The markets love the higher oil price for commodity currencies like Canada, Mexico, and a few others. That is good if you are an investor. I mean, for five years, Collin, we had this situation where the dollar kept getting stronger and stronger and all the Canadian-based securities not only were getting cheaper and cheaper on a nominal basis, but the currency was getting cheaper. Wow, some of these losses has been terrific.
I remember reading an interview that my friend, Valentin Schmidt, did in New York with James Grant, and James Grant says, "You know people think I am a genius. But the last five years, I am down 80% just like everyone else [laughs]."
TC: Now I do not know if that answers your question, but mostly I look at very small companies.
CK: Oh, that does answer my question. I appreciate that, Thom. You are making a good point that not only are these stocks beaten up, some of them 90%, 95%, and then you have the currency on top of that. It is really just been an awful time over the past two or three years to be in these junior stocks, but after the bad times come the good times. You have been in a few of these cycles in the past, and some people have compared what we are about to go into as maybe similar to 2001 to 2007, where, of course, we had an epic bull market in the junior stocks. If you were invested in that time, you were probably making 100% gains per year over a couple of those years. Thom, are you able to see any similarities between this cycle coming up and any of the cycles in the past?
TC: I think, Collin, I see a much greater appetite for risk, especially in the past three or four months. I see a willingness or, let us say, a tendency for the world's strong currencies, mostly the dollar and the Swiss franc, to let go some of their gains let us just say for the good of the globe. I also see some of the interesting venture and micro cap and small cap companies that are not in natural resources starting to make a little headway. What bothers me or makes me nervous is that the overall stock market of blue chips and the bond market, too, I came to believe they are way overpriced in every jurisdiction: in the UK, in Germany, in the United States. I am hoping that we can see a dynamic where alternative investments like gold, platinum, palladium, especially the risky prospectors, the emerging producers, the reliable cheap producers of metal, if they can outperform...
Or let me put it like this, Collin. I live in what we call a beautiful tech ghetto here in Northern California, right outside San Francisco. Everyone on this cul-de-sac and everyone in this neighborhood and everyone in this town and then multiply that by ten... everyone in the Bay Area practically is associated with technology and the internet, just like I was ten years ago. Next door is Google, literally, an executive VP for Google (GOOG, GOOGL); on the other side is Cisco Systems (NASDAQ:CSCO), across the street is LinkedIn (LNKD), and then in the neighborhood we have people from anything and everything that you can imagine, Salesforce.com (NYSE:CRM), Twitter (NYSE:TWTR), on and on and on; and then, of course, the 100 company names that the public does not even know. They are worth a billion to ten billion dollars, right? And then here we have our beautiful home. All I want is to put a "Let us support mining" sticker on my garage door, because I support mining and very few people in the world do as far as investing goes. I do not know, Collin. I would love to hear what you think, but hopefully we can get a bigger piece of the pie [laughs].
CK: Well, it is a strange phenomenon right now. Everything, as you just pointed out, not just the stock markets around the world: the currency, the US dollar, the art market, it has been going crazy the last few years; a lot of real estate is up, and the main thing that I have noticed that was going down over the last few years has been these mining stocks. I guess when things get cheap enough, they, at some point, have to turn around and go back up. I guess that one of the concerns that maybe you were starting to hint at is what happens if we get a crash in the stock market? Does it have a similar pull-down effect on the miners as it did in 2008, or do the miners actually work as a negatively correlated safe haven?
TC: Yeah, I mean it has happened before. Everyone likes to point to 1932 to 1934, of course, when the metals equities - the very few they traded anyway - way outperformed everything else during that deflation and depression and volatility. But it is a lot different today. You take every single publicly traded metals equity - and I do not just mean gold, I am talking all of them - tungsten, scandium, steel, iron ore - every single one in the whole world on obscure market and in big markets - Australia, Japan, Hong Kong, New York, Toronto. The natural resources, the metals equities are still a slice of the world's market cap when it comes to everything. I like that.
You have to believe that professionals and individuals who are looking for value, for real value, they are not going to find them anymore in real estate. Probably not going to find them in technology; private equities getting crowded; biotech really had a nice run; chemicals probably had a decent run here. What else is there? It is hard to find something that you can live with and examine as a going enterprise balance sheet, income statement if it's a producer that is cheap, unless it is in resources.
CK: That is very true. We put together a chart a couple of months ago. I would imagine the numbers have changed a bit now that the mining space has gone up. But we compared all of the mining companies around the world to the top five largest tech companies, and the market cap of the five tech companies dwarfed the entire space. As an extension of that, we took Facebook (NASDAQ:FB) against just the precious metals miners. They were about on par with each other. It is pretty phenomenal to see an entire sector priced so cheaply in comparison to just a few companies. Thom, I want to ask you in terms of commodity focus. Are you focused on just call it the precious metals, or are you looking at a wide range of commodities that should benefit from the changing of tides that is happening now?
TC: Oh, I love the classic still. I am one of those people who believe that gold, at some point, the actual physical metal, may be at the peak of this cycle or toward the end of it... who knows if this is an up cycle - which I think it is - will outperform everything, even the metals equities? But in the meantime, there will be some tremendous gains to be seen in the gold equities. I love platinum. Not just platinum the physical metal, but a couple of the platinum producers and developers. Right now, coal is cheap and thermal/metallurgical coal is extremely cheap. Tungsten is cheap. Graphite has not had a move. We saw a move in lithium, in fact in actual physical lithium and then in the lithium developers. There are not that many producers in the world, but nothing in graphite, which, of course, is an important ingredient for renewable energy batteries.
Then I am starting to look at farmland. I do not own anything in that area, but I remember looking at Argentina farmland in the early 2000s on CBS MarketWatch when I was running that. Now, I am looking at a company called American Farmland Company (AFCO). I do not own it. Sixty percent of its properties are in California, and it produces mostly most call them high-end crops: apricot, walnuts, raisins, that kind of thing.
In answer to your question, Collin, yeah, I mean I think there are a lot of opportunities there. I am a little nervous though about the energy markets. I am probably not going to venture into anything that is pure energy unless there is an opportunity like a Fulcrum opportunity. A Fulcrum opportunity is where, if we see some more bankruptcies in the energy companies, there may be some opportunities opening owning the unsecured bonds so that you can take over assets from these companies if they do file Chapter 7 and have to restructure or Chapter 11, I should say. But in the end, I am going to stick with the classics. I think is gold will be the star. Some of the producers, to me, look great, and some of the emerging producers that are cheap and relatively unknown are my favorites because they are small.
CK: Thom, let us talk about a couple of those names, if you do not mind. Maybe a good place to start is some obscure, emerging producers in the precious metals space. What kind of names are you looking at?
TC: Well, I still own Endeavour Silver (NYSE:EXK), and that is run by a guy named Brad Cooke. He is a geologist in Canada. It is a silver producer in Mexico. The sister company there that has really been in a kind of stasis or file cabinet, let us say for years, if not a decade, is Canarc. I was down there in Zacatecas, Mexico looking at their project, the El Compas. It is a silver and gold project they had; had first been exploited, like in 1570, by some small-scale shaft mining. Brad and Canarc took it over and put a guy named Catalin Chilosflischi involved in charge as the CEO. It is a very rich area. While we were there in Zacatecas looking at the properties, we went by the state-owned mill that supports the community because it is a mining district and that has been kind of mothballed.
Canarc took it over just recently. They are starting to have some great results from their drill holes. We are talking like 55 grams at a ton of gold and 350 or 360 grams at a ton of silver over small meters, but still two and a half to three meters. That is cheap. It has doubled, but it still cannot be more than a $15 million market cap. By the way, Canarc managed to put together a very creative debt deal that did not dilute shareholders. That is one of my pet peeves is companies that continue to dilute, dilute, dilute shareholders - common shareholders.
I am hopeful that this one will start up by the end of the year, at a mining rate of maybe 500 tons per day. I assume they will probably use Mexican contract mining crews and equipment. Small footprint could be a very big return on investment. I think it might be a $0.10, $0.11 Canadian stock, and I own that one. Collin, I think the ticker there is, maybe, CCM.
CK: Yeah, that is right, CCM on the Toronto.
TC: It is actually on the big board, yeah, strangely enough.
CK: Great! Thom, what about maybe one or two other names that you are interested in and own right now.
TC: Something that has been terrific lately - oh, by the way, I guess I did not say on energy. I do own one sector of energy - once again because it is so cheap - and that is uranium. Some of the uranium equities had been rocking because of Nexgen Energy up in the Athabasca Basin. They have had this insane grades; grades so high that when there is mining finally on these projects up there, Nexgen's properties will require some remote mining because the oil will be radioactive. That is how high the grades are of U308 that is down there.
I do not own Nexgen. I had an opportunity to own it. But I watched it. I wrote about it occasionally. I got to meet the management by an Australian guy. But I thought, well, I did miss this one. None of the other uraniums really are doing that much. How do I get a piece of Nexgen if this is a real company that has a big footprint in the Athabasca Basin? I started buying Mega Uranium when I met their CEO. Mega is MGA. They own 20 million shares of Nexgen. They own about 400 million, Collin, shares of Toro Energy (OTCPK:TOEYF) in Australia, another uranium company, and they own a few other obscure uranium securities. They actually have a royalty that gets them about 500,000 CAD. That has been terrific. I mean it is only up a couple pennies since I started buying it, but I am comfortable with management after meeting the CEO, Richard Patricio, in Toronto a few weeks ago. It is a backdoor way into owning Nexgen.
Nexgen looks like it is going to be a survivor. May even split into two companies, who knows, because it has so much on its plate. But at this point, I am probably not wanting to - that stock could double from here. But Mega Uranium could quadruple and quintuple for the same reason. That is one.
Also on the uranium beat, I like CanAlaska (OTCQB:CVVUF). That one has so far tripled in about the three months that I have owned it. I have gotten to know the management there. It is Peter Drexler. He is a New Zealander who is in Canada. They also have a footprint up in the Athabasca Basin and around the area, in Manitoba-Alberta-Saskatchewan. They have plenty of projects - projects that they have joint-ventured with Cameco and others, international concerns. It is still very cheap - probably the market cap cannot be more than $15 million. It was three or four million when I started buying it.
There, Collin, you have an example of a company. The CanAlaska, I believe, is CVV in Toronto on the venture. But there you have a company where you are buying something at a nominally small price - $0.05, $0.10. In this case, I think it is $0.20 something, and it could see a triple.
CK: Yeah, well, that is a huge amount of leverage in the Mega and CanAlaska story there. Thom, I think this is a good place to put a bookmark in the conversation. I appreciate you coming on the program and sharing some of your favorite picks.
TC: Oh, it is a pleasure. I love talking with you, Collin, because you are young. You are motivated. I just want to share one thing with you, that is a lot of the young people in this business do not realize that it can be a lot of fun to make money. Because you guys are so young, you had not made any money yet in this business. When we start making money again it is a ton of fun. I am hoping to see that happen.
CK: Yeah, absolutely! Nothing is more fun than making money. A lot of work that can go into it, but timing certainly helps, so hopefully, the next few years is good timing for metals and mining investors. Thom, thank you so much for coming on the show.
TC: Collin, thank you very much. I love it. I will be listening to Palisade Radio here.
Thom Calandra (born June 8, 1956, in Brooklyn, New York) is an American journalist, stock investor, and the former editor-in-chief and chief commentator for CBS MarketWatch from 1996 to January 2004. Calandra writes for a number of other publications including the revived "The Calandra Report", for which he is writer, editor, researcher, speaker and investor. He is co-founder of Calandra's StockWatch, The Calandra Report, thomcalandra.com and Ticker Trax via Stockhouse.
Disclosure: I am/we are long CRCUF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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