Wednesday, May 09, 2012

It's This Bad Because It's a Bottom: Eric Coffin

Eric Coffin, editor and publisher of the Hard Rock Analyst newsletter, has never heard so much negativity from investors. "Everybody thinks the world is coming to an end," he tells The Gold Report. As a contrarian, all the doom and gloom tells him the market is about to pull out of its tailspin. In this exclusive interview, Coffin talks about the hard-hit juniors in the Yukon and why it's an area play he still believes in. 

The Gold Report: Eric, the gold bears recently outnumbered the gold bulls in Bloomberg's weekly Gold Bull/Gold Bear Sentiment Survey for the fourth time in a year. Are you a bull or a bear?

Eric Coffin: I think the gold price is going to end the year higher, so I guess that makes me bullish, but I think of myself as agnostic.

There needs to be a return of calm to Europe for the gold price to move much higher. The currency pair trade between the euro and the dollar is going to be a big determinant to the gold price. There's been more noise about the EU providing stimulus funds to offset all the government budget cuts in Europe. All of those countries have to deal with their debt loads. But it's not realistic to think that they can cut their deficit and 3% off their gross domestic product year after year and realistically get any net growth.

The other side of that equation is that the U.S. has slowed down. That'll help the gold price because a lot of goldbugs are riding on there being another round of quantitative easing. I'm not sure it's going to happen. But as long as Federal Reserve Chairman Ben Bernanke keeps saying it might happen, that's good enough.

TGR: Stagnant gold prices are translating to equities. Canaccord reports that "sector weakness in the gold equities over the last six years has typically ended with 'V'-shaped corrections to the upside." Do you believe that's what will happen this time?

EC: I sure hope so because I'm on the buy side, not the sell side. I'm going to feel pretty dumb if it doesn't happen. We're still in a bull market for gold. In a secular bull market, generally speaking, coming out of a dip tends to be an impressive move.

TGR: Many Yukon junior mining companies are starting their 2012 exploration programs after completing off-season financing on buyers' terms. What types of companies are getting financing?

EC: The only financings I've seen in the past five months are either relatively new deals where investors have a lot of respect for management—which is a roundabout way of saying that investors figure management will figure out a way to make money regardless—or companies that have something pretty definitive with a bunch of drill holes. Companies that didn't take the opportunity to raise money last year are going to have to pull a rabbit out of their hat. The Yukon is an expensive place. There's no getting around it.

Outside of companies with discoveries, like Kaminak Gold Corp. (KAM:TSX.V)ATAC Resources Ltd. (ATC:TSX.V) and Golden Predator Corp. (GPD:TSX), nobody's really done large financings and that's going to be tough. About 60% of the companies are going to have a hard time undertaking any significant programs this year. If the market gets better, which I think is going to happen, they still have a shot, but it's at buyers' terms.

I suspect a lot of companies are going to say, "Let's just wait and see if next year is better." You haven't seen many announcements. Quite a few of those companies that were talking last year about doing $4, $6, $8 million exploration programs—many of those programs aren't going to happen.

TGR: Desjardins Capital reports that 26 mergers and acquisitions worth a combined $30 billion (B) took place during 2010 and 2011. There are about 120 more companies operating in the Yukon. Are other junior explorers going to be forced to merge?

EC: I think there will be merger activity at the junior level. There are a lot of companies with decent but not spectacular projects where they haven't done enough work and are not in a position to raise money. A merger is one way out for them.

TGR: What did you think of the recently announced merger between Prosperity Goldfields Corp. (PPG:TSX.V) and Smash Minerals Corp. (SSH:TSX.V), which both have projects in the Yukon?

EC: It was our idea, so we liked it. It's a really good combination of management teams and a good-looking project. The first set of results from this year's drilling at the Kiyuk project should be out any time. [Ed. note: results are available here.] I'm expecting good things from it.

TGR: Is it still fair to call the Yukon an area play when the shares of most of the juniors operating there have declined considerably, often by more than half? Even good results often don't tangibly move share prices.

EC: It still is an area play. This is a fairly common path even for a successful area play. The easy money has been made or, as is the case here, the market's just lousy and there is a lot of consolidation. The Yukon is getting to that point. The few companies that have done well will have the ability to pick up a lot of projects. In any area play, anywhere from a third to a half of the companies involved are piggybacking on the play to help raise money. Those companies tend to disappear quickly if they don't find something large right away or if the financing environment gets difficult. The bad market has exacerbated things but a large number of drop outs from an area play at this stage is not an unexpected development.

TGR: Let's talk about some of the contenders. What would be some of the biggest exploration programs in the Yukon this summer?

EC: Contenders will be the big spenders. ATAC is probably going to be the biggest up there at around $30M. Kaminak isn't very far behind. Both of those are funded new discoveries.

ATAC is particularly interesting because it looks like it could have a camp. It's Carlin, which is something new to the Yukon. There's not a lot of doubt that it will have a lot of ounces to work with, especially if they have some luck with new drill targets.

Kaminak's Coffee project is the same model as the original 1.5 million ounce (Moz) White Gold discovery, but it'll probably be larger. Kaminak is probably past that already, although it won't have a number out until early next year.

Both of those companies will probably get resources out at the end of the season.

Silver Range Resources Ltd. (SNG:TSX.V) has projects all around the old Faro mine. It has a very large land position and is drilling large bulk tonnage silver base metals zone. It also made a couple of high-grade silver vein discoveries late last year with similar mineralization to Keno Hill.

Ethos Gold Corp. (ECC:TSX.V; ETHOF:OTCQX) has about $7 million budgeted for its Betty project, which is adjacent to Kaminak's Coffee project. This will be the first drill test at Betty that has generated some good high-grade numbers from trenching and test pitting, so that will be closely watched. Ethos is fully funded for that program with quite a bit to spare.

TGR: Since we last talked, your brother David, your best friend and co-editor, passed away. He was a very fine geologist and a great human being. Our condolences for your loss.

EC: Thank you. We are going to hold a dinner and fundraiser for the University of British Columbia geology department in honor of Dave on June 4 after the Cambridge Conference in Vancouver. Everyone can get together, have a meal and a few drinks, and tell stories about Dave.

TGR: David often spent more than 200 days a year traveling to mining projects around the world. He helped start a new mining company before he passed away. Can you tell us about that?

EC: We were meeting with Strategic Metals Ltd. (SMD:TSX.V) about its projects. Doug Eaton, who runs Strategic, showed us a different project set that got our attention. Precipitate Gold Corp. (PRG:TSX.V–pending) was formed to explore 15 projects optioned from Strategic in the southeastern Yukon and northeastern British Columbia plus four other 100%-owned projects. After the initial public offering, which should be later this month, Strategic will become a significant shareholder and Precipitate gets 100% of the projects.

The lead project is the Reef project, north of Northern Tiger Resources Inc.'s (NTR:TSX.V) 3Ace project. A couple of large gold arsenic anomalies have been found at Reef, but they have not been drilled yet. There's some hard rock numbers there, but it will take drilling to figure out what it is. It's quite early stage.

To read the entire article follow the link below:

May 9. 2012 (Source: The Gold Report)

Disclosure:  The editor of GGR participated in a private placement in Precipitate Gold (TSX: PRG.V) and holds a long position in the company.

Disclosure:  Northern Tiger Resources is a Vulture Bargain Candidate of Interest (VBCI) and is our fully fledged Vulture Bargain #7. Members of the GGR team are actively accumulating and hold long positions in NTR.V or NTGSF. 


The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

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