The Most Lucrative Gold Investments Available

by Nick Hodge

I spent last week in Vancouver, at the Sprott Natural Resource Symposium.

Given that gold is up 28% this year, and related junior equities are up ~160%, the mood at the conference was better than I’d seen in years.

2016 YTD Gold and Gold Stock Prices(Click to Enlarge)

People who own junior gold and other resource stocks were actually smiling. Some sessions were standing room only.

The speakers were top notch. From mining legends like Robert Friedland, Ross Beaty, and Bob Quartermain to respected newsletter writers and thought leaders like Brent Cook and Jim Rickards, most agreed with little exception that this new bull market in metals would be protracted.

Attendees were excited because despite just living through one of the worst resource bear markets in history, they’ve seen many of their positions double or triple over the past few months, and knew much more was in store.

They were excited because they got to see presentations by top notch companies and management. All the companies with presentations at the show had been fully vetted by Sprott Global. Companies like McEwen Mining (TSX: MUX)(NYSE: MUX) and Colorado Resources (TSX: CXO)(OTC: CLASF), up 286% and 983% this year, respectively.

McEwen Mining and Colorado Resources(Click to Enlarge)

But some of the real investment value from the show, I think, came from more personal moments.

While at the VIP Doug Casey scotch tasting after the show one day, I struck up a conversation with an attendee named Scott. He owned his own construction business in British Columbia, and wanted to put some of his profits to work in the junior resource space.

Scott saw the promise of the coming sustained bull market in metals, and was at the conference to do a little more research. A novice, he had some questions he was too embarrassed to ask in front of large groups at the main show.

I informed Scott that I was fairly well-versed in the junior space, and would be glad to try to answer any questions he had. So we topped off our 21-year-old Glenlivet, grabbed some duck confit off a passing tray, and got to it.

A few plates of smoked salmon later Scott and I had covered the importance of experienced management with skin in the game, why share structure matters, and why companies in the junior mining space often raise private funds either at a discount to market or with a warrant to sweeten the deal.

“I don’t get it,” said Scott. “These companies can just create shares and people like me can buy them cheaper than they trade on the market?”

“Yes,” I explained. “Junior miners don’t have anything to sell. It’s not like they can sell some scotch to fund their next round of activities,” I said, pointing to his glass. In order to drill or conduct studies or buy a new property, junior miners often raise money in what are known as private placements.”

“And why do I get a better deal if I do that rather than buying in the open market?” Scott asked.

“Since you’re taking on the risk of providing a fairly significant amount of capital directly to a company in a venture that is inherently risky, the company typically offers one or two sweeteners. That can either be a discount to what the shares are trading at in the market or a warrant that allows you to buy more in the future at a designated price without any further capital outlay,” I responded.

Scott was starting to understand. But he had more questions about the different kinds of junior miners and which were most attractive for investment. “I don’t understand the difference between an explorer, a developer, and a prospect generator,” he began.

“Say no more,” I said as I flagged down a friend of mine I’d seen walking around the tasting. “Scott, meet Greg. Greg, Scott.”

Greg is a geologist and the CEO of a junior gold mining company executing the prospect generator model. I knew he’d be able to tell Scott far more than I could about the space and how it works.

I’m no geologist or broker, after all. I make my living sniffing out often complex opportunities, simplifying them, and putting them in front of investors who would otherwise never see them.

As it happens, members of my Nick’s Notebook letter, which focuses on private placements, had financed Greg’s company back in December 2015 at C$0.16 with a full warrant at C$0.22. That stock now trades at C$0.47, putting those readers up 196%, with the option to buy more.

Scott couldn’t believe it. “You mean, you can just grab CEOs by the arm and have them explain things to you?”

“If they’re good CEOs who know each shareholder is important,” I said.

“I wouldn’t have the confidence to do that,” Scott said. “But boy am I sure glad I met you! How about him, do you know him, too?,” he asked, pointing to the Chairman of another gold company.

“I do,” I said. “We invested in his company this March at C$0.72. And it’s already trading for C$2.82, so we’re up about 300%,” I told Scott as I motioned for the Chairman to come over.

As I kicked off their conversation and excused myself, Scott gave me a sincere look. “Thanks,” he said. “I couldn’t have figured any of this out on my own, let alone ask the top brass myself. What was the name of that publication again?”

Nick’s Notebook,” I said. “And no problem. I do it all the time. Glad to help someone new.”

Call it like you see it,

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Nick Hodge

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Jimmy is a managing editor for Outsider Club and the Investment Director of the personal finance advisory The Crow's Nest. You may also know him as the architect behind the wildly popular finance and investing website Wealth Wire, where he's brought readers the stories behind the mainstream financial news each and every day. For more on Jimmy, check out his editor's page.