2018 has been a challenging year across financial markets, however, no where has it felt worse than owning a bunch of TSX-Venture listed junior resource stocks. The TSX-V is down more than 20% year-to-date and it is currently the worst performing global stock index with barely more than a month left in the year. In keeping with his 2008/2009 theme 321gold founder Bob Moriarty believes that we are about to experience a close replay of early 2009 in which investors who bought some of the most beaten-down junior mining shares in December 2008 ended up with 10 and 20 baggers by the end of 2009. Bob is also very excited about Novo Resources (TSX-V:NVO, OTC:NSRPF) after returning from a trip to Australia to visit Novo and its CEO Quinton Hennigh. Without further ado here is Energy & Gold’s Thanksgiving 2018 interview with Bob Moriarty…
Goldfinger: I hear that you just returned from a trip to the Outback Bob. Tell us what you learned.
Bob Moriarty: It was really interesting. Novo has found a company with a sorting machine that is able to sort the gold into 1% of the volume because after sorting they would literally be directly shipping ore. Quinton went to see this company last Thursday and they managed to concentrate the fraction of the sample that they gave them into .3% of the original volume.
Here’s what that means. A year ago everyone thought they had 2 or 3 ounce material because of the way they were sampling using a metal detector and then cherry picking the samples. A year later it appears there’s about a 40 centimeter wide pay zone that grades about 25 g/t gold. Now the problem is you can’t mine just 40 centimeters, but you can mine 4 meters if you can decrease the mass of the material that you’re processing.
We also went to Egina and that’s a massive alluvial system at surface with a one meter to several meters deep gravel pay zone that’s certainly economic.
Goldfinger: How did Novo manage to pick up Egina for the price they paid, which didn’t seem like a lot considering that this project appears to be economic straight out of the gate?
Bob Moriarty: The old fashioned way. Cash on the barrelhead.
The fella that was mining it was mining in an area that he didn’t have permits for. He had a mining lease for an area of 4 square kilometers but he didn’t have a mining permit for the area that he was actually mining. He was also only going after the nuggets, and the nuggets might be ⅔ or ½ of the total gold. There is a fine gold component at Egina which is not present at Karratha which is all nuggety gold. This means at Egina one can drill and measure the gold.
Goldfinger: To put this into perspective for somebody who doesn’t really understand the Novo story, they essentially have a ½ meter thick pay zone at the bottom of a conglomerate and this pay zone has graded between a couple of grams per tonne all the way up to 66 grams per tonne. And most importantly is the fact that this mineralized conglomerate extends over a very wide area (potentially 1000s of square kilometers).
Bob Moriarty: That’s a good description except it’s important to understand that not all of the conglomerate is mineralized, in some areas it’s 10-20 meters thick but the payzone is in the lower portion of the conglomerate and it is approximately 30-40 centimeters. In the Witswatersrand in South Africa the mineralized payzone is 30 centimeters thick. Karratha is Witswatersrand grade and Witswatersrand thickness, the only difference is that this is very nuggety gold which is hard to measure and the Wits is very easy to measure.
Goldfinger: The way I see it is that Novo’s Karratha Project is especially challenging because of how spread out it is and due to the difficulty in measuring the gold. Egina appears to give them a way to move into production much faster and to potentially help them understand Karratha much better.
Bob Moriarty: It’s a unique project that has to be approached in a unique way. Quinton not only has to figure how to mine it, he has to figure out a way to mine it securely. Now you can actually mine it underground. You would take one of these sorting machines underground, have your crusher underground and then crush the material and run it through the sorter, back fill with the 99% of material that is not gold bearing and the 1% of material you have left would be directly shipping ore that could ship anywhere.
NVO.V (Daily – 1 Year)
Goldfinger: It looks like Novo shares may have put in an important low recently, however, there is ample resistance overhead at levels which served as previous support. I am rooting for Novo to figure out this puzzle and I am an interested observer even though i’m still not a shareholder.
Turning to the broader markets back in August you were calling for a liquidity crunch and a market crash in September or October. I wouldn’t quite say we got a crash but we certainly got a solid kick in the face in October, and November isn’t shaping up much better. Is this the beginning of the crash that you were anticipating?
Bob Moriarty: Yes, absolutely. In our last interview I said this could be a repeat of 2008 and if you remember everything got hammered in 2008 but then there was a tremendous rebound in the precious metals and junior mining sectors in 2009. We are seeing signs of a liquidity crisis with people selling various assets at any price they can get where it’s cryptocurrencies, oil services stocks, or junior mining stocks.
You and I talked in August and I was looking for a crash in October, we get the initial stages of that crash and then we got a deadcat bounce which has now ended and I think the market (S&P) is going to keep going down and the world financial system is going to blow up. I think it has started.
Goldfinger: It makes sense to me that we’ve just seen the initial ‘seismic activity’ across markets in 2018, the tremors that occur before the real earthquake.
Bob Moriarty: If you remember back in December of last year we did an interview in which I told you that cryptocurrencies and bitcon were about to top and move into a vicious bear market. At that time everyone and their brother were very eager to tell me how ignorant I was and how I was just an old man who didn’t understand technology. I may be old but i’m not a fool. Most of all I understand human nature and market cycles. I literally called the top to within a few days and the 80% decline we’ve seen in cryptocurrencies since then is one of the symptoms of a liquidity crisis.
Goldfinger: The unfortunate aspect of cryptocurrencies is that there were a lot of newbie investors who got caught up in the sector and learned a painful lesson about the price of greed. Do you think there will ever be a price and/or time when cryptocurrencies could present a good investment opportunity?
Bob Moriarty: Well there are 2,502 of them, tell me which one you’d like to have? It’s a big giant scam. Look at HIVE, this was supposed to be the greatest thing ever at the end of last year and it’s dropped more than 90% from its all-time high. There’s no value in cryptocurrencies and there’s no value creation in mining cryptocurrencies. Everyone is looking around trying to find a bigger fool to take their investment off their hands. Well I got news for you, we’ve run out of damn fools!
Goldfinger: Cryptocurrency values are based upon the number of people who are willing to use that particular crypto and how many people are willing to store some of their wealth in crypto. We’ve seen the pendulum swing from one extreme to the other in the last year. Remember when John McAfee said that gold was worthless and Bitcoin is the next gold? How did that work out?
Bob Moriarty: He was getting paid $105,000 per tweet. If someone wanted to pay me $105,000 per tweet, I’d probably figure out what the hell a tweet is and I would practice my imitation of a canary.
Goldfinger: Turning to the precious metals sector we’ve seen gold and silver stabilize during the last few weeks with gold holding support at $1200 and silver briefly dipping below $14.00 before reversing higher. We’ve also seen a bunch of Golden Triangle explorers such as Aben and GT Gold get hit hard in the last week. Is this money flying south for the winter or is there value to be had by picking up some of these Golden Triangle juniors right now?
Bob Moriarty: There could be some more downside selling pressure due to tax loss selling before year end but you must consider what the next move is going to be and I think it’s going to be like early 2009 when we saw the sector explode higher. I’m not one of these guys who’s afraid of stocks going down, if stocks that I own go down and the story hasn’t deteriorated I am ready to buy more. Stocks go up and stocks go down and the way you make money over time is by buying low and selling high. Give me great stocks at cheap prices and I will take advantage of it. I was buying silver at $14.02 last week and I wish some rat bastard would suppress it lower so I could buy more of it.
Goldfinger: We’re in tax loss selling season after a challenging year in the junior resource sector, are there any stocks that you are putting in some stink bids on?
Bob Moriarty: If the only thing that’s changed is the price then you should be a buyer. There are dozens of stocks that I like right now but the one stock I really like right now is Irving Resources (CSE:IRV, OTC: IRVRF).
Goldfinger: That’s a gold explorer in Japan. It’s interesting that you mention Irving because the Hishikari Mine in Japan is one of the most profitable gold mines in history and Westhaven Ventures’ (TSX-V:WHN, OTC:WTHVF) recent discovery at Shovelnose has been compared to Hishikari by some people including John Kaiser. Both Hishikari and Shovelnose are epithermal gold systems found along the Ring of Fire and Westhaven can only hope that the two will continue to be spoken about in the same sentence. Tell us about Irving and what they are exploring in Japan.
Bob Moriarty: Go take a look at Irving’s NR from October 19th, they released 13 surface samples from their Omu gold-silver project in Hokkaido, Japan and the average grade of the samples was an average of 51 g/t gold. Now you just mentioned Westhaven, that is a tremendous home run and that was something I wrote about in May at C$.19 and you wrote about it in April at C$.14. Where is Westhaven now?
Goldfinger: About C$1.05.
Bob Moriarty: That’s a tremendous home run and my guess is that Westhaven will be even higher. Everything has been under pressure recently and it has to do with the general state of the market. Early 2009 was a tremendous opportunity for resource investors to buy cheap and I believe the same thing is going to happen in early 2019. If we see stocks drop another 10% or 20% from here due to tax loss selling or general market conditions I don’t give a shit, I will be glad to take cheap stocks off impatient sellers’ hands.
TSX-Venture (Daily – September 2008/December 2009)
Goldfinger: If you were to give advice to an individual investor who is new to the sector and has US$100,000 to speculate with, how would you tell them to go about it? What is the maximum percentage they should allocate to one stock?
Bob Moriarty: I would suggest that somebody with a hundred thousand dollars put most of it in the ETFs, GDX or GDXJ. Those are good, simple choices that will give you plenty of exposure to the sector without having to have the skill and expertise required to pick individual junior mining stocks.
There are juniors out there right now that are $.02 that will go to $2 and I think Irving was C$1.13 yesterday with about a C$40 million market cap and Irving has the richest ore i’ve ever seen in any mine in my life and they are going to start drilling shortly. This could be a $25 stock if they hit with their first drill program.
Goldfinger: How many holes is Irving about to drill?
Bob Moriarty: They don’t have a set number of holes outlined but they’ve got a 20km long structure with some really juicy drill targets. A drunk monkey could spot drill holes for them, there are that many targets and they are really juicy.
I want to make another point that I think is very important. The market is a percentages game and the guys who hit a lot of home runs also have a lot of strike-outs, strike-outs are part of the game. You don’t want to put so much in any one deal that if it’s a strike-out it takes you out of the game. At the same time when you have a 5-bagger you’ve got to sell some because you don’t have a profit if you don’t sell. I still have my first Novo shares but I don’t have my last Novo shares. Some people can’t seem to understand this when I say I still have the first Novo shares I bought at $.25, but that doesn’t mean I have every Novo share that I bought.
Goldfinger: I think you just made an extremely important point Bob. If you have a 5-bagger on a stock and you haven’t sold any it means that your position is 5 times larger than it was when you first bought the shares, in all likelihood this position now constitutes a very large percentage of your portfolio (assuming not all of your holdings are 5-baggers). To get back into some semblance of balance you’ve got to sell some to reduce your position size. This still allows you to benefit from future upside, but it also reduces your overall risk considerably.
One of the things that I preach incessantly is how important it is to stay in the game, you can have strike-outs and you can fumble the ball sometimes but if you stay in the game you will eventually hit home runs and score touchdowns. If we stay in the game long enough we’re going to run into a raging bull market and we’re going to get lucky by owning some companies that make big discoveries. This is how one becomes a profitable junior resource investor.
It’s important to understand that you can still be very positive on a company’s prospects at the same time that you take some of your position off the table. This is not a contradiction. It’s called being prudent and managing risk.
Bob Moriarty: That’s exactly right. I’ll tell you a secret. Novo is not my largest position anymore, Irving is now my largest position. I have enormous confidence in Quinton Hennigh and I believe Novo shares will go a lot higher but right now Irving is 1/10th of Novo’s market cap.
IRV.CA (Daily – 1 Year)
Goldfinger: What is the biggest threat to the global financial system right now? Is it rising interest rates? Is it the potential for protectionism and trade wars to get worse? Or is it….
Bob Moriarty: It’s all of the above! We are in the everything bubble and any number of things could topple the entire house of cards. We have a cannabis bubble, we just had a crypto bubble, we have a stock market bubble, we are just leaving an extended period of artificially and historically low interest rates…. Do I need to go on? This is a powder keg and someone just lit the fuse. The Federal Reserve has no arrows left in its quiver, we’re going to see the biggest crash in history and they can do very little and whatever they do will have very limited effects both in terms of magnitude and duration. I can’t tell you exactly how bad it’s going to be but I can tell you it will be obvious that it’s catastrophic.
Goldfinger: What are your thoughts on the recent decline in oil and the Saudi orchestrated murder of Jamal Khashoggi? Do you find it at all curious that Khashoggi was murdered the day before oil peaked and we’ve seen oil do nothing but drop for the last six weeks?
Bob Moriarty: I don’t think the two are related. Maybe they are but I just don’t see it. MBS thinks he can commit murder and get away with it and Donald Trump seems just fine with that. The US has lost all sense of morality. We have had 18 years of senseless and illegal wars. Torture is now standard. It’s what happens as every empire in history has imploded.
Oil is a financial instrument. It goes up, it goes down just like everything else. Right now it’s cheap, it got pretty expensive.
If Bob is correct in his views the final six weeks of 2018 could be momentous, and potentially very profitable for those who have the fortitude and foresight to pick up some of the cheapest junior resource shares when nobody else cares to own them. I know i’m putting together my tax loss shopping list this weekend and I will look to publish it by the end of next week. We’d like to thank Bob once again for his time and insights and wish all of our readers a very happy thanksgiving (even if you’re not in the US)!
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