TICKERS: ECC; ETHOF, EVG; EVOGF; EV7, EXN; EXLLF, , K; KGC, , SQA, TAK; TAKUF, WRP
Greg McCoach: Preserving Your Precious Capital
Source: Brian Sylvester of The Gold Report (10/6/10)
Mining Speculator Newsletter Writer Greg McCoach is nothing if not outspoken. "The U.S. government is now getting to the point that it can no longer pay the interest on its Treasury Bill debt through normal means. Once this leaks out, the Fed will start creating money on top of money. It will become a total Ponzi scheme," he says. But Greg believes that same fiscal foolishness is creating opportunities in precious metals. In this exclusive interview with The Gold Report, Greg coaches you on how to preserve your capital with some junior mining stocks.
Greg McCoach: I got into this business in 1998. I had owned a commercial print and mail facility that I sold to a bigger fish and was looking at what I wanted to do with the rest of my career, when I happened to read J. Paul Getty's autobiography about how he made his money. He suggested that to make truly big money you have to buy into things nobody else is interested in. In 1998, nobody was interested in precious metals (PMs); so I decided to jump in, and became a bullion dealer. A couple of years later, I became a newsletter writer for PM mining stocks.
My bullion dealership, AmeriGold, takes the time to educate first-time buyers on all the issues related to owning PMs, both buying and selling. We deal in all the modern coins and bars that investors covet these days. We like to refer to ourselves as a "safe and reliable place" to buy and sell precious metals.
TGR: Do you hold them for investors, too?
GM: No, we don't. We recommend investors take delivery of metal or store it in a private depository like Brinks, Inc. If your readers have any questions, they should call some of the people at AmeriGold who can answer their questions without any sales pressure (1-800-574-0047 begin_of_the_skype_highlighting 1-800-574-0047 end_of_the_skype_highlighting).
TGR: You're on record as saying you hold physical precious metals. What's your percentage of PM holdings?
GM: I believe in holding a nice chunk of my liquid net worth in physical PMs. The ratio within my physical precious metals is about 60% silver, 30% gold and 10% palladium. I've been accumulating these metals over the course of the last 12 years. I continue to buy and only sell if and when I want to adjust the percentages within my portfolio. I consider my physical metals portfolio my ultimate bank account. It can't be devalued by government shenanigans.
With all the worldwide problems related to fiat currencies, it's absolutely imperative that people have a portion of their liquid net worth in physical PMs. I believe silver is probably a better value at this point than gold, thus my reasoning to have a bigger percentage of silver in my portfolio. To illustrate why I like silver more at this point, let's first calculate how many ounces of silver it takes to buy one ounce of gold today. Gold is currently at $1,310/oz., silver at $22/oz. Based on those numbers, it takes roughly 60 ounces of silver at current metal prices to buy one ounce of gold today.
History has shown during times of a secular bull market in precious metals that, eventually, silver's performance surpasses that of gold by quite a large margin. During the early phases of the secular bull market, gold leads the way and silver lags; but, as we begin to enter the latter phases, silver ultimately catches up and surpasses gold. I believe this is where we are right now in the overall precious metals market. Up until this point, gold has been the clear winner but silver is suddenly beginning to wake up and get the attention of a larger group of investors. I believe we could start to see this silver:gold ratio move closer to 40:1 and eventually even 15:1 as we get to the point where the PM market peaks out. We still have quite a ways to go before we get to that point.
I am very bullish on silver. Earlier in the year, in my January 2010 newsletter and conferences I spoke at, I said silver would be somewhere around $23–$26/oz. before year-end. We're are now at $22/oz. and headed higher. How high silver and gold go this last quarter is really just a factor of how much safe-haven buying happens. The more problems that surface, the greater the buying pressure will be in the physical market.
We still see sovereign-debt risk problems in Euroland; we know that Italy, Spain, Latvia, Portugal and others are on the verge of financial collapse. Germany, which reluctantly bailed out Greece, has already said it won't be bailing out any further problems that occur in the European Union. My contacts in Europe tell me that it's very likely Germany will opt out of the EU within 18 months as these sovereign debt problems become more pronounced. If that happens, it will be the end of the euro and the EU. It will drive even more money into the metals and precious metals mining stocks
TGR: Then why aren't we seeing big gains in gold and silver stocks?
GM: During the early stages of the secular bull market in precious metals, which really got started in 2001, the mining stocks would lead advances in the physical price. Now it's just the opposite, and to make things more confusing, the Dow is not acting inversely to metals prices. Well, something somewhere is not right and I think it's on the Dow side. Gold is not a bubble, the Dow is a bubble. The Dow at +10,000 in this environment is not sustainable in my opinion. I think it's going to retreat well below the 10,000 mark until eventually one ounce of gold and one share of the Dow are 1:1. Where the two shall meet is anybody's guess, but I would bet it'll be somewhere around the 5,000–7,000 area. That's right—one ounce of gold will be +$5,000/oz. while the Dow hovers around that same level. This will be the consequence to society for believing in the economic fantasy that real wealth and prosperity can be created by abusing fiat currencies. There is just no way around the problem.
TGR: So, you believe that paper currencies will fail and, as that is happening, investors will flock to gold en masse. But the TSX's main board is above 12,000 and the major American markets had a sound September. Your thesis requires fear. While that thesis hasn't changed, has its timeframe?
GM: Timing these things is very difficult, but I maintain that we're still on course. The same thing happened in the first meltdown. I warned people that things were going to get bad; I warned specifically about derivative problems. As we got closer, it got more pronounced. Then, of course, when it happened, it was like "wow, these gloom-and-doom guys were right." Well, no, we weren't right; we just paid attention to what was happening.
We're still paying attention and we see the same problems. Nothing's been solved. All these derivative issues have just been covered up; they haven't been dealt with. Through sleight of hand and smoke and mirrors, the government has just hidden the real liabilities, piled on a bunch of whipped cream and now expect people to believe everything is ok. Well, it's not.
The other problem is the U.S. government is now getting to the point that it can no longer sustain paying the interest on its Treasury Bill debt through normal means. Once the bond traders get a sniff of this—coming in the next few months—they will cut the U.S. government off at the knees and plunge the dollar even lower. The bond traders are ruthless; they don't care what happens to the country—they care first and foremost about profits. This is where the consequences of decades of abuse to our credit system will finally come home to roost. We have been able to postpone our consequences for quite some time; but, in effect, all we've done is make the end result worse by not dealing with it when we should have. And now it's going to be a big wake-up call for everybody. The timing on it? It sure looks close to me; I don't see any way out.
TGR: When you say "close," what's close?
GM: I think we're going to see some events this fall. The fiscal year-end for the United States is in October; the new fiscal year begins November 1. The fact the U.S. government can't keep up with the interest payments on its T-Bill debt is going to become well known. These problems on top of the derivative problems are like ticking time bombs; we don't know exactly when they're going to go off, but we know they must.
Look at the banks; the banks have held all this money (TARP and economic stimulus) that was supposed to go back into the economy to help business owners, homeowners and generally stimulate the economic recovery. I say: "What Recovery?" None of that money got to where it was supposed to go. Why? The banks are selfishly holding the money to bail out their own rear ends because they have these derivative problems that haven't been solved.
TGR: But you're on record saying that gold will get to $6,500 and silver will be in the hundreds per ounce eventually. These are pretty heady numbers even for an all-out economic collapse.
GM: Yes, as we get to the mass-panic stage when the consequences show up in full force, this will drive the metals to their ultimate peaks for this cycle. There's so much fiat currency out there that will be chasing this tiny little sector called physical precious metals—and there's no room to receive it. In other words, there's not enough metal for everybody to have a part of the market. That will just drive prices into the stratosphere. I don't know how long it will last, but these problems aren't going to get resolved quickly. Nobody wants to see an all-out economic depression; but, if history teaches us anything, it's that depressions can be the catalyst to the real changes our country and world desperately needs. One of the things that must happen in order for this to occur is, we must abolish the Federal Reserve and get control of our country's money by putting ourselves back on some sort of gold and/or silver standard. For the past 39 years, we the people have allowed power-seeking politicians to run over us through the abuse of our fiat currency—the U.S. dollar. This activity has given us a false sense of prosperity and created the housing bubble, stock market bubble and now the biggest of all bubbles—the T-Bill bubble. Master idiot Greenspan was the architect.
Politicians love fiat currencies and Keynesian Economics, which teach there is no need to back a currency with precious metals. Politicians don't like a gold, or silver, standard because it makes them accountable to the people. This is why Keynesian Economics is taught in all the schools. To afford all their debt schemes, they must have a fiat currency they can abuse at will—which is exactly what has happened in the U.S. for the past 39 years and why we find ourselves in such a tenuous situation. The financial consequences can be the catalyst for the real changes that must occur to send us into the next age of wonder and prosperity.
How high are these metals going to go? It's anybody's guess; but, when you look at what happened in the late 1970s to drive metals prices to their peaks in early 1980, it pales in comparison to what we're dealing with now. If you inflation-adjust—with real numbers not government-concocted nonsense—$875/oz. gold and $55/oz. silver in 1980, that $875 becomes $6,500 and $55 reaches into the hundreds. That's why I use those figures. I think gold will hit those targets before this is all said and done. It could go even higher depending on how bad the consequences are.
TGR: Then we better start talking about gold stocks. You recently went to the Yukon and have since written an article about that play.
GM: Yes, it's a very exciting situation; you can read the New Yukon Gold Rush at www.321gold.com. The Yukon Klondike gold rush back in 1897 was one of the biggest gold rushes of all time and, since then, somewhere around 16–20 million ounces (Moz.) of gold has been taken out of the Dawson City area. That was mostly placer gold, which for people who don't know, is basically eroded gold that gets into the streams and rivers and flows to a spot where it piles up. Well, Dawson City is where this placer gold piled up.
Geologists generally agree that in trying to determine how big the gold source is, they usually multiply whatever the placer gold is by 10. In this case, we would be looking at a gold source that is probably in the neighborhood of 200 Moz.
For decades, people have been trying to find this source and have been mostly unsuccessful. There's a prospector named Shawn Ryan who's been doing a lot of prospecting up there, and he's suddenly received a lot of attention because two of the properties that he controlled and worked were vended into juniors that have had high-grade gold success. One of those, Underworld Resources Ltd., was bought by Kinross Gold Corp. (TSX:K; NYSE:KGC). The other, Kaminak Gold Corporation (TSX.V:KAM), is drilling its project and also is having great success. This is proving up the thesis that Shawn Ryan has discovered the source of all this placer gold. That's why I am optimistic that we're going to see a tremendous new gold rush up there. I think by next summer, you'll see a tremendous amount of money going into that ground looking for these big gold deposits. Underworld was in the 1–2 Moz. range. Kaminak is in the 2 Moz. range—and growing. How much bigger will they get? We don't know because there's a lot more work to be done, but these look like they are going to be very big discoveries. And, of course, that gets the attention of the mining world.
I have been researching which companies have the best ground related to the signature of the White Gold camp and surrounding areas. I visited the area twice in the last two months and sense we are going to see a hoard of gold discoveries over the next five years and beyond.
TGR: You mentioned Kaminak. Are there others with promising ground in the White Gold camp?
GM: I will give you another one called Taku Gold Corp. (TSX.V:TAK; OTCBB:TAKUF), which is trading at about $0.37 right now. It has one of the largest land positions in the White Gold camp. It's still up for debate whether this is the source of the placer gold; but, by looking at the maps and seeing where the streams and rivers flow, I would say it all flows toward Dawson City. The reason no one discovered it previously is because the White Gold camp is 90 km. away from Dawson City. The Dawson City area has the largest known occurrence of placer gold in the world, which tells you there's something going on there, this gold came from somewhere. Is it the White Gold camp? So far, we have some pretty good indications it could be; but more work is needed before that assessment can be finalized.
TGR: We know you can't compromise your paid subscribers, but could you give us a couple of other small names that you like?
GM: There will be a lot of companies. Shawn Ryan's been up there for 14 years doing soil samples, trenching—what is referred as "boots on the ground" geology. As Shawn says, these are the greatest clues you have to making a discovery. He gets out in the bush and does a lot of these soil samples at very aggressive numbers. Whereas some companies might do just a couple thousand samples, Shawn's doing 70,000, 80,000 and 90,000 samples on an area. That's why he's having success with his properties. Once the work has been done on the properties and he likes what he sees, he vends them into other juniors; they put the drill holes where Shawn shows them, and so far so good.
Out of the 20,000 mining claims available in the White Gold camp, Shawn Ryan controls 12,000 of them. This is a guy we definitely want to get to know. I did a radio interview with Shawn in my Yukon Gold report. If you haven't listened to it, it's a must-listen-to interview. After you listen to it, I think you'll understand why you will want to invest with Shawn Ryan and his ground.
TGR: What are some companies with Shawn Ryan ground?
GM: Well, Shawn's still vending ground into new juniors. Some deals will be announced over the next several months, but it's no secret that Stina Resources Ltd. (TSX.V:SQA) has a key piece of Shawn Ryan ground.
TGR: Let's move to the Western U.S., where some recent discoveries have been made. Obviously, some of those were in Nevada, but other juniors have had gold exploration success in Idaho and Wyoming. Can you comment on what's happening there?
GM: Evolving Gold Corp. (TSX.V:EVG; Fkft:EV7) made the Rattlesnake Hills discovery, and I have followed it in my Insider Alert. After a big intercept of decent-grade gold, follow-up drilling this summer was also successful to some degree; but there still seem to be questions. The stock hasn't moved much, even though the company had some successful drilling because there are questions about the economics. All ore bodies are not created equal. It's not just about making a discovery; it's about making an economic discovery. Evolving Gold's an interesting story. Wyoming's not known for its gold occurrences, but that doesn't mean it can't happen.
Idaho? There's gold in Idaho for sure. Western Pacific Resources Corp. (TSX.V:WRP), in particular, is on a trend that really extends from Nevada through the Idaho border. The company has the past-producing Mineral Gulch (MG) mine and I've been out there on a site visit. It's very likely that Western Pacific can get not only MG back into production, but it's likely to grow with enough time and drilling. I think that could grow in a big way, and that's what's very interesting about being a Western Pacific shareholder—odds are very good that it will grow.
TGR: Do you know what the resource is currently?
GM: Pegasus Mining was the company that mined it in the 1990s. There's some new data coming out on Mineral Gulch that had been lost but was recently recovered. It appears the company now has the data, and it's going to be coming out with a new resource that should substantially add to the current resource. I don't know what that is yet, because it hasn't yet been made public. We will get the full report from Western Pacific after it crunches all this new data along with the historic numbers. But, in the existing pits, there are easily mineable ounces. The reason Pegasus shut down is because gold prices went very low at the end of the 1990s and it just couldn't make a go of it anymore. Fortunately, Western Pacific was able to get this ground.
I like these scenarios where you have a past-producing mine that can be expanded from known resources. Even if those resources are only 300,000–500,000 ounces, that's a start; that's cash flow. At $1,310 gold we can make money on it, and then use the profits to drill the other areas and try to tie some of these pits together to make a sort of super pit. I think there's a lot more mineralization in this mountain, which can be determined by more drilling. You have a growing-ounces story in a rapidly rising gold market; that makes for good share appreciation.
TGR: What about some junior silver plays?
GM: I'll give you one, Ethos Capital Corp. (TSX.V:ECC). It's a Mexican story that will probably have a lot more properties vended into it; but for now, it's a start-up situation. It's run by Gary Freeman, whom I have had the good fortune to know for four or five years. I've had good success with Gary through Pediment Gold Corp. (TSX:PEZ; OTCBB:PEZGF; FSE:P5E).
Ethos is a new deal for Gary. The company's going to start off with some silver carbonate replacement-type properties in Northern Mexico's silver belt—one of the largest silver-producing areas of the world. Carbonate replacement deposits, typically, contain high-grade silver-lead-zinc. The systems in this area are known to be very large and of very high grade. Once you get on to one, you follow it until you find the source of the mineralization; it's kind of like hitting the jackpot.
Another company in this area, Excellon Resources Inc. (TSX:EXN), is onto one of these carbonate replacement systems and is in production. Excellon keeps growing its ounces and hopes to hit the mother lode.
Ethos Capital is starting out with two such properties; one is a little bit larger than the other, and the company is drilling now. We should get some results back soon. It's been drilling the smaller of the two projects—Corrales—and I think there's a good opportunity there. Ethos has a very tight share structure and it's very well managed.
TGR: Any parting thoughts on the precious metals market?
GM: Well, we're in a period where PM prices are breaking out to new highs again. Some people believe it won't last. I am not one of them. I believe gold and silver will have retracements from time to time, but nothing is going to stop these precious metals from going higher until the U.S.' economic problems are rectified. Most Americans are absolutely clueless about the desperate trouble their government is in. As more problems surface, the run into the PMs will only get bigger. Gold and silver are still dirt cheap compared to where they're going, and this bull market will go for many years. That makes a great opportunity in the mining stocks because it allows mining companies to go through the process of developing and reaching production. I've focused most of my Mining Speculator time on the exploration stories because that's where we get the biggest leverage. We follow the brightest geologists around, who make the discoveries that the majors come in and buy. That's where we make our big money. I believe owning physical precious metals and the right combination of PM mining stocks is the best way to protect yourself against the looming worldwide problems with fiat currencies.
Greg McCoach is an entrepreneur who has successfully started and run several businesses in the past 23 years. For the last nine of these years, he has been involved with the precious metals industry as a bullion dealer, investor and newsletter writer (Mining Speculator and The Insider Alert). Greg is also the president of AmeriGold, a gold bullion dealer. Greg's years of business experience and extensive personal contacts in the mining industry provide unique insights that have generated an impressive track record for The Mining Speculator since its inception in 2001. He also writes a weekly column for Gold World.
Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.
1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Evolving Gold, Western Pacific Resources, Ethos Capital and Pediment.
3) Greg McCoach: I personally and/or my family own shares of the following companies mentioned in this interview: Excellon, Ethos Capital, Western Pacific, Pediment, Taku Gold and Kaminak Gold. I personally and/or my family am paid by the following companies mentioned in this interview: None.