As the U.S. stock market grinds higher virtually every single day the macro backdrop, whether it’s Hong Kong or Washington D.C., has rarely looked less stable. Much of the equity market stability can be credited to the central bank easing policies of the ECB and Federal Reserve, however, underneath the surface exists a mountain of derivatives and the largest pile of debt that has ever existed across the global financial system. In our latest conversation, 321gold founder Bob Moriarty explains that ‘dishonest money’ is the #1 problem facing the world today and the only cure for dishonest money is honest money. Bob then proceeds to tell us what his favorite forms of honest money are, namely precious metals. The conversation also delves into Bob’s recent trip to visit Novo Resources (TSX-V:NVO) in Australia and why Lion One (TSX-V:LIO) just announced a C$10 million private placement in order to fund exploration at LIO’s 100% owned and fully permitted high grade Tuvatu Gold Project in Fiji. Without further ado here is Energy & Gold’s November 2019 conversation with Bob Moriarty…
Goldfinger: It’s been exactly a month since we last spoke, and a lot has happened since mid-October. There are impeachment hearings in the House of Representatives in the U.S., the stock market has made new all-time highs in the U.S., and the gold sector has been grinding sideways to lower for the last month. I know you just got back from a trip to Australia to visit Novo Resources. Where would you like to start this conversation? There’s a lot that we could talk about.
Bob Moriarty: Let’s do something I don’t think anybody’s ever done before. Can you give me a definition of the word “entropy”? The concept in physics. Entropy.
Goldfinger: Entropy. I know it’s a concept that has to do with motion and energy, but I don’t have a good definition for it.
Bob Moriarty: Okay. Here’s what it is. It’s the concept in physics that everything goes from a state of stability into a state of instability. The best analog that I can give, when you fire a rifle, the speed, the direction of the bullet is very predictable at the barrel, but as time goes on, the nature of the movement of the bullet becomes more and more chaotic and eventually it wobbles and falls to the ground. That’s a very important concept. One of the terms that I use in business is the very best rule, is to do it now. People like to wait until things are convenient to do them, however, the best way to get a lot of things done is to do things when they’re inconvenient. Do you know why that’s true?
Goldfinger: No, I don’t.
Bob Moriarty: Okay. How many times a day is it inconvenient for you to do your laundry?
Goldfinger: Many, many times.
Bob Moriarty: Okay. How many times a day is it convenient for you to do your laundry?
Goldfinger: Probably almost never.
Bob Moriarty: Yeah, exactly. If you want to get a lot of things done, don’t do them when it’s convenient. Do it when it’s inconvenient, because that’s going to occur a lot more often. The concept of entropy is very important and the concept of do it now is important. What is the most important political event in U.S. history?
Goldfinger: The impeachment of Nixon is something that people talk about all the time, but I don’t know. To me … I studied history in college. I think to me, it was when Washington ended his second term and a lot of people in his party tried to make him essentially king, like president forever, and he said, “No. This is the United States of America and we don’t have kings here.” He stepped down the way that he was supposed to, according to the Constitution, and John Adams became the second president.
Bob Moriarty: It’s interesting you bring up the Constitution. What is the biggest challenge to the Constitution in 235 years?
Goldfinger: The biggest challenge to the Constitution?
Bob Moriarty: Yeah.
Goldfinger: I don’t know.
Bob Moriarty: How about the impeachment of a president on 100% political basis? Okay. All of the guys who dislike Trump, and I happen to be one of the guys who dislikes him. I think the man’s a buffoon. What none of them have to say is, what exactly has he done that’s illegal. The answer is nothing.
Goldfinger: That’s arguable, isn’t it?
Bob Moriarty: No, absolutely not. Here’s what’s crazy. We had that army lieutenant colonel go in and testify, and the basis of his testimony was, “I don’t like President Trump’s political stance toward the Ukraine.” Since when do guys in the military get to determine the foreign policy of the United States? I thought that’s what the president was elected for.
Goldfinger: This a deep rabbit hole that we can go into here, but would you agree that this president has used the military more than any other president? Certainly in my lifetime, and probably even in your lifetime. He’s used generals as if they’re CEOs to run the government, and he has genuflected and kissed ass to the military at every chance he can get. He’s kissing ass to the soldiers and to the generals, and how great our Armed Forces are. In reality, I’m not even sure Armed Forces are really that great, to be quite frank. Relative to the amount of money that’s been spent on them, I’m not even sure they’re that great. This president has appointed generals to his Cabinet, and really, what have we gotten for it?
Bob Moriarty: Here’s what’s interesting. Let me give you a number that really shocked me. The number of admirals that we have on active duty today is 32 times higher than the number of enlisted men in relative terms. If you compare the number of enlisted men we had in World War II, and the number of enlisted men we’ve got today, we have 32 times as many admirals today as we did during World War II. We literally have more admirals today than we have ships. You can go all the way back to Vietnam and you can’t name a single U.S. military commander who’s won even the battle. My objection to bringing guys from the military in to help run the government is, why don’t we hire somebody who was successful at what he did? Why do we promote people who failed at everything they did? Obviously, the U.S. military has failed at everything they’ve done since … Actually, going back to Korea, unless you consider their job to spend money, so they do a great job at spending money. It costs a million dollars to keep one troop in Afghanistan for one year, and we think that’s wonderful.
We’ve had continuous warfare since 2001. We haven’t won a single battle, but costs have gone through the roof. We’ve bankrupted the United States, and that buffoon with the orange hair brings all these guys into government. However, when you consider Donald Trump, you also have to consider the alternative. Let me ask you a perfectly fair question. Who’s the bigger crook, Donald Trump or Hillary Clinton?
Goldfinger: It’s impossible for me to answer that. I think they’re both crooks.
Bob Moriarty: Yeah, they’re both crooks, but you’ve got to pick one of them. Which one is the bigger crook?
Goldfinger: Probably Hillary Clinton, just because she’s spent most of her life in the public sector, and Trump spent most of his life in the private sector. In the private sector, you can only get away with so much. In the public sector, it seems like you can get away with anything.
Bob Moriarty: That’s a really great way of putting it. When you talk about Trump, here’s what very few people are doing. A lot of people are starting to do it now. I fully approve of this. When you’re talking about Trump, you’ve also got to talk about the alternative. Let’s go back to entropy. Let’s go back to the concept of everything gets more chaotic with time. We had a coup that the FBI, the Department of Justice, the CIA, the NSA, began in 2016 before the election. Let’s not talk about what a rat Donald Trump is. Let’s talk about the people who were against Donald Trump. How good an idea is it for the Praetorian Guard to select the emperor?
Goldfinger: Not a good idea.
Bob Moriarty: Okay. Stop right there. Once the Praetorian Guard starts thinking, “We need to pick the emperor. Screw the voters. We’re going to decide who runs the country,” do you ever go back to a stable environment, or do things get more chaotic?
Goldfinger: They get more chaotic.
Bob Moriarty: Thank you. Okay. Let’s go on and say the Democrats fail or the Democrats succeed. They either impeach the fool, or they don’t impeach the fool. What’s the end result? We go into the 2020 election, if you take the state of the American economy today and the amount of absolute hatred, does the chaos increase, does it get worse as we go into the election?
Goldfinger: I think the chaos goes up. It gets more chaotic.
Bob Moriarty: Okay. Then what happens? Let’s say we get to a total state of chaos. We’ve got mobs of people running around robbing stores. We’ve got homeless shitting all over the sidewalks in San Francisco and L.A. Let’s say we have total chaos. Antifa is attacking everybody they can. We’ve got riots in Washington. Who steps in to restore confidence?
Goldfinger: At some point, it has to be the government, the military.
Bob Moriarty: No, no. Ah, the military. The military steps in. What exactly do they say they’re going to do?
Goldfinger: They’re going to restore peace.
Bob Moriarty: They’re going to restore order. Not necessarily peace. They’re going to restore order. When do you hold free elections? The answer is never.
Goldfinger: Never, yes. In Egypt, there were all those protests. There was the Arab Spring. There was the Muslim Brotherhood, and then the military ousted the elected leader, and the general, the five star general has been the dictator ever since. That’s an example of how a revolution can fail miserably and fall on its face.
Bob Moriarty: Yep. The strange thing is, that’s exactly what’s going to happen. The chaos that’s going to increase, and the strange thing is, it doesn’t make any difference whether they impeach Trump or not, the chaos is going to continue to increase and eventually the military is going to say, “We need to step in and restore order.” That’s really funny, because these guys couldn’t win a single battle when they’ve trained for combat their entire lives, and now we’re going to put them in charge of the most powerful military and economy in the world. Do you see anything going wrong with that picture?
Goldfinger: Of course. They’re not particularly successful people. It was funny, because I remember General Kelly, who Trump seemed to have a very high opinion of while he was his Chief of Staff, but then as soon as he got let go or resigned, he stood up and spoke at some dinner event, and he made a joke. It was very funny because he mocked Trump calling Kelly an overrated general. One of the things he said is, “I earned my spurs on the battlefield and Trump earned his spurs in the doctor’s office” or something like that, because he got out of Vietnam saying that he had bone spurs.
Bob Moriarty: Here’s what’s funny. Strangely enough, if you look at the generals in the ’50s and the ’60s, they all served in combat. If you look at the generals today, it’s exceptionally rare that a guy served in combat, and I’ve looked at some of these guys … I met and I know the first naval aviator Marine who was commandant in the Marine Corps, and the really funny thing is, he never flew a single mission in combat. The reason Trump admires the military is, all of his experience with the military was in ROTC in high school. He thought these generals were really geniuses. They got four stars, five stars. They got to be good. I’m not saying that they’re bad necessarily, but they’re not worth a shit at winning wars, I can tell you that. There wasn’t a single one of those guys who stood up and said, “These wars are illegal. These wars are wrong.”
We’re in Syria, and there is no one who even pretends we’re there legally. We’re trying to overthrow the Democratically elected president of Syria on behalf of Israel, and not a single general or colonel or captain or major or private will stand up and say, “Wait a minute. This is illegal. We shouldn’t be doing this.” Let’s go back. I think we’ve beat the concept of the military dictatorship to death, because it gets better. What’s the most significant economic thing that’s happened in the last year? When did it take place?
Goldfinger: In the last year?
Bob Moriarty: Yeah.
Goldfinger: Exactly one year ago the Fed was still tightening, and then a couple months later, the Fed stopped tightening and started easing. That was a very big event.
Bob Moriarty: Not as big as September of this year.
Goldfinger: You’re talking about the Repo market stuff?
Bob Moriarty: Yeah. The Fed has opened the floodgates, and the really interesting thing is, I don’t know a single person who could put their finger on exactly why the Fed did it, but the only reason the Fed would go to not QE, or QE four, or QE infinity, or QE to the fucking moon, is if something very bad was happening. We don’t know what it is. Nobody’s even come up with any good issues. I think it’s Deutsche Bank. I think it has to be Deutsche Bank, but what we know is, it looked like the stock market was going to crash on October. The Fed opened the floodgates. Now all of a sudden we’ve got a new high in the Dow, a new high in the S&P, and they have postponed the day of reckoning. They haven’t eliminated the day of reckoning. They’ve just postponed it and made it worse.
In hindsight, we’re going to realize that the ongoing coup d’etat, and that’s exactly what it is. Again, it’s President Trump, and the Fed opening the floodgates is going to result in something absolutely catastrophic. Let’s go back to gold, because I know you’re a reader. You’re most interested in gold. What’s the effect of ‘not QE’ on the long term price of gold?
Goldfinger: Not QE?
Bob Moriarty: Yeah. You can’t call it QE. You got to call it not QE.
Goldfinger: Okay. Not QE. I don’t know. I don’t know if there’s necessarily a direct correlation. I agree with you, I think it is Deutsche Bank. They’re refusing to name any of the institutions who are taking these repo loans, so they’re keeping it covered up, but the only institution that could use 100 billion dollars a day is something as large as Deutsche Bank. Obviously, that bank being one of the largest banks in the world by total assets, is critical for the global economy. They have to … The European Central Bank and the Fed has to prop it up. They have no choice. All the work they’ve done the last 10 years would be for nothing.
Bob Moriarty: What do you mean there’s no choice? Of course they got a choice.
Goldfinger: They have a choice, but it’s not what they would do. They would never let one of the largest banks in the world fail. It’s something that they would never do.
Bob Moriarty: Yes, it will. When do you stop blowing up a balloon?
Goldfinger: When it pops.
Bob Moriarty: Exactly. If you keep blowing up a balloon, what do you know has to happen?
Goldfinger: Look at what happened with Greece, Bob. We can make a perfect analogy to Greece. The Greek sovereign debt was a massive bubble Ponzi scheme in 2009. The third party accountants and auditors came in and said, “Holy shit. This is a fucking mess.” They’ve got way more liabilities than they do assets. They don’t have enough revenue to pay to service their debt, and the Greek sovereign yields went above 20%. Then what happened? The ECB came in, the EU came in and gave them a bailout package, and the ECB started buying their bonds on the open market to support them and bring the yields down, and now look at where we are.
They never “failed”, the Greek government never failed. They weren’t allowed to fail. They were bailed out, so why can’t the Fed and the ECB do the same thing with Deutsche Bank? Same thing.
Bob Moriarty: Yeah, but here’s the deal. Deutsche Bank is the largest bank in terms of derivatives. It is going to be derivatives that brings the entire system down. In comparison to Greece, Greece is nothing compared to Deutsche Bank. In 1931, the Creditanstalt in Austria went under and it literally took every other bank in the world with it, and that’s exactly what’s going to happen with Deutsche Bank.
The problem here is a fundamental disconnect between me as an individual and virtually everyone else I know. That goes to the power of governments to do things. Let me explain something to you. You know was in Vietnam. I was there for two years, and I flew over 800 missions. Ask yourself, “How much do I personally believe in the power of government to do anything?”
Goldfinger: You don’t.
Bob Moriarty: Exactly. Stop right there. Everybody else, and you just explained how the government is going to stop Deutsche Bank from going under. You cannot convince me, because I saw the biggest military in world history totally defeated by guys in the jungle with an AK-47 in one hand, and a ball of rice in the other hand. Do not try to convince me governments are powerful. Governments want you to believe they’re powerful, but at the end of the day, they are paper tigers. Mathematically, you can write this down and put it on a piece of paper. You can take it to the bank and you can cash it. Mathematically, Deutsche Bank has to fail. They cannot possibly continue to infinity. There is no cure for Deutsche Bank.
Likewise, the United States got 200 trillion dollars in unfunded liabilities. Tell me how the fuck do you run a 17 trillion dollar economy and do it forever with 200 trillion dollars in unfunded liabilities. I’m going to tell you mathematically it’s impossible to do. The system has to break because as long as you have interest on loans, you always have more debts than you have money. We’re going to have to have some kind of reset. Whether we default or whether we inflate to infinity, we don’t know, but the system has to fail because governments are spending more money than they’ve got, and all these revolutions all over the world in Hong Kong and Ecuador, and Chile, in Venezuela, in Israel, they’re all related. It all goes to governments making promises they cannot possibly meet.
Goldfinger: Before this interview turns into our longest ever, let me cut to the chase here. We’re dancing around some key things. Let’s get to the salient point. You see the system, the situation in the U.S. and the world as a whole, you brought up Hong Kong, becoming more chaotic over the coming year. What is the end game of that chaos and what should investors do to keep themselves relatively safe or shielded from that chaos?
Bob Moriarty: That’s a really good question, and that literally says, “Hey, Bob. You got to put up or you got to shut up.” I agree. That’s good. To solve any problem, you have to know what caused the problem in the first place. Do you agree with that?
Bob Moriarty: Okay. The problem is dishonest money. What’s the cure for dishonest money?
Goldfinger: Hard assets. Something that’s honest that can’t be faked up.
Bob Moriarty: Honest money.
Bob Moriarty: If all of your problems, and I will absolutely maintain this is true, if all the problems in the world today are caused by dishonest money, the solution is quite simple, and that’s to go to honest money. You go to honest money, you can’t spend more than you have. If you look at Keynesian economics, it’s totally insane. If you got into a recession and government spends like there’s no tomorrow, and then when you come out of the recession somehow, you collect it back in taxes, but they never do that. Keynesian economics just simply doesn’t work. Now we’re beginning to realize it.
It’s as simple as the United States is going to go into a state of total chaos. We’re going to have a military dictatorship. The military dictatorship is going to fail, and we’re going to go back to honest money. As soon as you go back to honest money, everything gets sorted out. Do you remember what the cheer was for the runaway inflation in Germany in 1923?
They said, “What we’re going to do is, we’re going to back the money of Germany by all of the land in Germany. We’re going to pledge the land against the currency. We’re going to stop printing money.”
Goldfinger: It’s all they had left. It was all they had left.
Bob Moriarty: Yeah, but here’s what’s funny. It worked.
Goldfinger: Yeah, because land is actually a real asset. It’s tangible.
Bob Moriarty: Yeah. We’re going to go back to real assets being valuable. The strange thing is, you don’t have to be a gold bug. If you could store copper, or if you could store oil in your bathtub, or if you could store lithium, fuck, you could do anything as long as it’s real. We’re going to have this tremendous dichotomy between paper assets and real assets.
Goldfinger: Yeah, but it’s impractical for someone like you or I to store copper rods in their backyard or their house. First of all, to have a million dollars in copper rods is a hell of a lot of copper rods, and it’s just totally impractical. Gold is the most practical, real asset because it’s $1,480 an ounce, and a million dollars of gold you can fit in a suitcase. Is there anything better than gold in terms of real assets?
Bob Moriarty: Yes, silver.
Goldfinger: You think silver is better than gold?
Bob Moriarty: I think it’s better than gold right now. It’s cheaper.
Goldfinger: Just because it’s cheaper, but silver is only $17 an ounce, so you need a hell of a lot more silver than you need gold to have the same amount of dollars, right?
Bob Moriarty: Yeah, that’s okay. You can store 10 million dollars worth of silver under your bed.
Goldfinger: Stacks and stacks of thousand ounce bars.
Bob Moriarty: Yeah, exactly.
Goldfinger: Okay. Silver, number one. Gold, number two. What’s number three in terms of real assets?
Bob Moriarty: Actually, I would go platinum, number one, silver, number two, gold, number three. People do not talk about platinum as being a monetary metal, however, because of its rarity and its utility, I’m a big believer in buying when things are cheap and selling when things expensive. Right now, platinum is the cheapest of the precious metals. Silver is the next cheapest. Actually, you could be in any of them. I fully agree with you. I own a lot of gold, even though the ratio of gold to silver is 84 to one, but I own a lot more platinum and a lot more silver.
Goldfinger: Okay. Let me just say one thing and then I want to move on. I think that the number one bull case for gold right now, and I’m not talking about for the next 20 years or 30 years, right for the next year or two years, is Trump. I think that Trump is literally the best thing that happened to gold because what he’s doing with his nationalism, his faux patriotism, and the way he wants to sort of cut off the U.S. from our key allies and essentially from the rest of the world in a lot of ways, is actually speeding up the downfall of the US Dollar as the global reserve currency. Once the dollar loses its place as the reserve currency, then all of this debt that you’re talking about, this debt laden global financial system, starts to become unpinned, unhinged, and it’s losing its moorings. Then everything starts to fall apart from there. The U.S. is no longer able to finance trillion plus dollar deficits, unless the dollar is sought after by everyone, and our treasury debt is sought after by all these big pools of capital.
And that’s one of the reasons why the deep state doesn’t like Trump, because they see what’s happening. It’s not good for them, right? Trump is upsetting the status quo and potentially destabilizing much of the global financial system.
Bob Moriarty: He wants peace with Russia, and that’s what irritates them the most. Strange enough, your point is very well-taken. Did you see what he demanded of Korea yesterday?
Goldfinger: Right. He wanted a lot more compensation for the U.S. Armed Forces being there.
Bob Moriarty: Yeah. He wanted five times as much as they paid before. You are absolutely correct. He is introducing so much chaos that he’s going to cause the endgame part sooner.
Goldfinger: Perfect. Let’s segue from there, and let’s talk about the market. You went to visit Novo Resources in Australia. What did you learn?
Bob Moriarty: Two things were very important. They’ve got machines that you could feed gravel or rock through that are extremely efficient in separating the gold from everything else. I was absolutely shocked. I saw a demonstration of a machine that’s literally able to pick up pinhead sized gold. There’s going to be a dramatic change in how we mine in the future, because these sorting machines are going to become a lot more valuable. That was the first thing I learned. Second, and this was a barn burner to me, we know that Egina is gold and gravel, and we know that Karratha, Comet Well and Purdies is gold in hard rock, but the distribution, the size of the gold, and the grade of the gold was remarkably similar between the two areas. That was an absolute shock to me.
Karratha has to be 2.5 billion years old, or so, and Egina is probably 50 million years old, but the distribution of the gold, the size of the gold, and the grade of the gold was very similar. That was shocking to me. At Egina that has about a meter or a meter and half of gravel, Keith Barron, who’s one of the most experienced alluvial miners in the world, he’s the guy that found Fruta del Norte, is one of the top alluvial miners in the world. Nobody knows this, but he owns the largest sapphire mine in the western hemisphere. He and I believe that they could process a cubic meter of gravel at Egina for about five dollars a cubic meter. We believe the grade will be one gram or so plus per cubic meter. You’re talking about the lowest cost gold production in the world.
Goldfinger: We’ve seen that it’s really difficult for companies to get past the market cap level that Novo is at right now. The C$400 million market cap level is a very sticky level. We saw Great Bear recently reach, at its peak, it was C$450 million fully diluted market cap, and then it had a sharp C$200 million dollar drop in valuation over the next few weeks. How does Novo get past this level, this C$2.50 a share to C$3.00 per share area that it seems to get stuck at over and over again? What are the catalysts that need to happen for Novo to break out, so to speak?
Bob Moriarty: There’s two of them, and one of them is going to happen, and the other one looks a little skeptical. Millennium has a 100 million dollar mill and they are failing. The guys that own 45% of the shares have had to dump money into them. Sooner or later, they’re going to figure out, “Hey, wait a minute. This isn’t going to work.” The only salvation for Millennium shareholders is going to be to do a deal with Novo. However, they’re at so much debt that Novo is absolutely not going to walk in and take over the debt and pay anything for the company. Period. That would be a game changer, because Novo could literally go with production at Millennium in a month or two. It’s almost certainly not going to happen unless something dramatic changes on the part of the lien holders.
The other thing is getting into production at Egina. I believe that’ll take place in May or June of next year. We absolutely spent a lot of time talking about getting into production and what equipment you would need, and how you do it. Egina is very difficult, because you don’t have access to water. You have to have some way of mining without using water. If the area around Egina, if there were rivers or lakes there, if there was access to water, it would’ve been mined out 120 years ago. Because there’s no water, nobody realized. It looks like the entire area is mineralized, which is giant.
Goldfinger: It’s just this sort of barren earth with … It’s extremely parched earth, and there’s a steady level of gold mineralization that is relatively continuous?
Bob Moriarty: It appears to be .8 grams per yard or higher. Novo will be announcing a lot more testing. They’ve got something strange in Australia that your readers need to understand. You cannot simply … If you pick up a mining lease, you cannot simply go out and start testing. There’s a lot of procedures you have to go through and government permits and agreements with the natives before you can disturb any earth. What they have been able to do is use ground penetrating radar. The ground penetrating radar certainly appears to identify the high grade areas. I’m convinced there’s going to be a lot of areas above two grams to the yard material.
Goldfinger: Okay. Another company that we have spoken about a couple times called Lion One has been a great performer. Now this morning they’re getting whacked on a big private placement announcement. Do you have any comments on Lion One? Also, why is it so difficult for companies to finance at market levels lately? I notice all these discounts to the market price in recent private placements, which is a sign of a very weak market. Gold is $1,475, yet you wouldn’t know it by some of the price action lately in the junior miners.
Bob Moriarty: Strange enough, you just sent out an email today that was very accurate. Everybody’s betting on Bitcon and marijuana. You go through these cycles. I’m not particularly concerned by them. It is correct it’s very difficult to get financing today. Wally was moving forward in order to get into production. He’s fully permitted to start a processing facility, and then he talked to Quinton, and Quinton said, “Hey. This thing is a whole lot bigger than what you’d think it is, and you need to spend 10 million dollars on expiration. You need to prove it.” A week or 10 days ago, they came out with a press release that tells me, because I know the terminology Quinton uses, tells me the first hole they’ve got in this new program has hit some bonanza grade gold. It’ll be another several weeks to a month before the results are out. They were hitting exactly what Quentin said they were going to hit in terms of geology.
Wally bit the bullet and he came out and said, “We’re going to do a financing and it’s a very favorable financing for the guys who get into it.” Of course, the guys who bought stock yesterday at a $1.10 are all pissed off because it’s down 20 cents. Actually, the stock was 86 cents 10 days ago, so it’s one of those things that people will be a little upset over in the short term, but Lion One is really cheap. They’ve got great management. Quinton is working with them. They are going to have one of the biggest gold mines in the world and the only alkaline system gold mine owned by a junior.
LIO.V (Daily – One Year)
Goldfinger: That’s a really interesting point, LIO was at C$1.10 yesterday, and now they’re financing, at what 80 cents? You finance when you can. You raise money when it’s available. You can’t always pick and choose your spots. I think that’s a great lesson for so many investors and CEOs in this sector. We’ve seen companies wait to raise money. They wait, they wait, they wait, and then they’re forced to raise money when they’re almost out of money, and then they’re at the whim of the market, and they get the least favorable terms. We’ve seen a few examples of that recently. One of them is Aston Bay (TSX-V:BAY), which tried to raise money at eight cents and the stock was seven and a half cents, and they couldn’t fill their placement. They couldn’t even get half of it, and now they’re raising at six cents, which is kind of embarrassing to have to revise your terms, but I think it’s a great lesson.
We saw Westhaven Ventures (TSX-V:WHN), their stock was about C$1.15 or thereabouts, and it seemed to be doing very well, but their treasury was under a million dollars and they’re drilling with two rigs. They were smart. They were smart in September and said, “We’re raising seven million bucks at C$1.05.” At the time, it was annoying to be a shareholder because it killed the momentum in the stock, but in hindsight it was a brilliant move because they raised the money they needed when it was available. They have no need for money for the next year or more, and now the stock is 77 cents, and they raised at $1.05. It was a smart move by management to raise the money they knew they were going to need when it was available, even though it didn’t make people happy at the time. As a shareholder now, you have to feel pretty good that they’re cashed up and they can weather this poor market environment right now.
WHN.V (Daily – One Year)
Bob Moriarty: There’s another issue with Lion One that’s very subtle, and there certainly wouldn’t be anything in writing from the company. There are some countries that you operate in that have rules that are not necessarily written. Irving did a placement, I think at $1.10, and I asked Quinton, “Why are they doing a placement? They’ve got plenty of money.” He said, “The government of Japan wants to make absolutely certain the company was cashed up, and they demand the money actually be in the country.” Wally is in much the same situation in Fiji. This is a very important consideration for readers. Fij does not have the option of bringing in a bunch of people for expiration. Fiji has to, and I repeat has to, have a mine go into production because it’s going to be so important from a tax point of view. They have insisted he keep a lot of money in the country to prove that he’s actually going to go into production.
They’re actually very well cashed up. They’ve got seven million dollars, and he had to bite the bullet and do a favorable placement at the 80 cents to raise C$10 million to do the exploration. With Wally focused on production and Quinton focused on expiration, that’s going to be one of the very explosive stories. I believe you’re going to end up with a 10 million to 15 million ounce deposit at the end of the day.
Goldfinger: That’s incredible. There’s not many companies that can talk about a 10 million ounce gold deposit these days.
Bob Moriarty: That’s absolutely correct.
Goldfinger: I’ll end with one more comment. I spoke with Ross Beaty about a week ago. He’s obviously a legendary investor in the mining sector. He’s of the opinion that the mid tier space is really the niche, the sweet spot, so to speak, in the gold sector right now, because the valuations are still relatively low compared to the seniors, and the gold that the seniors need in order to replace their diminishing reserves is going to have to come from somewhere. There’s going to have to be more M&A, both in terms of mid tiers coming together to form a bigger company, and also in terms of seniors buying mid tiers. He’s building a mid tier that’s going to hopefully, if his goals are achieved, turn into a senior four to five years down the road. Do you agree that you want to be a little bit farther down the food chain in the gold sector, not really buying the senior producers, but rather it’s better to buy the smaller companies such as the mid-tiers and the juniors?
Bob Moriarty: Absolutely. I saw that. He was 100% accurate. There’s going to be a lot of M&A. The majors are consuming their young, and certainly Newmont is taking a look at Lion One. Newmont is an investor in Novo. Newmont is an investor in Irving. Having big partners is going to be more important, both for the juniors and for the partners. The majors are consuming their young. They’ve got to replace that gold.
Goldfinger: Mid-tiers look to be in a sweet spot right now and the charts also indicate an attractive setup for the mid-tiers that could trigger before the end of November. I’d like to thank you for your time today Bob and I look forward to continuing to follow the LIO and NVO stories closely over the coming months.
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