Announcer: Live from PDAC 2015, it’s the SmallCapPower Expert Interview featuring Eric Coffin.
Smallcappower: Today, we’re at PDAC 2015 with Eric Coffin. Welcome Eric.
Eric: Hi, thanks for having me again.
Smallcappower: So, which commodity do you think will have the best upside potential for 2015?
Eric: If we’re going to just talk about where things are at the end of the year, I’d suspect the best percentage move is probably going to be uranium for the simple reason that hardly anybody’s actually making money mining uranium right now. It needs to move up for anybody to get anywhere. I like zinc, but I don’t think 2015 is going to be zinc’s year. I think it’s probably going to be 2016. But you may actually see it start to move before that. There’s a large zinc mine that goes offline this year, basically the question is whether it gets to the end of its mine life in Q3? When Century goes offline, the deficit, basically, the inventory that’s been falling off for three years now, that drop off should really accelerate after that. So I think 2016 could be a good year for zinc. But I’m not sure where it’s going to get to by the end of this year. So I’d put that probably second after uranium.
And actually, I think copper’s probably going to come back a little bit too. There’s been several mine accidents, generator explosions, all the usual stuff you get at mine sites that have, collectively, probably knocked 3 or 400,000 tons off this year’s copper production. I’d assumed all along there would be a fair-sized surplus this year. I wasn’t expecting copper to do that well this year. But I think that surplus may actually not show up. So we may have seen the worst of it a month ago.
Smallcappower: Great, thanks for that. Why do you think there’s still a place for small-cap stocks in investors’ portfolios?
Eric: Well, if you’re someone that follows the sector, the mining business, if you will, and the commodity business, even after all the trials and tribulations, everything we’ve been through in the last decade, it’s still the juniors that are there to discover. They’re the ones that find new deposits. Exploration spending is being decimated. Most of it these days is done by majors. But if you look at what they actually spend money on, the majority of it’s brownfield stuff. And at the end of the day, if the world’s going to have enough copper, have enough uranium, have enough gold, have enough anything, someone’s got to be out there finding new stuff. And it’s still really the juniors that do that. Is that a low-risk proposition? No. It’s an extremely high-risk game. But the other side of the coin is, if you’re lucky enough to attach yourself to one of these companies that makes a true new discovery, the potential gains are enormous.
Smallcappower: So what do you personally look for in a junior resource stock before investing?
Eric: You look at the management team. I like to see competency on both sides. You obviously need to have strong technical people. The geologists have to know what they’re doing. But I like to see that there’s a couple of Smallcappoweret guys around it too. Because at the end of the day, any junior company is a negative cash flow business. You need to have guys in there that know how to deal with the Smallcappoweret and how to raise money. Nothing happens if you don’t raise money. So you need both of those. I’d like to see a group of projects, but I’m not one of these guys that necessarily goes for the whole scattershot thing. I’d like to see that they’ve got specifics. “We have an idea. We have a specific set of models and a specific area that we’ve spent a lot of time thinking about. We know how we want to target these things.”
And as they start doing work, if you start seeing targets develop . . . What you really want to see is you don’t expect the perfect thing to show up after they go out once or twice. What you want to see is these targets improving every time they go out, looking stronger. Because basically by the time it gets to drill stage, you want to see something that’s got enough scale potential that if they’re right, if they hit something, it’s going to be big enough to be minable. And along with that, of course, there’s a lot of jurisdictions in the world that are just too hard, either for infrastructure reasons, political reasons, CSR reasons. There’s a lot of parts of the world where they simply don’t want to have a big hole in the ground next door. In my experience, it’s so hard to get past that. I’d rather just stay away from countries where I just know it’s going to be too painful.
Smallcappower: Right. So actually, could you give us a couple tips on what our investor audience should look for to ask management of these juniors?
Eric: Basically you want to ask them, if you’re looking at an expiration stage company, you want to talk to management and say, “Okay, what’s your model? What’s your target? If your expiration works, what are your expectations in terms of size and grade? What’s the potential of these targets you’re drilling? What does your share structure look like?” I like to see guys that have skin in the game. I don’t have a lot of patience with juniors where either the guys gave themselves a ridiculous amount of stock more or less for nothing when they set it up. I want to see guys that are invested right next to me. Not to put too fine a point on, I want it to hurt them as much as it hurts me if it doesn’t work out.
Smallcappower: Right. Fair enough.
Eric: That tends to concentrate the mind a bit. And obviously, you’ve got to see that they’ve got the money to get the next couple of stages done.
Smallcappower: So here we are, PDAC 2015, you know I’m going to have to ask you. What are your favorite resource stock picks, some of your favorites?
Eric: Some of them are here, some of them aren’t. There’s a couple of companies that I’ve followed for years like Kaminak Gold Corp. (TSXV: KAM), great gold project moving towards feasibility, Columbus Gold Corporation (TSXV: CGT), great gold project moving towards feasibility. But I like the Nevada stuff too. They’re going to be doing a 45,000 meter program so it’s just going to be news flow like crazy.
Smallcappower: Okay.
Eric: Actually, right after this interview, I’m sitting down with a company called Pure Gold Mining Inc. (TSXV: PGM), which has got projects in Madison, which is essentially part of the red lake camp. That’s old home week for me when I was in high school. I actually worked in a mill in Madison. So I actually went and visited it last fall. And this is actually a good example of what we just talked about. I liked it. I liked the targets. But I was like, “You know what? I need to see a couple of drill holes first . . .
Smallcappower: Right.
Eric: . . . because these aren’t easy things to find.” They actually just put out a couple of really good holes this morning. So I’m going to sit down and go through that. I’ll probably do a few meetings with Precipitate Gold Corp. (TSXV: PRG). But Precipitate, just so everybody realizes, I’m not objective on that, I was one of the founders, and I own a crap load of it. Don’t consider that an objective opinion. That’s one of those ones where every time they’ve gone back, the target looks better. They actually drilled a discovery hole in the fall, but of course, they managed to do that just as the gold price was falling apart, so nobody cared. But they’ll be back drilling again, and I really like that target.
Smallcappower: Great. Well, thanks for taking the time for today’s interview.
Eric: Thank you, thanks for having me.
Smallcappower: Good to see you.
Eric: Yup.
