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2017 Vancouver Resource Investment Conference – January 22 to 23 2017

Ready to take your due diligence skills to the next level? Conferences are a great way to do just that. Junior companies are built upon the strength of their people, and meeting these people in person is the best way to judge just who it is that you’re speculating in.

I attended the Vancouver Resource Investment Conference (VRIC), sponsored by Katusa Research and Cambridge House, the weekend of January 22 and 23. The VRIC was an opportunity to learn from some of the best in the business, as they broke down the current trends in the market and explained where it is that they feel we’re headed in the weeks and months ahead.

Vancouver Convention Center

 

The conference was held at the Vancouver Convention Centre, where there were 4 workshop stages and 1 main stage for company presentations and speeches from the likes of Doug Casey, Marin Katusa, Brent Cook, Tommy Humphreys, and James Kwantes, just to name a few. There were some insightful discussions among the panel members, and some interesting company stories.

Having never attended a Cambridge event before, I can’t compare the attendance to previous years, however, some repeat conference goers did tell me that this appeared to be the best attendance in years. I take this as a great sign that we are early into a bull market, with a ton of upside potential as the junior resource sector starts to becomes sexy again.

Here are a few highlights from the event:

 

Words of Wisdom from Casey

Doug Casey, Founder of Casey Research and legendary speculator, was inducted into the Cambridge House Hall of Fame at this year’s event. The ceremony consisted of a classic Casey acceptance speech and a Casey roast, performed by Marin Katusa, Frank Guistra and Frank Holmes.

Here are some of the highlights from the 4 speeches Casey gave at this year’s conference:

  • Buy the best – Now, this may seem like an obvious statement, but what I think he means is take your time and do your due diligence – know what you’re buying.
  • Be patient – The junior market is highly volatile; don’t be sucked into emotional buying and chase a stock price that is rising quickly. You can’t, so to speak, kiss all of the girls; there will either be other opportunities or you will have a chance to buy the stock at a reduced price in the future.
  • We are exiting the eye of the storm, things are going to get rocky. Casey believes that we are headed toward further turmoil, the intensity of which, he predicts, will be worse than 2008.
  • Internationalization for yourself and your assets – this entails acquiring additional passports through residency (Argentina is his favourite). Buy international real estate, it can’t be repatriated
  • Hold your savings in gold – the smaller the physical size of the coin or bar the better, because they blend in with other coinage quite easily.
  • China, not Russia, could be the country that the United States has issues with in the future – Casey believes that President Trump will be able to find common ground with Putin, while China could prove to be much harder to deal with.
  • Doug’s Picks: Northern Dynasty (NDM – TSX) and Uranium Energy Corporation (UEC – NYSE). Marin offered a third pick: Blackbird Energy (BBI – TSXV)
  • Buy in tranches – the junior sector is volatile, buying in tranches allows you to dollar cost average your position
  • Keep a store of cash ready for a rainy day – the volatility in the sector provides buying opportunities, you need cash to deploy when opportunity knocks
  • Recommended Brent Cook’s newsletter, Exploration Insights. I second that recommendation!

 

Newsletter Writer Panel

An interesting panel that was held on the last day of the conference was the Newsletter writer panel, which included Louis James (Casey Research), Brent Cook (Exploration Insights), Frank Curzio (Curzio Research), Benj Gallander (Contra Herd Investment Letter),and was moderated by Marin Katusa (Katusa Research).

Katusa asked the panel a number of questions, including: Top pick, advice for subscribers, and what sets them apart from other newsletter writers. Here is a summary of the notes I took from what Brent and Louis had to say; this isn’t verbatim and only reflects my understanding of what was said:

 

Brent Cook

  • Top Pick – Mirasol Resources (MRZ:TSXV)
  • When a company story changes and your thesis now relies on hope, you are in trouble and need to sell
  • Limit portfolio size to no more than 20. It isn’t possible to follow more than 20 companies and still perform the proper due diligence
  • Cook is an economic geologist; this is what sets him apart
  • His passion is discovery and exploration companies are his speciality
  • He’s partnered with Joe Mazumdar who is an economic geologist and analyst. Previously, Mazumdar has worked at Haywood Securities and Canaccord Genuity as a senior analyst.

Louis James

  • Top Pick – Pretium Resources (PVG:TSX)
  • Do more due diligence, put boots on the ground and visit the company properties
  • Don’t rush into buying a stock, the junior market is volatile and will most likely come back to you
  • Find the fatal flaw of the company, there is always one (this echoes Exploration Insights’ Fatal Flaw Article that’s available on their website – a must read!)
  • If you read a news release and you don’t know how it will affect the company, it’s a sign you probably have too many companies in your portfolio
  • Louis’ boots on the ground approach sets him apart from the crowd
  • Louis is very passionate about his work and takes his responsibility to his subscribers to heart, feeling each win and loss

 

Quants

Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, opened the VRIC speeches early on Sunday morning to a packed crowd. His presentation was on the changing world of market investment.  U.S. Global is an investment manager, who specializes in precious metals, natural resources and emerging markets. Holmes remarked that they have seen a drop in the amount of money flowing through their funds, yet the stocks their funds follow are still rising. Through his research to determine how money was alternatively flowing into these investments, he found Quants.

Quants uses artificial intelligence or algorithms to examine markets and companies. This data mining is then used to adjust cash flows into the companies that fit the specific criteria.  The algorithm criteria can be companies with low General and Administrative costs to Profits, or the algorithm will buy and sell related to sentiment, scanning news for specific words and phrases.

The use of artificial intelligence certainly isn’t new to the financial markets, as high frequency traders use similar algorithms to control their trading, going in and out of stocks in fractions of a second. Interestingly, remembering back to May 6, 2010, the NYSE was hit with a flash crash, which was traced back to the HFT algorithms that all decided to sell at the same time. Here is a useful link to the SEC report.

The fact is, these algorithms are designed by some very smart people, who are graduates of a handful of universities. This commonality in teaching no doubt leads to similar thinking patterns and, therefore, similarities in algorithm design, which means they come to the same conclusions relatively quickly.

In the end, I’m not entirely sure about Holmes’ conclusion, but I would hazard a guess that he’s pointing out the complexity and ever-changing nature of the financial markets.

 

An Investment Conference in Your Pocket – CEO.ca

Tommy Humphreys, founder of CEO.ca, gave a great speech on day 1 of the conference. Among other things, he outlined how you can access an investment conference, like the VRIC, every day through your phone.

For those not familiar, he’s talking about his website, or App, which is an online community, bringing together a whole host of people from investing newbies to experts, to discuss and share ideas for investment and speculation in the highly volatile, junior sector of the stock market.

For those interested in attending a conference in person, check out the FREE Subscriber Investment Summit (SIS) in Toronto on March 4th.  The SIS is hosted by Humphreys, Eric Coffin (Hard Rock Analyst) and Keith Schaefer (Oil and Gas Investment Bulletin). I attended this conference last year and it’s time well spent.

 

Conferences are a great way to expand your knowledge of the sector and to speak to the people who are running the companies in which you’re speculating. Learn who these people are – you’re trusting them with your money. Turn your BS detector on and expand your due diligence process!

 

I look forward to seeing you at the SIS and PDAC conferences in March!

 

Until next time,

 

Brian

 

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A Conversation with Jayant Bhandari – Commentary on India’s Currency Ban

Jayant Bhandari

Today, in 2017, we live in a world of constant flux. The greater recession that began in 2008 continues to plague the world economy, forcing governments to participate in unprecedented ‘Quantitative Easing (QE)’ to stabilize their economies and weaken their currencies. The stability bought with QE has come at an enormous price, as the amount of debt accumulated to keep markets from imploding is reaching crazy levels. The debt overhang will have to be dealt with at some point, and when it does, the government could seek out your savings to pay for it.

Some wise words from one of the world’s most successful International Men and speculators, Doug Casey:

“The day is coming when your local government may stop seeing you as a milk cow and start seeing you as a beef cow, and you want to have options before that day.”

In James Rickards’ new book, The Road to Ruin, Rickards refers to a freezing of the world’s financial system to quell the contagion of a future financial crisis. Sounds crazy? Well, it isn’t. Ask residents and bank account holders in Cyprus circa 2012. Their bank deposits became the cash used to bail-out their “too big to fail” banks. Bank accounts were frozen and 10% removed as a levy or ‘bail-in’ tax to the Cypriot banks, which were severely affected by the struggles of the Greek economy, the downgrading of Cypriot bond credit rating, and finally, exposure to an over-leveraged housing sector.

 

Modi’s War on Cash

In November of last year, the Indian government took a major step towards invoking more control over its people, with the removal of the 500 and 1000 rupee bank notes. To gain a better perspective on the situation in India, I corresponded with Mr. Jayant Bhandari, who knows firsthand the affects of this devastating move by the government.

For those unfamiliar with Bhandari, he has worked for U.S. Global Investors, Casey Research, and published his writing on a number of different platforms. Bhandari is very well respected in the resource sector community, and not only provides sound advice from an investment stand point, but also has a solid grasp of politics, the economy, and culture.

Bhandari now works independently and is continuously travelling the world looking for investment opportunities, primarily in the resource sector. Also, he runs a yearly seminar in Vancouver, entitled Capitalism and Morality, which is attended by resource sector heavy weights, Doug Casey and Rick Rule.

 

The Interview:

Brian: Mr. Bhandari, could you please give readers who are unfamiliar with India’s currency ban a few points on what has happened over the last 2 months since the ban of 500 and 1000 Rupee bank notes?

Jayant: On the night of 8th November 2016, Indian Prime Minister came on the TV to declare that these two highest denomination bank notes, equivalent to US$7.50 and US$15 respectively would no longer be legal tender. Their banning meant that 86% of the monetary value of all currency in circulation disappeared overnight. This created a major crisis in the country—people suddenly had no money. India is mostly a cash based economy. Without cash it was no longer possible for people transact. Money died that night.

When the banks opened, there were long lineups everywhere in the country. People were trying to convert their banned notes into smaller denomination notes, which were still legal tender. But banks did not have those. People wasted a huge amount of time lining up at banks. And then went home empty handed. Even if you could get hold of cash, the maximum allowed was Rs 4,000 (about US$60).

If businesses could not pay, they had to lay off people. If people could not buy, businesses suffered. India is an extremely poor country. A vast majority lives on daily earnings. They had no option but to start going hungry. Anything between 20% and 80% of the economic activity as a result might have come to a halt. Tens of millions of people were laid off.

Now, 50% of Indians have no bank account. So these people did not even have the option to deposit their cash. At least 150 people died in lineups. And then you can imagine how many died unheard and how many tens of millions suffered silently. The situation hasn’t really changed much even after these two months. The problem is that once you destroy the economy it is extremely difficult—almost impossible—to revive it.

 

Brian: The New York Times reports, “The ban is intended both to curb the flow of counterfeit money and to take aim at terrorist organizations that rely on unaccounted-for cash. It is also expected to help the government clean up a system that has relied on cash to pay bribes and avoid taxes.” ~ New York Times

Has the Indian government succeeded in their attempt to curb the flow of counterfeit money and reduce cash that is available to terrorists and bribing?

Jayant: India is an extra-ordinarily corrupt country. As a result of the ban, the tax authorities suddenly got a lot of new power. They increased their raids on people’s homes to look for unaccounted money. They started asking for higher bribes. They got paid what they asked for. I am told that the general level of bribes have gone up 100%.

Now, corruption exists because there are too many complex regulations. Instead of reducing these regulations and decentralizing, Modi has increased regulations and centralization of India.

Moreover, Modi has protected bureaucracy from legal actions. This is truly Orwellian, for the real corrupt people have been sheltered, while small businesses, which have no choice but to pay bribes, were troubled.

Hundreds of millions of Indians desperately poor, who earn a dollar or two a day, had neither unaccounted money nor the capability to collect bribes. These people suffered and went to bed hungry for no reason.

In other words, corruption has gone up, not down.

The new notes are much more prone to be counterfeited. The paper is of bad quality and the ink tends to smear. There have been many reports of bad printing. These bills are certainly of worse quality than those banned.

Terrorism… Someone truly naive might think that troubles in Kashmir can be ended by banning cash. The troubles have continued relentlessly. In fact, under Modi troubles at the border with Pakistan have significantly increased. Modi has massively increased India’s military budget. This combined with increased nationalism and Hindu fanaticism, in which Modi has a huge hand, has brought India very close to a war with Pakistan.

Ironically, Indian army has killed many multiples of its own people than it has of aliens. Indian armed forces operate with impunity in Kashmir, in the north eastern parts, and in tribal areas. They run a regime of terror in these areas. Across the country, fake encounter killings are the norm. Any alleged criminal should expect to be beaten up by the police, the reason no sane person—even if he is raped or assaulted—calls the police. I do make reports once in a while and end up police station just to make sure I keep myself updated.  

 

Brian: It is ironic that governments feel they need to intervene on corruption, when in my mind, at least, politicized economies are what fuel corruption. Ergo, further government regulation, such as a currency ban, only leads to further and more pronounced corruption and greater instability.

In your 8 part series on India’s currency ban (thus far), you have spoken about Prime Minister Narenda Modi’s popularity and his almost cult like following. How has Modi influenced the public?

 Jayant: Modi is a bully. He has been behind encouraging fanaticism among Hindus for the last two decades or more. Indians crave for a strong leader—this helps people transfer responsibilities of their lives to someone else. In short, all you need is demagoguery and sociopathy to rule Indians.

 

Brian: In James Rickards’ book, The Road to Ruin, he discusses shock doctrine and how fear is used to advance new policies that are used to quell fears but, typically, come at the cost of everyone’s liberty.

In your opinion, what do you think Modi’s next moves will be during this time of turmoil and fear?

Jayant: : I completely agree with what Rickards says. Modi did want to generate fear in the society and he has archived that. Indians never had much liberty, but now their situation is worse and getting worse by the day. In my view, India is rapidly on the path to becoming a police state.

Modi has destroyed India’s economy. He will now have to keep plugging holes. You simply cannot undertake a massive social engineering project of this kind and not have to keep doing patch up jobs.

He will likely impose capital controls to stop people from moving their wealth abroad. Modi has also been generating fear among gold owners. He will very likely restrict how much gold people can own.

Apart from having to keep doing patch up jobs, Modi will also have to keep people thinking that he is doing something. He has recently offered a slew of free stuff to the poorest people and to the Middle Class. Of course this means that more money will be stolen from these people. Unlike what happens in the West, not even a part is returned back in India. Indian politicians and bureaucrats keep all of it for themselves. India pays for schools, roads and bridges that merely exist on paper, with nothing on the ground. They don’t like to steal 5% or 10%. They like to steal all.

I have seen fragile old people sitting outside banks and begging to collect a few dollars of pension they should get. But somehow—even in this electronic age—it does not come to their accounts. They end up going door to door, humiliating and demeaning themselves. These are heart-wrenching sights. But a demagogue likes a humiliated, self-respect lacking society.

Whatever Modi does going forward, it will be for the sole aim of making India a police state and to increase his grip on the society.

 

Brian: From your series of articles, it’s clear that you think the outlook for India’s future is dismal. What would have to change in order for you to see it differently?

Jayant: India is an unnatural country. It was created by the British. There are 1.34 billion people with all kinds of ethnic, religious, regional, lingual etc. differences. All these matter, for India is a tribal society. They don’t necessarily like each other. When India became independent, it would have been much better if they had carved out 30-50 countries or many more. If I had control, I would institute constitutional provisions for regions to secede. And I would undertake rapid decentralization of India.

 

Brian: I don’t think it’s a stretch to believe that other governments from around the world are watching India’s currency ban with a keen eye. With most countries operating at a deficit each year, I am sure that demonetization is an option they would like to pursue.

For readers from the western world, it may seem far-fetched to think that it could happen to them. Can you see other countries following India’s example and pushing towards a cashless society? And, if so, why?

Jayant: In my view the situation with countries in South Asia, the Middle East, Africa and most of South America is dismal. These are tribal people. They will have horrendous social and political problems. Most of what I said so far applies to all these countries. They will all disintegrate within my lifetime, to tribal structures.

 

Brian: Once entrenched, political trends like the war on cash are extremely hard to break. I believe it’s more intelligent to use the knowledge of impending political policy for profit, better known as speculation, or at the very least, take the necessary precautions to protect yourself.

In Part 2 of your series on the India Currency Ban, you state,

“As Indian, be a speculator – even if the government does not like it and will blame you for all ills. Try to keep as much of your money in cash, in Rs 100 notes. Rs 2,000 notes have no value when you go shopping for groceries. Keep a supply of water and dried food sufficient for a few months’ needs.”

What advice would you give to people in other countries, where demonetization or a freezing of the financial system is a possibility?

Jayant: In the last 200 years of modern government, people have become very mobile and economies have become extremely complex. At the same time governments have become less competent, for everyone now has a right to vote and those who man the governments are less competent than they were earlier. All these governments are very brittle, much more outside the West than inside it.

While the state is increasingly an unnatural entity, populace are increasingly nationalistic and dependent on their governments. I am not sure how this will play, except that many countries will disintegrate. What I am sure is that there is a lot of pain ahead.

Savers and their wealth will be at huge risks. They will be made scapegoats. They should diversify internationally. And the time to take action is yesterday, particularly for people outside the West.

 

Brian: While Quantitative Easing or money printing by most of the world’s economies has propped up the financial system, thus far, things still appear to be rocky.

Though none of us have crystal balls, if you were to make your best educated guess, is the world’s financial calamity over or are we headed toward further crisis?

 Jayant: What we call money these days is fiat currency. It has no inherent value. Over the last 200 years or more the world has gone through exceptional economic growth. Governments and their printing presses have grown accustomed to continual printing of more and more fiat currency. But now, economies of the West are stagnating. And economies of most emerging markets are in negative-yielding mode, where they have mostly been except for the interlude of the last three decades. Everywhere—expect with some hope from Trump Presidency—the world is doing more of what created the original problems.

 

Brian: I tend to agree with the late Richard Russell, as he said before passing, “in the future to come, it isn’t who makes the most, but loses the least.”

 

Mr. Bhandari, thank you very much for answering my questions.

 

Catch Mr. Bhandari’s Musings on Investing on his website, or you can follow him through social media on his Facebook page or on Twitter, @JayantBhandari5

 

Until next time,

 

Brian

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The Road To Ruin

Rickards’ Latest Book Predicts Financial Lockdown for Looming Crisis

In my opinion, The Road to Ruin is a book that everyone should read, no matter their interests.  James Rickards is at his best as he foretells how the world’s elites will deal with the impending financial crisis, which he believes will hit us by 2018.

 

ICE NINE

The premise of Road to Ruin is to reveal a plan set out by the world’s elites to freeze the financial system in the face of crisis. No longer will the governments of the world turn to quantitative easing (QE), but will “ICE NINE,” as Rickards puts it, everyone’s financial assets, essentially locking down the world’s financial system. This will mean shutting down the stock exchanges, freezing bank accounts and controlling anything and everything financial in people’s lives.

The effects of QE weren’t  felt by the average Joe, because most of the QE was filtered into America’s too big to fail companies, and mainly banks. A financial system lock down, however, will, without a doubt, be felt by everyone. Fortunes will be frozen in their trading accounts, unable to buy or sell. Bank accounts will be frozen, leaving us with a bare minimum in the way of available cash to buy food, if we are willing to line up and wait our turn at the ATM.

You may be thinking it will never happen, but unfortunately, as Rickards points out, this plan has already been executed, albeit on a smaller scale, in Cyprus in 2012.

Cyprus is the best example of this new way of dealing with a financial crisis, as the European Union was concerned about the contagion of the Cypriot crisis and, therefore, shut down their financial system. The residents of Cyprus had their bank accounts frozen, left to rely on a daily stipend that was plagued by massive lineups. Basically, most had to get by with whatever cash or tradable items they had in their possession.

Those with over $100,000 Euros on deposit with Laiki Bank and Bank of Cyprus were given a haircut of 10% on their deposits . This haircut is referred to as a ‘bail-in,’ and it was used to help re-capitalize the failed banks, reducing the cost to the rest of the European Union.

 

Economic Theory

Rickards’ points out, on numerous occasions, that the Federal Reserve and other central banks around the world are using wrong and outdated models to forecast the future of the world’s economy. Rickards states,

“General equilibrium models also suffer from fallacy of composition. Elites assume local equilibria can be aggregated into a larger equilibrium called the economy. This is like inferring the totality of human nature from a strand of DNA without ever meeting a human.” ~The Road to Ruin pg.210

Equilibrium systems do not have memory, and as Rickards points out, this is a major sticking point when using it for financial market modelling. To further explain his position, he uses a comparison of an economist using equilibrium theory and Ricardian principles (referring to David Ricardo’s, The Principles of Political Economy and Taxation) to examine markets, and the physicists of today using Newton’s theories to explain the universe when Einstein’s Theory of Relativity would do a much better job.

Interestingly, physics is a fantastic way to examine how complex subjects are examined. Newton’s theories came first and work well for the world that we live in, day to day, while Einstein’s Relativity works best on a grand scale, mainly space. Finally, Quantum Mechanics is best used to explain the quantum world, which wasn’t even considered during Newton’s days.

Parlaying this analogy to economics, I much prefer Rickards’ breakdown of financial tools, Complexity Theory, Behavioural Psychology, and Bayesian Statistics, as he uses a different method to look at each aspect of the financial markets, just as physicists do with their theories of nature.

 

The Cycles of Life and Financial Markets

Whether it is Kondratieff wave theory or William Strauss and Neil Howe’s (authors of The Fourth Turning) analysis of the cycles of generations, we are in a crisis period of world history, or ‘winter,’ so to speak. Winter periods are characteristic with major historical turning points; decisions made by the people in crisis will dictate how the next major generational cycle will take form. Fear will either drive us to a prosperous spring or lead us down a very dark path.

Rickards adds to this sentiment and points out,

“They wait for an exogenous shock, a natural disaster or financial crisis, then use fear created by shock to advance their vision. New policy is presented to mitigate the fear.” ~The Road to Ruin – pg.89

“Fear is contagious, like a virus” ~The Road to Ruin pg 295

In my mind, it’s clear that both the Canadian and American voting public have been affected by the turmoil of the last 8 years. As leaders, both Justin Trudeau and Donald Trump are better known for everything but a political background, which certainly speaks to the public’s desire for something ‘different’ in a political leader. The question that remains to be answered is whether the public have chosen wisely or emotion has once again skewed judgement.

 

Fascism

The Road to Ruin goes much further than I thought it would into the realm of government control over markets and people’s everyday lives. While most believe what we see today to be a further  push toward socialism, Rickards states,

“Facism is not in our future, it is here now.” ~The Road to Ruin pg.256

Those who follow the ‘alternative media’ have been exposed to this line of thinking for more than a decade, with 9/11 truly being one of the most polarizing events this world has ever seen, on a number of levels.

What is fascism? Rickards summarizes Jonah Goldberg’s 2008 book, Liberal Fascism, when he says,

“fascist regimes may be quite unalike. Some are murderous such as those of Hitler and Stalin. Some are doctorial such as those of Mussolini and Franco. Some operate within democratic frameworks such as those of Wilson and FDR. What unites them is a shared view that the state is the exclusive mediator of human activity…action through state power” ~ The Road to Ruin pg.257

Over the last decade, whistle blowing on the activities of governments and elites has hit the mainstream, with Julian Assange and Edward Snowden becoming household names.  My question is whether the claims by these people were really heard. With the picture that Rickards paints, I would tend to say that they have not been, or rather, the claims were heard but not fully understood.

 

Special Drawing Rights

How will the elites resolve the financial crisis once they freeze the system? Well, Rickards believes that they will institute more fiat currency, Special Drawing Rights (SDR). SDRs are controlled by the world’s central bank, the International Monetary Fund (IMF) and are backed by the world’s largest currencies; the American dollar, the Euro, the Japanese Yen, the British Sterling, and finally, its most recent member, the Chinese Yuang.

The Chinese have gained access to this privileged currency group with their massive accumulation of gold, over the last decade. China is the number 1 producer of gold in the world and the number one consumer, engulfing each ounce that it produces within its borders.

Rickards pointedly states:

“The elite agenda is to hoard gold and substitute special drawing rights as the currency of world trade and finance” ~The Road to Ruin – pg.59

If you want to know more about SDRs, I highly suggest reading Rickards’ previous books, Currency Wars and The Death of Money. These books take a much more in-depth look at the subject and are good reads.

 

Rickards’ Financial Toolkit

Rickards is one of the most trusted financial minds in the world and his rolodex is proof of how far his reach really is.  The Road to Ruin is laced with commentary from the conversations he has had with some of the heaviest hitters in the American Financial world. Along with this commentary, Rickards reveals the financial toolkit that he uses to examine the state of the world’s financial system, which includes:

  • Behaviour Psychology – The key to understanding behaviour psychology, according to Rickards, is to realize that human behaviour in financial markets is irrational and inefficient. For those interested in the topic of the irrational behaviour of humans, check out Dan Ariely’s Predictably Irrational; it’s a great read and a little scary if you apply what he says to your own life!
  • Complexity Theory – Rickards explains Complexity theory using 4 main attributes: diversity, connectedness, interaction and adaption. A system which has these attributes is complex and, therefore, is much harder to predict or forecast than the equilibrium systems that most economists of today use to model capital markets.
  • Casual Inference or Bayesian Statistics – Bayesian probability says that certain events are path dependent, or simply, they have memory. In a random process such as the tossing of a coin, the preceding coin toss does not affect what is going to happen with the next coin toss. In a complex system, such as the stock market, events occurring over the course of time have an effect on the buying and selling that occurs, making the possible outcome more or less likely.

 

In closing, The Road to Ruin covers a lot of important information that people need to be either reminded of or alerted to. The bottom line is that we live in a world in transition, where crisis and turmoil is more common than stability. I believe Rickards’ message is to be cognizant of the outcomes of a flawed financial system, the motivations behind the elites who control the governing bodies of the world, and finally, to prepare yourself and your family for the freezing of your financial assets.

“Society does not get endlessly richer and more sophisticated. Periodically things collapse. It is not the end of the world. It is the end of an age.” ~The Road to Ruin pg.297

Check out James Rickards’ new book, The Road to Ruin. You won’t be disappointed!

 

In Rickards’ conclusion to the book, he gives the reader a portfolio for weathering the impending storm. Now, I think it only fair to Rickards that you purchase the book to find out what’s in that portfolio. I will, however, review a few financial products that I believe will help those who want to prepare for the financial future that Rickards is predicting, over the course of the next month or so. Stay tuned!

 

If you enjoyed this article and don’t want to miss another financial product review or investment idea, become a Junior Stock Review VIP now, for FREE!

 

Until next time,

 

Brian Leni  P.Eng

Founder – Junior Stock Review

 

 

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A Look at NexGen, with Commentary from Peter Epstein

NexGen Energy Ltd.

I’ve broken Part 4 of my series on uranium down into segments, as I review the companies I believe have the best chance for success in the upcoming uranium bull market. The companies covered thus far include Cameco, Energy Fuels, GoviEX, and today, NexGen Energy Limited.

For this report on NexGen, I had the opportunity to exchange emails with a fellow resource market researcher and publisher, Peter Epstein of Epstein Research. Epstein is a Chartered Financial Analyst (CFA) and possesses an MBA from NYU’s Stern School of Business. Epstein is well versed in the analysis of junior resource companies, and in particular, NexGen.

Enjoy the interview!

 

Interview:

Brian: 2016 has marked 12 year lows for the uranium spot price, hitting $17.75 USD / lbs  just a few weeks ago. While the uranium price action has been devastating to most of the companies in the sector, the market has responded to stories like NexGen’s.

NexGen’s maiden resource estimate was strong enough to propel its share price from the 60 cent CAD range all the way to a high of $2.86 CAD in the months after. NexGen is receiving recognition in a down market; it’s speculation, but one can imagine the valuation in a uranium bull market.

None of us have a crystal ball and can tell the future, but what do you see happening in the future for uranium?

Peter: Yes, crystal balls around the world have failed miserably to predict the uranium price for 3-4 years running.  Sell-side research firms have fared no better.  I really do believe that $17.75/lb. is a low in the cycle, but I’m not sure how far or how fast the spot price might rebound.  I mean, adjusted for inflation, $17.75/lb.  in 2004 dollars is equal to ~$14/lb.  Longer-term, I’m comfortable with contract prices in the $60-$70/lb. range, with periods above and below that level.

Headwinds are centered on supply and shadow inventory (lbs. that might come to market if prices rise).  But, offsetting that, from say 2020 on, is the serious risk of security of supply.  In 2015, a combined 47% came from top producing country Kazakhstan, along with Russia & Ukraine.  By contrast, 34% came from Canada, Australia & the U.S.  Further, with depressed prices, a lot of projects have been delayed, cancelled/abandoned.  Some large projects require prices of $70-$85/lb. to be viable (while maintaining a reasonable margin for error).

Regarding demand, despite euphoria over China, it’s hard to move the global demand needle. Still, 3% growth year after year for 20-30 years could be all it takes to spark a sellers’ market, that’s not near-term, but certainly a decent possibility by the early 2020’s.

 

Brian: As I’m sure you will agree, investing your money with the junior resource sector’s best people is the most tried and trusted method for success in an unforgiving junior market. Let us take a look at the key members of NexGen’s team.

NexGen is led by Mr. Leigh R. Curyer, who has over 20 years experience in the uranium sector. Curyer’s formal education is in accounting and finance from the University of South Australia. As Head of Corporate Development with Accord Nuclear Resource Management and CFO of Southern Cross Resources (now Uranium One), Curyer has gained significant experience in evaluating prospective uranium projects around the world. Also, before being appointed to CEO of NexGen in 2012, Curyer spent just over 5 years running his own consulting business, offering services to resource sector companies that included incorporating, corporate development, international financing and directorship services. Finally, Curyer has raised over $500 million in equity over the course of his career in North America, Europe and Australia, which is a KEY skill to have in the junior resource sector.

Next on Curyer’s team is VP of Exploration and Development, Garrett Ainsworth. Ainsworth is a Professional Geologist, receiving his degree from the University of London. Before joining the NexGen team, Ainsworth was a project manager with Alpha Minerals Inc. and Fission Uranium Corporation. Ainsworth is credited with being instrumental in the success of the Patterson Lake South project, where he oversaw the staking of new claims, the discovery of the boulder field and a number of high-grade uranium drill hole discoveries.

On November 9, 2016 NexGen announced the appointment of Dr. Mark O’Dea to its Board of Directors. O’Dea is a powerhouse in the resource sector; his company, Oxygen Capital Corporation, has helped grow a host of successful junior resource companies, such as True Gold, Pilot Gold and Fronteer Gold. Personally, I have made a lot of money speculating in companies that O’Dea was involved in.  My most recent O’Dea winner was True Gold, which sold their Burkina Faso property to Endeavour Mining this past spring.

In my mind, O’Dea is game changer, and his interest and involvement in NexGen Energy speaks to the quality of NexGen’s Arrow project and other future prospects.

Curyer’s management team is rounded out by Travis McPherson, Corporate Development Manager, and Grace Marosits, CFO. To me, it’s clear that NexGen has a great management team and a board of directors to steer the company towards success in the coming uranium bull market.

 

Uranium Abundance in ppm
Source: World Nuclear Association

 

Brian: NexGen’s property is set in a premier jurisdiction, the Athabasca Basin in northern Saskatchewan, Canada, which is home to the highest-grade uranium deposits in the world.  For those unfamiliar with the NexGen story, its Rook 1 Project (Arrow, Bow and Harpoon Discoveries) is located in the Basin’s Southwest corner.

Unlike Cameco’s Cigar Lake and others in the Basin, which are sandstone-hosted (egress type) deposits, NexGen’s Arrow discovery is basement-hosted (ingress type).

Why is this an advantage for NexGen?

Peter: That’s a great question. This distinction is what makes the Arrow discovery the single best un-developed project on the planet.  You correctly mentioned Athabasca grades being ~100x greater than the global average; that begs the question – why doesn’t Cameco have ridiculous, insane margins?  Because its two giant mines, McArthur/Key Lake & Cigar Lake are subject to substantial, ongoing technical risks and commensurate elevated capital and operating costs, mostly due to the challenge of keeping water out.  McArthur & Cigar are aptly named, they are both underneath bodies of water!

So, the crucial advantages NexGen’s Arrow project has are 1) it’s basement hosted and 2) it’s not under a lake.  This should enable the Company to incur less capital & operating costs, and fewer and less costly technical challenges, while benefiting greatly from the monster uranium grades in the basin.

As one major NexGen shareholder explained, “The sandstone is water-charged and has a toothpaste-like consistency.  It is unstable for mining and requires complex freezing techniques.  Basement hosted deposits can be mined with conventional techniques.

 

Brian: NexGen’s maiden resource estimate, which was announced this past March, is an Inferred 201.9 million pounds @ 2.63% U3O8, making it the largest undeveloped uranium deposit in the Basin. The deposit is large and it appears that the NexGen management is focused on making it bigger, with some terrific drill results released on December 20th.

While the best people and great properties in good jurisdictions top most people’s lists of considerations when speculating in a junior resource company, the next is often whether or not the company has the cash to execute its plan.

Does NexGen have the cash needed to execute their drilling plans for 2017, and to complete a Pre-Feasibility Study (“PFS”)?

Peter: NexGen’s balance sheet is an underappreciated factor in assessing the Company.  They are funded for the next 2 years.  That’s expected to cover funding for aggressive drill campaigns, a few updated mineral resource estimates and delivery of a PFS.  Perhaps more important, in my opinion, management has access to additional funds from the market, if needed.  To be clear, I don’t think the Company will need much if any equity capital in 2017.  But even if they did, it would very likely be an issuance of less than an additional 5% of outstanding shares.

Most pre-production juniors are under a tremendous amount of pressure to keep the coffers full, which is a material drain on management resources.  NexGen has moved beyond that difficult phase and can concentrate fully on advancing its projects.  I like to say that NexGen is fully funded through takeout.

 

Brian: I attended the Subscribers Investment Summit in Toronto this past March, and caught Tommy Humphreys’ (of CEO.ca) interview with Warren Irwin of Rousseau Asset Management. They primarily discussed NexGen and the merits of its world-class discovery.

At the time, Irwin’s outlook was that this discovery could get much bigger, making it a strategic asset for takeover by any of the major uranium producers in the world.

In your opinion, what’s the end game for a deposit like this?

Peter: Look, the end game is clear, my crystal ball says that NexGen will get acquired in 2018 or 2019.  By then, the uranium price will likely have improved and demand for secure supply will be higher as a muted supply response shines a light on how tight the market might get from 2020 on.  What really strikes me though is the sheer number of global natural resource companies with the financial wherewithal to take NexGen out.

Dozens could make that move, and not just uranium companies.  I often say that Teck Resources is an ideal suitor.  It has invested billions into an Oil Sands venture that can’t be looking that exciting at current oil prices.  Due to a global march towards zero % interest rates, Teck can borrow low-interest capital to fund acquisitions.  And, it’s share price was up something like 800% in 2016!  That’s a powerful currency to deploy for M&A.

Any global natural resource player like a BHP, Rio or Vale should care, but why not E&P companies?  Why not precious metal Majors?  Why not coal & iron ore companies?  NexGen offers compelling geographic, geopolitical and commodity diversification.  I mean, a company prudent enough to make a move into uranium near the low of the cycle would presumably be smart enough to shoot for the very best, that leaves NexGen as the prime target.

 

Brian: Thank you very much, Peter, for answering my questions on NexGen Energy.

Where should readers go to learn more about yourself and Epstein Research?

Peter: Readers should, dare I say must, go directly to Epstein Research and enter an email for FREE, instant delivery of my work.  It takes 12.5 seconds.  Fear not, one will not be inundated, I post only 2-3 times a week.

In addition, I post my articles and written interviews on up to 15 unaffiliated websites including, equities.com, StockHouse, SeekingAlpha, TalkMarkets, MiningFeeds, MetalsNews, EquityGuru.  I’m very well versed, but not an expert like Donald Trump, in uranium, gold, silver, copper, lithium and coal.

 

 

NexGen’s story is compelling and has the ability to improve with further drilling and a PFS to be completed over the next couple of years. I completely agree with Peter; NexGen will most likely be acquired in the future, giving the purchasing company, arguably, the uranium sector’s most influential mine site, as its size and production costs should be amongst the top in the world.

Putting it all together, you get a great management team, a tier 1 property, and the cash needed to execute further drilling and a PFS. NexGen presents a great value proposition in a depressed uranium market.

 

 

Until next time,

 

Brian

 

 

 

 

Disclaimer: Junior Stock Review – The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence. I have not been compensated to write this article. However, I do own shares in NexGen Energy Ltd.

 

Disclaimer: Epstein Research – Please note the following. Mr. Epstein had no prior or existing relationship with NexGen Energy until [1/15/16]. As of that date, NexGen Energy became a paid Sponsor of Epstein Research. At that time, Mr. Epstein owned shares in NexGen Energy Ltd. He is not a registered or licensed financial advisor. His article(s) on NexGen Energy and others must be considered carefully in this context. The content contained in articles and written interviews on NexGen Energy is for informational and/or illustrative purposes only. Readers are strongly advised to consult with their own licensed or registered financial advisors before making investment decisions. This company is highly speculative, and therefore not suitable for all investors.