International Speculatord1w116sruyx1mf.cloudfront.net/ee-assets/channels/sr_pdf/1602IS... · 2 IThfffiflThffiffˇThffi Sfi ˘ffiffˇfl ANUAL Welcome to International Speculator, Louis

InternationalSpeculator

Owner’s Manual

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OWNER’S MANUALInternational Speculator

Welcome to International Speculator.

My name is Dave Forest.

Welcome to what I believe will be one of the biggest investment opportunities we’ve seen in the current millennium: a major up-cycle in commodities.

I believe commodities as a group are about to enjoy a historic resurgence. The kind that has happened regularly and reliably throughout history, and which has made fortunes for early investors.

I know because I’ve been on the front lines of previous commodities up-cycles, and seen firsthand the kind of immense wealth they can create. For example, in 2005 I went to Russia to look at a little-known oil company called Valkyries Petroleum—which shot up 186% over the next year, after I advised buying the stock. More recently, I’ve profited from commodities minibooms in mining stocks like Ivanhoe Mines, which jumped 50% in less than five weeks when I recommended it in 2013—and then had an even bigger 454% surge in 2016, when I re-upped my position after a fall in metals stocks.

During my 20 years as a geologist, I’ve hit up the far corners of the planet—including visits to the only Buddhist republic inside Russia, insurgent rebel group strongholds in Colombia, and crocodile-infested rivers on the remotest islands in Indonesia…

…all that in the name of exploration…

…the exploration of people, places, and cultures…

…and more directly, the exploration of minerals. I’ve scoured the world for gold, copper, nickel, cobalt, tin, tungsten, emeralds, oil, and a host of other precious commodities.

When I first joined Casey Research back in 2003, Doug Casey remarked to me how mineral exploration is like a “global Easter egg hunt.” It’s an apt comparison, and accurately captures the excitement and intrigue rife throughout the industry.

Then, recently, Doug called me up again. He asked if I would rejoin him—to hunt down the world’s best investments for what he believes is a coming resource supercycle that could dwarf past bull markets. It’s a supercycle driven by the explosion of new currency created globally since the last commodities cycle peaked in 2008—and the hyper-inflationary forces this tidal wave of cash could unleash.

Doug’s sentiments jived exactly with my own sense of where we’re at in commodities. In my global travels, I’d seen growing evidence that a massive new push for natural resources is beginning—demonstrated by megatrends like China’s $80 trillion Belt and Road Initiative, which I observed firsthand in places like Luang Prabang, Laos and the Altai Mountains of Mongolia.

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In short, I agree with him—the coming commodities boom could be the biggest one we’ve ever seen.

And this owner’s manual is your first step toward taking full advantage of what’s coming…

MARKET CYCLES ARE OUR BEST FRIENDS“How predictable!”

These words are usually said in exasperation or disgust. Whether it’s bureaucratic stupidity or in-laws in bad moods, predictable = bad. “He’s so predictable!” is an insult.

But for investors, predictability is the Holy Grail.

Whether it’s the price of coffee, a new Apple product, or the next decision by the Fed, if you know what’s coming, you can make a fortune.

The future cannot be known, of course, but some markets are highly cyclical. That makes them very predictable.

It’s like the annual flooding of the Nile. This highly predictable event refreshed the soil, the basis of ancient Egypt’s wealth. The ability of the elite to predict this made them god-like kings of phenomenal wealth and power.

For better or worse, the Nile in Egypt was dammed in 1970 and it no longer floods. Fortunately for us, resource commodity markets are perhaps the most cyclical markets in the world. No force in the world has been able to stop their floods. This is the key fact used by legendary speculators like Doug Casey to make literally millions of dollars each cycle.

It’s vital to understand this…

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COMMODITY CYCLES = STOCK MARKET TIME MACHINEImagine what it would be like if you could travel back in time and buy Apple shares when the stock was trading for a dollar. Or if you could travel back to sell Enron, before that scandal broke. Or identify Bernie Madoff ’s Ponzi scheme.

When you can predict a market, it’s almost as though you owned a time machine.

That’s where the key fact mentioned above comes in: resource markets have a well-established, highly predictable pattern of extreme ups and downs.

Periods of low prices cause mines and other sources of the essential raw materials the world depends on to shut down. Exploration virtually stops. And the resources that stay in production are depleted. This causes shortages, which causes prices to go back up.

Because new mines, oil fields, and such have to be discovered, it takes time for supply to catch up with demand, even with the incentive of higher prices. That makes prices surge dramatically, often hitting new records. Those record prices cause overinvestment and eventually oversupply. And that (you guessed it) causes prices to crash. Then the whole cycle starts over again.

Not all markets that rise and fall are cyclical. Once the market for pet rocks crashed in the 1970s, it never came back. But if the price of something absolutely essential, like oil or iron, crashes, you know it must come back. It’s either that or we all go back to the Stone Age. Literally.

And there’s nothing in the world like knowing what must happen, when you’re an investor.

Take copper, for example. Back at the turn of the millennium, copper was selling for about 70 cents per pound. That was below the cost of production for most mines. But the world wasn’t done with copper. Can you imagine? No copper basically means no electricity. Something had to give, and so it did. Copper shot up to $4 per pound by 2008. It corrected along with everything else that year, then rebounded to more than $4.50 by 2011.

But here’s another key point successful speculators understand: Resource company stocks offer leverage to their underlying commodities.

So, when copper was up 5.7 times in 2008, shares of major copper miner Freeport McMoRan soared from $3.98 to $58.60. That’s a 1372% gain. And while copper rose about 2.5 times from 2008 to 2011, the Freeport shares shot up four times, from $11.99 to $60.

Fortunately for you, our predictable markets are cycling again. There are opportunities for you now like the ones we had back in 2008, or even all the way back to the very bottom in 2001.

Best of all, speculation is a profession open to all. No formal education, credentials, or licenses are required. Doug and I can show you how it’s done. All training is on the job, “earn while you learn.” It’s a great opportunity, but unfortunately one that carries a stigma.

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THE SPECULATOR AS HEROHere at Casey Research, we’re known for taking on unpopular topics: financial crashes, depression, hyperinflation, the alternative economy, and even hoarding. These are all buzz words that arouse vivid images and strong emotions. Perhaps the most powerful word of all, however, is “speculator.” It sounds so irresponsible. Opportunistic. Dangerous.

Politicians and pundits throw the word “speculator” about so abusively. But few have ever asked what one really is. Most people think a speculator is someone associated with shortages, price hikes, wars, natural disasters, and other calamities. To a degree, it’s true. These things create needs that speculators can meet. It’s also true, however, that a speculator is simply someone who sees or anticipates distortions in the marketplace and takes position to take profit from them. This is possible because a good speculator understands their causes (almost always some form of government action) and effects.

Speculation will be the foundation of dynasties in the turbulent years ahead. The original Baron Rothschild knew how to profit from the politically created chaos of the French Revolution. He became rich and famous by following his own advice to “buy when blood is running in the streets.”

That doesn’t mean speculators are predatory. Actually, they’re humanitarians. When people are desperate to sell their possessions, they appear with cash—the very thing people need most.

When people change their minds and clamor to buy during good times, speculators once again graciously accede to the desires of the majority. Like other workers, speculators try to give their employers what they want. Value is subjective. The price at which something voluntarily trades hands is exactly what it’s worth at the time. Speculators simply give value for value. If they weren’t there to buy and sell, perhaps no one would be, and others would have no alternative but complete disaster.

Somehow, speculators have acquired an image of crass gamblers. It’s a totally inaccurate image, at least for successful speculators. The best speculations are always low-risk. Far from taking risks, speculators search for “sure things.” They tend to be rational and unemotional. The irrational and emotional who take chances don’t last long.

A simple but useful way to think of the speculator vs. an investor is this:

Investors risk 100% of their money in the hopes of receiving a 10% gain while speculators risk 10% in anticipation of earning 100%.

If you are attentive, the longer-term risk/reward profile for the speculator is in an entirely different league than that of the “conservative” investor.

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These days, the masses are frantically looking for safe harbors against the gathering storm. Speculators are accumulating positions in real things people will need and want in the years ahead. That means commodities in general and precious metals in particular. The average investor views commodities skeptically. To them, resource speculators, especially “gold bugs,” are somehow goofy. As you’ll read below, that makes this an ideal time to load up.

INVESTING FOR INCOME IS THE KISS OF FINANCIAL DEATHWhy haven’t any of the great millionaires of the past taken advantage of the simple gimmick of compound interest to eventually take over the world? (If the Indians had invested their $26 for the sale of Manhattan for a 5% compounded return, today their money would be worth $4,545,803,787.) It’s not because they haven’t tried. It’s because no investment will give you a true 5% for a lifetime. Actually, there’s probably nothing you can rely on to yield even 3% over more than 40 or 50 years.

You might ask, “What difference does that make? I’m not going to be here that long.” But it does make a difference. It shows the futility of trying to stay ahead in any type of “secure” investment. That’s not to say we’re opposed to income. We love high yields when they’re available. But that’s mainly because they’re an indication that something is truly cheap and an excellent speculation for multiples on our money.

In the post-financial crisis world, everything is a speculation, whether people know it or not. Those who settle for a low but “secure” return are penny-wise and pound-foolish in the most profound sense.

When you settle for a “conservative” return, even the slightest miscalculation, bad luck, or government fiat can wipe you out. Taxes will always eat away your capital, directly or indirectly. Inflation is sure to get worse and fluctuate wildly as it does. Banks and insurance companies (the very institutions that have gotten away with offering low yields because they were seen as stable) will fail in greater numbers.

The government itself will eventually be replaced. Its currency will become worthless. And there’s no way to truly protect against the risks of war, theft, fraud, and natural disaster. Investing for income, especially in today’s climate, when cracks can be seen in the foundations of society itself, is the height of stupidity.

If you invest for income, you’re handing over responsibility for your future to others. You don’t know what they’re doing with your money. You can’t know how intelligently they’re going to conduct themselves. You never really know how sound their capital position is. That’s a bad enough set of fundamentals for a madcap gamble. But in return for a simple yield, it’s absurd.

What, then, can you do? The answer is to lay a solid financial foundation. Then gather up your cash and your courage to learn the art of speculation.

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Below you’ll find some general rules for successful speculation. You must decide for yourself how they match up with the opportunities in gold and other resource stocks today.

THE PRACTICE OF SPECULATIONResource markets are famously cyclical. Commodities in general tend to move together, often going too far in either direction. Low prices result in less production. This constrains supply, which raises prices. Higher prices result in greater production. This creates a supply surplus that pushes prices down.

These cycles are so strong, they can create spectacular “buy low, sell high” opportunities.

But when do we get on the rollercoaster?

There’s no certain way to gauge the perfect time to enter a market. There are, however, rules that have worked in the past. That’s because they’re based on human nature, and that hasn’t changed much over thousands of years.

Here are five signals for entering a market. You may never find all five at once, but the more there are, the more the odds are in your favor.

These five rules apply whether you’re buying or selling, with obvious adjustments. Here, we’ve skewed them toward the buyer, since the trend in the years ahead is for higher prices in resource stocks.

1. A Climactic Bottom

People tend to get carried away with greed after an investment has treated them well. People act with fear when the market’s been bad. It’s the same herd instinct that causes a crowd to gather when someone stares up in the sky, or causes a stampede if someone yells “Fire!” Markets tend to overrun themselves at both major tops and bottoms. Price moves typically become radical and unpredictable at the point where a market is searching for either a top or bottom after a panic. Keeping your head at such times is much easier said than done. But if you can, those conditions signal the ideal time to buy or sell.

“Blood in the streets” selling isn’t the only time to buy. Manic blow-offs aren’t the only time to sell. But they’re certainly the best times. The year 2000 was a classic speculative opportunity in the better resource stocks…even gold company executives didn’t want to know about gold. 2008 was a more frenzied bottom. 2015 was a combination of the worst aspects of both: depressed and prone to panic.

Just remember that climactic bottoms are often followed by a period of exhaustion. That can give you a chance to evaluate the market coolly.

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2. Period of Accumulation

During the post-bottom exhaustion, prices are low. A lot of money has either been wiped out or has left the market. Like an athlete after defeat, the marketplace takes a while to recuperate.

It takes a sharp (and lucky) trader to catch a market turning on a dime and heading the other way. It’s more prudent to let it plateau and stabilize before buying. The plateau is characterized by low trading volume, as mainstream investors look elsewhere.

3. Relatively Low Volume

Low volume, with few buyers or sellers, means few people are really interested in what’s going on. Good speculators look where nobody else does. Some call this “bottom fishing.”

Conversely, when there’s a high volume of trading, it’s a sign that a lot of people are paying close attention. That can lead to radical swings for purely psychological reasons. Apart from that, who wants the competition? Successful speculators never allow themselves to be rushed or panicked. A low-volume market offers leisure to make up your mind. Today, most resource sector stocks still trade at a volume that’s just a fraction of their mainstream counterparts.

4. Historically Low Prices

Nothing is eternal in the markets. What seems like a “high” price one year may turn out to be a “low” price the next. It’s all relative. The speculators who get the bargains are the patient ones.

The bottom of a bear market comes about cyclically, with years or even decades between peaks. Smart buyers sit tight until the odds are loaded in their favor. Only amateurs, pathological losers, and bank trust departments are in a market all the time.

Commodities can be considered “cheap” when they are selling for less than production costs and close to historical lows in real terms (after inflation), while there’s a prospect of higher inflation. At this writing, copper is close and uranium is already there. Adjusted for inflation, gold has yet to match its 1980 high, and is selling at less than half that now.

And the world economic situation is much shakier than it was in 1980. The chances are excellent that gold will double or triple in the years to come. Does it bother us that gold is selling for over $1000? No. It makes increasingly less sense to keep track of prices in U.S. dollars, because the dollar has become a floating abstraction. An American who sees things only relative to dollars will be as foolish as an Argentine that keeps track only in pesos, or a Venezuelan that sees things only in bolívares. Gold was up last year in all major currencies except the U.S. dollar.

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There are exceptions, but most successful speculators play a waiting game. Blood isn’t in the streets every day. But there’s an excellent chance it will be…soon. That should take gold much higher and create fantastic buying opportunities in other commodities.

5. Pessimism in the Market

After a long bear market, a stock or commodity has established a “poor track record.” It’s perceived as a “bad investment” with no future. That’s what most mainstream investors thought of gold in 2001 after its long bear market. They used terms such as “archaic” to describe the stuff…as they do today. That makes times like this the best time to buy.

Buying when no one else is interested is hard on the nerves, but rewarding. If it were easy, everyone would be a professional speculator…and there’d be no profit in it. But don’t forget, as commodities and commodity stocks (especially gold stocks) take off toward the moon, there will come a time when everyone is saying to buy. That, of course, is when you should be heading for the exits. We will be.

Remember this is just a quick summary. It’s not easy to lay down hard and fast rules for successful speculation. There are plenty of others we could list here, but the important point is to adopt a bias towards speculation. Each issue of International Speculator will teach you more. Done right, the returns will surprise you on the upside in the months and years just ahead.

OUR SECRET TO PICKING RESOURCE STOCKSWhat’s the secret of finding winning gold, silver, and other natural resource stocks? We’ve been asked more times than we can count. The answer is simple: the Nine Ps.

The Eight Ps is a relatively simple question-and-answer process we use as part of our due diligence. Only a small fraction of companies successfully make it through the Nine Ps screening and into the pages of International Speculator.

With a little practice, you can use them to screen any resource stocks on your radar. At the very least, answering the questions will give you a much better understanding of the true potential of a company.

1. People

The first question to ask is “Who are the key players involved with the company?” As is the case with all human beings, some are more skilled, more honest, and harder working than others.

To state the obvious, Boy Scout virtues like honesty, thrift, courage, and diligence are always good traits for your management teams. As are competence, knowledge, experience and, perhaps most important, a track record of success.

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You can find this information from a variety of sources, starting with management biographies on company web sites. Then you can talk with the managers themselves or their investor relations staff. Use a service like Stockwatch.com to research the track record of the companies that the management has been involved with previously...and don’t hesitate to ask your broker or even competitors what they think about the people in the deal. Despite being a multibillion-dollar global business, the mining and resource industry is actually a pretty small village. If someone is a known snake oil salesman or poseur, chances are good you’ll be able to ferret out that fact with just a couple of phone calls.

In addition to trying to sort out the black hats, a key goal is to find out if investors have made money in their past deals. Or, if things didn’t work out too well—mining is a high-risk business, after all—did the company at least make an honest attempt to “do the right thing” for their shareholders? Remember, nothing succeeds like success.

It’s worth noting that the mining business has changed since the 80s and 90s. Everyone in the business is complaining that they can’t find qualified mining engineers and exploration geologists. It’s because so many have retired or are getting ready to. It is understandable: it would take a fairly odd engineering school graduate to opt in to what is perceived as a politically incorrect and faltering “choo-choo train” industry, rather than taking their degree down the street to a more lucrative and/or modern line of business. As someone who habitually looks for the opportunity embedded in just about any crisis, we use the labor shortage as a useful leading indicator by watching the career moves of the superstar mining pros.

The good ones are in such demand that they can work for pretty much any company they want to…and so, as is human nature, gravitate to those projects which they believe will provide them with the best personal upside. Conversely, if the good people start to jump ship from a company, it may be a negative indicator.

Bottom line—bet on the winners.

2. Property

As you approach the topic of “property,” keep in mind that between 95% and 99% of all the properties controlled by mining companies will never actually become mines. That’s because finding a mineral deposit with the potential to host an economic resource is time-consuming and expensive. And unlocking the economic value of the embedded minerals is even more so. The cost of building a mine and a mill starts at a minimum of $50 million these days, and can climb to a billion or more.

The good news is that you can make a fortune investing in companies that, for one reason or another, will never go into the production stage. It’s all a matter of timing and knowing when to sell.

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But regardless of whether or not a company ever develops a mine, the big money flows into companies with big mineral resources—and it is the big money flowing into a company that drives the price of your shares higher and provides you with the liquidity to exit with your profits intact.

That’s the reason why the bigger and more geologically credible the prospective deposit, the better. How can you tell an ore body (a deposit that can be economically mined) from moose pasture (a large piece of land, usually located in the middle of absolutely nowhere that is good for nothing better than moose grazing)?

First off, start by ignoring claims made by mining company executives that don’t come from, at the minimum, drill results (This advice applies in spades if the claims are not in writing for all the world to see).

A favorite stunt used by some mining executives is to tell you they have identified a major potential resource, using grab, chip, or trench samples. In plain English, those terms mean that geologists working for the company: (a) literally grab some rock from the surface of the property; (b) chip some rock from an outcropping; or (c) cut a trench across some interesting rock on the property… and then send the more prospective samples to a laboratory for assaying.

As geologists are not paid to send in uninteresting rocks (otherwise known as “dirt”) to the lab, you can rest assured that grab, chip, and trench samples reflect the best possible rock the geologist can find.

Don’t get us wrong. Finding highly mineralized rock on the surface of a property is a good thing. But it’s no reliable predictor that an ore body rests beneath. Likewise, don’t accept gross value calculations that come from simply multiplying, say, the price of gold by the inferred number of ounces of gold in a deposit. Such a simplistic approach to valuation completely ignores the costs associated with getting the minerals to market. These costs can be affected by engineering problems, physical position of the ore body, metallurgy, commodity prices, stripping ratios, cost of transporting ore (if required), the cost of building the mine and any processing facilities, the cost of financing, and so much more.

What to do? We may, on occasion, buy stocks that have only the earliest-stage indication of a mineral deposit—if we like the management/exploration team and know that they are fishing in the right pond. A company with respected management, a prospective property, and the money to embark on a good-sized drill program can make for a very good speculation.

Typically, however, we focus on companies that have tested their geological theories with a drill program and come up with logical results. And we will usually get a second opinion from a consulting geologist who will verify the company’s interpretation of the data.

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Next, if the story looks sufficiently interesting, myself or my research team will often visit the property—even if it’s located in Outer Mongolia or some fly-infested corner of Africa. It is one thing to read about the geological characteristics of a property. It’s another thing altogether to examine the rock yourself, and look the geologist in the eye and ask him to describe his theory about the deposit. Geologists are usually not very convincing storytellers.

So, when it comes to property, make sure that you’re investing in companies that are chasing elephant-sized deposits…that don’t insult your intelligence by pretending that early sampling or gross value calculations represent anything other than wildly speculative assumptions...and for companies with significant drill results, whose geological theory makes sense.

At the end of the day, before any decision is made on building a mine, the company will commission a bankable feasibility study—an exhaustive document that can cost millions of dollars to prepare. Only once that document is completed and confirms that an economic ore body exists can you assume that a mine may actually be built...and even then any number of factors (financing, metal prices, other company priorities, etc.) can stand in the way of it becoming a reality.

Put another way, never forget that you are not investing in this sector for the joy of seeing a mine built, but for the spectacular returns that can be made along the way to finding out whether or not a mine could be built.

Finally, look for companies with more than one prospective large property. That way, if there is bad news (e.g., poor drill results on one property), you have some downside protection from the company’s other properties.

3. Phinancing

When we look at financing, we’re essentially trying to match up the company’s next-phase objectives with its ability to finance the cost of attaining those objectives.

In other words, when we consider buying a junior explorer based upon prospective early drill results, the timing of our purchase may be predicated on the company’s ability to finance a more extensive drill program. That way it can better define the size of the target mineralization. In this case, you have to ask, “Where’s the money for the drill program going to come from? Do they have it in the bank? Are they going to do another financing and, if so, what will the dilution factor be if we buy our shares today?”

Or, are they going to keep their own corporate treasury intact and instead look for financing from a deep-pocketed senior mining company? If so, how much of the company or the rights to future development on the property will they have to give up?

Armed with the information of who is writing the checks, you then have to ask yourself, “How likely is the company to get the money they need?”

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For this, we again have to take management into account. Money follows success. An executive team’s past success determines its ability to raise money in the future. Finding financing at a reasonable price will also depend on the quality of the property, the stage the company is in, the current share structure, and so on.

This is probably as good a time as any to share with you an important concept regarding investing in this sector: the size of your returns will largely be a function of timing your investment before certain “ifs” are answered…and then having the answers be good ones.

For instance, you can pick up a quick double by investing in a company after initial mineralization has been identified by some of the rudimentary, early-stage exploration sampling mentioned earlier—if the mineralization is later confirmed at depth through a credible drill program.

If a comprehensive drill program confirms your initial results and demonstrates that your property contains a significant deposit, it’s back to the bank. If the company is then able to attract a deep-pocketed partner to fund additional drilling or even a bankable feasibility study, your stock lights up again.

If the bankable feasibility study confirms that the property can be economically mined, it’s happy times once more..

We are skipping over a lot of other events that can trigger an overnight double or triple in your shares...including the vending-in of an attractive new property…pulling a “glory hole”...having a well-known mining pro join the management group…the company hiring a competent public relations firm...even being written up by a renowned stock analyst. Any of those, and more, can do the trick.

The opportunity to hit numerous home runs throughout the rapidly evolving life of a resource company is a major differentiator between resource shares and garden-variety investments where stock gains are based on long-range business plans and new product development—it’s like Mattel actually drilling for the next Barbie doll.

The bottom line is that you need to clearly understand where the money to move a project forward is going to come from—and at what cost to you as a shareholder. Running out of money and being unable to find more fast is like a giant “TILT” on a stock.

4. Paper

Paper and financing go hand in hand, since capital is almost always raised in the form of new shares being issued. As a result, analyzing the structure of the company is as important as the geology of a company’s property holdings. That’s because some companies will dilute existing shareholders too quickly by raising money from sweetheart financings through private placements, often with full warrants. While we think these are wonderful for those who qualify, there is a right way and a wrong way for a company to do financing.

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To that end, we probably spend more time looking at the financial structure of a company than any other aspect during our initial review. How many shares are outstanding? Who owns the shares? What percentage does management own? (We like to see management have a clear incentive for success.) Are any “restricted” shares about to come free trading and, if so, when and in what quantity? The last question can be very important from a timing perspective. Take a position in a stock just before a large number of cheap shares from a private placement come free, and you could be trying to catch a falling safe. But, if you wait a bit, then put in a cheap bid, you can buy smart.

It’s always worth understanding who’s got the paper, at what price, and when the company may issue more. And don’t forget to go through the simple process of multiplying the number of shares outstanding, fully diluted, by the current share price to come up with the market capitalization—always a useful indication of value. In overheated markets, it is not unusual to see companies with little more than early-stage drill results on land located somewhere north of Timbuktu boasting a market cap in the hundreds of millions.

Sure, they might get lucky, but are you really willing to bet your money on it?

5. Promotion

There an old business saying that’s true for mining: “You can have the greatest product in the world, but still go broke if no one knows about it.”

In more instances than we can remember, we’ve come across a well-run company turning up strong results on a geologically attractive property in a mining-friendly country...and the shares of the company are selling for pennies.

In these cases, the missing element is “Promotion”—the fine art of being able to communicate your story to the broad community of investors and analysts. We have a soft spot for these companies, which are typically run by mining engineers and geologists—scientifically minded individuals who sincerely believe that if they do their work well, the market will eventually discover them. While that occasionally happens—and finding an under-promoted company can offer us a terrific opportunity—more often than not these companies run out of cash and are unable to raise additional financings…at least at a cost that is not usurious to shareholders.

There are, of course, important nuances. If you can find an under-covered company with real merit that has just hired an investor relations staff or engaged a firm that specializes in corporate public relations, you can quickly make a nice return as the company gets the recognition it deserves.

Regardless, a company with an active investor/media awareness program will generate trading volume. This will drive your shares up and, again, give you the opportunity to get your profits off the table when you decide to sell. Therefore, before you invest you should ask company executives about their specific plans to get the company noticed.

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So, promotion can be a good thing. It can, however, also be a bad thing when a company is built solely around promotion. It is that kind of company that proves true the old Mark Twain quip that a gold mine is “a hole in the ground with a liar standing over it.”

If you do your homework, however, it won’t be long before you’ll be able to tell the real cowboys from the ones that are all hat and no cattle.

6. Politics

You may wonder what politics have to do with mining, but that would demonstrate a dangerous naïveté…because politics touch virtually every aspect of life, in literally every country in the world.

Politics can make or break a promising junior stock. Remember, many gold deposits found today are located in fly-infested Third World countries and backwater banana republics. That’s why it is so important to research the political climate in a country where your company wants to mine. Is the government stable? Are there rebel groups or kidnap gangs operating around your mine site? Is the country prone to nationalizing foreign interests at the first sign of financial trouble? These are all good questions to ask company executives.

Perhaps the biggest threat to mine development these days, however, is ecopolitics. Try to build a mine in the remotest corner of some far off desert in the U.S. and be prepared to have your application blocked by the Committee of Friends of the Box Turtle. And it is not just the U.S. but a wide range of countries where the permitting process can take many, many years.

For that reason, you will often see mining projects being promoted in areas such as Mongolia or Eritrea—countries so desperate for money that they tend to be more tolerant of mines. (In case you are wondering, almost all new mining projects now factor in the cost of reclaiming the land once the mineral deposit has been mined out.)

This is another important reason why we personally visit mines. It gives us an up-close opportunity to assess the mood of the locals and the greed level of politicians. Politics count.

7. Push

Push answers the question, “What’s going to move this stock?”

Often, impending or foreseeable drill results are the push that’s going to bring us the returns we seek. That’s because we usually see the fastest, most dramatic increases in share price when a small company makes a big discovery. None of the years of preparation, surface work, geophysics, etc. count for anything unless drill results show an economic deposit.

But push can be anything: a successful transition to production, a major increase in the price of the underlying commodity, positive metallurgy or engineering reports, positive feasibility studies, a green light given to construction, a merger, or an acquisition, realization of a royalty, the resolution of legal, political, or regulatory difficulties...even a big promotional push can be the push we’re looking for.

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Generally, push is any important development that either adds value to the company or removes a negative.

And if we can see the push coming, or see favorable odds of it happening, we have a basis for speculation on rapid returns in our desired timeframe (12 months).

For every company we evaluate, we ask “What’s the push?” If we can’t see the push, we turn our attention elsewhere. Why park cash, even in a great company, if it has no push?

8. Price

A deposit may be worthless if the market price of the embedded minerals is “X,” but may be worth millions if the embedded mineralization goes to “2X.” At “3X,” the project may be worth hundreds of millions.

Price is one of the more difficult aspects of analyzing resource companies. As the price of the underlying commodity rises, you have to re-review your assessments on companies and properties.

It is essential to use rational price expectations when calculating the potential for your investment. Ultimately, gold might go as high as $3,000 or even $5,000 an ounce. But if achieving those high levels will be required in order for your company to do well, you’re taking an unhealthy level of risk. So, ask yourself, “What will this company be worth at $500 per ounce? Will it be able to justify its current market cap?” If the answers are positive, you may be on to something.

9. Pitfalls

Natural resource investment is laden with risk. From Mother Nature to Uncle Sam, there are forces working against every mining company’s success. These forces work against geologists, engineers, and shareholders alike. The geos may misunderstand how economically viable a project is. Investors may overlook red flags. To prevent losses, it’s prudent to be aware of the most critical risks of any given project, without getting discouraged by the many risks all projects face.

When we make a recommendation, we list the risks you need to know about. We want you to understand the opportunity to be able to tell when a setback is likely fatal, or just an ordinary bump on the road to success. Misunderstanding pitfalls can push you to sell all too early, at a loss, or both.

To prevent this, we’ve added this bonus P to our analyses. Pitfalls include what can go wrong, when, and what it could mean for our shares.

Be clear on one thing: these pitfalls are not red flags. Not yet. These are challenges we need to keep in mind before they happen.

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NUTS AND BOLTSClimactic bottoms—the ideal time to “load up” on quality stocks in a sector—are characterized by high volatility and low trading volumes. That’s all the more so in the type of junior resource stocks we focus on in International Speculator. Doug Casey has famously called these stocks “the most volatile on earth”…and he isn’t exaggerating. Why bother with them at all? Because that’s how we gain the greatest leverage as speculators.

To successfully navigate the challenges of trading during periods of low volume, specific approaches and strategies are required.

Risk Management

• A basket approach works best. No matter how compelling any particular story is, all speculation, even the most well-researched, entails risk. Even when you’ve picked the best company with the best prospects, life can throw you a curve-ball. An endangered species could be discovered living right on top of the deposit you were betting on. A sudden change in political fortunes can put the brakes on all resource extraction in a given jurisdiction. There could be a forest fire. A war. And so forth. You can’t fall in love with any one story, no matter how great, and how much you’ve come to respect management, etc. You need a basket of speculations to mitigate such “lightning strike” type risks.

How many? A good “starter basket” would contain about a half a dozen stocks. That’s enough to spread the risk around. There’s wiggle room in case several take longer to deliver than expected. If one doubles or goes up even more, the rest can do nothing. One can even implode, go to zero, and you’ll still come out ahead.

Why not buy every stock we recommend? As per the “look before you leap” principle, you have to research your picks and come to know them well. Understanding them will help you know right away if news is good, bad, important, or indifferent. And it will give you the courage to hold on through the ups and downs. Most people can’t keep up with too many stories. We do nothing but pay attention to these stocks all day, every day. We have a team devoted to the task. You need to determine your own limit; it should not exceed your capacity to fully understand your speculation in each position.

• Don’t put all your eggs in one basket. Don’t speculate in just one asset class. If all our speculation is in gold stocks, we run the risk of the market not going our way, despite the best research and logic suggesting that it should. That’s why, even though gold is our favorite speculation today, our newsletter isn’t called International Gold Speculator. We’ve made money in other metals, other commodities, other areas. For example, we’re also looking for the best opportunities in energy, agriculture, liquefied natural gas, and the highest-potential commodities sectors. We’re also looking at the “new commodities”...companies to profit from the booming marijuana and blockchain spaces. Don’t be a “gold bug.” Be a rational gold saver and gold stock speculator…and broaden your horizons.

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• Go big or go home. We’re all big boys and girls here; we understand that we are speculating, and can lose money when a spec doesn’t work. That’s no fun. But it’s even worse to make a winning speculation and fail to benefit. Imagine making the perfect pick, buying a junior explorer just before it makes a major discovery and goes vertical…but only having a token $100 on the play. Even if the stock shot up 1000%, a real 10-bagger, you’d only have $1,000 to show for your insight and courage. Imagine it went on to become a legendary 100-bagger; you’d have a nice $10K, but that wouldn’t even cover a year of college tuition these days. Truly agonizing.

We don’t recommend the “spray and pray” approach of spreading your speculative capital thinly over as many positions as possible. Decide on the type of speculations you want to make. Study your options. And when you’ve narrowed the field to a manageable basket, put a significant amount of money into each position.

Here are tips for managing individual stock positions:

• Do NOT chase stocks. Remember, successful speculators are disciplined. That means they are patient. They determine prices they’re willing to pay, act when these prices are available, and wait when they’re not. Yes, it’s possible that a stock you really want will “get away.” But in reality, that’s extremely rare. The one constant in resource speculation is volatility. Unless a company releases game-changing news, odds are that any stock that spikes upward will pull back from that spike. It’s better to play those odds and wait for the market to come to you. The stocks you pick up at bargain prices will make up for the few that get away.

We offer very specific price guidance in our company recommendations. We’ll tell you a specific price we’d like to buy the stock for. We also spell out the most we’d pay with our “buy up to” prices.

• Casey Free Ride. Our standing recommendation is to sell half of any speculation when it doubles. This way, you recover your original investment, and your remaining position in the trade is “risk-free.” We call this a “Casey Free Ride.” Yes, this reduces your upside potential if the stock continues to deliver. But it also completely eliminates risk. Remember, even the best stocks in the resource sector can be derailed by sudden, unpredictable changes. Casey Free Rides will help you sleep better.

Buying Canadian Stocks

Roughly 10,000 stocks trade in the U.S. markets, while about 3,600 trade in Canada. And yet most of the stocks recommended in International Speculator are listed in Canada. Why? Because Canada is the world’s largest exporter of minerals. The Toronto Stock Exchange (TSX) and Toronto Venture Exchange (TSXV) are the “Meccas” of the resource sector.

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About 60% of all public mining companies in the world are listed on the Toronto Stock Exchanges. Roughly half of the stocks on the two Canadian exchanges—almost 1,500—are mining stocks. Another 10% are oil and gas companies. It’s estimated that half of all Canadian citizens own at least one mining stock. Toronto is for resources what Hollywood is for movies.

To buy most of the stocks that we recommend, you must work with a broker that deals in Canadian stocks. See our list of recommended brokers for help on this.

Note: the Toronto Stock Exchange is the “senior” exchange. Stocks on the Toronto exchange have a “TO” in the symbol, such as Osisko Gold Royalties: OR.TO. These are typically larger, more established resource companies.

The Venture exchange is the “junior” exchange. Most micro-cap and start-up companies begin on this exchange. Stocks that trade on the Venture have a “V” in the ticker, like Kaminak Gold Corporation: KAM.V.

As companies on the Venture exchange grow, they move up to the Toronto exchange. We recommend stocks that trade on both exchanges.

A Few Things to Be Aware Of...

Caution #1: Avoid the U.S. pink sheets, Over the Counter Bulletin Board (OTCBB), or any 5-letter symbol stock if possible.

“Pink sheet” stocks use a five-letter symbol ending in “F,” signifying it as a foreign stock (it may also have the suffix “.PK”). These “stocks” are not required to list with the Securities and Exchange Commission, and don’t have to submit quarterly reports. Pink sheets are the darlings of stock scam artists.

Some companies have both Canadian shares and pink sheet shares. Although they’re shares in the same company, they can have drastically different prices. We’ll always remind you of the correct ticker, so you don’t buy a pink sheet by mistake.

The same goes for its cousin, Over the Counter Bulletin Board (OTCBB) stocks. You can know these companies by the “.OB” in their ticker. In general, it’s best to avoid them.

From time to time, you will see .PK and .OB stocks listed in our portfolios. They’re only for readers who can’t buy the “real thing,” meaning stocks trading on the Toronto or Vancouver exchange. We’ll never recommend a .PK or .OB stock that does not also trade on the Toronto or Venture exchange.

Caution #2: Currency fluctuations can help or hurt your returns.

When you buy a stock on a foreign exchange, your dollars are converted to the money of that country just before the purchase.

https://www.caseyresearch.com/brokers-new

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Here’s a quick example. Let’s say you’re a U.S. investor, and you buy Osisko Royalties (OR.TO). Your broker will convert your U.S. dollars to Canadian dollars just before purchasing the stock for you, because the stock is priced in Canadian dollars.

If the U.S. dollar rises 5% against the Canadian dollar, you will lose 5% to currency fluctuations. If the U.S. dollar falls 5% against the Canadian dollar, you will gain 5%.

Anyone who owns foreign stocks must accept this currency risk. And it’s smart to own foreign stocks. Every comprehensive study on sound portfolio management recommends an allocation of between 20% and 40% in foreign securities.

We think the Canadian dollar will get stronger vs. the U.S. dollar over time. So currency fluctuations are more likely to help us than to hurt us.

Caution #3: Expect higher commissions.

Commissions and fees have come down dramatically in the last few years. However, you will still pay more to purchase foreign stocks than stocks in your own country. Commissions and fees are simply the cost of doing business with a foreign exchange.

Commissions vary by broker. Full-service brokers charge higher commissions than online brokers. You should never pay more than 3% to a full-service broker. And you should try to pay no more than 1% to an online broker.

We explain the pros and cons of different brokers—and recommend our favorite brokers—here.

Caution #4: Beware of the taxman.

In some cases, buying Canadian stocks can have different tax implications than buying U.S. stocks. We suggest discussing this with your accountant or advisor.

The IRS classifies certain foreign stocks as Passive Foreign Investment Companies, or “PFICs.” Buying a stock classified as a PFIC can trigger extra paperwork and consequences at tax time. Be sure to ask your accountant whether foreign companies you’re interested in buying might be considered PFICs.

CLOSING THOUGHTSAt Casey Research, we believe in making the trend your friend. You make the big money by investing ahead of the masses. That’s why we often look for investments in sectors that the public isn’t interested in. If we do our job well, we buy cheap and wait for the crowd to rush in and push up prices. Then we sell.

https://www.caseyresearch.com/brokers-new

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The devil is in the details, of course. And that’s exactly what International Speculator is dedicated to helping you sort out. Each issue is designed to inform you, educate you, and advise you. We offer price-specific guidance when it comes to both buying and selling.

It takes courage and discipline, but for those with both, the rewards can be life-changing.

Customer Care: Toll-Free: (888) 512-2739, International: (602) 445-2736, Mon–Fri, 9am–7pm ET. Email: [email protected]. www.caseyresearch.com.

© 2018 Casey Research, 55 NE 5th Avenue Suite 100, Delray Beach, FL 33483, USA. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from the publisher.

Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. It is not designed to meet your personal situation—we are not financial advisors nor do we give personalized advice. The opinions expressed herein are those of the publisher and are subject to change without notice. It may become outdated and there is no obligation to update any such information.

Recommendations in Casey Research publications should be made only after consulting with your advisor and only after reviewing the prospectus or financial statements of the company in question. You shouldn’t make any decision based solely on what you read here.

Casey Research writers and publications do not take compensation in any form for covering those securities or commodities.

Casey Research expressly forbids its writers from owning or having an interest in any security that they recommend to their readers. Furthermore, all other employees and agents of Casey Research and its affiliate companies must wait 24 hours before following an initial recommendation published on the Internet, or 72 hours after a printed publication is mailed.

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