FutureMoneyTrends: We’re here with a top strategist for Casey Research, the most disciplined stock picker according to Doug Casey himself, Marin Katusa, thank you for joining us.
Marin Katusa: Hey it’s my pleasure, Dan.
FutureMoneyTrends: I was at the San Francisco hard assets show in November and I’m sure you go to all these shows as well. And I couldn’t believe how there was nobody who showed up. And the biggest news was that last year there was over 200 companies there and this year there was only 61. And I was actually reading a chart that was actually created a few months ago. It was from October 21st, 2013, so this is actually before the leg down that we just recently had in the metal prices. But it said that 69% of TSX venture stocks, out of 1286 mining companies, 69% had market caps of less than five million, 48% less than two million, and 73% had a share price of less than ten cents. So do we still need to see some big wash out where the TSXV is kind of cleared out before we hit the absolute bottom?
Marin Katusa: Look, it’s already starting to wash out and it’ll continue to wash out. In Vancouver, where my head office is, which is one of the Casey research offices, we have many around the world, but the one that I run is in Vancouver. So I’m in the heart of the junior resource sector. I know all the bankers who are doing the deals, and the reality is that the business model that the Vancouver stock market, or the Toronto venture, it’s broken. The money has stopped flowing. That does not mean that the money to the right companies has stopped flowing. That does not mean that the money to the right management teams has stopped flowing. But the general money flowing to all sorts of exploration junior companies with an office is down. I’ll give you an even better metric. Right now, I saw where our office is. They came to our office and said, “hey Marin, do you want to expand your office?” I said, “why, what are the rates low?” and they know that I’m a deal hunter and I got the cheapest rent in Vancouver by structuring a good deal for our office. And they said “Marin, we’ve never in Vancouver for the last 15 years had this much available office rent.” And they came out and clearly stated in print, I have a document, that says because of the junior mining shut downs there’s over half a million square feet available in downtown Vancouver for office lease available at a big discount. Do you know what it was a year and a half ago?
Less than 50,000 square feet. So we’re there. But this is the beauty of the market. When everybody’s broken, you’re not going to make a fortune in some company that has no money, the management team has ten different companies under their belt, and they have a gazillion shares, and they have some moose pasture. That’s not what I’m saying of doing. What I’m saying to do is in this market, someone who has over five million dollars in the bank, who owns probably than 10-15% of the company themselves, the managers are invested in the company themselves, the big smart money’s following them, and they can go and consolidate in this broken sector. In 3-5 years? You’re going to make a ten bagger or more. That’s how it’s done, this is a cyclical market.
FutureMoneyTrends: Marin, where are you putting your money then, right now?
Marin Katusa: Just recently, Rick Rule and I have participated, and when I say participated we’ve put millions in to a Toronto stock market venture deal with over four million ounces of Gold. All about a gram per tonne, this is all 43101. The management team is fantastic, it’s someone who’s on my Casey next ten list, he’s a proven builder of mines, that’s Amir Adnani, and the companies is called Brazil Resources, ticker symbol BRI on the venture exchange. They are doing exactly what Rick Rule and I are talking about, that is a disciplined financial balance sheet, a great management team who’s proven, they have the network to go and consolidate more ounces of gold and that’s exactly what they’ve been doing. So that’s what we’ve done most recently, that’s our most recent investment, and we expect that between three to five years this fifty cent stock will, I’m hoping to be a five dollar stock.
FutureMoneyTrends: Does it meet the qualification as far as Amir Adnani, does he own a good portion of the company?
Marin Katusa: Yes he does, he actually put $300,000 in his last financing. He is the second largest shareholder in the company which is great to see. He owns, with management, well over 15%. Rick Rule and my fund we own about just under 15% also, so we like to match what management put in. So, to the formula fits the plan in what we’re looking for in these type of deals. Rick also put it in his own fund also, and you know there’s a lot of smart money, experienced money, who’ve gone through all these cycles, that participated in the financing with Amir.
FutureMoneyTrends: Marin, one question that comes to mind is how big of a deal is it that Brazil Resources was able to raise $6.4 million in this environment?
Marin Katusa: First of all, they wanted to raise $5 million but the demand was so much higher that they ended up raising about six and a half million. For a market cap of that size, it’s the largest financing of that size and type of company that I’ve seen in the markets in the last quarter of 2013. So that tells you that it’s a very big thing. And when you have some investors like Rick Rule, and other shrewd investors who came in, some long time successful fund managers, that became the hot stock that everyone was trying to get in to. Hence how they went from $5 million that they wanted to raise, and just so you know initially a lot of brokers thought, “there’s no way they’re going to raise $5 million.” That thing in 24 hour was booked to $6.5 million and Amir said, “that’s it. We’re doing six and a half, I don’t want to do any more, I don’t need it.” He has a plan and I expect him to consolidate more companies and it is exactly the perfect time for someone like Amir to execute his business plan. You don’t want to buy things when they’re trading at a premium to their value. You want to buy them when they’re at the biggest sale and when companies are begging you to take their gold from them. Right now it’s the lowest, it’s the cheapest company in all of Brazil and South America per 43101 ounce of gold, per market capita. The company has no debt, the management team have put big money in to the company not just in the past but in this most recent financing, it’s a great story. So yes that was a huge feat but I believe it’s just the beginning of a great story.
FutureMoneyTrends: Not only for the resource sector but specifically the precious metals which a lot of people have been investing in to protect themselves. How is your feeling on the metals and the resource sector in general? Are you still bearish?
Marin Katusa: Very much so Dan, but that’s the beauty of where we are in the markets. We are coming towards the end of the valley of darkness and when people talk about the investments Warren Buffet did or any of these hedge fund managers, its that lonely trade. It’s the trade when you’re standing by yourself. And you know when I went on national television and told everyone to sell their stocks, I was laughed at by a commentator when I said Canada’s largest diversified mining company tech would be, it’s 50% over-valued which means that it’s going to get cut in half, and the anchorman started laughing at me. And a year and a half later they brought me back on and said “you were right, it’s the time to buy it,” and I said, “no, it’s going to go sideways now.” So what you want to do as an investor is find the absolute best management teams that are buying the stock themselves, and have the financial acumen, they financial statements, a disciplined financial statements which means they have money. And they can go consolidate the companies that have great assets, but management teams blew up their financial structure spending all their money developing in these assets. And that’s exactly how Ross Beady, and Robert Freedman, and Lukas Lundin became billionaires in the 90s and early 2000s. This is exactly the type of market where you can add a zero to the end of your portfolio. But it takes discipline, it’s a very simple formula, but it takes a lot of courage. No one said it’s going to be easy, but you can make a lot of money in exactly this type of market.
FutureMoneyTrends: As far as people kind of look at this market, with the explorers down, obviously they’ve been decimated. But then the producers are down. Like the high quality producers, like the endeavours and the First Majestic’s, those type of guys in the world. At this point, would the average guy be better off just going in to a beaten down producer or do you think they should be in the explorers?
Marin Katusa: Well, if we mention First Majestic, when they were less than a dollar when I wrote them up years ago. So Keith Neumeyer, they’re main guy and the Duca Jurango (?) (9:00) we became very close friends. He’s a great guy and I met his brother on that site and we all became good friends. At that time, he had less than a dollar stock. Than by 2011 it went to $30 and we brought them in to the ten bagger club at Casey Research. And it’s interesting, at that time when we wrote them up everyone wondered, “oh my god, how are they going to do this?” When you talk about a great management team, both financially and geologically, they went after solid assets. But at the time, when I was on this site tour we went in to these mines, and we looked at them, and because they were chasing these veins underground it was very difficult to build up a resource at that time. Everyone said, “oh my god, they’re going to be a high cost producer.” Then they got the price of silver behind them, they went from a dollar to thirty dollars within three years. That’s the type of returns you can get in this market. Now, looking back at it, it was so obvious. There’s a book that just came out over the holidays called “The Frackers.” And its a great story, and yet if you go to page 384, a company that Casey Research was the first to recommend is in the book about these major successes. But at the time, when you’re in the valley of darkness, the right trade is the lonely trade, it’s not an easy trade to do. Like the first Majestic recommendation that we did at Casey. So what I’m trying to get at is, you have to ask yourself, “ok, what is my risk tolerance, what is my time frame?” And I think First Majestic is a great company to invest, back then and today. You’re going to have bigger leverage going with the right exploration company, because First Majestic is not going to go from $10 to $300, where as a company like BRI, in my opinion, in 3-5 years it will go from 50 cents to $5.
FutureMoneyTrends: Ok, that’s a great example. And as far as the safety, the biggest concern from people is, are you expecting these things to go down even more? Or is this kind of like the bottom for the quality juniors?
Marin Katusa: I do expect that this is a very volatile market, and I don’t know if it’s going to go down before it goes up or if its going to go up and then down and then up again. What we did was, I’ll use the BRI example here, we bought it at $1.50, we bought it at $1, we bought it at 50 cents, but I bought a lot more when it came down to this most recent financing because the story is much better than it was a year ago. Now, the price, as Warren Buffet clearly says many many times, is just a reflection of what the market believes is today’s price. But you look at what I went through with Copper Mountain. Copper Mountain when we took it IPO in the first day it went from $1.45 to over $2.25. Got it up to $2.85 and then we had the big crash in late ’08 and it went to just over 30 cents. I bought the stock in the open market at one of the lowest; the lowest price it ever traded was 33 cents in the open market. I bought that stock. Now I’m a director and one of the founding directors of the company. At that point, everyone thought, “oh, the company’s going to go under. The price of copper’s down, the markets are over.” Within three years I went on national television and said, “If you want to learn how to make ten times your money, you have to buy companies that nobody cares about today.” And Copper Mountain was a perfect example. And it went from 33 cents to over $8 in under three years and today is Canada’s third largest-producing copper mine. We have over 400 guys on site, producing copper 24 hours a day, seven days a week. So what I’m trying to get at is, is that when you’re in the valley of darkness it could go lower, but that’s why you don’t put all your money in to the stock today. You find the company you really like and buy in tranches. That’s what we do, and if it goes lower, and if the story hasn’t changed, but in fact got better, we’ll actually increase our position and average down.
FutureMoneyTrends: Marin, as far as the 2014 economy, you know you travel all over the world, what’s your overall outlook for 2014? You think the U.S. is going to kind of continue to have this kind of sluggish growth here? Where people aren’t getting jobs, but the economy is moving along, and the stock market is making new highs?
Marin Katusa: You know, I’m not smart enough to know where it will go. But what I think, I listen to guys like Bud Conrad and Doug Casey, who are very excellent at specifically this type of question. And what I think and how I positioned our portfolio is to prepare for exactly what you just said. But if there are any surprises on the upside, then make sure you cover yourself in the different situations. But if you were to put a gun at my head and say “what do you think is going to happen?” it’s exactly the situation you just painted out.
FutureMoneyTrends: Marin, thank you so much for your time. I hope to have you on the show in a few weeks to talk about energy.
Marin Katusa: My pleasure Dan, thanks a lot and all the best for 2014.