A couple months ago 321gold founder Bob Moriarty published his latest book titled “What Became Of The Crow?”, a story that begins in the 1980s and extends all the way to the present day with Novo Resources (TSX-V:NVO, OTC:NSRPF) beginning production at its Beatons Creek Conglomerate Gold Project in Western Australia. One of my favorite excerpts from the book pertains to the advantage that Bob believes smaller investors have in the junior mining sector:
“…the junior resource market gives small investors an edge that exists in no other market. Small investors in resources have a great advantage over the large funds and deep-pocketed investors. At the worst of times and the best of times, the tiny traders can get an execution. Now it’s true that at market tops there is total liquidity and at bottoms it’s hard to get a fill. But it’s still possible to buy or sell $5,000 worth of any stock at any time. The only times a large investor can get a fill on, say, a one million share block of anything is at market tops.
The juniors have a trading range that almost all investors ignore. It’s something I discuss in my books. It is common for the price of a junior stock to cover a 300%-1,000% range in a single year. (I mean the difference between its lowest and highest prices in the course of a calendar year.)”
Junior mining shares offer no shortage of volatility and plenty of trading opportunities for those who are able to time things reasonably well, and Bob’s point is that much larger investors are limited in terms of when they can buy/sell their positions. Whereas, smaller investors can always find enough liquidity to get in and out at a time of their choosing.
Without further ado, a wide ranging April 2021 conversation with Bob Moriarty discussing topics ranging from the VIX, to Dogecoin, to Eloro Resources and Novo Resources, and ended up discussing the potential for World War Three.
Goldfinger: Great to speak with you again Bob. You wrote an article a couple weeks ago pointing out that the VIX was very low, and the daily sentiment index (DSI) on the VIX was also very low. It was below 10, which often indicates an extreme in bearish sentiment on a particular market or asset. It’s interesting because even though the stock market hasn’t really dropped since that article, the VIX had a nice spike. The VIX rose from 16 to 20, but the S&P barely budged, and the VIX has now dropped back down to 17.
Bob Moriarty: Correct.
VIX (Daily)
Goldfinger: Do you still feel very strongly that the stock market is at the very final stage of a topping process?
Bob Moriarty: I’m going to say yes but it’s such an important top. It’s a top that could go on for months. We are seeing things happen that are absolutely historic. We’ve discussed Bitcoin many times in the past. Bitcoin went to $64,000, Dogecoin going to a market cap of $48 billion, an NFT selling for $69 million, an NFT of a fart selling for $85. These are simply crazy. There’s an argument about whether we’re going to have inflation or deflation and the Fed’s taking the position they can literally dump money on markets until they run out of trees and ink and it won’t change anything. I see it as the most dangerous market in history.
Goldfinger: Yeah, that’s an interesting point you make about Dogecoin or “Dog-EEE” coin as you call it, and the non-fungible tokens, so this is a not so well understood area for a lot of people but it seems to me that the non-fungible token craze started with the Beeple sale, the $69 million Sotheby’s auction. There’s an article out yesterday discussing that sale and how essentially it was an orchestrated event where the artist’s friend was the buyer and so just like the guy who taped the banana to the wall in Miami and sold it for $120,000.
It seems to me like a lot of these art sales are very opaque and they can be easily rigged and orchestrated to create a media buzz and that’s exactly what happened with this non-fungible token Sotheby’s auction for $69 million. So that’s one topic where a lot of people don’t really understand what they’re buying. I have friends telling me they’re buying beachfront real estate in virtual world and I said, “Are you smoking crack or are you taking bath salts? What, you’re buying beachfront property, you mean here in Florida on the Atlantic Ocean?” They said, “No, I’m buying in virtual world.” I said, “Well, where’s virtual world?” And they say, “Well, it’s in virtual world. It’s cyberspace. It’s encrypted.” And I said, “Man, this is really getting insane. How much money are you spending on this real estate in virtual world?”
And then the Dogecoin, so that’s another one. So that’s a crypto that’s been around for many years and it has no limit on supply, so there could be a trillion Dogecoins, 10 trillion Dogecoins, 100 trillion Dogecoins, there’s no limit to how many Dogecoins there could be. Yeah, this is a classic pump and dump going on here, where you have all these famous people posting on social media that they’re buying it and it went… It was under a penny, recently traded at 45 cents. This is like junior mining, which we know very well happens all the time in junior mining, stock goes from a penny to 40 or 50 cents, happens all the time, but then it usually falls back unless they’ve really got something valuable, right? So it seems like we’re seeing the same thing with Dogecoin, it’s back to 28 cents here this morning.
Bob Moriarty: That’s more extreme than junior mining at least. In the last year De Grey, the Australian stock and I owned some at 5 cents a share and I think it’s a $1.60 a share now? That’s thirty-fold increase based on real results in Western Australia. But when Dogecoin, which was started as a joke that there is no limit to, goes up 45 times, I mean that’s absurd.
Goldfinger: And we’re not talking about millions here, we’re talking about billions. At the $.45 price, the market cap is more than $50 billion. So Newmont Mining is the world’s largest gold producer and it has a market cap of around $50 billion and it generates profits of two to three billion dollars a year in net income and pays dividends to its shareholders. Dogecoin doesn’t generate any profit, doesn’t pay anything to its owners. Dogecoin’s functionality isn’t markedly different from hundreds of other cryptocurrencies. So we’ve really reached a place of complete absurdity.
Bob Moriarty: Yes. Well you should go into the dividend at Newmont. Newmont, which is a solid company, is paying 3.5%. Now, I’ve got a paid deposit in a bank so I can get a credit line, the credit card and I had to deposit 15 thousand dollars to get a 10 thousand dollar credit on that card so I literally am borrowing my own money, which is kind of cool. So they charge me interest on the credit card, but they also pay me interest on the deposit. Now last quarter, I think they paid me $1.47 cents for the quarter. I looked at it and thought, “What the hell is this?” We’re in never, never land… And this is going to end badly and Dogecoin represents everything that I believe that is fraudulent about the entire market.
Goldfinger: Yeah, I mean it really does. And let’s just put some of these metrics out there, to be accurate. So Newmont, as of this exact moment, has a US$52 billion market cap and it pays a 3.3% dividend and last year Newmont earned net income of US$2.7 billion and this year it is expected to earn more than US$3 billion. Newmont also has more than US$5 billion in cash on its balance sheet. Dogecoin, as of this exact moment, has a US$37 billion market cap, so not quite Newmont but not terribly far away and Dogecoin has a circulating supply of more than 129 billion Dogecoins
Bob Moriarty: Well, here’s the deal… And I’ll confess, I’m just as guilty of FOMO as anyone else. When I read that someone sold a fart for $85, I started counting up and I realized I was missing thousands of dollars a day in revenue.
Goldfinger: It’s completely absurd. So let’s talk about gold. Gold almost traded at $1800 overnight, it actually hit a high of $1798 and gold has been in an uptrend since bottoming in the $1670s in March. Do you think that we’re in for more upside over the rest of the year? Or do you think that it’s going to be kind of a tough slog here where we trade in a range?
Bob Moriarty: I think gold is climbing the wall of worry. There’s a lot of things that could happen, all of which are bad for the economy and good for gold. Now, just as a pure coincidence, and I can talk all day long about buying cheap and selling dear, but I literally was buying some British Sovereigns the day of the low, I mean I was buying within a few dollars of the low. I think we’ve seen the low for the year. I think the danger is to the upside and it could go a lot higher. When the general public realizes the insanity of the stock market, the insanity of the crypto coins, the insanity of NFT, the insanity of SPACs they’re going to want to go something real. You don’t have to like gold or silver but it’s something real.
Gold (Daily)
Goldfinger: Gold has never failed and gold has no counterparty. Gold is tangible in a world that is becoming increasingly intangible. It’s interesting though because all those things are a very solid case for gold as a strong store of value, a very solid investment case, especially in a world of negative real interest rates and a massive global debt bubble. However, we are increasingly living in a world in which people don’t want tangible things. For the generation that’s a little younger than me, the millennials and the Gen Zs, they want wallets on their phones. They want memes, they want social capital, they want decentralized finance and unfortunately the paper gold/silver markets and the centralized exchanges (futures and ETFs) make precious metals a lot less attractive to these younger generations. And that’s sort of the challenge that I think precious metals and the whole sector faces right now, especially from the mining angle of it, where you have this ESG push to be green and to virtue signal about how green you are, carbon-neutral, decarbonization etc. So it seems like precious metals, especially the mining sector, is facing some headwinds from the social mood of the moment.
Bob Moriarty: While that’s true, it’s also important to remember all things change. Now I’m going to date myself by what I point out, but when I was a kid, there was a period when marbles were in and then there was a period where tops were in and then there was a period where hula hoops were in. All things change and every commodity goes from irrational exuberance to total destruction and the one thing you know is that tomorrow will be different than today.
Goldfinger: That’s for sure. Tomorrow will be different from today and we do need metals, as we know. And one of the big themes today is copper and how much copper is going to be needed over the next couple of decades, both for electrical vehicles but also for the modernization of the electrical grid. It’s astronomical how much copper we’re going to need and we don’t really have that copper coming out of the ground right now. There’s going to have to be new projects built and if we want all those electric vehicles and if we want the grid to be modernized, there’s going to be some tough choices made, both from a government standpoint and also from a mining project and financing, permitting standpoint. The mining industry has never been good at meeting a demand surge, projects takes years, and sometimes decades to move into production. The copper price might have to go up so high that it kills demand.
Bob Moriarty: Actually, I’m going to disagree with you a little bit. We’re not going to be short of copper in the future, we’re short of copper right now. It doesn’t make any difference how you interpolate for copper. We’re short of copper right now and there’s going to be a lot of opportunity. Now, I’m not a big fan of the electric vehicle craze, as it were, because it takes fossil fuel to make the electricity, most fossil fuel is coal, which is the dirtiest form of electricity or dirtiest form of energy. But what you’re saying is absolutely true, the entire grid in the United States is on the verge of collapse. Texas proved that. We need more copper, no matter what you believe for the future and we have a shortage that has already popped up.
Primary Copper Demand vs. Base Case Production + Probable Projects
Goldfinger: Yes, I agree with that. Let’s turn to a couple of companies that we do talk about regularly. We talk about Eloro Resources (TSX-V:ELO, OTC: ELRRF) and Novo Resources, so let’s talk about Eloro first. The company put out news April 13th, so this was about a week or so ago, really impressive channel sampling results from Santa Barabara. Basically 400 plus grams per ton silver equivalent, over 166 meters including some really high-grade sections that graded over 1000 grams per ton. So we’re talking about one kilo plus silver equivalent grades from Santa Barbara. They also came out with some holes, not quite as good as the channel sampling but still pretty good grades over nice widths, 100 plus grams per tonne silver equivalent over 217 meters in hole three, so things are coming together at the Iska Iska project near Potosi, Bolivia. What’s your take on it now? And do you have any concerns about the metallurgy? I know that metallurgy can be a bit more complex in a polymetallic project like Iska Iska with so many elements involved. Tell us your thoughts on Eloro.
Bob Moriarty: That’s a really interesting project because the company has been, I think the most successful company in Canada this year. I would highly encourage people to go to Eloro’s website and scroll down to the bottom of these press releases and take a look at it. Take a look at the maps and you’ll realize they have a collapsed caldera and Eloro is far bigger than anybody realizes. Now let me give you the range and this is very important.
I went to Peru years ago and I looked at a deposit and it was a oxide gold cap and a gold copper porphyry underneath and I talked to them and they gave me all the numbers and they said that they could produce profitably for $7 a ton and I said, “Well, I believe all your numbers but I don’t believe you could produce for $7 a ton. I think you’re lying.” And they said, “Well actually, we are. Here, come here and take a look.” And he pointed at a hill and that’s where the gold was and there were trucks coming down the hill and they deliberately didn’t even start the trucks. They didn’t need to. They were coming down strictly with gravity and then they were dumping the rock on a leach pad and then they were driving the trucks back to pick up more ore.
He said, “Look, there’s six more projects within 30 kilometers of here and everybody is mining exactly the same kind of rock and we can mine here for $5.12. I lied to you and said it was $7 because I wanted you to believe it was $7 because you might not believe it was $5.12.” And I went, “Okay.” So the base case is, if you’ve got good ore at surface that you can heap leach or bulk process, you can actually make money below $10 a ton.
Now let’s go to Iska Iska. In that 166 meters of 442 grams per tonne silver-equivalent, that was a channel sample from an adit in the mine and took samples all along. That’s $360 rock and I talked to Tom Larsen and I said, “Well look, which side of the adit did you take it from?” He said, “The right side.” I said, “What did you get from the left side?” He said, “We didn’t sample the left side.” And I said, “We need to sample the left side to give you some kind of comparison because maybe both sides are that rich.” In one interval that was over 56.2 meters, it was 1092 grams. That’s $890 rock. Now, if you’re in Peru or if you’re in Chile or if you’re in Bolivia or if you’re in Ecuador, if you’ve got a $50 or $60 rock at surface, you got something absolutely economical.
They’ve got billions of tonnes of rock and you’re correct, they’ve got gold, they’ve got silver, they’ve got zinc, they’ve got lead, they’ve got tin, they’ve got copper, they’ve got bismuth, they’ve got indium. They do have some arsenic, no question there. However, they’ve looked at it and they’ve got the best porphyry specialist in Bolivia heading up the project and he said they can float it all. It’s not an issue. But this is not a marginal project, this is going to be one of the biggest projects in the world.
Goldfinger: Well that’s a pretty strong vote of confidence. Would you be a buyer at $3.80 a share?
Bob Moriarty: No.
Goldfinger: What price would you be interested in buying at?
Bob Moriarty: $3.85. I was in the recent $3.75 placement. Eloro happens to be my biggest position now and part of it is because I’m a big believer in the company and part of it’s because I’ve been picking up shares all along. Eloro is a steal, it’s like New Found Gold. When the market actually gets it then it will surprise people how much it goes up. But they’ve got the goods, it’s that simple. Do you understand, at the heart of drilling, why do you drill? In one sentence, what are you trying to do when you drill?
Goldfinger: Determine whether you have an economic ore body?
Bob Moriarty: Is it a mine? Ok. And of course, economics is a part of that but the very basis of exploration is not to define grade, it’s not to define where it is, where it’s not… Is it a mine? And I can just flat tell you, Iska Iska is a mine. It doesn’t make any difference what happens to prices. Prices of everything could get cut in half and it’s still going to be a mine.
Goldfinger: Let’s turn to Novo Resources. So Novo made an announcement, they’re raising about C$26 million dollars at C$2.55 a share, as of last week, the stock dropped on the news, a lot of people upset that they’re raising money. What’s your take? You wrote an article, I read it. It was quite clear, but I also recall that we had a conversation a few months ago where you said that Novo’s going to be paying dividends, and it is going to be generating a lot of profits and so if that’s the case, why is the company having to raise money again?
Bob Moriarty: That’s a really good question. That’s a good analogy and I’m glad you asked it that way. When Novo was in the pure exploration phase, they were spending $1.5 million a month, as soon as they went into production, they increased the outgoing bills $14 million a month, okay? Now there is a world of difference between exploration, where you can never fail, and production, where you have to succeed. You can bullshit the market until the cows come home as an exploration geologist, because they always say, “Well you know, if I know that $10 million, I can find more rocks.” Which happens to be true, but when you’re in production you cannot lie to the market so they had to make this giant transition from spending money to potentially making money.
When a mine and mill goes into production for the first time, and even though this was an existing mill, they had to reconfigure the mills, you always have headaches and a break-in period and there’s going to be lots of agony and there’s going to be lots of screw-up and that’s the way it’s supposed to work because you have to figure out how to make it work. Now, I will stick with my prediction. Novo is actually going to be valued on the dividends they pay because that’s the only way you can value a company that’s got the gold potential that Novo has. Now, what happened… And I’m not going to say it’s a mistake, I’m going to say it’s one of those things that happens in Beatons, Quinton surprised the market. And Novo investors, like everybody else, they hate surprises. They surprised the market, everybody got upset, all of Novo’s haters crawled out of their rat holes and started jumping. My god guys, I mean, give him three to six months, let him go through the startup and then throw rocks at him. I’ll be leading the pack.
Goldfinger: Novo is not just about the Beatons Creek project and if it was just Beatons Creek, the company would be overvalued, in my estimation. It’s obviously about a massive property package in Western Australia and the potential for multiple future mines is really the story. What’s going to be the next project that you think is going to come online and generate cash flow for Novo?
Bob Moriarty: It’s probably going to be Comet Well, Purdy’s in the Karratha region. Now, here’s something that nobody understands unless they read my book. If they read my book, they can understand this intuitively. Just because a project is a conglomerate project, doesn’t mean that all conglomerates are the same. Beatons Creek is very close to being a perfectly conventional project, okay? You’re absolutely correct. They’re going to produce somewhere between 100 thousand and maybe up to 150 thousand ounces a year. I believe they will be profitable six months from now and if that’s all you considered, it would be absolutely correct to say Novo is absurdly overpriced. However, they’ve got Karratha at about 12,000 square kilometers of near-surface economic gold that people have been walking over for 135 years because they couldn’t figure out how to mine the gold.
I believe that Quinton Hennigh and Rob Humphryson have solved that problem. They’ve got a sorter at Comet Well, they’re actually going to crush twenty thousand tons and they’re going to produce gold from that and that will give them a good idea of how much it costs to crush and what kind of grade they can expect and what they do with the gold… That’s going to be the next cashflow, but I will say, the real jewelry box is Egina. Egina is a alluvial project, for all practical purposes. Karratha and Beatons Creek are 2.8 billion year gold and Egina is probably 10 or 20 or 30 million years old. It’s near-surface, high-grade, couple grams and it can be processed through a sorting machine really, really cheaply.
The issue there is you’re in Australia, you’re on Native ground and the Natives have to agree to heritage clearance. They have not done that. When they realize that they’re losing a lot of the income, they’re going to come to the table and they’re going to say, “Okay, you can go into production.” They could do that at any time. However, they haven’t done anything for two years, so Novo has done a lot of sampling and testing. They know how to find the gold. They know how to process the gold. They know what the gold grade is. They just can’t produce it until the Natives come to the table.
Goldfinger: Well, that’s pretty clear. So let’s wrap it up talking about Russia and Ukraine. I think the market is really not paying attention to this, and doesn’t think that it’s a big deal yet. Russia has 150,000 troops on the border with Ukraine, they’re bringing in fighter squadrons to Crimea. There’s a ton of armor at various forward operating bases. If this is an exercise, this is one hell of an exercise. It’s either the preparations for an invasion or a hell of an intimidation tactic.
Bob Moriarty: Actually, it’s neither. On the 24th of March, the President of Ukraine essentially declared war on Russia and he said they were going to recapture the breakaway republics. Now the breakaway republics, after the United States sponsored the coup d’etat in 2014 where we overthrew the democratically elected president of Ukraine, the breakaway republic Donbas wrote in and said, “Look, we’re Russian. We’ve been Russian for hundreds of years. We speak Russian. We are Russian and we want to associate with Russia, we don’t want to be associated with somebody’s puppet-government in Kiev.” Now the funny thing is, I wrote a very popular article a few days ago and I said, “The United States loves democracy. We think democracy’s the most wonderful thing in the world. Except in Iran… Afghanistan and Gaza and Israel and Guatemala and Cuba. But everywhere else, we love… Well actually, no, in Donbas we don’t love democracy.” So Ukraine marched their hundred thousand troops to the border and they were prepared to invade Donbas and in response, the Russians said, “Really? You think we’re going to let you do that?” So the Russians have made it crystal clear, “Do not screw with us.”
Now, it’s far more dangerous than people realize. This is exactly how World War One started. And I’ll give you something else nobody’s thinking about. China… Taiwan and they, in fact, have been launching like 25 aircrafts in a single mission to come to the border of Taiwan and one of these days, they’re just going to keep going. I think that if World War Three starts, it will actually start with the Chinese doing something against Taiwan. I’ll be candid, the United States has no ability whatsoever to defend Taiwan, period. Can’t happen. We don’t have the troops, we don’t have the supply lines. We can do a lot of bluster and what’s happening overall is the neo-cons, who have wanted to attack Russia for probably 20 years, are about to get exactly what they’re asking for and they’re going to get it good and hard.
We can’t win a war with Russia. I simply wouldn’t mess with Putin and I have more combat time than anyone you’re going to meet in your entire lifetime. We’re about putting transgender troops in with everybody else and having custom flight suits for pregnant pilots. We get splat and lost the ability to fight a real war and the Russians are tough, okay? I think they lost 20 million during World War Two? We’re not going to defeat the Russians. We need to back down and we need to stop acting as the bully of the world.
Goldfinger: It certainly is interesting when Biden’s talking about sending more arms to Ukraine and calling out Putin publicly. There’s no punches being pulled here, this is not friendly and there’s no diplomacy really being attempted here.
Bob Moriarty: There is diplomacy. The Russians just told the US Ambassador to Russia, “Get your ass out of here and go home.” And that’s what you do just before the war starts.
Goldfinger: If we’re really having a war in Ukraine, the market is a massive short here. If that’s going to happen then you want to be the hell out of stocks, and something like that would really reset our priorities in life, just like covid did last March.
Bob Moriarty: I don’t think you have any choice. If I was the Chinese or I was the Russians, I would lob an EMP over Kansas at 300 miles and fry every computer chip in the United States. We are so vulnerable. If anybody thinks we’re going to send a bunch of weapons to Ukraine and Ukraine’s going to do the fighting and dying against the Russians, that’s bullshit. You can send shiploads of munitions, they’re absolutely meaningless. The Russians are not going to be defeated. The only question is, are we going to blow up the entire world? I’ll be candid, as far as shorting the market, god, I don’t know if the market will exist tomorrow. I don’t know if the United States will exist tomorrow. We are literally on the verge of World War Three. It’s starting exactly the same way World War One did, where everyone is making bad decisions. I mean, do you remember what Biden said about Putin three weeks ago?
He said he’s a killer.
Goldfinger: He is a killer Bob. Are you going to say he’s not a killer?
Bob Moriarty: Sure he’s a killer but hell, so is Biden, for Christ’s sakes, okay? I mean the United States has killed millions of people in these constant wars we’ve had over the last 20 years. We’re not the good guys, we’re the bad guys.
Goldfinger: Putin will send KGB agents to poison your tea and have you die a horrible, agonizing death. He’s a killer.
Bob Moriarty: The United States is much cooler about it. We will invite the most important military person in Iran to a meeting to discuss peace and then we’ll ambush him and kill his entire team. God, give me a break. I don’t doubt Putin’s a bad guy but if you’re going to be a leader in the world today, they’re all bad guys. I mean, my god, the Queen Elizabeth’s killed people, big fucking deal. But as far as, how much damage has Putin done to world. I’d say, “God, nothing.” And you compare to wars in Iraq, wars in Afghanistan, wars in Sudan, wars in Somalia, wars in Libya, give me a break, okay? Jesus, we’re a thousand times more evil than Putin is. Yeah, he’s evil, of course he’s evil.
Goldfinger: The United States has made a lot of mistakes in terms of foreign policy, we can agree that the second Iraq invasion was pure evil. However, I can’t give Putin a pass just because my country has made mistakes. Clearly there are many throwing stones from glass houses around the world. Putin is the kind of gangster that makes the old time gangsters like Al Capone jealous with envy for how cold, calculating, effective, and powerful he is.
I pray that peace will prevail and that World War Three will not become a reality. Thank you for your time and insights Bob, until next time.
Disclosure: Author owns shares of Eloro Resources at the time of publishing and may choose to buy or sell at any time without notice. Author has been compensated for marketing services by Eloro Resources Ltd.
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