SCP: What are your views on the economy in general and stock markets in particular? Do you believe the remainder of the year will be better or worse for investing?
VR: Well, the global economic recovery continues to be fragile. Global recovery remains sluggish, in our opinion, with developed countries growing at sluggish rates but major emerging companies are doing well. We have maintained that this imbalance in prospects experienced by wealthy countries and fast-growing developing countries like India, China and Brazil, will mean that the world economy will continue to grow although at a lower rate than the mean rate of growth. Stock markets, we think, are going to reflect that reality which means that they will trend higher but will show more volatiltity and choppiness. Overall, we think that the remainder of the year will bring better returns for investors than what happened during summer this year. We already had the best September for the stock markets in North America in more than 70 years and I think rest of the year will also be positive.
SCP: In a recent interview with the Gold Report you stated that gold appears to be making a base in $1,200 to $1,250 per-ounce region and correctly predicted that it showing bullish signs. You also predicted the next leg up could take gold up to the $1,300 to $1,400 range. Gold recently broke an all-time high in nominal dollar terms and closed above $1,300 an ounce. Do you think that this has decisively broken the $1,250 level and do you still see gold going higher from here?
VR: Yes, we were pretty optimistic about gold’s prospects and continue to believe that it is showing considerable strength. We think that gold has breached an important barrier on the upside and if it consolidates at these levels then the next leg up will easily establish it in $1,300 to $1,400 range. And it can very well end up the year above $1,350 or higher in our opinion.
SCP: Okay. There are many commentators and industry experts who are doubting the rally in gold and believe it is poised for a strong correction. What do you think and why?
VR: Well, different commentators have different views, obviously. We do not deny that there is a speculative element to gold’s rise. But what we like about this prospect is the fact that it seems to be doing well in the deflationary type environment which we stated before as well. If you know, traditionally gold has been considered as a hedge against inflation. But its strength in a low inflationary environment suggests that people are losing confidence in paper currencies, especially U.S. dollar, and are looking at gold as a hedge. So we don’t see that changing any time soon and hence we believe that gold’s prospects will continue to get a boost from that factor. Now if inflation were to take hold down the road, which is already a real threat in fast growing countries like India and Brazil, then also gold will do well. So we are pretty optimistic and believe that gold will continue to move along the upward curve although there could very well be corrections along the way.
SCP: What is your opinion on small caps and why do you think investors should look at small cap stocks in these volatile markets?
VR: Small cap stocks have traditionally returned higher as an asset class and that is not likely to change in the future. Investing in small cap stocks generally results in high return for investors. But there is higher risk as well, no denying there as the business prospects for a small cap company can fluctuate more. Any investor with the longer-term horizon must consider some exposure to small cap stocks no matter how volatile the markets are for one simple reason. Your chance of finding a big winner is much higher within a small cap universe. And another reason to consider small cap stocks would be that sometimes in a volatile market, small cap stocks get hammered more than what they deserve and can be available at bargain valuations, much cheaper than the risk-reward ratio should allow. So those are some of the reasons why investors should consider small cap stocks even in a volatile market like it is today.
SCP: What sectors do you currently favour and why?
VR: We continue to like commodities and within commodities we like gold, silver, iron ore, oil and copper. We also like clean-tech sector due to the increase emphasis on clean energy and heavy incentive to this sector. Within natural resources, we also like companies which are exploring for rare earth metals, basically companies which are focused on finding sources which can feed into clean energy, for example, lithium. So those are the sectors we like.
SCP: Do you have a few favourite stocks in these sectors and what do you like about those?
VR: Yes, we have quite a few actually. We have been following several companies in these sectors. Our past favourites have included companies such as VG Gold Corp (TSX: VG)., Eagle Hill Explorations (TSXV: EAG), Hy Lake Gold (CNSX: HYL), Allana Potash Corp. (TSXV: AAA), Rye Patch Gold (TSXV: RPM), La Quinta Resources (TSXV: LAQ) to name a few. We have followed these for some time. We have recently looked at a few other companies that we like as well. They include Bayfield Ventures (TSXV: BYV), Rodinia Lithium (TSXV: RM) and Seafield Resources (TSXV: SFF), to name a few. Now typically in most of these companies, a common thread would be that they’re all small cap stocks. They are mostly resource stocks with properties in good locations, are backed by strong management and board of directors and have the necessary capitalization to carry along their drilling programs and exploration activities which can provide short-term exploration catalysts.
SCP: Do you have some other updates on other junior gold companies that you follow?
VR: Yes, certainly we do. Actually, summer was a very busy season for these companies. VG Gold, for example, came out with good results, announcing the expansion of the mineralization at its Paymaster property. This is very good news as it showed that its strike zone continues to expand. And gold mineralization also is improving as it moves towards the Dome mine. It also just announced a combination with Lexam Exploration (TSXV: LEX) which will provide access to significant capital for exploration and will make Mr. Rob McEwen, the former CEO and Chairman of Goldcorp (TSX:G), the chairman of the merged company. A big endorsement in our opinion from one of the most astute mining professionals and investors in the world for VG Gold’s prospects. Eagle Hill, another company which we follow, announced impressive results just today and stated that it has found a new mineralized zone which is good news. La Quinta Resources just completed the first phase of a drilling program at its Easter property and we are expecting the first set of drill results soon from this company. Atlanta Gold has been drilling vigorously at its Atlanta gold project and continues to impress us with consistent result that shows continuity of the gold mineralization. It also completed a few rounds of financing recently so a very busy summer season for most companies we follow and a very productive one, I must add. Rye Patch Gold just announced new gold targets at its Oreana trend property packages.
SCP: You’ve mentioned a few names that you did not talk about during your previous interview with the Gold Report. Can you tell us more about these?
VR: Yes, absolutely. Hy Lake Gold (CNSX: HYL) is one of the companies which we have followed for some time. We didn’t talk about previously because the company is right now in a transition phase. We believe that it is one of the most undervalued and unheard stories. The company’s not that well known since it trades at the CNSX exchange which is an exchange for junior companies in Canada. But that is about to change. It is planning listing at the TSX Venture exchange, I believe, and it is expecting that listing some time in November. What is interesting about this company is that all its properties have past-producing mines and they’re all in the famous Red Lake district which is one of the most prolific gold mining districts in Canada, home to Gold Corp. and Lakeshore Gold (TSX: LSG) and a few other companies. All of High Lake’s properties are in that area. Its flagship property is Rowan property which is a joint option with Gold Corp. where High Lake has a 60 percent option. And we believe that it has owned the right to become an operator with Gold Corp. being 40 percent partner. So very strong exploration prospect with a strong management team backing this company. Worth watching as it charts a new course in its corporate evolution and hopefully lists at TSX Venture. Seafield Resources (TSXV: SFF) is a Colombia-based junior gold exploration company that we have started to look at recently. The company’s land packages were assembled by Ian Park its country manager in Colombia. Incidentally, Ian was the person who also discovered the famous 10 million oz Marmato deposit in Colombia that was bought by Medora Resources (TSXV: MRS), which is another upcoming junior in Colombia, Canadian company, acting in Colombia with a market cap of close to $280 million. So we like the prospect for Seafield as well. It has a vast property package for exploration in the Quinchia District, and already has close to 800,000 ounces of NI 43-101 gold resource deposit. Bayfield Venture (TSXV: BYV) is a company which we provided coverage under our junior resource stock of the week feature. And this is a company with a property in the same location, same area where Rainy River Resources (TSXV: RR), another very high profile junior resource company, is exploring. Bayfield has been hitting some really high grade results and is doing very well in its exploration program. So all these companies we like and we like their prospects.
SCP: Apart from gold, you continue to like potash and Allana is your pick in this sector. How is the progress with Allana Potash?
VR: Yes, we continue to like Allana. We have stated before that Allana is one of the very few junior potash exploration company with a real shot at developing a real potash project in Ethiopia where it is exploring. It has been very active with its drilling program and it’s still completing its first phase of drilling at its property in Ethiopia. And a second drilling program has been announced as well. The drill results so far have been very consistent. They are showing good mineralization. They just hit a very thick potash bearing zone in the central part of basin, the very first time they drilled in that part of the basin. They are expanding the mineralized zone and the company is making very steady progress. They’re also very active on the corporate development side. They are continuously looking for more partners. Already they have a partner in China, Mineral United. So we like the prospects of this company very, very much and we think that it will do well in future.
SCP: Ubika Research recently profiled Rodinia Lithium (TSXV: RM), the company just announced a good drill result and the stock went up by 15 percent on huge volume of over five million shares on Friday, September 17th. What is it that you like about Rodinia?
VR: Well, Rodinia is an interesting company. It is one of the companies in the sector, the rare-earth metal, which I mentioned before, and Rodinia’s exploring for lithium. It has two major properties packages in Argentina and in the U.S. Right now it is exploring at its Argentinean property. It just announced some really good results from that property just a couple of days ago. And not only the drill results showed high mineralization for lithium, it also showed mineralization for potash which is a very interesting aspect. Because companies which are exploring for lithium, if they can also produce by-products such as potash, then it’s better for them because they can, you know, generate cash flow from that by-product and then keep their operating costs lower. So Rodinia has a good prospect in terms of exploration potential. It is backed by really strong group called Forbes & Manhattan which is a merchant bank based in Toronto and has a history of backing strong companies. Incidentally Allana Potash is also from the same group. So we like that Rodinia just completed its financing as well so it has now a strong balance sheet and capital to carry on very vigorous exploration program at its properties and has potential to basically show a large deposit for lithium which is, again, a very much, well demanded commodity. Lithium basically powers batteries which are required for electric cars and many other things, actually. So we like that it is a bit unique in our portfolio, a company which we’re looking at, and it has a good prospect.
SCP: Any passing thoughts for our visitors and readers of this interview?
VR: I would just say the overall, the economies in both US and Canada are showing signs of life. We are especially encouraged by recent developments in the US where indicators are pointing towards a slower economic growth, but the risk to double dip recession seem to be receding. This will mean better days for the stock markets. We would still caution investors to be wary of the volatility in the market and exercise prudence while making investment decisions. We think junior end of the resource market still has significant potential left as market focuses on undervalued companies, which can attract attention from bigger players in the industry.
DISCLOSURE:
1) Vikas Ranjan: I personally and/or my family own shares of the following companies mentioned in this interview: VG Gold Corp. and Allana Potash Corp. I personally and/or my family am paid by the following companies mentioned in this interview: None.
2) Ubika Research has received fees from all companies, except Bayfield Venture and Rodinia Lithium, mentioned in this interview to provide research coverage. Ubika Corp. also has an agreement in place to receive options from the following companies mentioned in this interview: Rye Patch Gold Corp., Hy Lake Gold, Seafield Resources Corp. & La Quinta Resources Corp.
Except for the historical information presented herein, matters discussed in this interview/document contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Nothing in this interview and report constitutes an offer or invitation to purchase or acquire any shares in any company or any interest therein, nor shall it form the basis of any contract entered into for the purchase or sale of shares in any company mentioned in this interview and report.
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