Ask The Expert

Ask The Expert - Brent Cook - November 2020​

This month, Brent Cook returns to Ask the Expert to answer seven of your listener-submitted questions. Brent is the founder of the excellent investment letter “Exploration Insights”, which covers the mining sector and focuses on what he is buying, selling, and avoiding with his own money. An economic geologist and mining analyst with 34 years of experience in both property economics and geology evaluations, he has evaluated and valued grassroots-through-feasibility-stage projects involving nearly all deposit types in over 60 countries. Since 2002 he has been an independent analyst and advisor to several investment funds and high net worth individuals.

In this value-packed edition of Ask the Expert, you’ll hear:

  • Where we are in the senior and junior mining cycle
  • The key metrics you should use to evaluate a particular company
  • Plus: How does Brent’s investment philosophy differ from Eric’s?

For the answers to these questions and more, listen here:

Man: You are listening to "Ask the Expert" on Sprott Money News.

Craig: Hello, again, from Sprott Money News at sprottmoney.com. It is November 2020. It's time for your "Ask the Expert" segment. I'm your host Craig Hemke, and joining us this month is Brent Cook. Many of you will remember Brent Cook is the founder of the terrific newsletter service "Exploration Insights." He's now...I guess we'll call him semi-retired. He's got a friend of his named Joe Mazumdar that's running things on a daily basis, but Brent still has input and still knows far more about mining, the mining sector, all that stuff that...I mean, he's forgotten more than I'd ever know. So, he's a great, great analyst and a great person to talk to about the mining sector, so it's great to have him on. Brent, thank you so much for joining me this month.

Brent: Thanks, Craig. It's always a pleasure, and I appreciate it.

Craig: All right. Before we get started, just a reminder out there to everybody, if you enjoy these "Ask the Expert" segments, please feel free to like, share, or subscribe to Sprott Money on the channel you're listening to. Thank you. We appreciate all the questions and comments we receive from you every week. We're going to get to a lot of them today. And also, just a reminder, obviously, Sprott Money is a bullion dealer and a bullion storage company. Gold and silver prices right now are pretty attractive, especially more they were compared to earlier this week. So, sprottmoney.com has 100-ounce Royal Canadian Mint silver bars currently selling at a specially discounted price, so please go to sprottmoney.com to check them out, and all the other products that we have there. Of course, you can always just call us directly if you want to chat about the precious metals at number (888) 861-0775. Brent, before we get started, I always mention on these calls, I tell people at my TF Metals Report site if you think we're in a bull market, and even though we've had a consolidation phase here for a while, if you're excited about owning the mining shares, you want to own some for the first time, do not try to do this on your own, man, to try to figure out grade, and geez, what a drill result means and all that kind of stuff. There are only a few people in the world that are really experts at this stuff. You're one of them, so please take a second. Tell everybody about "Exploration Insights," what you and Joe do there, and how people can find out more.

Brent: All right. Well, both Joe Mazumdar and I are economic geologists. We've got experience with major and junior companies as geologists. We've run programs. We've been analysts to various brokerage firms. And what the letter is about...I ran it for like nine years and then, finally, I met Joe on a trip to Nevada, and I was very impressed with his insights and knowledge and such. And so, he's now running the show and his talk picks, but we work together. And basically, it's a weekly letter that comes out on Sunday. It's about what we're doing with our money, buying, selling, avoiding, plus commentary on the market, that sort of thing. The website, explorationinsights.com, has the full details as well as a lot of free information and ideas and stuff that Joe has been publishing. So, that's sort of what "Exploration Insights" is all about.

Craig: Just exploration insights with an S .com.

Brent: That's correct.

Craig: All righty. Well, all right, Brent, let's just dive right in. We've been collecting questions for you for about the last two weeks or so. Of course, anytime you have a question for our "Ask the Experts" segment or for the "Weekly Wrap-Up," you can use the email address, the word is submissions with an S, submissions@sprottmoney.com. I've got seven different submissions for you, my friend. We've consolidated a whole bunch of them into these seven. I say we just dive into the first one. You know, this is sure been a challenging period since August, not only for the precious metals but for the shares too for crying out loud. We've seen prices...if we go back, just measure over the last six months, gold prices up maybe 10% or 15%. Silver is probably up 25% or 30%, but yet many of the producer share prices are down versus where they were in May. Brent, what's the deal? And where are we do you think in the senior and junior mining cycle?

Brent: Yeah. In the senior cycle, I think what we're seeing is, you know, we don't have a lot of fund managers out there that are old enough to remember how good things can be in the gold market. Most of these guys are growing up now on Apple, Facebook, etc., and they just don't understand the gold and silver market. I think what we're going to see is as these major companies start showing real profit, cash flow and dividend increases, we'll see funds start moving more into this, but the regular market has done so well. It's at a record high right now. You got to beg the question, why would someone jump into a sector that historically is pretty poor in terms of return on capital? In the junior sector, I think what we're facing right now is we've seen...I forget how many billions of dollars raised over the past six to eight months. All that stock is coming free trading just as the market is going down. And there was a lot of hype behind the raisings. I mean, people would go to raise $5 million bucks and they'd up-size it to $8 million or $10 million. Anyone that's in there and has a profit is probably going to try and take it this year, or they're going to take their loss this year. So, I foresee a pretty rough month ahead, at least, but on the positive, there's some stocks that actually have legitimate discoveries, legitimate deposits, but I think we're going to be able to pick up pretty cheap. I think going forward into 2021 and '22, precious metal prices are going to do pretty well.

Craig: And that would be reflected in the shares with higher earnings, better dividends, and stuff. And you make... That's an interesting point, Brent, that it's been the last...I don't even know how many, three or four years in a row, for certain, that I've noticed a dump of the shares into tax-loss selling, but, man, once we get past December 15th, even December 20th, we've rallied pretty good. I wonder if... Have you noticed the same? I wonder if we'd see the same this year.

Brent: That is typically what I see happening. We'll see what happens this year as, you know, the whole world, you know, upside down with COVID and now we've got a new president. There's more stability across the globe. We'll see what happens. I'm not going to predict.

Craig: Right.

Brent: I'm just looking for relatively good deals on legitimate deposits.

Craig: I understand. All right. Let's move on to question number two. This kind of goes right into what you just said. How do you look for and find a good deal on legitimate deposits? The question was kind of along the lines what are your key metrics that you use in deciding to buy a certain company? Is it market cap, the jurisdiction it's in, the team that's behind the company? What are the main things you look at?

Brent: Well, you know, Joe and I are focused on identifying legitimate properties that I think another company, a larger mining company would want to buy. So, to us, it all comes down to the economics behind the discovery or the deposits being defined, and that goes to jurisdiction, it goes to grade, it goes to metallurgical recovery, it goes to management, it goes to share structure. I mean, there's a whole list of things that have to work for a deposit to actually make money. You know, really, an economic ore discovery and deposit is a very unique thing. That's why gold price is, whatever it is, $1,800 bucks an ounce. It's not easy to find, right?

Craig: Right.

Brent: At least in the economic quantities. So, I mean, it goes to all of those things. We're focused on that.

Craig: Fair enough. And again, hard to do that on your own, and that's why I always say just get as much help as you can if you want to invest in this sector. All right. Moving on to question three, Brent. This is a fun one. I'm really curious to pick your brain on this one here, hear your answer. When we do these "Weekly Wrap-Ups" with Eric, I remember one day, it must have been a year ago, almost a year ago, he mentioned a company called Freegold Ventures for the first time. I think at the time, it was maybe 20 cents a share, and by the end of that day... He mentioned it on a Friday morning. By the end of that Friday, it was like 35 cents. He has that impact. It then continued to rally. Earlier this year, went all the way to about 1.40 USD, 1.45 USD, and now it's pulled back. It's probably about half of that. I haven't spoken with Eric, obviously, for the last month or so, but I think he's still bullish on the stock, but you have a significantly different opinion on this company, this Freegold Ventures. Why? What do you see?

Brent: Okay, this is where we get to generate the hate mail.

Craig: I hope not.

Brent: All right. So, I think... I want to step back. Eric Sprott has made and lost more money than I ever will, but his investment philosophy and thesis is completely different than Joe and I. As I understand it, you know, Eric is looking at the gold price going to $5,000 or whatever and silver going to $100, and if that's your investment thesis, what he's doing makes a lot of sense. By contrast, Joe and I are looking at, you know, a gold price... We try and judge things on call it $1,500 an ounce, and we do our economic modeling based on that sort of thing with the anticipation that a major mining company will buy a deposit. Okay. So, jumping to Freegold, this thing had sold for, I don't know, 6 cents to 20 cents for 6 to 8 years with what they've gotten now, basically, a low-grade large resource in the order of... What have they got? Like 4.8 million ounces at 0.61 grams a ton. That doesn't work and is oftentimes compared to Fort Knox, which is nearby, just up the road, which is a similar grade but the deposits are completely different. Fort Knox is hosted by an intrusive, a granitic body that intruded sediments that bake those sediments, which the pressure crackled the intrusives, the granite, and all the gold went into the cracks. So, when you blow that up, the gold is readily exposed and it's very easy to recover. Whereas with Freegold, I'll throw International Tower Hill under this as well, the gold is semi-refractory, and it's going to take a lot more cost, effort, energy to extract that gold. So, the two deposits are completely different, right?

Craig: Right.

Brent: And if they were similar... I mean, Kinross has had six to eight years to buy either of those deposits at a fraction of the current price of the company, and they haven't. You got to wonder. So, in my view, what Freegold is drilling out is, you know, basically not economic. Some of it falls into an open-pit, the oxide bit, but the deposit itself is kind of shaped like a pear so far, and it's not high enough grade to work as an underground block cave deposit. And the high grade they're hitting, which I think excited the market, is deep. It's 300 to 500 meters down. They're not hitting it consistently in the few holes that we've seen released. And consider, if they're going to go after that high grade, the cost of defining a relatively narrow high-grade erratic mineralization at that depth is going to be massive. So, that's my view on Freegold. I don't think it's something that is going to be economic. I do...

Craig: All right. Go ahead.

Brent: ...see them adding a lot of ounces, but they're not economic, in my view.

Craig: Is it...I don't want to overly simplify it, but is it more one of those where at $1,500 to $1,800 gold...? I mean, it's just not economic. It's just a couple of holes in the ground, but at $2,300 to $2,500 or $2,800 gold, maybe it becomes more interesting to...?

Brent: Maybe. Again, my experience has been that when these deposits that are uneconomic but people tout as leveraged the gold price, they're generally a fundamental flaw. That means these things are probably not economic or marginally economic. They are not something that a major mining company is going to go buy and put into production, although the last bull run, that happened a lot, so I could be wrong there. But again, it's not something that...it's not a great deposit, right?

Craig: Okay. Yeah.

Brent: And if I'm Kinross, or I'm Newmont, or Barrick, I want to buy a great deposit, and I'll pay up for that.

Craig: This would be like a late-stage acquisition with prices really going. I'm just trying to...thinking outside.

Brent: Yeah.

Craig: Yeah. Okay. All right. Let's see. Let's go on to question four. Thank you for that. That's very helpful information.

Brent: I hope so.

Craig: Well, but those are all things that, again, the average person like myself...you know, you read stories, you read little reports that show up on research sites, it's really hard because we don't have the experience, the accumulated experience and wisdom to kind of... Like you said... What was the one? The granite got exploded or whatever. I mean, I don't know that kind of stuff, but you do. And so, that's why it's great to hear that stuff.

Brent: [inaudible 00:14:23]. That's my stuff, man.

Craig: All right. Question number four. You know, this was all the rage a couple of years ago and now it's been kind of quiet for awhile, that Pilbara region down in Western Australia. Do you like any of those companies down there, like for example, Novo Resources, De Grey Mining, or Artemis?

Brent: All right. I used to live...I've spent six years in Australia. I love the place. And I was there probably, what, three years ago now with Quinton to visit Novo's projects and such. And, you know, in the letter, we bought it at three and sold it at five or something like that. And the reason we sold it was that our thesis was that there was a lot of very fine gold associated with those nuggets that that would be recoverable. What's happened is it's associated with beach sand swells and such, although they've done a fantastic job finding them, I'll give Quinton full kudos for that, I don't see how you can come up with a reserve or even a resource to substantiate the current market cap. And also, I think it's going to be very, very hard to mine that stuff. I mean, the big one, it's a very hard rock, a very hard rock. There are also another...I forget the name of it where they're scraping up dirt off the ground and pulling nuggets out of that that are free on the ground. And then, at Beacons, they're going to be processing ore as well. Again, I can't validate the market cap. That's my issue there. Other discoveries down there have been...I mean, Australia has been on a tear. There have been some fantastic discoveries down there. What did you say, De Grey?

Craig: De Grey, Artemis.

Brent: [inaudible 00:16:22]. Artemis as well as De Grey, there's been some copper discoveries in Western Australia. No, it has done great. And we do own, I think, three or four Australian companies in our portfolio. One of them Blackstone, which is a nickel, palladium discovery in Vietnam, not in Australia, but it's an Australian company. GBM Resources is another one that I'm actually on the board of that one who have got some projects going in Queensland and down in Victoria. So, we do invest in Australian companies, but the difficulty there is we're always a day behind and a week behind what's being talked about in the pubs. So, it's harder to stay on top of things there.

Craig: Yeah. Yeah. You can't go down there anymore either for the time being.

Brent: I know. It's awful.

Craig: Yeah. All right. Let's move on to question five, Brent. More than halfway done. What do you think of the Treaty Creek area up in British Columbia, in general?

Brent: In general. Well, it's right adjacent to a lot of big resources. Pretium is up there, Seabridge is up there, and Tudor Gold is up there. Probably Tudor Gold is the one that most of your listeners are interested in because Eric is into it.

Craig: Right.

Brent: I have a hard time with that one. It's certainly a large geochemical anomaly. I've looked at that and I can see this thing averaging maybe call it 0.7 grams gold equivalent. Unfortunately, most of it occurs in a valley, a lot of it under a glacier. It's not really open-pittable, in my view, so as an underground block cave operation, it's marginal at that location. And these guys are earning 60% by taking this to a production decision, which at the current valuation of Tudor, which is about $480 million, they're valuing this thing at $800 million, this deposit as is, plus there's a 3% NSR on it. So, I'll grant that it's a big anomaly and it's potentially...they can come up with an inferred, maybe indicated resource. Again, I don't think the economics behind that are going to stand out. I don't think it's economic.

Craig: All right. In our last couple of questions, you know, since we haven't had a chance to talk to Eric for a month, I thought, "Well, we'll try to get to as many of these individual names that were submitted for you as we can. And, of course, obviously, we don't expect you have an opinion on every single one, Brent. So, if you don't, we'll just pass, but I've got about 9 or 10 names here for you. We'll just kind of...we'll call it the lightning round. How does that sound?

Brent: All right, we're in.

Craig: All right. In final jeopardy, Brent, in the lightning round, let's start with these four names on the sixth slide here. Let's start with Orefinders. Any on that one?

Brent: Orefinders. Okay. They're up in the Abitibi for the most part. They've had some, you know, interesting intersections pretty at what they call Tyranite, I think it was, but really you're looking at 11 meters at 4 grams and 8 meters at 2 grams, and this is at a depth of 600 plus meters under an old mine. I have a hard time getting excited about something like this.

Craig: Okay. How about Trilogy Metals?

Brent: Trilogy. We own that. Joe has been there at least once, maybe twice up in Alaska. They've got a joint venture of sorts with South32, a major mining company out of Australia. I think this is a good deposit. They've had a tough time because of COVID. They'd got virtually no work done this year, but they will be back big next year. With South32 financing it, copper looks solid going forward. I think this is a good buyer right now.

Craig: All right. And the final two on this slide are Palladium One and Brixton.

Brent: I don't know enough about Palladium One to comment, so I'll let that go. Brixton, their stuff up in Northern BC, I thought was crap, but they've just done a deal with HPX, which is Friedland's company at Hog Heaven in Montana. And basically, it's a fantastic deal they've done where HPX spends I think $40-something million to earn 70%. And basically, they're just chasing a deep geo-physical target that could be a buried porphyry. So, you know, if the drilling is successful, this is great. Just watch and see if they can drill a hole that suggests there's a potential for underground porphyry discovery, which I would want to see hundreds of meters in the 1% plus range.

Craig: Okay. All right. Then, finally, Brent, to our final slide, there are five names on here, at least four of them end with the word gold, so I guess they're all gold companies.

Brent: No surprise there.

Craig: No surprise there. That's right. Truth in advertising. The first one, though, is Lion One Metals. I don't know anything about that one. Do you?

Brent: I do. They're drilling beneath some high-grade narrow veins at Fiji. They've had some success getting very high grades over very narrow intervals. And then it's within a caldera and they've found some outcropping mineralizations up into the canyon that hasn't been looked at before. So, it's interesting. It's not a cheap stock, in my view, given the market cap, but it's certainly an interesting...and credit to those guys for having the foresight to drill underneath it and hit some decent mineralization.

Craig: Okay. How about Victoria Gold and Pure Gold?

Brent: I guess I don't know enough to comment on those, really.

Craig: Okay. And then the final two on this page are Blackrock Gold and Klondike.

Brent: Blackrock, I believe they're the ones with two projects in Nevada, one near Tonopah and the other one north of Midas. The Tonopah drilling has turned up some very nice high-grade albeit narrow silver, gold grades. I have not been able or taken the time at least to try and figure out how big that might be, but certainly, some good hits. The stuff north of Midas, interesting but hasn't been exciting. And what was the second one?

Craig: Klondike.

Brent: Klondike, I haven't seen enough continuity and high-grade up there to get me excited, and the low-grade I think is too low grade. But certainly, run by a smart guy working hard and coming up with new ideas.

Craig: Do you like a Klondike bar from time-to-time?

Brent: Klondike bar?

Craig: Yeah. You know, the ice cream. It's like chocolate or vanilla ice cream.

Brent: Yeah. I did use to like those as a kiddo, but no.

Craig: Kind of a treat. Maybe instead of investing in Klondike Gold, take a look at Klondike bars.

Brent: There you go. It's a winner.

Craig: My friend, you and Joe do great work. Again, the site is explorationinsights.com, correct?

Brent: That's right. And there's lots of free information and such there.

Craig: And there's lots of free information at sprottmoney.com as well. Not only do we have podcasts like this and the "Weekly Wrap-Up," but there are four or five writers who post articles there every week. sprottmoney.com should be one of your favorites on your favorite bar. But also, if you're going to do some holiday shopping, it's almost Black Friday, or maybe it is Black Friday when you're listening to this, or maybe Black Friday is over, either way, it's time to buy some holiday shopping. Why not give the gift that keeps on giving the whole year, little precious metal for people that maybe have never held gold or silver before? It's always an eye-opener. We've got a lot on sale as we go through the month of December, so make sure you check us out, sprottmoney.com, or call us at (888) 861-0775. We've been speaking with Brent Cook, legendary precious metals and mining analyst at explorationinsights.com. Brent, thank you so much for your time.

Brent: Thank you, Craig. Let's do it again next year.

Craig: Hey, that's a great idea. Let's do. Happy Thanksgiving, happy holidays, all that kind of stuff, Brent. Take care of yourself out there.

Brent: Cheers.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thank you for listening. We'll have another "Ask the Expert" segment next month.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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